HL Deb 21 March 2000 vol 611 cc249-64

9 p.m.

House again in Committee.

Clause 110 [The Code]:

[Amendment No. 215 not moved.]

Clause 110 agreed to.

Clauses 111 and 112 agreed to.

Clause 113 [Power to impose penalties in cases of market abuse]:

Lord Kingsland

moved Amendment No. 215A: Page 54, line 1, after ("In insert ("the court on the application or). The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 219A, 220A, 221A and 222A. These amendments really flow from the amendments that we tabled to Clause 109. The Committee will recall that, when I introduced our amendments to Clause 109, I said that our approach to that clause through our amendments sought to inject intention into the offence of market abuse, as well as to require the FSA to bring any proceedings for market abuse in the courts, along the lines of practice in the United States.

In pursuit of that policy, Amendment No. 215A seeks to ensure that, if the authority decides to bring market abuse proceedings, it does so on an application to the court. That is followed through in other amendments in this group: Amendment No. 220A seeks to insert the words, "apply to the court"; Amendment No. 221A would require the authority to, apply to the court to impose"; and Amendment No. 222A would require the authority to, apply to the court to impose a penalty on a person under section 113", and so on. I beg to move.

Lord Donaldson of Lymington

At the risk of causing indigestion, I shall return to a matter upon which I would have elaborated earlier but for the fact that I realised I would be drummed out for interfering with noble Lords' dinner break. I really do not understand how the Minister can say that the Government have decided to pursue a "civil" regime on the grounds, as far as I can understand it, that we are now talking about lesser offences. The question of whether something is civil or criminal has nothing whatever to do with the enormity of the offence. Indeed, I only have to mention parking fines in that respect. They are a criminal offence, even if the average motorist does not realise it. There are many criminal offences that are of trifling importance; they are regulatory in character, but they are criminal. There is no question of mens rea or anything else arising.

The Government have not imposed on outsiders—that is, unauthorised persons— a duty, for example, in negligence. They have simply said that there is a requirement by society in this respect. That is criminal on any test. At least, I have never heard of any other test that could be applied to make it civil. In a sense, it does not matter and I accept that fact, but I fear that we shall have problems with the Strasbourg Court. I believe that it will say that it is criminal and that, therefore, we must have a criminal standard of proof and a criminal presumption of innocence.

Indeed, I think it will go further. I received a most helpful letter from the Minister suggesting that none of the safeguards that have been built into the Bill in relation to disciplinary activities by the FSA will necessarily apply to the exchanges and clearing houses because, as he says, you do not have to join them. They are, in effect, clubs. That really will not do. I am sure that it will not do for the Strasbourg Court. If I want to deal in cocoa, metal or whatever, I must join such organisations.

We cannot realistically have a situation where, for example, someone who is not an "authorised person" but who acted in conjunction with an "authorised person" who is a member of an exchange is charged with an offence of market abuse. In those circumstances, of course, the FSA would call it in because you cannot have two sets of proceedings going on together. But is it seriously suggested that the exchange proceedings are non-criminal and that the non-exchange proceedings are criminal? That just does not make any sense whatever.

One goes on from there to ask what safeguards must be built in for what one might describe as the domestic tribunals. In my book, you have to build in exactly the same safeguards as you build in in relation to the FSA— I say exactly, but mutatis mutandis—you cannot just leave it at that. I have recently sat on a tribunal for a clearing house. I have little doubt that I would be declared to be unacceptable by the Strasbourg Court because I am appointed for only a single case. I understand its point of view but I do not have to agree with it. It would undoubtedly take the view that anyone who is appointed for a single case cannot be independent, particularly if that person is paid, as he may wonder whether he will get the next case. I am bound to say that it is a matter of indifference to me for reasons of age and so forth, but I can well see that that will be said.

I feel strongly that once you go down the criminal route, as you have to do—it is no good the Government saying they are not doing that; they are, whether they like it or not—you then have to build in all the necessary precautions which are part of that. I discussed this matter with the noble and learned Lord, Lord Fraser of Carmyllie. My view was that the FSA had to appoint all these tribunals for the subordinate exchanges because that was the only way to achieve independence, and those have to be fairly long-term appointments. He said that he had talked to the FSA, about this matter and it had thrown up its hands in horror at the prospect. If it was horrified at the prospect on the basis that it would have to be done charge by charge, I can understand that, but long term I think that that must be the case.

I know that I am going outside the scope of the amendments but I think that it is better to get it all off my chest now. The Government must also consider what the attitude of the Human Rights Court—a very peculiar body, as the noble Lord, Lord Kingsland, and I are agreed—will be when someone who is being prosecuted by the FSA can go to the entirely independent tribunal but someone who is being prosecuted by what I call a domestic tribunal cannot. That cannot be right.

Again, I think that serious consideration will have to be given to providing rights of appeal from what I call the domestic tribunals to the tribunal. The only thing that worries me about that is that I think that that might require an amendment to the Bill. Most of the other things can be done by the FSA requiring them to be done as the price of recognition, but I am not sure that what I have just mentioned can be done in relation to giving a right of appeal to the tribunal because it may go to the tribunal's jurisdiction, and it may be necessary to amend the Bill. But no doubt the Minister will give a little thought to that matter, although his thought processes will be clogged up by the fact that he is convinced that this is a civil matter, which it is not.

Lord McIntosh of Haringey

I think that it would be better if I respond to the amendment before I approach the wider issues raised by the noble and learned Lord, Lord Donaldson.

The effect of these amendments would be that a penalty for market abuse could he imposed by the court only following an application made by the FSA. That would mean that the FSA would no longer itself be able to impose a fine in uncontested cases. It would also mean that there was no role for the tribunal in a case in which a person wished to contest a decision on the part of the FSA to impose a penalty. In all cases, the FSA would have to apply to the court if a penalty was to be imposed. I can see why this might appear superficially attractive, given that market abuse covers both regulated and unregulated persons. However, I do not think that there would be anything to gain from it.

If a person is willing to concede that his behaviour was abusive and is willing to pay a penalty, it seems unduly burdensome to require the FSA to apply to the court before a penalty can be imposed. If a person wishes to contest a decision to the FSA to impose a penalty on him, then the Bill, as it stands, provides ample safeguards. The tribunal to be established under the Bill is a first instance tribunal, able to look at all the facts and consider all the merits of the case.

The tribunal will ensure that people enjoy their right to a full and fair hearing under Article 6 of the European Convention on Human Rights, with which it will be fully compliant. It will have a broad degree of discretion and the powers to overturn or correct the FSA's decisions as necessary. It will be entirely independent of the FSA. Indeed, it will be run as part of the Court Service and its members appointed by the Lord Chancellor.

There is, therefore, no reason of principle or convenience to insist that a penalty can be imposed only through the medium of the courts following an application to them by the FSA. Indeed, there are positive advantages to the approach which the Bill adopts in contested cases because the tribunal will be concerned only with financial services cases. The noble and learned Lord, Lord Donaldson, may not wish to be reminded of the industrial relations court, but of course one of its benefits—

Lord Donaldson of Lymington

I thoroughly enjoyed it!

Lord McIntosh of Haringey

I am sure that the noble and learned Lord did. One of the reasons was that it was a specialist tribunal dealing with industrial relations. The noble and learned Lord and his colleagues were dedicated to it for a very considerable period of time. That is exactly the position with the financial services tribunal. The Lord Chancellor wi11 be able to appoint people with appropriate knowledge and experience and by dint of hearing cases referred to it, the tribunal will, like the industrial relations court, build up a considerable body of expertise in financial services. The tribunal, being concerned solely with referrals from the FSA, will also provide a quick and relatively inexpensive route for cases to be heard.

The fact that market abuse cases can be very serious does not mean that the tribunal is not the appropriate body. It will also hear referrals of FSA decisions to de-authorise firms or to prohibit individuals from being employed in the industry. These are big and equally important decisions.

I do not know whether I can go back to the debate about the civil or criminal regimes. It is very good that the noble and learned Lord has had the opportunity to set his views on the record. I know from what he said earlier that he agrees with the noble and learned Lord, Lord Hobhouse, but it has to be said that many people do not. The Joint Committee took the view that it was proper for the market abuse regime to be set up as a civil regime to complement the criminal law. I know that the noble and learned Lord and the noble Lord, Lord Kingsland, do not agree, but it is the Government's view. They have done so on proper, professional legal advice.

9.15 p.m.

Lord Donaldson of Lymington

I make it clear that I do not agree with the noble Lord, Lord Kingsland. Despite the fact that I believe this matter falls under criminal law, it does not follow that one ought to refer it to the courts. In my view it is a criminal tribunal.

Lord McIntosh of Haringey

I am grateful for that support, but I suspect that it is limited to these amendments and that the noble and learned Lord's disagreement with the Government is much more widely based than that. This is a non-criminal regime for domestic purposes. We could have extended the existing criminal offences so that they applied to a wider range of behaviour. However, we did not believe that that was proportionate or that it was right to create new criminal offences. That is the fundamental issue of social policy with which we have been concerned.

We have built in safeguards to the market abuse regime appropriate to an ECHR criminal regime. That is not because we were convinced that it will be classed as a criminal regime by the European Court, but out of caution that it might be. In our view and that of our legal advisers, the market abuse penalty regime is fully compatible with the ECHR. I hope that the noble Lord will not pursue these amendments.

Lord Kingsland

I have sought to provide the Minister with an American alternative. It seemed to me perfectly reasonable to do so because the United States has experience in this area which stretches back to the early 1930s. Nobody can deny that the United States has an extremely successful securities industry. However, and not entirely to my surprise, the Minister has rejected my views. I shall reflect on that rejection in the context of the other remarks he made about the offence of market abuse in general. I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Lord McIntosh of Haringey

moved Amendment No. 216: Page 54, line 2, at end insert ("("A")"). The noble Lord said: In moving this amendment I speak also to Amendment No. 217. Clause 113 allows the FSA to impose a penalty if someone has engaged in market abuse. I believe that I can speak reasonably fast now that the noble Lord, Lord Peyton, is not here. My articulation is so marvellous that everyone can understand me. The clause also allows the FSA to impose a penalty if someone has encouraged or required another person to engage in market abuse either by taking, or refraining from taking any action. While it is in the end behaviour which actually damages the market in a particular instance, it is right that we should seek to deter people from using other means to abuse a market. That is part and parcel of protecting it.

However, there is a loophole in the clause at present. Let us suppose that person A, an investment adviser, encourages a number of clients to buy or sell particular investments. In doing what A has advised them to do, it is unlikely that any of the clients concerned would be regarded as engaging in behaviour which fell short of the standards reasonably expected of them.

After all, each was simply acting on the advice of a person whose business it is to offer such advice. As a result, it may be that the reasonable user of the market would not consider that any of A's clients had engaged in market abuse. None may have failed to observe expected standards in this case.

However, the overall impact on the market of all the transactions effected by A's clients may be to produce a misleading impression as to the market in the investments concerned, and this may have been A's objective as he may have had a holding in the investments concerned which he wished to dispose of at an advantageous price. Perish the thought. If he had effected himself the transactions which he advised his clients to effect, he would almost certainly have engaged in abuse. The amendment to this clause simply closes this loophole by providing that a penalty can be imposed if the behaviour would have been abuse if person A had engaged in it himself. I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendments Nos. 217 and 218: Page 54, line 5, leave out ("market abuse") and insert ("behaviour which, if engaged in by A, would amount to market abuse"). Page 54, line 6, at end insert— ("( ) But the Authority may not impose a penalty on a person if, having considered any representations made to it in response to a warning notice, there are reasonable grounds for it to be satisfied that—

  1. (a) he believed, on reasonable grounds, that his behaviour did not amount to market abuse; or
  2. (b) he took all reasonable precautions and exercised all due diligence to avoid engaging in market abuse.").
The noble Lord said: I spoke to Amendments Nos. 217 and 218 in the debate on Amendment No. 208A. I beg to move.

On Question, amendments agreed to.

Lord McIntosh of Haringey

moved Amendment No. 219: Page 54. line 6, at end insert— ("( )lithe Authority is entitled to impose a penalty on a person under this section it may, instead of imposing a penalty on him, publish a statement to the effect that he has engaged in market abuse."). The noble Lord said: In moving Amendment No. 219, I shall speak also to Amendments Nos. 221, 222, 223 and 235.

Clause 113 allows the FSA to impose a penalty if someone has engaged in market abuse or required or encouraged another person to do so. If the FSA imposes a penalty, either following a reference to the tribunal or in the absence of one, under the provisions of Clause 376(5) it must publish such information about the matter in such a way as it considers appropriate.

However, what the FSA cannot currently do under Clause 113 as it stands is to make a public statement about someone as an alternative to imposing a penalty. This is an option which is open to the FSA under Clause 65(3) of Part V of the Bill on approved persons and under Clause 198 in the general disciplinary regime in Part XLV of the Bill. On reflection, we think that this is a useful alternative power to introduce into Part VIII as well. Amendment No. 219 therefore allows the FSA to make a statement in situations where it could impose a penalty but does not wish to do so.

Let me make i t clear that this does not mean that it can only make a statement where it would be appropriate to impose a penalty, but rather where it has the power to impose a penalty. It may be that in some cases a financial penalty is a disproportionate response given the circumstances surrounding particular abusive behaviour but that some sanction is nevertheless warranted. The new power will allow the FSA to make a statement as an alternative to imposing a penalty.

Amendments Nos. 221, 222 and 223 make consequential changes to reflect the fact that a penalty will not be the only option open to the FSA when someone has engaged in market abuse.

The amendment to Clause 165 made by Amendment No. 235 treats statements in the same way as penalties as regards the prohibition on the use of statements obtained under compulsory powers in proceedings. Clause 165, which we shall debate later, provides that statements obtained under such powers cannot be used in proceedings to impose a market abuse penalty against the person who gave it—and noble Lords with a memory of the Guinness case will realise why this is necessary. This is a consequence of the Government's decision to apply, as a precautionary measure, the ECHR criminal protections to the market abuse penalty regime.

Having considered the issue carefully, the Government are of the view that for the same reasons it would be appropriate to treat proceedings to make public statements—which, after all, could be quite embarrassing for those about whom the statements are being made—in the same way. Public statements and monetary penalties are both sanctions and, given the nature of the market abuse regime, it is not appropriate to differentiate between them for the purposes of the ECHR protections.

Legal assistance will therefore also be available, where appropriate, for proceedings to make a public statement in the same way as for proceedings to impose a monetary penalty for market abuse. Thai is the effect of Amendment No. 223, since under Clause 125 legal assistance is available to those who meet any prescribed criteria if he is an individual who has referred a matter to the tribunal under Clause 117(4). I beg to move.

On Question, amendment agreed to.

Clause 113, as amended, agreed to.

Clause 114 [Statement of policy]:

[Amendment No. 219A not moved.]

Lord McIntosh of Haringey

moved Amendment No. 220: Page 54, line 19, at end insert— ("( ) A statement issued under this section must include an indication of the circumstances in which the Authority is to be expected to regard a person as—

  1. (a) having a reasonable belief that his behaviour did not amount to market abuse: or
  2. (b) having taken reasonable precautions and exercised clue diligence to avoid engaging in market abuse.").
The noble Lord said: I have already spoken to this amendment. I beg to move.

On Question, amendment agreed to.

Clause 114, as amended, agreed to.

Clause 115 agreed to.

Clause 116 [Warning notices]:

[Amendment No. 220A not moved.]

Lord McIntosh of Haringey

moved Amendment No. 221: Page 55, line 13, leave out ("impose a penalty on") and insert ("take action against"). The noble Lord said: I have already spoken to this amendment. I beg to move.

On Question, amendment agreed to.

[Amendment No. 221A not moved.]

Clause 116, as amended, agreed to.

Clause 117 [Decision notices and right to refer to Tribunal]:

Lord McIntosh of Haringey

moved Amendment No. 222: Page 55, line 20. leave out ("impose a penalty on") and insert ("take action against"). On Question, amendment agreed to.

[Amendment No. 222A not moved.]

Lord McIntosh of Haringey

moved Amendment No. 223: Page 55, line 27, leave out ("impose a penalty on") and insert ("take action against"). On Question, amendment agreed to.

Clause 117, as amended, agreed to.

Clauses 118 to 120 agreed to.

Clause 121 [Guidance]:

Lord McIntosh of Haringey

moved Amendment No. 224: Page 56, leave out lines 37 and 38. The noble Lord said: This clause provides a power for Treasury Ministers, together with the Attorney-General and the Secretary of State, to produce guidance for the purpose of helping the relevant authorities—that is, the FSA and the various prosecuting authorities—to determine the action to be taken in cases where behaviour occurs which could potentially be either prosecuted as a criminal offence, or dealt with under the market abuse provisions. Perhaps I may ask the noble and learned Lord, Lord Donaldson, whether we had better start to call these "either way" offences. Insider dealing might be an example of this, since it is a criminal offence under Section 52 of the Criminal Justice Act 1993 and will come within the test in Clause 109(2)(a).

We have made it clear all along that where behaviour comes within the criminal offences, it is the firm intention of Ministers that, provided the evidential test and public interest tests for a prosecution are met, then criminal prosecutions should be taken.

The FSA is currently working with the Serious Fraud Office, the Attorney-General's Office, the DTI, the Crown Prosecution Service, the Association of Chief Police Officers and the Scottish Executive to agree guidelines on the handling of cases in which one or more of these other agencies may have an interest. The Treasury is represented on these groups. Once these guidelines have been finalised, it is envisaged that they will be published.

I also emphasise that this is very much a reserve power. We do not envisage formal guidance being given as a matter of course for any part of the UK when the Bill comes into force. Only if the agencies concerned could not agree among themselves how to handle particular cases would we expect guidance to be given. But I stress that we have no reason to believe that such a situation is likely to arise.

In England, Wales and Northern Ireland there are a number of different prosecuting authorities with powers over the offences specified in Clause 121, including the Secretary of State, the Serious Fraud Office, the Director of Public Prosecutions and the FSA itself. It is therefore appropriate that the Treasury should take on the responsibility for giving guidance in consultation with the Secretary of State and with the Attorney-General, who has ministerial responsibility for the DPP and the SFO.

In Scotland, however, the position is somewhat different. The Lord Advocate is the sole prosecuting authority in Scotland for all criminal offences. Given that, and given his position as head of the Scottish criminal prosecution system, it would be inappropriate for him to be subject to guidance issued by the Treasury. These two amendments therefore provide that in Scotland it is for the Lord Advocate to issue any necessary guidance to the authority after consultation with the Treasury.

Finally, since these amendments deal with the responsibilities of the Lord Advocate, who is a Minister of the Scottish Executive, we have, of course, discussed them in advance with the Executive and they have confirmed that they are content with the proposed approach. I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendment No. 225: Page 56, line 41, at end insert— ("( ) Subsections (1) to (3) do not apply to Scotland. ( ) In relation to Scotland, the Lord Advocate may from time to time, after consultation with the Treasury, issue written guidance for the purpose of helping the Authority to determine the action to be taken in cases where behaviour mentioned in subsection (1) occurs."). On Question, amendment agreed to.

Clause 121, as amended, agreed to.

Clauses 122 and 123 agreed to.

Schedule 12 [The Financial Services and Markets Tribunal]:

Lord McIntosh of Haringey

moved Amendment No. 226: Page 254. line 7. leave out sub-paragraph (6). On Question, amendment agreed to.

Schedule 12, as amended, agreed to.

Clause 124 [Proceedings: general provision]:

Lord Kingsland

moved Amendment No. 226A: Page 57, line 30. at beginning insert ("The Authority shall not take any action pursuant to a decision notice during the period referred to in subsection (1) and"). The noble Lord said: The Committee will be aware that Clause 124(5) provides that a decision which is referred to the tribunal is not to have effect until the reference has been disposed of. I am concerned about what happens in the period before the decision is referred, which may be as long as 28 days. It is important that the authority does not jump the gun (if I may use that colloquial expression) and put a decision into effect while the defendant is still thinking about whether or not to refer the decision to the tribunal.

As I understand it, the Treasury agreed at Committee stage in another place that it intended Clause 124(5) also to cover that earlier period, in the same way that Clause 376(6) excludes the ability to publicise any information while the decision is open to review. This amendment achieves the same result. I beg to move.

Lord McIntosh of Haringey

The Government entirely understand the concerns expressed by the noble Lord. This point was debated in some depth in another place, as the noble Lord recognised. As Ministers made clear, it is not our intention that the FSA should be able to demand the payment of penalties during the period when the person concerned has a right to refer the matter to the tribunal.

I had hoped that today we would table amendments relating to the decision-making procedures in the Bill generally. There will be an opportunity to debate those next week. Among those amendments is one which addresses exactly this concern. We propose a new clause after Clause 376 in Part XXVI which creates the concept of a "final notice". It will be that notice which gives effect to any decision; for example, by requiring the payment of a financial penalty. The FSA will not be able to issue a final notice during the period following the issue of the decision notice in which the person concerned has a right to refer the matter to the tribunal. We shall return to Clause 124 on Report to make that clear here as well.

If the matter referred, the final notice must give effect to the determination made by the tribunal or, if the decision is appealed, to the judgment of the higher courts. There will be no question of the FSA being able to require a penalty to be paid or to make a public statement in the period allowed for the decision to be referred to the tribunal or appealed to the higher courts. However, I should make it clear that some decisions will be capable of taking effect ahead of any reference to the tribunal. The amendments that we shall table draw a distinction between those decisions to which the full warning and decision notice procedure should apply and those where provision must be made for more urgent action to be taken. I made the distinction between disciplinary and supervisory action.

All decisions which are essentially disciplinary in nature—to impose financial penalties or to make public statements of censure—will be covered by warning and decision notice procedures, and the decisions will not take effect until all the procedures have been completed. The same will apply to decisions which permanently exclude persons from carrying on various activities or fulfilling particular roles: cancellation of permission, authorisation, approval or recognition under Parts IV, V, XVII or XVIII, and the making of prohibition orders under Part V. But where the powers are essentially supervisory rather than disciplinary in nature, the need to avert some potential harm to the interests of consumers may make it necessary for the decision to take effect on a faster time-scale. This principle has been widely endorsed in discussions in another place.

In due course we shall also amend Schedule 12 to make it clear that the tribunal procedure rules to be made by the Lord Chancellor under Clause 123 may make provision to give the tribunal discretion to suspend any decision which has taken effect before it has considered the matter. In light of those assurances, I hope that the noble Lord will agree to withdraw his amendment.

Lord Jenkin of Roding

I intervene today for the first time because I had other commitments in the House earlier today. I do not want to comment on the substance of what the Minister has just told the Committee, but I really do feel that the House must make a protest about the way in which it is being asked to legislate. Steady progress has been made on the Bill by my noble friends and by other noble Lords, but at the same time one is given the impression that the Government are having to run very hard indeed to keep up with the progress in the Committee.

I am reminded of nothing so much as those western films. There is the train, steaming steadily along the railway track and there are the Government, driving their coach and four, desperately trying to keep up, whizzing across a level crossing. The train goes steadily on. Sometimes the Government get behind and amendments cannot be tabled until the next stage of the Bill or until next week. It is a hell of a way to legislate.

The Minister, who has already apologised for the number of amendments, owes the Committee an apology for the way in which they have been tabled. My noble friends on the Front Bench should not be asked to deal with the matter in this way. If the previous government had done that, and the noble Lord, Lord McIntosh, was sitting on this side of the Committee, I have no doubt whatever that he would have been every bit as critical as I have been, but with a great deal more eloquence. I think it is shocking.

Lord McIntosh of Haringey

The noble Lord, Lord Jenkin, was good enough to say that he was not going to attack the substance of the amendments. Indeed, he had better not, because the supervisory and regulatory principles were debated in his absence at considerable length this afternoon. As far as concerns his point about the amendments to the Bill, I have already "grovelled" to the Committee about the way in which to some extent amendments are being introduced late in the process of the Bill. But on this occasion I am certainly not going to grovel. We are responding to pressure from the Opposition. We respond to pressure when pressure comes. If that pressure comes at this stage, we have to respond as best we can at this stage or at a later stage. I am not going to apologise for that.

Lord Jenkin of Roding

The noble Lord really cannot get away with that. He said himself that he had hoped that the amendment to meet my noble friend's point would have been tabled today. Yet it has not been, and somehow it will have to be tabled so that it can be reached next week. The noble Lord will then have to come back to the clause on Report to table the amendment. That is something for which the noble Lord should apologise. It is no way to legislate. I shall be astonished if the Bill emerges from this procedure without need for substantial further amendment very quickly thereafter.

Lord Kingsland

In relation to the substance of the matter, I am experiencing an emotion of cautious optimism in response to what the Minister said. However, in articulating his reasons for a positive approach, the noble Lord raised again the distinction between supervisory and disciplinary, a distinction which he himself said earlier in the day, I think very openly, had not yet featured in statutory form. His answer underlines the general point made by my noble friend Lord Jenkin that there are still important parts of the Bill with which we cannot grapple until the underlying principles have been finally formulated by the Government. Nevertheless, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 124 agreed to.

Clause 125 [Legal assistance scheme]:

Lord Kingsland

moved Amendment No. 226B: Page 58, line 6, leave out ("under section 117(4)"). The noble Lord said: Amendments Nos. 226B and 235A are plainly consequential on the line of amendments to which I spoke earlier, beginning with Amendment No. 215A. In that context, I beg to move.

9.45 p.m.

Lord McIntosh of Haringey

I cannot be quite as terse as the noble Lord. Perhaps the word is "telegraphic".

Clause 125 gives the Lord Chancellor the power to establish a subsidised legal assistance scheme by regulations. This is a free-standing scheme for legal assistance and not an extension to legal aid.

The effect of opposition Amendment No. 226B would be to widen the coverage of the scheme. It is not the Government's intention to make legal assistance available for tribunal cases across the board. Legal assistance is not generally available in tribunal proceedings which are intended to be speedier and less formal than court proceedings.

As I said, the additional protections that have been put in the Bill in relation to market abuse were included as a precautionary measure because of concern expressed about the possibility that the market regime might be judged to be "criminal" for ECHR purposes. What is criminal for ECHR purposes is not, as noble Lords will know, the same as what is criminal for domestic purposes.

The reasons for deciding to import the ECHR criminal protections into market abuse penalty proceedings were set out in some detail by the former Economic Secretary, Patricia Hewitt, and the Government's legal advisers, Sir Sydney Kentridge QC, and James Eadie, in evidence to the Joint Committee.

However, there is no question that the disciplinary regime might be considered as criminal. I note that the noble and learned Lord, Lord Donaldson, is listening to this. It is concerned with policing the standards of the regulated community and in that respect is analogous to the regulation of professions. The ECHR jurisprudence is clear that such regimes are civil, not criminal. There is, therefore, no need to extend the scheme further. Since authorised persons are to pay for the legal assistance under the scheme, they are entitled to be sure that we should keep the scheme within proper bounds. I hope that the noble Lord will withdraw the amendment.

I do not know whether the noble Lord would like me to speak to Amendment No. 235A. I do not recall him speaking to it in introducing the amendment.

Opposition Amendment No. 235A seeks to extend so-called "Saunders-proofing" to procedures involving disciplinary measures under Part XIV as well as penalties for market abuse. Again, the amendment is unnecessary as a matter of law, as we stated in our evidence to the Joint Committee. It is also undesirable as a matter of policy.

It would place an unhelpful constraint on the FSA's ability to deal with misconduct by regulated persons. Criminal offences or market abuse may be committed by a wide range of people, but civil penalties under Clause 199 apply only to authorised persons. Authorisation is not just a privilege which allows a person to do financial services business; it also involves obligations. One of the most important of those is the obligation to be frank with the FSA about how the authorised person's business has been conducted, including cases where there has been misconduct.

It would be quite mistaken to allow authorised persons who have committed serious misconduct that would justify a financial penalty to escape the consequences just because the evidence took the form of a statement they had made to investigators.

On that basis, I hope that the noble Lord will withdraw the amendment.

Lord Donaldson of Lymington

Is it possible to refer a matter to the tribunal other than under Clause 117(4)?

Lord McIntosh of Haringey

I think that with anyone who is subject to a penalty or falls to make a statement, the matter can be referred to a tribunal.

Lord Donaldson of Lymington

That is not under Clause 117(4).

Lord McIntosh of Haringey

Basically it is. If there are other places in which a reference can be made, I shall write to the noble and learned Lord.

Lord Donaldson of Lymington

It seemed a somewhat futile amendment if one could not do it any other way.

Lord Kingsland

On Amendment No. 226B, we shall return to the matter at Report stage.

As I said at an earlier stage of today's proceedings, in my submission Article 6.1 of the European convention applies to all proceedings, whether civil or criminal. To limit the effect of that article to criminal proceedings is incorrect. Nevertheless, in the circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 125 agreed to.

Clause 126 agreed to.

Clause 127 [Funding of the legal assistance scheme]:

Lord Kingsland

moved Amendment No. 226C: Page 59, line 10. leave out paragraphs (b) and (c). The noble Lord said: Clause 127 covers the funding of the legal assistance scheme which is brought in for individuals accused of market abuse. I believe that it is wrong to provide that only authorised persons have to fund the scheme because, typically, it will not be authorised persons who commit the offence.

However, assuming that the Government stay firm on that, the most important change is to prevent the FSA being able to use surplus levies from fines owed to the authority by authorised persons merely for an ordinary breach of the rules. The money should be returned to the individuals who paid it in the first place.

I believe that the legal assistance scheme should also apply to disciplinary proceedings. It seems clear that disciplinary proceedings are covered by Article 6.1 of the convention and the convention requires the hearing to be public and fair. That also ought to be covered in the case of a tribunal, even though Article 6.3 expressly spells out the obligation to provide legal assistance in the case of criminal offences only. I beg to move.

Lord McIntosh of Haringey

The effect of Amendment No. 226C would reduce the flexibility on how the funding is accumulated and distributed. The legal assistance scheme will be paid for by levies raised by the FSA from authorised persons. The Lord Chancellor will determine the costs of the scheme and set the total which the FSA is required to raise in levies from authorised persons during a particular period, which will normally be a financial year. The FSA will decide on how to distribute that amount among authorised persons.

It will not he possible to forecast precisely the amount required for legal assistance in any forthcoming period, so subsection (1) provides for levies to cover anticipated or actual costs. That enables the levy to be set to cover both anticipated costs in the period ahead and any amount by which the actual costs in the preceding period had exceeded the anticipated costs for that period.

The forecast of anticipated costs could be an overestimate, so subsection (7) is necessary to allow the FSA to distribute the money among persons who originally paid it. Specifically, paragraph (a) allows it to repay the money directly to those who paid the levy, while paragraph (b) allows it instead to reduce the amounts which those persons are required to pay. Paragraph (c) allows it to use a combination of those methods.

The amendment would remove that valuable flexibility. It is intended to ensure that, for example, the FSA does not have to send out separate invoices for small amounts which it can more sensibly and economically offset against the following year's fees or levy for invoicing purposes. Removing options (b) and (c) could lead to costs being incurred sending out cheques for derisory amounts.

Of course, the FSA will need to exercise its discretion in a way that is fair and reasonable and it will still have to be able to account separately for levies raised for different years and between levies and fees. I can confirm that disciplinary proceedings are covered by Article 6.1, but disciplinary proceedings are not criminal for ECHR purposes. Legal assistance is expressly required only for proceedings which are criminal for ECHR purposes.

I hope that on the basis of that explanation the noble Lord will not press the amendment.

Lord Kingsland

I shall not press the amendment tonight, but at the Report stage I shall certainly return to the issues which underlie it. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 127 agreed to.

Clause 128 agreed to.

Lord Bach

I beg to move that the House be now resumed.

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

House resumed.

House adjourned at five minutes before ten o'clock.