Financial Services and Markets Bill

HL Deb 30 March 2000 vol 611 cc912-81

3.35 p.m.

Lord McIntosh of Haringey

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(Lord McIntosh of Haringey.)

On Question, Motion agreed to.

House in Committee accordingly.

[The CHAIRMAN OF COMMITTEES in the Chair.]

Clause 202 [Notice for payment]:

Lord Fraser of Carmyllie

moved Amendment No. 241N: Page 102, line 12, at end insert ("unless an appeal has been made to the Tribunal"). The noble and learned Lord said: This amendment has been prompted by the Law Society of Scotland and is essentially probing in nature. I trust that the Government will respond to it in that fashion. A number of other amendments have been prompted by the Law Society of Scotland. In the main, they are of the same character. However, I am bound to say to the Government that a number of administrative decisions may be taken before we reach Report stage on the Bill. If the Minister is not already aware, I hope he will take step; to appreciate that if the decisions are taken in a certain way, they are fraught with constitutional sensitivities and could cause some very real upset north of the Border.

I can be brief on the amendment because I discover from the Marshalled List that the Minister has indicated that it is his intention to oppose the Question that Clause 202 stand part of the Bill. I shall listen with care to what he has to say about that to try to understand his justification for doing so and what amendments he himself proposes in the fullness of time to bring forward. It will not be a new experience for us but it will be useful to know what the amendments are going to be.

The short point that arises here is that if a notice of penalty is to be given to an authorised person under Clause 202, the notice for payment must be in writing and require the person to pay the penalty before the end of such period as specified in the notice. From looking back to the preceding clause, Clause 201, I understand that in such circumstances where a decision notice has been given to an authorised person and where that indicates that there is a proposal to impose a penalty under Clause 199, the opportunity is then given to the authorised person to refer that matter to the tribunal. There is, if one likes, a right of appeal against such a decision notice.

However, unless I am missing the point, there seems to be something rather surprising and unusual here. If one takes that circumstance, and if indeed an appeal has been marked or a requirement that it should be taken up before a tribunal, notwithstanding that indication by the authorised person, he still has to pay the penalty, however vigorously he wishes to reject the imposition of the penalty on him before the tribunal. A more appropriate course would seem to be that suggested by the amendment; namely, until the matter has been satisfactorily resolved one way or another before a tribunal, there should be no requirement on the authorised person to pay the penalty. That is what I understand frequently happens; indeed, I understand it to be the ordinary practice in our courts. In the circumstances it seems appropriate that a comparable provision should be included in the Bill.

I shall not press the amendment, given that Clause 202 is to be withdrawn. However, I hope that the Minister will be able to give a clear undertaking that the point raised by the Law Society of Scotland will be addressed in the doubtless reconstituted Clause 202 before the Bill returns to this place. I beg to move.

Lord Bach

I hope to be able to satisfy the noble and learned Lord, Lord Fraser of Carmyllie, by speaking to the government amendments that are now grouped with his amendment. I am grateful to him for informing the Committee that this is a probing amendment.

This group of government amendments all deal, in one way or another, with the end of a notice procedure and the manner in which the final determination of the matter may be notified to the person concerned and published more widely.

The Joint Committee, in its first report, rightly took the view that a transparent procedure was necessary for publication of the end result of the disciplinary process. The report said that, the pre-Tribunal process must lead as transparently as possible to a fair and just decision in the public interest: it must avoid any impression of secret and collusive plea-bargaining". The committee therefore recommended that, In the interests of public confidence, all final decisions … should be made public, save in exceptional circumstances which would require to be justified". This group of amendments is concerned with ensuring that this occurs in the variety of situations which may arise under the Bill. Before I deal with publication itself, therefore, it may be helpful to outline the changes we are making to the notice procedures which apply at the final stages of action by the authority.

First, if having issued a warning notice or a decision notice, the FSA decides not to proceed with the action which it originally proposed, we consider that the person concerned is entitled to know that the proposal is being dropped. That is an important part of ensuring fairness. Accordingly, the FSA will be required to give formal notice to the person concerned under the new clause with the rubric, "Notice of discontinuance".

Such a decision might be the result of having considered the person's representations, or further evidence having come to light. On the other hand, in some cases the FSA will wish to proceed with the action proposed, in which case the right will arise to refer the matter to the independent tribunal (and thereafter to appeal on a point of law to the courts against the tribunal's decision).

We propose in due course to amend Clause 124 to make it clear that the authority may not take any further action in relation to a decision contained in a decision notice until such time as the person has had the opportunity to refer the matter, or until a reference (and any appeal) has been finally determined.

Once the time for making a reference has passed, however, or once any reference (and appeal) has been finally determined, the person concerned is entitled again to receive proper notice of the ultimate outcome. The new clause on final notices is designed to ensure that that happens.

If the decision has not been referred to the tribunal within the time permitted under Part IX of the Bill, the final notice simply confirms and gives effect to the decision in the decision notice. But if the matter has been determined by the tribunal or the higher courts, the final notice will set out the action the authority is taking to fulfil its obligation (under subsection (2) of the new clause) to give effect to the determination and any directions which have been given to it.

Thus the authority is the instrument by which the determination of the tribunal or court is given effect. The tribunal or court might, for example, direct the FSA: to impose the penalty originally proposed, or a different penalty; to make a public statement instead of a penalty, or vice versa; to make a public statement as originally proposed, or in different terms from those proposed; or to take no further action on the matter.

The final notice clause replaces a number of existing clauses relating to notices for payment which we shall be opposing in Committee or on Report. These are: Clause 202, plus Clauses 67, 92 and 118. Those are the financial penalty clauses under Parts V, VII and VIII respectively.

The final notice given by the FSA under our new clause will have to include full details of any action which the FSA is taking and the date it takes effect. In the case of a penalty, this will include details of how much has to be paid, when and how, and how it will be recovered if it is not paid.

I now turn to the noble and learned Lord's amendment. There was concern among Members of the Opposition in another place that there was a lack of clarity on whether a notice for payment could be issued before a reference had been made or determined. Therefore, we hope that the noble and learned Lord and all other Members of the Committee will be pleased to note that the final notice clause makes it clear that final notices, which will serve that purpose in cases where penalties are proposed, may not be issued before the deadline for reference to the tribunal, and if referred, until the matter is finally determined. That would seem both common sense and justice. That is made clear in subsections (1) and (2) of the new clause.

I have already referred to the Joint Committee's deliberations on publication of decisions. The determinations of the tribunal and higher courts will, of course, be matters of public record. But whether or not the matter was referred to the tribunal it is important for the reasons given by the Joint Committee that the final outcome of the matter is made public.

The remainder of my remarks relate to publication. The new clause on publication, therefore, requires the authority to publish such details about a final notice as it considers appropriate, except for information the publication of which would, in its opinion, be unfair to the person concerned or prejudicial to the interests of consumers.

The Government believe, however, that it is necessary to avoid any risk that a person might be unfairly tainted, by giving publicity to the fact that some contravention had been alleged by the FSA, before the person concerned had had an opportunity to refer the matter to the tribunal, or before a matter referred to the tribunal had been finally determined by the tribunal or the appeal courts. Under the new clause on publication, the authority is, therefore, prevented from publishing details about warning and decision notices.

Where action has been proposed in a warning notice or decision notice but is then not pursued by the authority, it would be equally unfair if any suggestion of guilt were given by giving publicity to the fact that the authority had decided not to proceed with the action. At the same time, there might be circumstances where the person concerned might wish that information to be made public in order to clear up any suspicion or rumour which was already in the public domain. Accordingly, this clause allows the authority to publish details about notices of discontinuance only with the consent of the person concerned.

The remaining government amendments in this group are consequential and I shall not weary the Committee with a description of them unless I am asked to do so. My reply has been rather full, but it relates to an important matter. I hope that it has satisfied the noble and learned Lord who moved the amendment.

3.45 p.m.

Lord Elton

I wonder whether the noble Lord can help me by telling me a little more about the new clauses to which he is speaking, and whether they are all on the Marshalled List. At one point he appeared to indicate that the new clause would be produced in the future, after the Committee stage had been completed. If that is the case, I am sure that most Members of the Committee will want to know what scrutiny the new clause has received and the proposed procedures for seeing that it is properly considered by this House and another place.

The noble Lord also used the phrase, "we shall be opposing in Committee or on Report". I do not know whether he was referring to a group of clauses, some of which would be dealt with today and some later. Again, when he comes to them, I hope that we may be told the extent to which the principle and the detail were discussed in another place—that being the procedure that is supposed to replace what we should normally do in Committee in this House.

Lord Jenkin of Roding

While the noble Lord is considering how he will reply to my noble friend Lord Elton—I understand that he might like a moment or two before that happens—perhaps he will take the trouble to explain why it is proposed, in Amendment No. 275B, to leave out the words in Clause 376, "or not to take". That amendment is grouped with Amendment No. 241N and it is not immediately clear from the comments of the noble Lord, Lord Bach, why it is proposed to omit those words.

Lord Fraser of Carmyllie

If I have properly understood the Minister's response and the import of the new clauses I will join him in voting that Clause 202 should not stand part. It seems appropriate, given the amendments, for that clause to be withdrawn.

If I understood the Minister correctly, under his Amendment No. 275K if the authority resolved to discontinue any action against an authorised person, a notice of discontinuance might be issued. Under subsection (2) of the proposed new clause, the person to whom the notice is given must consent before it is placed in the public domain. If that is so, I am not sure how subsection (5) comes into play, for it provides that: the Authority may not publish information under this section if publication an would, in its opinion, be unfair to the person with respect to whom the action was taken or prejudicial to the interests of consumers". I am not sure whether that is a second or supplementary test. Even if the individual consents to a notice of discontinuance, is the authority under a duty to look at the matter afresh and reach a decision—notwithstanding the consent of the authorised person? In our view, that would be unfair to the authorised person. It is obvious that if the individual did rot see it as unfair to himself, there should be no bar on publication.

Lord Bach

The noble Lord, Lord Jenkin, asked why the words "or not to take" are to be removed by Amendment No 275B. A decision not to proceed with action will now be the subject of the new notice of discontinuance. Notice will be given only where the decision is to maintain a proposal set out in the warning notice. So those words—to use an expression commonly used in the Committee last Monday—are otiose.

In reply to the noble Lord, Lord Elton, Amendments Nos. 275H, 275J and 275K in the Marshalled List set out the new clauses. Some of the clauses that are to be opposed will hopefully be opposed formally on Report—apart from Clause 202, which I hope will be opposed today. These improvements are brought forward in light of lengthy debate in another place.

To answer the noble and learned Lord, Lord Fraser, a notice of discontinuance should not normally be published unless the person consents. Subsection (5) only allows the authority not to publish—so it does not override the consent of the person concerned.

Lord Boardman

The Minister referred to alterations to Clause 124, which I understand have already been discussed in this House. Does the noble Lord propose tabling further alterations on Report? If so, what impact will they have on other provisions?

Lord Bach

I have made it clear that we intend to return to that matter on Report. I hope that I am safe in saying that it will not have a great impact on other of the Bill's provisions.

Lord Fraser of Carymyllie

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 202 negatived.

Clause 203 [Publication]:

Lord McIntosh of Haringey

moved Amendment No. 241P: Page 102, line 20, leave out ("376(2)") and insert ("(Third party rights)(4)"). On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendment No. 241Q: Page 102, line 21, leave out subsections (2) and (3). On Question, amendment agreed to.

Clause 203, as amended, agreed to.

Clauses 204 to 208 agreed to.

Clause 209 [Rights of the scheme in relevant person's insolvency]:

Lord Bach

moved Amendment No. 242: Page 106, line 27, after ("who") insert ("or an entity which"). The noble Lord said: Amendments Nos. 242 and 243 are truly technical, to ensure that Clause 209 properly reflects legal arrangements in Scotland. The clause gives the compensation scheme manager rights in insolvency proceedings. Subsections (5) and (7) contain the provisions relevant to bankruptcy proceedings. As they stand, the subsections refer only to individuals. That is satisfactory for England, Wales and Northern Ireland—where it is only possible to take bankruptcy proceedings against individuals. In Scotland, it is possible to take bankruptcy proceedings against other entities, such as partnerships. The amendments adjust Clause 209 to take account of that difference. I beg to move.

On Question, amendment agreed to.

Lord Bach

moved Amendment No. 243: Page 106, line 38, at end insert ("; or ( ) under section 6 of the 1985 Act for the sequestration of the estate belonging to or held for or jointly by the members of an entity mentioned in subsection (1) of that section."). On Question, amendment agreed to.

Clause 209, as amended, agreed to.

Clauses 210 to 212 agreed to.

Clause 213 [Scheme manager's power to require information]:

Lord McIntosh of Haringey

moved Amendment 244: Page 109, line 37, leave out subsection (6). On Question, amendment agreed to.

Clause 213, as amended, agreed to.

Clause 214 [Scheme manager's power to inspect information held by liquidator etc]:

Lord McIntosh of Haringey

moved Amendment No. 245: Page 110, line 15, leave out subsection (4). On Question, amendment agreed to.

Clause 214, as amended, agreed to.

Clause 215 [Powers of court where information required]:

On Question, Whether Clause 215 shall stand part of the Bill?

Lord Elton

I should like to seek clarification on one matter, which perhaps should have occurred to me earlier. Can the Minister say why it has been decided that a person who fails to comply with a requirement imposed under Clause 213 should be dealt with as if he is in contempt of court rather than being subject to some stated penalty?

Lord Bach

The intention behind the provision is to avoid, as far as possible, the use of the criminal law in this part of the Bill. Therefore, contempt proceedings, which are civil but also often apply in criminal cases, are thought to be a more appropriate way to deal with the issue. I do not believe that that is the only example in the Bill.

Clause 215 agreed to.

4 p.m.

Clause 216 [Statutory immunity]:

Lord Taverne

moved Amendment No. 246: Page 110, line 41, after ("faith") insert ("or reckless"). The noble Lord said: This is my first appearance in the Committee stage of the Bill. I apologise for having been unavoidably absent throughout the previous stages. I owe a particular apology to my noble friends on these Benches who have carried the burden. Having carefully read the Official Report, I must say that my noble friends have done so admirably. I do not intend to move the amendment because the matter has already been discussed. However, before sitting down I should like to refer to one matter.

Lord Elton

I apologise for intervening. The noble Lord can speak only to a Motion. Therefore, he may withdraw his Motion after it has been put to the Committee but not before.

Lord Taverne

I stand corrected. I beg to move the amendment before I withdraw it. The only matter to which I draw the attention of the Committee is a report in today's Financial Times to the effect that Conservative and Liberal Democrat Peers have accused the Government of botching the Financial Services and Markets Bill and have united in fighting against it. I make it quite clear to the Committee that that report has no foundation and is incorrect.

By and large, we on this side of the Committee believe that this is a good Bill and we support it. We have argued, and will continue to argue, that parts of it can be improved. So far we have not supported the issues on which the Conservative opposition have called a Division. In time we may move amendments and hope that others from both sides of the Committee will support them. If we agree with an amendment moved by the Conservatives we may well support it. However, I make it absolutely clear that we have not joined forces against the Bill. Such a comment is unhelpful and wrong. I now beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 216 agreed to.

Clauses 217 to 219 agreed to.

Schedule 16 [The Ombudsman Scheme]:

Lord Sharman

moved Amendment No. 247: Page 258, line 23, after ("Authority") insert ("and the Treasury"). The noble Lord said: In rising to move Amendment No. 247 I should like to speak also to Amendments Nos. 248 and 249. This group of amendments concerns the establishment of the ombudsman scheme. Earlier this week the Minister told us that when he awoke in the middle of the night he frequently searched for words or phrases to improve the Bill. He may wish to know that when I wake in the middle of the night thinking about the Bill I am frequently confronted by images from "Jurassic Park". For those members of the Committee who are unfamiliar with "Jurassic Park", the film is about the re-creation of dinosaurs by a group of scientists. The security system to contain those dinosaurs is adequate as long as the people who are there at the moment remain. Once one has a change in personnel or a disgruntled personality the system breaks down and chaos ensues.

The reason for the analogy is that, as has been said on many occasions in this Chamber, this Bill creates an organisation of unparalleled size and power. The legislation is itself huge. The system of checks and balances which surrounds that organisation is absolutely vital, and that is the reason why we on these Benches have paid so much attention to it. The ombudsman scheme to be set up under the Bill is just another part of the system of checks and balances. For it to be effective, and for the marketplace to have confidence in it, the scheme must be independent and be seen to be independent.

It is worth pausing for one moment to consider the scale of the scheme. What is proposed is that eight ombudsmen be merged into one. There will be a budget of some £20 million and more than 400 employees. It is anticipated that they will deal with 200,000 telephone complaints and 30,000 written complaints annually. As the Bill stands, I do not believe that the scheme will meet the test of market confidence. The ombudsman scheme is just another part of the FSA. Schedule 16 provides that the FSA shall establish the scheme, appoint the ombudsman and receive its report. There is a total absence of any other party to the process.

The question one asks is: why bother? Why not simply provide that there should be another department of the FSA called "the ombudsman"? Amendment No. 247 provides that both the authority and the Treasury are to establish the scheme. Amendment No. 248 provides that both the authority and the Treasury are required to ensure that the ombudsman don the job properly. Amendment No. 249 requires the Treasury to lay before Parliament the reports which it receives. I believe that that is the minimum required for a sensible, independent ombudsman scheme which enjoys the necessary confidence of the market in the carrying out of its duties. I beg to move.

Lord Borrie

Following the earlier welcome remarks by the noble Lord, Lord Taverne, I hesitate to criticise an amendment tabled by the Liberal Democrats who have been so helpful, and not at all obstructive, in regard to this Bill. But I am not convinced by the argument of the noble Lord, Lord Sharman. The noble Lord said that, according to the schedule, the ombudsman appeared to be merely another part of FSA: he even said that the FSA would appoint the ombudsman. That is not so. Schedule 16 appoints a scheme operatcr—it is the FSA that makes the appointment—which is to be a body corporate quite separate from the FSA. Schedule 16(3) provides that the terms of appointment of the board of directors of the scheme operator, must be such as to secure their independence from the Authority in the operation of the scheme". In other words, the scheme operator is a body interposed between the Financial Services Authority and the ombudsman. That is a common feature among private sector ombudsmen whose position has been set up recently, sometimes informally and sometimes by statute, in order to achieve the vital factor of independence of the ombudsman, ombudsmen or ombudspersons (if one wishes to use that phrase) who makes or make the decisions in disputes.

I hope that my noble friend Lord Bach will confirm that paragraph 3, which provides that the appointment of the board of directors of the scheme operator, must be such as to secure their independence from the Authority", means that, as historically has been the case in the past 10 or 15 years when such schemes have been set up, a majority of the hoard will be completely independent of the people who provide the finance, resources and so on—in this case, the authority. Surely the vital matter is that the people who determine disputes—the ombudsmen—will be independent. The panel of ombudsmen is provided for in paragraph 4. The ombudsmen's independence is specified in paragraph 4 so that they and the body interposed between the authority and the ombudsmen are also independent. That vital factor is already well assured by Schedule 16. To use again that delightful word, this amendment is "otiose".

4.15 p.m.

Lord Elton

It is important that the scheme shall be seen to be, as well as being, effective; and that these people are seen to be, as well as being, independent. I wonder how the interposing of a body appointed by the FSA to appoint the ombudsman will secure the feeling that it is in some way insulated from the ombudsman. Presumably any unsatisfactory appointments made by the interposing body can result in discomfort for the interposing body or perhaps departure of some of its members.

The noble Lord, Lord Borrie, has great experience of these matters to which I defer. He referred to the independence of the "ombudspeople" (if that is the correct term). However, the provision as stated in paragraph 3 seems analogous to the independence of the editor of a newspaper wholly owned by a certain person of a certain political complexion. For that reason also there is need for greater insulation and distance.

Finally, the importance of the matter is even greater than was described by the noble Lord, Lord Sharman, who spoke so graphically of the release into the landscape of a tribe of lumbering and possibly fearsome creatures. That may not be the right analogy because the creatures will not be proactive. However, they will need restraint. They are localised in one place. Perhaps a nuclear fuel reprocessing organisation would be a better analogy. If we apply his analogy of people changing and disregarding the procedure set out on the face of the Bill, the result is incalculable damage. In nuclear terms, we have Chernobyl to consider.

It is not a small issue. I hope that the noble Lord will not be lightly dissuaded by the arguments which no doubt will be put to him in due course by the Government Front Bench.

Lord Lipsey

I do not know whether the noble Lord, Lord Sharman, will be persuaded by the Government's arguments. Perhaps I may try an argument of my own in the hope of persuading him that the amendment is indeed otiose. I wonder how many "otioses" we shall get through today!

I have been a director of one of the schemes to be abolished by the Bill, under the Personal Investment Authority. For the Personal Investment Authority ombudsman there is a separate board, the PIA Ombudsman Bureau, which happens to comprise directors, for the time being, of the Personal Investment Authority, so the independence is less than that under this Bill.

In these cases, I believe that practice is worth quite a lot of theory. Having been such a director, I know that the idea that we would in any sense interfere with the ombudsman's independence is completely theoretical. He would have our guts for garters, publicly and privately, if we did so. There are some issues where it is helpful to have a dialogue with the ombudsman, such as about the use of resources, and how many staff he requires for certain purposes. It is right that there should be a dialogue, as I am sure there will be under the provisions for the Financial Services Authority. No one has ever questioned that the ombudsman is properly independent under the arrangements in place. I believe, therefore, that it is not necessary—although I can see its attractions—to write on the face of the Bill the provision that the noble Lord, Lord Sharman, seeks.

Lord Jenkin of Roding

There is a great deal in the Bill about the need to protect consumers, much of which we have already debated.

I am sure that I am not alone in having received in my post this morning a press release from the Financial Services Authority with the heading, "Consumer help at the click of a button". It states: Baffled by all the different financial products available? Fed up with small print and jargon? Want to complain but don't know how? Don't despair. A new website section is now available to answer any questions you may have about your personal finances—no jargon, no gobbledegook, just easy-to-understand, totally impartial information at the click of a mouse". So I tried to access the website. It is called "www.FSA.gov.uk/consumerhelp". I tried three times; but my computer was unable to find it. I talked to one of those extremely helpful people at 2001, our helpdesk, who also tried and said, "Yes, we have succeeded. You don't write 'consumerhelp' but simply 'consumer'". So I deleted the last four letters and—bingo!—it worked. When I eventually got on to the website, it was quite good; there was quite a lot of information. But it is not very encouraging if the FSA cannot get the address right. I do not know whether that is the sort of complaint that should go to the ombudsman.

The point I want to make about the noble Lord's amendment is this. The noble Lord, Lord Lipsey, referred to previous ombudsmen. In the insurance company I used to chair, we dealt with his ombudsman. We always felt that the post was independent of the regulator. When one had an extremely intransigent policyholder who could not possibly be persuaded that what we had done for him was perfectly reasonable, we always ended our letters in reply to the complaint by giving the ombudsman's address, saying that if the individual felt unable to accept the company's decision, he should feel entirely free to take up his complaint with the ombudsman.

I was somewhat sceptical about the scheme at first, but I came to recognise that it is quite good. Its independence is important—not only its independence from the companies the authority regulates, which goes without saying, but also its independence of the authority itself. Sometimes it might be said, "Perhaps the company did everything perfectly all right but the regulator should have stopped what it was doing, or should have ensured that it behaved properly".

I attach great importance to the independence of the ombudsman. I hope that when the Minister replies he will satisfy us that that will be the case. It is an important arm of consumer protection. It has worked quite well in the past. It needs to work even more effectively in the future.

The Earl of Onslow

We all know the old Latin tag, guis custodiet ipsos custodes—who guards the guards themselves? It is important that the ombudsman appears to be divorced from the authority setting up the post. During the water industry privatisation, it was originally proposed that the water authorities should police themselves. Reasonably, there was an uproar, especially in this House. Michael Howard changed his mind and set up a separate policing authority for the water companies.

Everyone agrees that the proposal in the Bill is a good idea. No one is saying that the person who will be proposed by the FSA will be anything other than a totally honourable, upright man who will do his job properly.

Lord Borrie

Does the noble Earl accept that the Bill does not provide that the authority will appoint the ombudsman?

The Earl of Onslow

I understand that he is indirectly appointed by the body which in turn is appointed. If I appoint the noble Lord, Lord Borrie, to do something and he appoints someone else to do something else, there is a direct link between the person he has appointed and myself. That is not to take away from the genius of the noble Lord, Lord Borrie, or the superb appointment he makes. All one is saying is that it appears to be wrong.

For the sake of argument, let us assume that I appoint the noble Lord, Lord Borrie, to do something and that he makes a totally out-of-character error of judgment and appoints my noble friend Lord Archer who appears—and I use that word totally advisedly—not to be as good as he is appointed to be. I then get the rocket, as does the noble Lord, Lord Borrie, because he has not been appointed by someone else. Appearances are so important. We want the system to work; we want the ombudsman to protect the consumer and we want him to be at arm's length.

That metaphor may have been a little hyperbolic, but I intended no insult. I merely illustrate what can go wrong and we do not want that to happen. We want the system to work.

Lord Bach

We want it to work and we believe that it will. We believe that the body's independence is already well established in practice as well as in theory.

I shall deal first with Amendments Nos. 247 and 248. They deal with paragraph (2) of Schedule 16, which sets out the FSA's key responsibilities in relation to the ombudsman scheme. Those responsibilities are, first, that the authority must establish the scheme manager to exercise the functions of the scheme; and, secondly, that the authority must take the necessary steps to ensure that the scheme operator is at all times capable of exercising those functions. The amendments seek to change paragraph (2) so that both the authority and the Treasury are placed under these obligations. At first blush, that does not seem an unattractive change. However, on reflection, we believe that it would be a mistake.

Schedule 16 places two key obligations on the authority; unequivocal statutory obligations. The Bill is clear and the authority must do these things. There is no get-out clause and no room for fudge. By splitting those obligations in some unspecified way, as the amendments propose, we would reduce the clarity of that responsibility. It would not be clear where the buck stopped and that could damage the commitment of the FSA to get an effective scheme up and running and to enable it to keep running.

Nor do we believe that it would be right to say that the amendments would increase accountability. On the contrary, they would confuse the lines of accountability. The Bill as drafted makes the authority responsible for setting up the scheme, and it makes the scheme operator and the chief ombudsman clearly accountable to the FSA.

However, we believe that the fear about independence is unreal. Schedule 16 also makes it clear that the board's independence from the authority must be secured by the terms of appointment and, importantly, the terms governing removal from office. As my noble friend Lord Borrie made clear, the scheme operator, not the FSA, will appoint the ombudsman again on terms consistent with their independence. Therefore, the independence of the scheme operator and of the ombudsman is written onto the face of the Bill.

Perhaps I may remind Members of the Committee that the present chairman of the Financial Services Ombudsman Scheme is no less than Mr Andreas Whittam Smith. It was perhaps ironic that the noble Lord, Lord Don, should use the parallel of a newspaper editor when debating this topic. Members will know well that a few years ago Mr Whittam Smith was a most distinguished and independent-minded editor of the Independent newspaper. He was appointed following a Nolan-style selection process on terms designed to secure independence. Following open competition, Walter Merricks was appointed as chief ombudsman. Anyone who has any dealings with him, or knows anything about him, will know that, to put it mildly, he is an independent-minded individual.

Lord Elton

The more the noble Lord makes us repose our confidence in the excellent characters of the people who will fill the post, the more he diminishes it in the machinery which those people will fill. I was hoping that he would persuade us that nothing could go wrong, whoever did the job. However, he is saying that nothing can go wrong because brilliant saints and wonderful geniuses are filling the jobs. I say nothing in denigration of them, but they are the worst possible examples he could choose.

Lord Bach

I do not believe that the noble Lord could have been listening carefully to what I was saying before I began my eulogy on the two individuals concerned. I was pointing out—and I thought that it was clear—that Schedule 16 makes it clear on the face of the Bill, which is significant, that the scheme is as independent as is sensible.

I turn to Amendment No. 249. It would have the effect of requiring the Treasury to lay before Parliament copies of reports it receives under paragraph (7). That paragraph does not appear to provide for any such reports to be made to the Treasury. Members of the Committee may consider that that goes to the heart of the matter and that the Bill should make provision for the Treasury and for Parliament to receive such reports. I have no doubt that that was one of the issues being addressed by the noble Lord, Lord Sharman. Indeed, that appears to be the intention behind Amendment No. 249.

We can understand the concern of Members of the Committee. Clearly, Parliament has a valid interest in what the ombudsman scheme gets up to, just as more generally it has an interest in the activities of the authority itself. However, the Bill sets up a clear line of accountability which we believe it would be wrong to confuse. The line runs from the scheme operator to the FSA and then further to the Treasury and to Parliament. The FSA has a responsibility for setting up the ombudsman scheme.

Both the scheme operator and the chief ombudsman report at least once a year to the FSA and those reports must be published. In turn, the FSA will be accountable to Treasury Ministers, who are of course accountable to Parliament. The FSA in its turn must make an annual report to the Treasury covering the discharge of its functions under the Bill. One of them is to set up a scheme and ensure that it can run effectively. That report must itself be laid before Parliament. That requirement is set out in Schedule 1, paragraph (10). We believe that the amendments would muddy the water. Furthermore, the scheme manager will be a company under the Companies Act and it will be obliged to publish a full report and accounts in accordance with relevant statutory requirements.

The Government are grateful to the noble Lord, Lord Sharman, for tabling the amendments because we have had a short and good debate on the important issue of the independence of the new scheme. We believe that there are protections on the face of the Bill and that, as my noble friend Lord Lipsey said, in the real world there is nothing for the noble Lord, Lord Sharman, to be concerned about.

Lord Sharman

I am grateful to the Minister for his reply. He adequately summarised my anxieties by saying that I am more concerned about the perception of independence than the actual activity of those charged with the duty of performing the role of ombudsman. We have touched on this matter in previous debates on the Bill. The purpose of legislation is not to provide for those who are carrying out the job at present; it is to provide for an ongoing situation. That is why I use the analogy of "Jurassic Park": when the scientists were good and friendly, nothing happened. That is my concern.

I would point out that the ombudsman operates from the same address as the FSA. That, prima facie, does not exactly make one think that he is independent. I can understand the noble Lord's response that the first two amendments that we tabled might cause a little confusion, but they were intended to add an independent thread to the appointments process. I, for one, endorse the comments made by the noble Earl, Lord Onslow, who made the point more elegantly than I did.

The chain of command is there. If one appoints a body to appoint someone, that person is appointed. This is wonderful, but out in the real world that is what happens. If I create a subsidiary of a business and that subsidiary appoints its chief executive, no one would consider that I had appointed him. My goodness! Therefore, I believe that a misperception exists and that is what market confidence is about. I accept that the final amendment in the group was not elegant in its drafting. It did not achieve what I sought to achieve.

The phrase in the Bill that concerns me is, publish[es]…[as] it considers appropriate". I have forgotten the exact reference but I am sure that the noble Lord will remember it. The ombudsman will publish his annual report as he considers appropriate. I do not believe that that is adequate. I believe that there should be a compulsion to lay those reports before Parliament. Nevertheless, having listened carefully to what the noble Lord—

4.30 p.m.

Lord Elton

Before the noble Lord withdraws his amendment—I believe that that must have been the preface to withdrawing the amendment—I am anxious to be clear in my own mind. I presume that he will come back to the matter at a later stage. If that is the case, I should like to refer to something that the Minister said with regard to splitting the authority and the Treasury and putting them in a harness together. If the noble Lord were to bring back the amendment without "the authority" and have this matter stand clear of the ombudsman, from a different postal address and with the right website address functioning, then I would find it a much more attractive amendment. I hope that we shall see it again in that form.

The Earl of Onslow

Before the noble Lord continues, it seems to me that Members of the Committee have a perfectly genuine and real concern. I understand also that the Government believe that they have it right. Although I have a feeling that they may have it right, it does not look right. Can the noble Lord say, "I accept that concern has been raised. We shall have a little think about it again. I cannot promise to do anything but I shall look at it with an open mind"? That is the House of Lords at its best, and he is a good Minister.

Lord Bach

The noble Earl flatters easily and he flatters me even more easily than others. Of course, we shall do exactly as he says. Our doors are open to representations on this, as on any other, subject between now and Report. I must cover what I say by using one of the remarks that he made; that is, we do not commit ourselves to any change. I thank him for his contribution.

Lord Sharman

I was about to say that, having listened very carefully to the contributions of noble Lords in this short debate, for which I am grateful, nevertheless I want to consider the matter. We shall look carefully at the situation before perhaps we return to it on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 248 to 250 not moved.]

Schedule 16 agreed to.

Clauses 220 and 221 agreed to.

Clause 222 [Determination under the compulsory jurisdiction]:

Lord Saatchi

moved Amendment No. 250ZA: Page 114, line 13, leave out subsection (2) and insert— ("(2) The Ombudsman shall only make a determination in favour of a complainant where he is satisfied that the respondent has breached either or both of—

1. (a) the Authority's general rules;
2. (b) any relevant provision of the law.").

The noble Lord said: In moving Amendment No. 250ZA, I wish to speak also to the other amendments in our names in this group. It is also my pleasure to be able to tell the Committee that I believe that the super-ombudsman himself, Walter Merricks, is in the Chamber to hear our debate about his role.

I start by examining certain aspects of the workings of the ombudsman scheme. I believe that it might be of help to begin by trying to define in simple terms what the role of the ombudsman is supposed to be. I believe that, in principle, it is to provide a quick and cost-effective forum for settling disputes between firms and investors in order that investors may avoid incurring the time and expense of going to court to settle their disputes. That is surely well and good and we all applaud that. However, we believe that, in order to act fairly to both parties, the ombudsman should be bound by the same rules as a court. But the Bill does not describe the processes that the ombudsman will follow in that regard.

Clause 222(2) states that the ombudsman is to determine a complaint, by reference to what is, in [his] opinion, fair and reasonable in all the circumstances". That does, indeed, sound reasonable. However, the problem with this formulation is that it would enable the ombudsman to uphold a complaint, even though a firm had observed all the FSA's rules and all the relevant legal provisions. That is potentially unfair to firms. In addition, it removes the level of certainty which firms should have when they devise their own procedures. Therefore, this first amendment in the group proposes that the ombudsman will uphold a complaint only where the respondent has breached either the FSA's rules or the relevant provisions of the law.

I now address our second amendment, Amendment No. 250A, and I shall speak also to Amendments Nos. 250B and 250D. I start with Amendment No. 250A, which relates also to Clause 222 and the method of determination of complaints by the ombudsman. I believe that it ad dresses a most important point and, I hope that the noble Lord will agree, a point of principle; that is, the imbalance that now exists in the Bill between the complainant and the authorised person who is the subject of the complaint.

I shall try to describe the imbalance. First, the complainant can choose whether or not to have a complaint dealt with under the ombudsman scheme. We find that in Clause 220(2)(a). On the other hand, the authorised person has no such choice. The scheme is compulsory and the firm must submit itself to it.

Secondly, once the ombudsman has determined the complaint, if the complainant does not like the determination, he can reject it and take the matter to court. Only the complainant can appeal to the courts. The company that is complained of has no such right. It is true that this non-binding nature of the determination of the ombudsman on the complainant is a feature also of some other existing ombudsman schemes. However, in those cases the schemes are voluntary. But under this proposed Act the ombudsman scheme will not be voluntary; it will be compulsory on authorised persons. Under those circumstances, we believe that it would be fairer to both parties if both were bound by the ombudsman's determination or if both could decide to reject the determination. That is the purpose of Amendments Nos. 250A and 250B.

I turn now to Amendment No. 250D. We find in Clause 224(3) that the ombudsman's rules, may not provide for the making of an award against the complainant n respect of the respondent's costs". I imagine that the logic behind that provision is that access to the ombudsman should be without charge to the investor. However, participation in the ombudsman scheme is expensive for firms; for example, the PIA currently charges firms a fee of £500 whenever it receives a complaint from an investor relating to that particular firm. In addition, the firm's costs of investigating that complaint could also be substantial. There is no reason that we can see why the scheme rules should not provide that an award of costs may be made against a complainant where that complainant's claim is frivolous, vexatious or dishonest.

That may sound far-fetched but I can give the Committee an illustration. That was a case where a group of 10 investors made what turned out to be fraudulent complaints against a well-known firm which was put to substantial expense in gathering evidence to refute the claims. In such a case, we believe—and this amendment seeks to provide—that it would be appropriate for the ombudsman to have required the investors in that case to pay the firm's costs. I beg to move.

Lord Taverne

I wish to speak to Amendment No. 251 which stands in my name and that of my noble friends Lord Newby and Lord Sharman. Clause 224(4) seems to sit rather oddly with subsection (3) which states: Costs rules may not provide for the making of an award against the complainant in respect of the respondent's costs", while subsection (4) states: But they may provide for the making of an award against the complainant in favour of the scheme operator, for the purpose of providing a contribution to resources deployed in dealing with the complaint". I should like the Minister to answer that point because it seems to be a somewhat strange provision. I do not know what are the precedents for it. There are occasions on which professional bodies—for example, the Institute of Chartered Accountants—provide, in the case of disciplinary proceedings, that an order for costs may be made in favour of the costs incurred by the proceedings themselves. But that seems to be a very different case because the ombudsman is not a disciplinary body. He is taking up complaints.

If it is decided that he should not be able to make an order against the respondent, why should he then make an order in favour of himself? It is almost as though, when the funds run low, the ombudsman might be tempted to take a rather more severe view than he would do otherwise. It seems to me a surprising provision. Therefore, our amendment proposes that subsection (4) should be omitted. However, we await with interest the Minster's explanation.

4.45 p.m.

Lord Lipsey

I wish to speak in particular to Amendment No. 251 but, first, I want to make a few comments on the amendments proposed by the noble Lord, Lord Saatchi.

The purpose of an ombudsman scheme is to provide reassurance and redress for consumers and to have a process which is reasonably quick for the resolution of disputes. That is why, as the noble Lord, Lord Jenkin, said earlier, the scheme has won the support of the industry.

What I fear about the noble Lord's amendments is that if you take away from complainants the right to go to the court if they do not like the ombudsman's decision, they will be encouraged by legal advisers to go straight to the courts, ducking the ombudsman on the way. That will lead to a more expensive and less satisfactory procedure than would otherwise be the case.

I turn now to what seems to me to be the more substantive amendment before us; that is, Amendment No. 251, which removes the ombudsman's right to levy costs against complainants who are vexatious. I use that word for the purposes of simplicity. There are two questions to be asked about that. First, is it likely to lead to fewer vexatious complaints? I make the following points. First, there are not many. I have checked with the ombudsman's office. They really are a rarity.

Secondly, on the whole, people who are thinking about being vexatious are not put off by this kind of provision. They are out to cause bother or, as the noble Lord, Lord Saatchi, said, to commit fraud. If that is their purpose, this provision is not likely to put them off.

The third point is that a provision of this kind will add to costs and not reduce them, because in each case the ombudsman will have to decide whether it is a vexatious complaint. That will be another process in addition to the process of resolving the complaint. So it will add to the costs.

Finally, I do not believe that the ombudsman has put forward any proposal to make rules under this scheme. So he perhaps regards the power—to use the word for the fourth time this afternoon—as "otiose."

But it is not merely that it is otiose. It would have an ill effect. I believe that it would cause legitimate complainants to be reluctant to go to the ombudsman. We can imagine the scene. Someone has had a trusted IFA for some years and then he finds that he has been flogged something which was not appropriate for the purpose. That person then says, "Right, I am going off to the ombudsman to complain". The IFA says, "You do that. Did you know that the ombudsman has the right to award costs against you and you may lose not only the money you lost on my product but you may lose your costs? And I can tell you when I get to the ombudsman, with my knowledge of the industry against your rather feeble knowledge, I am going to make a case that you have been a vexatious complainant and it may cost you your home, your car and your estate".

I know that that is an empty threat if you have the degree of expertise that we have, perhaps, in this Chamber. But it is not an empty threat if you are Joe Soap. You are rather out of your depth in these waters anyway and you are looking to someone to sort out your complaint. Therefore, the effect of the proposal will not be to discourage vexatious complainants but to discourage genuine complaints, which will seriously weaken the scheme.

I beg the Minister to think very hard about this between now and Report stage. I hope that on reflection, looking again at the debate that has taken place in the industry and on consultation, he will agree that the Bill will be stronger with the amendment proposed.

Lord Elton

What protection or redress does the noble Lord, Lord Lipsey, suggest for perfectly honest practitioners against vexatiously expensive complainants of whom we have already heard—as I know myself—there are a number around in the market?

Lord Lipsey

The person against whom the complaint is made will not get redress under this clause anyway. The redress will go to the ombudsman himself. The ombudsman has made it very clear that he will ruthlessly strike out what appears to be a vexatious complaint at an early stage. It really does not need this provision.

Lord Bach

Before responding to the specific amendments, I want to make a few key points, perhaps, about the ombudsman scheme. In many ways, they echo what the noble Lord, Lord Saatchi, said, when he moved his first amendment.

It is important that I should do so because it may help us to see these interesting amendments in context. As he said, effectively the scheme is intended to provide a quick, cheap and informal mechanism for resolving disputes between authorised firms and consumers. Past experience shows the benefit for firms and consumers in having those arrangements. Traditionally, ombudsman schemes have accepted cases only where the firm and consumer concerned are in a stalemate position; and yet by referring the dispute to an independent third party, the vast majority—over 80 per cent—are resolved between the parties without the ombudsman having to take a decision one way or another.

So questions about who should be bound by the determinations and on what basis they will be reached, and the circumstances in which a complainant could be ordered to pay certain costs, must be seen against a background where those issues do not even arise in the vast majority of cases.

I turn to the amendments. Amendment No. 250ZA would alter the basis on which the ombudsman is to determine complaints. We have considered the matter carefully and we believe it right to require the ombudsman to determine cases on the basis of what is fair and reasonable in all the circumstances. Of course we would expect him to take the matters mentioned in the amendment into account where they were relevant. But we do not believe it is appropriate to be too prescriptive. This is not a court of law.

To ensure transparency, the ombudsman will be required to make a written statement of the reasons for his determination. He will, of course, be required to comply with Article 6 of the European Convention on Human Rights. I say that to the noble Lord, Lord Kingsland, with rather more confidence than the other day. However, it is the very point of an ombudsman scheme that it should be quick and informal. It would not be right to constrain the ombudsman by requiring a purely legalistic focus or a focus on general rules to the exclusion of everything else. Indeed, to do so could mean that he was unable to examine all the matters, such as delay or maladministration, relevant to a complaint. It is right to provide such an accessible and flexible means of consumer redress. Previous schemes have determined cases on the basis of what is fair and reasonable, and we do not believe that we should abandon that principle in setting up this new and important scheme.

Amendments Nos. 250A and 250B deal with the question of whether the ombudsman's decisions should be binding on the complainant. We do not believe that they should. In that respect, the new ombudsman scheme will again follow those it replaces. Those schemes are based on the premise that the decision is not binding on the complainant. They provide consumers with an alternative to court action, but they do not deprive them of their legal rights at any stage before they decide to accept the determination. We believe that, in providing for the new scheme, it would be wrong to design it in such a way as to put the complainant in a less favourable position than under the current schemes.

The ombudsman's decisions are of course binding on respondents. The purpose of the scheme is to provide consumers with a free and accessible means of redress where there has been wrongdoing to ensure that individuals without the vast resources and expertise available to some firms are treated fairly in the financial marketplace. A scheme that achieves that aim will underpin consumer confidence in financial markets and services. Were the ombudsman's decisions not binding on respondents, that objective would not be realised. The consumer could find himself, once again, faced with having to decide whether to pursue a case through the courts, which, we know, is frequently a long and expensive process.

Amendment No. 250C has not been spoken to. Amendments Nos. 250D and 251 pull the Government in different directions. On the one hand, Amendment No. 250D, spoken to by the noble Lord, Lord Saatchi, would allow for the ombudsman to make an award of a firm's costs against a consumer. On the other hand, Amendment No. 251, spoken to by the noble Lord, Lord Taverne, and by my noble friend Lord Lipsey would mean that it was not possible for the ombudsman to award any costs at all against a complainant, even where his behaviour had been improper, unreasonable or vexatious. Together, those amendments illustrate that the Bill probably—I emphasise that word—strikes the right balance at the present time.

It would not be right or desirable to provide for the ombudsman to award the respondent's costs against a complainant. The scheme is intended to provide consumers, many of whom in the real world simply do not have the resources to pursue a case through the courts, with a free means of redress. The respondent's costs will be outside the control of the ombudsman. To allow those costs to be awarded against the complainant would risk imposing heavy penalties or the perception just as importantly—that such penalties might be imposed on complainants, which might discourage them from properly using the scheme. That would run against the grain of what we are trying to achieve.

However, to protect against the possibility that consumers may misuse the scheme, the Bill as presently drafted allows, in limited circumstances, for the ombudsman to make an award of the scheme operator's costs against a complainant. That is an important balance which Amendment No. 251 would remove. It is important to remember that the ombudsman will normally be able to award costs against a complainant only when he has acted improperly or unreasonably, or has been responsible for an unreasonable delay. Consumers should be free to complain when they have not been treated fairly. The scheme could provide an accessible, free means of doing so. We agree that if the ombudsman were routinely to award costs when he found against the complainant, that could deter people with a legitimate grievance from seeking the redress to which they are entitled.

We do not believe that any such award would be made except in extreme cases and only after prior warnings had been given to the complainant and—what I am about to say now is also an important rider—only if it has been shown to be necessary in the light of experience for rules to have been made to allow it. Although we shall invite the noble Lord to withdraw Amendment No. 251, I want to make it clear that we want to consider the matter before Report stage. We should like to listen to representations if any noble Lord interested in the amendment wishes to make them.

As I have said, it is important that the provisions allowing for such awards to be made where the complainant's behaviour has been improper or unreasonable remain in the Bill. They provide an important and necessary safeguard against inappropriate use of the scheme. It would not be right for the Bill to allow consumers carte blanche to indulge in unreasonable behaviour. All the amendments would disturb arrangements that have been carefully designed to produce a scheme which safeguards consumers while, we hope, remaining fair to business. Significantly, they are also broadly similar to those under the existing schemes which firms have joined on a voluntary basis in the past. I therefore ask all noble Lords who have put their names to the amendments to consider not pressing them.

Lord Jenkin of Roding

Perhaps I may begin by making the representations for which the Minister has just asked. I have been reminding myself of the evidence given to the Joint Select Committee about the scheme by Mr Andreas Whittam Smith, acting as spokesman for the ombudsman. It so happens that Mr Whittam Smith and I had a passage of arms three or four years ago, where I sought the help of the Press Complaints Commission. It would be entirely wrong for me to take up the Committee's time in describing the circumstances.

Before I went to the Press Complaints Commission, I had clearly to agree that it was a complete alternative to suing the newspaper for libel. Once I had initiated a complaint with the Press Complaints Commission, I was, as I understood the matter, precluded from taking my case to the courts. I considered at some length wit h my legal adviser as to whether that was the right course of action in the circumstances. I was advised that the hassle of the courts would not be worth what I might get out of it.

I then had a long battle with the help of the Press Complaints Commission to get Mr Whittam Smith to issue an apology. I am happy to say that after some months his newspaper published an appropriate apology and that was the end of the matter. I cannot quite understand why it is right that someone who can be quite seriously damaged by a newspaper should have to give the kind of undertaking which complainants to the Press Complaints Commission have to give, whereas someone can go to the ombudsman and, if he does not receive the answer he wants from the ombudsman because under the Bill the ombudsman's decision is not to be regarded as final, he is then free to pursue his complaint in the courts.

It may well be that there are significant differences between the two and, obviously, one must not take the parallel too far. But it has always seemed slightly odd that the complainant, having failed to persuade the provider or authorised person that he has a justified complaint, having then failed to persuade the ombudsman that he has a justified complaint, may then continue to pursue his case through other channels at the cost, it seems, of the authorised person. I certainly believe that the amendment in the name of my noble friend on the Opposition Front Bench is one that requires careful consideration.

On the amendment spoken to by the noble Lord, Lord Taverne, I believe that to be a reasonable provision to retain in the Bill in view of the fairly extreme circumstances that the subsection requires before costs can be awarded against the complainant.

I listened to the noble Lord, Lord Lipsey, with some concern. He fears that this provision will deter genuine claimants. With the greatest respect, I do not recognise the circumstances that he describes. I have never met an authorised person, if I may so describe an insurance broker or some such person, who would even remotely behave in that way. Maybe such people exist, but there needs to be a sanction against the totally unreasonable and vexatious complainant. After all, the courts will act in that way, to the extent of ultimately barring someone from the proceedings in the court. If the Attorney-General is prepared to certify that someone is a vexatious litigant, such a person cannot attend the proceedings.

I am unsure why this limited power to award costs in the circumstances of unreasonable behaviour or unreasonable delay should have a bad effect. Perhaps the noble Lord will take that on board. I believe that the amendment of my noble friend is justified. I would hate to see subsection (4) removed because I believe it is a valuable discipline against unreasonable complainants.

5 p.m.

Lord Lipsey

Does the noble Lord accept that the reason he has not met such people is that he moves in highly respectable financial services circles? I commend to him the experience that I have of sitting on the disciplinary committee of the Personal Investment Authority. At the bottom end of the industry he will find people who are not of the character that he represents to the Committee.

Lord Donaldson of Lymington

I repudiate emphatically any suggestion that one should use the Press Complaints Commission as the yardstick for deciding what we should do in this scheme. That commission invented its own scheme. If relevant, I would happily join in the debate about the unnecessary omissions from that scheme. I merely state that is not the yardstick.

On the provision in Clause 224(4)(b), where costs can be awarded in favour of the scheme operator if the complainant is responsible for unreasonable delay, would it not be more appropriate to provide that his complaint should be dismissed? If he is responsible for unreasonable delay, I do not understand why everybody should be put to the trouble involved.

Lord Walker of Worcester

In support of the amendment in the name of my noble friend Lord Saatchi, the situation of an unauthorised person and a consumer involved in a procedure, where only one of them is bound by that procedure, is an uncomfortable one. The Minister's main argument appeared to be that consumers are small people with limited resources and authorised persons are large people with plenty of resources, although sometimes it could be the other way around. There are plenty of small insurance brokers and small financial advisers, who are perfectly honourable and who may have wealthy clients who are in dispute with them. In that situation, the ability to meet future legal costs is totally the other way around.

In my view it would be advantageous if the ombudsman could say to both sides, "If you wish to pursue my procedures the result will be binding on both sides". That could also result in many people seeking redress before the ombudsman before seeking redress in the courts because the cost would be small, the procedure speedy and they may achieve a quick result. In the event, plenty of people, perhaps against legal advice, may go to the ombudsman.

I hope it will not embarrass the noble Lord, Lord Taverne, if I support the Government in their opposition to his amendment. From his opening remarks this afternoon, I thought that there would be total agreement between the Government and the Liberal Democrats on all issues. However, I believe that the noble Lord, Lord Lipsey, was correct in his criticism of the potential effect of this. I hope that that amendment will be withdrawn.

Listening to the noble Lord, Lord Taverne, I was reminded of a letter written many years ago by AP Herbert of The Times, in which he said that the Liberal Party is as a herring: the backbone is to the left or to the right depending on which way you open it!

Lord Elton

The noble Lord has made it clear, as does the Bill, that the decision of the ombudsman is binding on the respondent. I understand that that is the case only if the respondent accepts the award. If the respondent goes to court, is there a provision in the Bill that makes this an alternative, or is it an additional recourse? I assume that it is not an alternative and that it is the expectation that the complainant will appeal against the award of the ombudsman. However, there is nothing to stop the complainant seeking an award against the practitioner, thus having two bites at the cherry. Surely there must be a protection for practitioners against such a situation.

As the award is not binding on the complainant, the result is that there will be two classes of decision within the compulsory jurisdiction. In many respects, although not in all, I take it that the ombudsman is expected to conduct himself—I speak of him collectively—as a court. To what extent are his—or its—decisions binding? To what extent must decisions taken on Wednesday be consistent with decisions taken on Tuesday? Is there any difference between a decision that has been accepted by the respondent and one that has not and, therefore, has not been put into force? Is the ombudsman bound by that when a similar case comes up in the future?

Such matters may seem small now, but they are cumulative. Down the years a considerable body of what we would otherwise call "case law" will build up, and it is important to know how that will build up.

Lord Donaldson of Lymington

The noble Lord, Lord Borrie, knows far more than I do about this. However, I know quite a lot about the bank ombudsman scheme and people do not have trial runs in front of the ombudsman. One may think that they would, but they do not. Furthermore, there is no doctrine of precedent. The operation is much more like that of a mediator. Indeed, as I understand it, in practice the banking ombudsman used to issue a draft award, so to speak, so that the complainant would know what would happen if he pursued the matter and usually that settled the issue one way or the other. The answer is that it works, although intellectually that may be a little surprising.

Lord Elton

The noble and learned Lord treats the experience of the banking ombudsman as though it were precedential. Can we be assured by the Government that this scheme will operate in the same way? If not, from where will that reassurance come?

Lord Borrie

Perhaps I can add a helpful point of fact. The insurance ombudsman, a position that has existed since 1982—a precursor of the other private sector ombudsmen—from time to time has published quite detailed case law in terms of loose-leafed volumes of decided cases. I understand that they are not strictly speaking precedents in the same way as decisions of the Court of Appeal under the Master of the Rolls are regarded as binding precedents, but they are useful both to later ombudsmen and to the industry.

Lord Elton

That is helpful. Does that mean that a complainant can look through the records and, through the ombudsman, apply the same principle to his case as was applied in a decision taken three or four years ago?

Lord Borrie

The noble Lord is speculating about something I do not know. I know that there is availability and, therefore, a very bright complainant may well check. It may be that one of these days such information will be available on the Internet and many people will see these "precedents".

Lord Elton

The noble Lord mistakes me. In any case, I am asking the question in the presence of those who know everything: the Government and their advisers. The question I am asking is not whether people will appeal to previous cases for precedent, but whether in fact they will be entitled so to do. The noble Lord, Lord McIntosh, looks as though I am straining rather far, but I am not. I have been on the edge of these affairs. It is quite important for those making the decisions to know whether a decision made today will be held to under different circumstances on another occasion in the same way as is a court. The noble Lord may want to write to me about this; I would like an answer.

Lord Bach

I have nothing further to add to the letter I wrote; I should just be repeating myself. In each case, the ombudsman must be fair and reasonable, given the circumstances of the matter before him. If one of the parties to the case wants to refer to whether it is a "loose leaf" precedent or not, that will be his or her right. No doubt the ombudsman will take note of that, but he will decide the case on what is fair and reasonable to that particular complainant and respondent. That is all I want to say on the matter.

Lord Elton

The noble Lord said that in fact it will not form a precedent and presumably will not be justiciable as such. A precedent is something by which one is bound. I beg the noble Lord's pardon, it will not form a binding precedent and therefore it will not be justiciable as such, which is what I wanted to know.

Lord Saatchi

I am grateful to all noble Lords who have spoken in this short debate about the ombudsman. His role is probably one of the most important aspects of this Bill. Therefore, we shall want to come back to this issue on Report. The noble Lord, Lord Sharman, made some very interesting points as regards the ombudsman in relation to a previous group of amendments. I am grateful to noble Lords who have spoken to this point.

The striking thing about the very short debate that we have had is that one gets a slight impression that the Government's position is that the authorised persons—namely, the firms—are like naughty school children. There is a presumption that that is what they are. However, we should remember for a moment that it is the authorised persons who are paying for this scheme. It is their money that is being contributed to making the ombudsman scheme work. I believe that we could give them a little more credit than has been apparent in some of the comments we have heard this afternoon.

Lord Bach

There is no way in which we believe the authorised person, to use the expression of the noble Lord, to be like a "naughty person" in all this. As I understand it, already many people will voluntarily become authorised and use any ombudsman scheme that is now available because it has been found to be a practical and satisfactory way of dealing with disputes. There is absolutely no bias set into this scheme at all. We want to see the problems sorted out as quickly, flexibly, and cheaply as possible.

Lord Saatchi

How can the Minister say that there is no bias? The two parties who come before the ombudsman—namely, the authorised person and the complainant—do not have the same rights. Therefore, bias is built into the structure of the Bill. Nevertheless, I shall not delay the Committee any longer. We shall return to this matter on Report. I am grateful for what noble Lords have said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 250A and 250B not moved.]

Clause 222 agreed to.

Clause 223 [Awards]:

[Amendment No. 250C not moved.]

Clause 223 agreed to.

Clause 224 [Costs]:

[Amendments Nos. 250D and 251 not moved.]

Clause 224 agreed to.

Clause 225 [Ombudsman's power to require information]:

Lord McIntosh of Haringey

moved Amendment No. 252: Page 116, line 27, leave out subsection (6). The noble Lord said: This amendment was spoken to with Amendment No. 89. I beg to move.

On Question, amendment agreed to.

Clause 225, as amended, agreed to.

Clauses 226 to 229 agreed to.

5.15 p.m.

Lord McIntosh of Haringey

moved Amendment No. 252VA: After Clause 229, insert the following new clause— OPEN-ENDED INVESTMENT COMPANIES (" .—(1) In this Part "an open-ended investment company" means a collective investment scheme which satisfies both the property condition and the investment condition. (2) The property condition is that the property belongs beneficially to, and is managed by or on behalf of, a body corporate ("BC") having as its purpose the investment of its funds with the aim of—

1. (a) spreading investment risk; and
940
2. (b) giving its members the benefit of the results of the management of those funds by or on behalf of that body.

(3) The investment condition is that, in relation to BC, a reasonable investor would, if he were to participate in the scheme—

1. (a) expect that he would be able to realize, within a period appearing to him to be reasonable, his investment in the scheme (represented, at any given time, by the value of shares in, or securities of. BC held by him as a participant in the scheme); and
2. (b) be satisfied that his investment would be realized on a basis calculated wholly or mainly by reference to the value of property in respect of which the scheme makes arrangements.

(4) In determining whether the investment condition is satisfied, no account is to be taken of any actual or potential redemption or repurchase of shares or securities under—

1. (a) Chapter VII of Part V of the Companies Act 1985;
2. (b) Chapter VII of Part VI of the Companies (Northern Ireland) Order 1986;
3. (c) corresponding provisions in force in another EEA State; or
4. (d) provisions in force in a country or territory other than an EEA state which the Treasury have, by order, designated as corresponding provisions.

(5) The Treasury may by order amend the definition of "an open-ended investment company" for the purposes of this Part."). The noble Lord said: The definition of an open-ended investment company, which I gather is called an "OEIC", has generated much discussion in the course of debates on this part of the Bill, and the Government have indicated at each stage that they are carefully considering the issue. I am pleased to say that, with the help of industry representatives, these deliberations have been successful and we now have a robust and well-targeted definition to put to the Committee. A draft reflecting the substantive changes brought about by the Government's amendment was shared with the main industry representative body, the Association of Unit Trusts and Investment Funds, which I understand is called AUTIF, and the FSA, both of which strongly welcomed it.

The difficulties in defining an OEIC have largely been in pitching the definition at the correct level to cover companies that need to be regulated as OEICs (and thus as collective investment schemes), without catching those that do not have the necessary characteristics. It is also important to get the definition right because it forms the foundation on which certain types of investment scheme can be formed and, together with the regulations to be made under Clause 256, which the Government have recently put out in draft form for consultation, will facilitate the development of innovative new investment products. In line with the wider aims of the Bill, this reflects the Government's desire to keep the UK at the leading edge of the highly competitive international collective investment schemes market and to continue to improve consumer choice in these products.

In his Budget speech last week, the Chancellor announced a wide-ranging review of UK institutional investment to be led by Paul Myners. The investment-raising opportunities for UK business are very much at the forefront of this. The possibilities opened up by the definition of an OEIC given by the Government's amendment reinforce this theme and form the foundation on which new ways of raising funds for UK business hero and abroad can be developed.

The definition given by these amendments is framed by reference to two tests, both of which must be satisfied in order for a scheme to be an OEIC; namely, the property condition and the investment condition. I promise that ore gets used to the word "OEIC" after a while.

The property condition carries forward tests in the existing clause. The investment condition, however, now has two limbs. The first relates to the rights of investors over the redemption of their shares or securities, the second to the expectations that a reasonable investor would have.

The important features that the amendments secure in the investment condition are, first, to tie into the definition the expectations of a reasonable investor in relation to the period within which he will be able to realise his investment, and, secondly, to stipulate that he would have to be satisfied that the amount so realised would be based on the value of the relevant scheme property. This brings in an element of judgment as to whether or not a company actually functions as an open-ended investment company.

The investment condition is concerned with actual or potential redemption of shares or securities. It is important here to exclude redemption outside the scope of an OEIC's activities as a collective investment scheme, so actual or potential redemptions under the Companies Act 1985 is excluded as are those under corresponding provisions in an EEA state. In order to be able to take into account redemption under provisions of non-EEA states, a new subsection (to be inserted by subsection (4)(d) of Amendment No. 252VA) gives the Treasury the power to designate, by order, such provisions. This will be subject to the negative resolution procedure. Subsection (5) gives the Treasury the power to amend the definition of o n OEIC for Part XVII purposes. This may be used in the future to enable the definition to respond rapidly to commercial developments or to rectify weaknesses in the current definition if they become apparent. As an order under this power could widen the scope of the definition, and thereby have broader implications, for example, for orders made by the Treasury, under the powers in Clause 256, it will be subject to affirmative resolution. Amendment No. 278E provides that orders made by the Treasury under this amendment changing the definition of an OEIC will be subject to the affirmative resolution procedure.

There are a number of opposition amendments in this group. It may be for the convenience of the Committee if Members opposite speak to them now. I can then respond rather than trying to anticipate what they might say. I beg to move.

Lord Elton

It would have been fascinating to hear what the noble Lord said in response to everything Members might Lave said but did not; however, we are to he denied that pleasure.

Can the Minister say whether this amendment has been seen by the Delegated Powers and Deregulation Committee for its comments on the delegated powers therein? If so, which report can we find it in?

Lord McIntosh of Haringey

I have written to the noble Lord, Lord Alexander, as chairman of the Delegated Powers and Deregulation Committee, who expressed concern that we were sending him amendments in dribs and drabs for his comment. It is with his agreement and that of the committee that we shall be sending all the amendments together before Report stage so that they can be considered by the committee at one go, at its convenience, in time for the House to consider them on Report. We do not believe that this specific amendment has been put forward already. Therefore, although I have taken care to ensure that these are affirmative resolution procedures—I am sure that is what everyone wants—the amendment will be included in the more substantial batch which will go to the Delegated Powers and Deregulation Committee shortly.

Lord Elton

I am grateful to the Minister and am reassured by the level at which he is putting in these powers. Can I also be reassured that if, by any chance, the committee were to be critical of one or other of the amendments—there are many—we would be in order to table amendments supportive of that, even though it would not have been possible to give notice, as is normal, in Committee that we were planning so to do because we would not know what the criticisms were?

Lord McIntosh of Haringey

There is nothing in procedure or in propriety which would stop the noble Lord from doing that.

Lord Kingsland

By Amendment No. 252VA the Government are altering the definition of "open-ended investment companies". These are the only bodies corporate which constitute collective investment schemes and so are subject to the extra marketing restrictions on authorised persons contained in Clause 231; to the requirement for the manager to be authorised under the Bill; and to United Kingdom offshore funds tax legislation which treats capital gains as if they were income.

The substantive part of the amendment seeks to change the definition of when the company is to be regarded as open-ended. The Government have accepted that, unless there is an express right to redeem, redemptions made should not make the investment company open-ended unless the redemptions are at the option of the investor. As the Minister is aware, the Government consistently refused our amendments to this effect in another place, even though this was exactly what the UCITS directive provided.

We, the Opposition, welcome the new clause, subject to one important caveat, which I shall explain in a moment. The clause appears to provide a much more flexible and forward-looking definition of open-ended investment schemes. It should allow the establishment in the United Kingdom of a greater variety of products, thereby enhancing the competitive position of the United Kingdom as a place in which to operate such schemes.

The ability to develop new products is, as Members of the Committee are well aware, of vital importance to the United Kingdom investment funds industry if it is to respond to the changing needs of investors and maximise its potential for international growth. We would welcome the Minister's confirmation that these provisions are intended to encourage innovation and development, already well established in other jurisdictions, of authorised investment companies where redemption periods may vary. Indeed, an "investment company with variable capital" may well be a more accurate description of such companies than is contained in the present title.

There are concerns that the wording in subsection (3)(a) could, notwithstanding the exemptions in subsection (4), have the effect of bringing within the definition a closed-ended company with a finite life. The example might be of a company set up for a fixed period of 10 years, at which point it would be liquidated. An investor who invested in such a company in year nine would have a reasonable expectation that he would be able to realise his investment within a year, which would be a period appearing reasonable to him.

That could have unexpected consequences for tax status, for example. Would that company be regarded as open-ended under the proposed definition? We would welcome clarification on that point before Report stage. One way of avoiding this possibly unintended effect may be to refer in subsection (3)(a), to the realisation of the investment being, "at the request of the investor", rather than as a result of a corporate decision which was known in advance. We would also welcome confirmation that the new definition will allow scope for a wider range of authorised funds which are intended for domestic consumption and which do not seek to benefit from the UCITS passport.

With that caveat in mind, it will not be necessary for us to move Amendments Nos. 252XA, 252A, 252AA, 252AB and 252AC. Amendment No. 252AD concerns the definition of "operator". The current definition, which is the same as that in the Financial Services Act, covers unit trust schemes with a separate trustee and open-ended investment companies; but it does not cover other types of collective investment scheme. The identification of who is the operator is important for the purposes of the definition of a collective investment scheme in Clause 229, and for determining whether someone is carrying on a regulated activity which includes establishing and operating a collective investment scheme in accordance with paragraph (8) of Schedule 2.

Finally, I turn to Amendment No. 254YK. As the Committee is aware, Clause 264 of the Bill contemplates individually recognised overseas schemes becoming recognised schemes. The provisions of the clause are unclear as to whether such schemes must have a trustee or depository. The amendment is intended to make it clear that, if the scheme takes the form of an open-ended investment company, it must have a depository; and if the scheme takes some other form, it must have a trustee or depository. That would be consistent with good market practice and would be for the protection of consumers.

Lord McIntosh of Haringey

I can give the noble Lord the assurance he seeks which will enable him not to move the amendments whose numbers he listed. It is not the case that the Bill provides only that redemption should be at the request of the shareholder. Introducing the requirement that redemption of shares must always be at the request of the shareholder would narrow the definition to an unacceptable degree. A company could be open-ended if the redemption was initiated by the company provided that there was an expectation that this would occur. That is what is provided for in the new clause.

In relation to limited life companies, again I can put the noble Lord's mind at rest. The answer to his point on the fixed life company in the last few months of its life is that the definition we proposed is based on the overall impression that the reasonable investor would get when he is considering investing in it. The investment condition operates in relation to the company itself. It does not concern a particular point in time at the end of the company's life. Focusing on that particular point in time does not give an impression of the nature of the company; it is the nature of the company that counts as far as concerns the definition in the new clause.

I hope that that enables me to speak only to Amendments Nos. 252AD and 252YK, to which the noble Lord referred. As regards Amendment No. 252AD, this point was brought up in the other place. I believe that the concern here is that in the case of collective investment schemes that are neither OEICs nor unit trusts, the term "operator" is not defined. The amendment proposes a definition.

We feel that it is unwise to speculate on the nature of schemes constituted under non-UK law. It is far from clear that the definition proposed would be appropriate in any given case, given that in subsection (4) of the amendment we need to cover all of the possibilities covered by Part V of the Companies Act 1985 in this country, the Companies (Northern Ireland) Order 1986, provisions in another EEA state or provisions in force in a country other than in the EEA which the Treasury has designated for corresponding provisions.

In any event, the operator of a scheme will generally be apparent from the conduct of the scheme and the natural meaning of the word itself. Furthermore, when dealing with unfamiliar arrangements, we believe that this is the best approach with which to address the question rather than a definition which might be defective and, indeed, might not be robust as the international implications of OEICs develop.

Amendment No. 254YK also came before the Committee in another place. It is difficult to specify precisely the structures under which non-UK, non-EEA schemes will operate. Although generally they will have trustees or depositories, this will not always be the case, and exceptionally a scheme without these may be fit for recognition by the FSA. We wish to retain this flexibility for recognised schemes, but it will in no sense be allowed to diminish the investor protection considerations applied when recognising such schemes.

5.30 p.m.

Lord Stewartby

Perhaps I may ask the Minister whether subsection (5) of the new clause proposed in the government amendment regarding the Treasury's power to amend the definition is only a general precaution against changing patterns in the marketplace. Alternatively, does it presage any specific changes?

Lord McIntosh of Haringey

The subsection has been written in because we intend to move towards a home-state base for all such schemes under EEA law. At the moment, we have a host-state based system in many countries. The firm intention of the EEA is to move to home-state systems. However, the speed at which that is done and the differences between countries that have reached one or other stage of the process means that it might be necessary, on occasion, for the Treasury to make amendments to the definition to reflect the changing position. When we reach that home-state base, then no such changes will be necessary.

Lord Stewartby

Should I take it that the Government do not expect significant changes other than those which the Minister has just mentioned?

Lord McIntosh of Haringey

That is correct.

On Question, amendment agreed to.

The Deputy Chairman of Committees (Lord Strabolgi)

I have informed the Committee that, if Amendment No. 252WA is agreed, I shall not be able to call Amendments Nos. 252XA to 252AC inclusive.

Lord McIntosh

moved Amendment No. 252WA: Page 118, line 6, leave out subsections (2) and (3). On Question, amendment agreed to.

[Amendments Nos. 252XA to 252AC not moved.]

[Amendment No. 252AD not moved.]

Clause 230, as amended, agreed to.

Clause 231 [Restrictions on promotion]:

Lord Kingsland

moved Amendment No. 252B: Page 119, line 10, leave out from ("communicate") to end of line 11 and insert ("to a person in the United Kingdom—

1. (a) an invitation to participate in a collective investment scheme; or
946
2. (b) information which is intended or might reasonably be presumed to be intended to induce any person to do so.").

The noble Lord said: Before I turn to the amendment, perhaps I may say a few words to the Minister with respect to his last intervention concerning Amendment No. 252VA. I thank the Minister very much indeed for his words. His contribution appeared to be most helpful, but I shall need to read the text in Hansard to be sure that all the points I raised were satisfactorily covered.

I beg to move Amendment No. 252B. Clause 231 imposes special restrictions on the marketing of collective investment schemes. As it stands, the prohibition applies to even non-UK branches of an authorised person and even in relation to investors outside the UK. We wish to make the same amendments to the prohibition as we propose for financial promotion generally.

Mrs Melanie Johnson, the Economic Secretary and Member of another place, said in Committee in another place that she had in fact begun to realise that marketing restrictions applicable to authorised persons under Clause 231 do not need to be as wide as those applicable to non-authorised persons under Clause 19. This is why the amendment restricts the prohibition to communications, to a person in the United Kingdom". This restriction follows the existing rule. In another place, Members of the Official Opposition tried several times to persuade the Minister that it would damage United Kingdom competitiveness if the local regulator allowed the marketing of collective investment schemes to particular categories of investor not allowed by the authority—for example, typically high-networth individuals. Thus, the only firms which could not market the schemes to them were authorised persons.

The prohibition applies to all authorised persons, not only United Kingdom firms. Why should non-United Kingdom firms which establish a branch in the United Kingdom—perhaps using the passport—have to be subject to a worldwide prohibition on marketing investment funds to prohibited categories of investor from the United Kingdom branch? In addition, if the collective investment scheme that they want to market is actually established in the United Kingdom—typically an English limited partnership—the non-United Kingdom firm cannot market it from any branch anywhere in the world. That goes, perhaps, just a shade over the top.

The imposition of the worldwide prohibition is likely to induce United Kingdom or non-United Kingdom authorised persons to use an offshore group company—for example, a special purpose subsidiary—to market the collective investment scheme to prohibited categories of investors outside the UK. It really does not seem to do anyone any good to force this step to be taken and thus to incur perhaps substantial expenses.

As far as concerns Amendment No. 252C, again this makes a similar amendment to the special restrictions on promoting collective investment schemes as the amendment we proposed to the general prohibition on financial promotion marketing in Clause 19.

Amendment No. 252D relates to Clause 231(5) and the exemption from the prohibition in Clause 231 for promotions otherwise than to the general public. Amendment No. 252D removes the uncertain concept of "the general public" and allows instead promotion to "persons of specified descriptions".

Clause 231(7) elaborates on what is meant by the term, Promotion otherwise than to the general public", and introduces a further uncertain category of, persons for whom participation would be unsuitable". This amendment seeks to give the authority greater flexibility in determining which types of unauthorised collective investment scheme can be promoted to identified categories of persons without having to be concerned as to whether those categories of persons may constitute the general public.

5.45 p.m.

Lord McIntosh of Haringey

I am grateful to the noble Lord, Lord Kingsland, for the way in which he has introduced his amendments, which I shall deal with in turn.

Amendment No. 252B would have a number of adverse effects. First, it would remove the prohibition on the communication of "inducements" and replace it with a prohibition on the communication of, information which is intended or might reasonably be presumed to be intended to be acted on by a person". "Inducement" was introduced into what is now Clause 231 in another place, at the same stage that it was brought into the general financial promotion rules of Clause 19. It is therefore consistent with that. The Government have outlined the policy behind "inducement" on several occasions. The paper Financial Promotion—Second Consultation Document issued last October indicated that the term includes a degree of incitement, and does not apply to purely factual communications which contain no incitement. However, as indicated in the discussions on Clause 19, we would appreciate a further opportunity to review whether the policy here should be clarified. We may also bring amendments in relation to the "inducement" question here at Report stage.

Secondly, the amendment would reduce the territorial scope of the communications to be prohibited to those communicated to a person in the United Kingdom. This is unnecessary as the Government have already announced that they intend to introduce a "directed at" test in secondary legislation, on which we also consulted through the October 1999 Financial Promotion consultation document. Furthermore, it is important that the rules are capable of addressing promotions out of the United Kingdom. For example, the Government have important European obligations in relation to the marketing of collective investment schemes, and this amendment would prevent them from being honoured.

We have had representations on the issue of outward promotion, notably from the British Venture Capital Association. It has emphasised the importance of the international competitiveness of the UK collective investment schemes not just for the financial services sector but also in enabling UK business to access overseas funds. The Government understand this, but compliance with our European obligations is essential—not respecting these would invite retaliatory action that would have a substantial economic and political cost.

The amendment that the Government are bringing forward, on the other hand, allows us to balance our obligations with the need for international competitiveness. Although we must currently prohibit certain outward promotions, we must be able to adapt our rules when to do so becomes appropriate, for example, when EU law and home state regulation have changed as we expect they might do. This comes back to the point that was properly raised by the noble Lord, Lord Stewartby. The opposition amendment allows neither of these to happen.

Thirdly, the opposition amendment lacks the flexibility of the Government's preferred approach, a necessary quality of a regime required to deal quickly with international and technological developments. It will be easier to cut back a wide scope, for example, taking account of general moves to home state regulation of collective investment schemes, than to specify a narrow scope in primary legislation.

If we are to deal with new, and increasingly sophisticated, means of communication, we do not see any alternative to pitching the scope of the prohibition so that we can move to meet the requirements of the times by using secondary legislation. In this way we shall be able to take account of any European moves to increase the range of collective investment schemes which benefit from the product passport (and in respect of which we will have to ensure that outward promotions are prohibited). Even if we took the approach of getting the extent of the prohibition just right as matters currently stand, we would set in stone a system of controls that could be out of date even before the Bill comes into force. I hope that the Opposition will withdraw Amendment No. 252B, particularly given my assurances with regard to secondary legislation and the further thought to be given to the question of "inducement".

Amendment No. 252C has a similar effect to the territorial impact of Amendment No. 252B and I hope that it will not be pressed. Amendments Nos. 252D and 253A would allow FSA rules to override the general promotion prohibition in subsection (1) of the clause in the case of promotions to "specified descriptions of persons" rather than promotions, otherwise than to the general public". The clause as it stands allows FSA rules to specify persons or groups of persons, so in this sense the amendment adds nothing. Furthermore, it introduces the prospect of exempting promotions that are to the general public. That the prohibition should apply to promotions to the general public—except where the scheme is authorised or recognised—is a cornerstone of government policy on the regulation of collective investment schemes. The current clause achieves this by setting out in subsection (7) precisely what is meant by, promotion otherwise than to the general public". I turn to government Amendment No. 253. Clause 231 contains the basic promotion prohibition for collective investment schemes by authorised persons, and some exemptions from it. The prohibition does not apply to the promotion of authorised or recognised schemes, nor to promotions originating outside the UK unless they are capable of having an effect in the UK

The purposes of the Government amendment are to allow UK firma to remain fully competitive in the international collective investment schemes market; and to allow the territorial scope of the prohibition to take full account of future international and technological developments, for example, in the field of electronic commerce. The amendment enables the Treasury to specify further circumstances in which the prohibition does not apply. In particular, it can specify that the prohibition does not apply to specified descriptions of communications; communications originating in a specified country or territory outside the United Kingdom; those originating in a specified group or description of countries or territories (for example, EEA states); or any communication originating outside the United Kingdom. These are not cumulative; clearly, they are alternatives.

The first case could cover, for example, promotions of specified unauthorised schemes, such as certain venture capital funds originating in the United Kingdom which could not be promoted to the UK public but which are allowed by the regulatory authorities in the target country. An order under this amendment could enable such schemes to raise funds abroad and compete with non-UK schemes in those markets. This order-making power will address the concerns expressed to the Government by industry representative groups such as the British Venture Capital Association over UK schemes' international competitiveness and the ability of UK business to raise money abroad.

The general prohibition applies in relation to promotions of collective investment schemes by authorised persons originating outside the United Kingdom if they are capable of having an effect here. The final three cases mentioned allow the prohibition to be lifted if this becomes appropriate. For example, as I have already said, EU legislation could move to a full home state regime for these schemes, in which case an order specifying communications originating in EU states may become necessary. But as I explained when we debated the general financial promotion rules in Clause 19, the EU has not yet made this move and we cannot afford to leave anyone unprotected in the mean time. Until a full home state regime exists in Europe and all member states have adequate regulatory regimes for the purpose, we cannot unilaterally lift all prohibitions on outward promotions.

The final line of the amendment enables the Treasury to repeal the condition in Clause 231 that the prohibition applies only to communications originating outside the UK if they are capable of having an effect here. This may be necessary if an order disapplying the prohibition to all communications from outside the UK became appropriate, making the "having an effect in the UK" condition redundant.

Lord Stewartby

I wish to comment on one or two aspects of the drafting of the clause which has become a little more complicated since the introduction of Amendment No. 253, to which the noble Lord has just spoken.

Clause 231(1) is a blanket statement which the remainder of the clause goes on to limit in a substantial way. It is likely to be limited even more if the Treasury makes orders under the new subsections (5A) and (5B). Subsections (1) and (2) are a single sentence. Subsection (2) is, in many ways, the more important part because the exemptions are a large part of the total. If the language of the clause has not yet reached its final form, perhaps the Minister will consider whether it would be better to run those two subsections together.

The Minister partly answered my second point when he said that the four different categories in paragraphs (a) to (d) of subsection (5B) of his amendment are alternatives. What is meant by, a country or territory which falls within a specified description of country or territory outside the United Kingdom". and how is that not covered by either paragraphs (b) or (d)?

In relation to subsection (3), the Minister gave an explanation of the Treasury's ability to repeal that by order—which I shall have to read tomorrow in the written text—but, again, is this something which is imminent?

Lord Jenkin of Roding

Before the Minister replies, perhaps I may ask him a question. Presumably subsection (5C), to which my noble friend Lord Stewartby referred, will be included in the report to the Delegated Powers and Deregulation Committee. Is it intended that this should be subject to an affirmative or negative resolution procedure? It will change the Bill; in its own way, it is a Henry VIII clause. It would be helpful if the Minister could give an indication of the Government's intentions.

Lord McIntosh of Haringey

Perhaps I may start with the point made by the noble Lord, Lord Jenkin. Yes, of course it will be included in the submission to the Delegated Powers and Deregulation Committee. It is too early to say whether we shall recommend or the committee will require that it should be subject to affirmative resolution. With the change from host state to home state regimes, this is a time-limited exercise. The horrific complication of the language which I perfectly well recognise—is required because we are in the middle of that changing process and we have to legislate now.

The noble Lord asked me the significance of subsection (5B) and whether it would be enough to have a specified description of countries. We want to be as precise as we can and aim at recognised groups—for example, all EEA countries. We could, of course, have a specified description but—although still necessary—it would be less helpful than being as precise as we are in paragraphs (b), (c) and (d).

The repeal of subsection (3) is not imminent. Although it is a time-bound process, it is not one in which the end is in sight, or even in which the time-scale is known. The noble Lord, Lord Stewartby, made some interesting points about the drafting of the earlier parts of the clause and about perhaps combining subsections (1) and (2). I should like to think about that to see whether it is feasible. I shall write to the noble Lord about that. I am sure that I will be presented with all kinds of reasons why it is not feasible, but that does not deter me from attempting to explain it to the noble Lord.

Lord Kingsland

I thank the Minister for his very full response to my amendment. It gave me some comfort, but not by any means complete comfort. I shall look at the transcript in Hansard and consider what further initiatives I may take at Report stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 252C and 252D not moved.]

Lord McIntosh of Haringey

moved Amendment No. 253: Page 119, line 25, at end insert— ("(5A) The Treasury may by order specify circumstances in which subsection (1) does not apply. (5B) An order under subsection (5A) may, in particular, provide that subsection (1) does not apply in relation to communications—

1. (a) of a specified description;
2. (b) originating in a specified country or territory outside the United Kingdom;
3. (c) originating in a country or territory which falls within a specified description of country or territory outside the United Kingdom; or
4. (d) originating outside the United Kingdom.

(5C) The Treasury may by order repeal subsection (3)."). On Question, amendment agreed to.

[Amendment No. 253A not moved.]

Clause 231, as amended, agreed to.

Clause 232 [Single property schemes]:

On Question, Whether Clause 232 shall stand part of the Bill?

Lord Jenkin of Roding

Before we decide whether Clause 232 should stand part of the Bill, I should like to ask the Minister a question. I apologise to the noble Lord—I should have given him notice of this—but it is a fairly simple question. Clause 232 gives the Treasury power to exempt single property schemes from Clause 231(1). I was aware some years ago that considerable efforts were made to try to "securitise", I think was the expression, individual commercial properties with a view to making them more marketable. My impression at the time was that they never got off the ground; there were no successful moves in that direction. Are the Government anticipating that this power of exemption is likely to be used in the near future? What circumstances have prompted the Government to include this clause?

It seems quite right that they should be exempted as they will be investments directed at a very special class of investor. I can understand that. I hope that normal members of the public will be a bit chary about going into that kind of thing. But none the less, given that that is the case, are the Government contemplating an exemption order fairly soon?

Lord McIntosh of Haringey

This provision has been in legislation in almost identical terms since the Financial Services Act 1986. As the noble Lord, Lord Jenkin, said, it has not worked very well. We have no particular knowledge to suggest that it will work any better in the future, but we thought we should carry forward the provision in case it does work and we need to make the exemption.

Lord Jenkin of Roding

I thank the Minister for that reply.

Clause 232 agreed to.

Clauses 233 and 234 agreed to.

Clause 235 [Applications for authorisation of unit trust schemes]:

Lord Kingsland

moved Amendment No. 253B: Page 120, line 36, after ("information") insert ("or documents"). The noble Lord said: In moving Amendment No. 253B, I shall speak also to my other amendments in the group.

The amendment relates to the requirement in Clause 236(1)(c) that an application for authorisation of a unit trust under Clause 235 must include a copy of the trust deed and a certificate signed by a solicitor that the trustee complies with the authority's regulations. This requirement, apparently, has its history in the procedures adopted by the Department of Trade and Industry prior to the Financial Services Act. In our view, it would be better and more flexible for the Bill to allow the authority to stipulate its requirements for authorisation under Clause 235(3), rather than including a requirement of this kind, which may not always be appropriate, on the face of the Bill.

Amendments Nos. 254A and 254C relate to the same basic proposition that the UCITS European directive requirement that unit holders must have a right to repurchase their units, which is interpreted by the authority as requiring a redemption date once every two weeks, should only be required to apply to UCITS qualifying unit trusts. That would then allow, assuming the authority so permitted, authorised unit trusts with limited redemption rights or redemption rights subject to conditions. An example would be an authorised unit trust established for stakeholder pension purposes, such as a pooled pension investment.

At present, the authority takes the view that an authorised securities fund cannot be established as a pooled pension investment because, in order to satisfy the pension requirements, the investor must accept restrictions on his ability to redeem. An authorised unit trust established as a feeder fund can, it appears, be established as a pooled pension investment. But that adds another fund layer to the structure. It is therefore plainly inefficient. These amendments would allow an authorised securities-type fund to be established as a pooled pension investment with restrictions on redemption consistent with the requirements for pensions. I beg to move.

6 p.m.

Lord McIntosh of Haringey

I do not recognise what the noble Lord saying as relating to Amendment No. 253B, which seeks to add the words "or documents" to "information". I am a little taken aback.

Lord Kingsland

I am speaking to Clause 236, page 121, line 19.

Lord McIntosh of Haringey

That is in the next grouping.

Lord Kingsland

I beg the noble Lord's pardon and indeed the Committee's pardon.

Lord Strabolgi

The amendment before the Committee is Amendment No. 253B.

Lord Kingsland

I thank the noble Lord the Deputy Chairman for that intervention. I have already spoken to that opening amendment. But I am speaking also to other amendments.

Lord McIntosh of Haringey

I shall speak to my amendments in the group and see whether I can keep up with the noble Lord.

Lord Kingsland

We are extremely keen to get on with the Bill.

Lord McIntosh of Haringey

The Front Bench is!

Amendment No. 253B would add the words "or documents" after the word "information". It is unnecessary as the term "information" is used in its general sense and includes documents. "Information" means information whether or not in a document. "Document" means recorded information.

Amendment No. 254A would remove from the authorisation procedure the requirement for a unit trust scheme to submit a copy of its trust deed and certification from a solicitor that the deed complies with the rules. The effect of the amendment would be to shift a considerable burden to the FSA and away from the scheme itself. While the Government are keen to ensure that costs of compliance with authorisation and regulation requirements are kept to a minimum, certain precautions have to be taken by the providers of investment products. These should include such basic due diligence as ensuring that the trust deed—at the heart of a unit trust—complies with the rules governing it. This can be done adequately only by an appropriately qualified professional, and it is right that those responsible for the unit trust should ensure that it is undertaken.

Amendment No. 254C reflects amendments raising similar issues that were put forward in another place. As Clause 236(9) stands, one of the requirements that must be satisfied before a unit trust can be authorised is that, participants must be entitled to have their units redeemed in accordance with the scheme at a price…related to the net value of the property to which the units relate; and…determines in accordance with the scheme". The effect of the amendment would be to change t he focus of this authorisation requirement so that a person's entitlement to have his units redeemed would be dependent on what was said in the FSA's rules. It would also move away from the need for there to be an entitlement to redeem units and simply leave it that a person should be "be able to realise" his investment in accordance with the FSA's rules.

As I understand it, the intention here is to draw a distinction between authorised schemes covered by the UCITS directive and those which are not. Perhaps I may deal first with UCITS schemes. It is essential for compliance with the directive that the investor should be entitled to have his investment redeemed on request. For that purpose, realising units on exchange also counts, so the circumstances in subsection (1) must be provided for. In any event, I cannot see why the noble Lord, Lord Kingsland, does not want subsection (10), which provides an additional means of meeting the requirement for authorisation set out in subsection (9). If subsection (10) were deleted, the noble Lord would be reducing people's options for obtaining authorisation.

I turn now to non-UCITS schemes. I have to say that the Government think that the existing wording already provides the kind of flexibility which the noble Lord seeks. All that subsection (9) currently says is that a unit holder must be "entitled" to have his units redeemed. That must be right. The subsection does not say anything about the time within which that entitlement can be exercised, so there is already built into the existing provisions considerable flexibility as to the time within which redemption make take place. It is then for the FSA to decide appropriate redemption periods for any particular type of unit trust scheme. Amendment No. 254C would add nothing to the effect of the existing provision. I hope that that will give the noble Lord some comfort.

Quite apart from the fact that this amendment is unnecessary, it would remove the requirement in the case of an authorised unit trust for the participants to be able to have their units redeemed at a price related to the value of a scheme's property. This is the very nature of an authorised trust and a feature that we think is so fundamental that it must appear in primary legislation. It is not sufficient for redemption to be "in accordance with the scheme". The scheme could itself be defective in this sense.

The purpose of the amendment was described in the other place as allowing for the authorisation of non-UCITS schemes—that is, those that are outside the Undertaking for Collective Investments in Transferable securities—because they allow more flexible redemption conditions. However, the amendment would go too far and allow, for example, redemption at inappropriately long intervals. That is inconsistent with the aim of consumer protection. Adequate flexibility exists.

I am not sure whether the noble Lord has yet spoken to Amendments Nos. 254G, 254RA and 254RB, which are in the same group. If he would like to speak to them, I shall then respond.

Lord Taverne

Before the noble Lord, Lord Kingsland, speaks to the other amendments, perhaps I may say that the Minister's reply to the amendments reminds me—I cannot forbear to mention it—of some remarks made by the noble Lord, Lord Hayhoe, in a debate some years ago. He explained that when he first became a Minister of State, during proceedings on a very complicated Finance Bill he duly read out his brief. He was congratulated on the clarity of his exposition and later discovered that he had actually read out his brief from the wrong clause. That throws a certain amount of doubt on the new rule of interpretation whereby one can refer to Hansard in elucidating the meaning of statutes.

Lord Jenkin of Roding

I cannot resist the temptation of reminding the Committee of the occasion when I was debating in another place with the late Lord Lever. He was Financial Secretary and I was a shadow spokesman and precisely the same happened. I moved an amendment. He looked extremely puzzled and said, "Well, that has nothing to do with my reply but I had better give it". I said, "That sounds to me rather like the examination candidate who was asked to describe the principles of the Archimedes pump. After chewing his pencil for some time, he wrote, 'I know nothing about the Archimedes pump, but here is a list of the kings of Israel and Judah—. The Daily Mail, in a leading article, commented under the headline, "Laughter in Committee Room 10".

Lord McIntosh of Haringey

That reminds me of Browning's reply when he was asked, late in life, what was the meaning of a certain poem—whose title I am afraid I cannot remember so I cannot properly trump it. He said: When it was written, God and Robert Browning knew what it meant: now only God knows".

Lord Kingsland

I am worried that the same thought might apply to what I am about to say to the next amendment! I shall withdraw the amendment, but, first, perhaps I may respond to the Minister's request to say something about my Amendments Nos. 254RA and 254RB—or at least say something about what I think my amendments are about.

Both amendments deal with technical points. They seek to query why the present wording of Clause 255 does not reflect Regulation 24(6) of the draft OEICs regulations. Clause 255 applies the provisions of Clause 141 on action for damages in respect of unit trusts. However, the equivalent provision in the draft OEICs regulations applies the provisions of Clause 141 and, in addition, Clause 367 on injunctions, Clause 369 on restitution orders, Clause 371 on the power of the authority to require restitution and Part XIV in respect of OEICs.

Lord McIntosh of Haringey

I hope I am right in thinking that Amendments Nos. 254RA and 254RB both relate to Clause 250 on page 128, lines 1 and 3. These amendments are unnecessary. The provisions they seek to apply when the authority has given a direction under Clause 250 relating to injunctions, restitution and disciplinary measures already apply as the clause stands.

It is necessary to refer specifically to the actions for damages provisions of Clause 141 because they apply to contraventions of rules, whereas Clause 255 is concerned with contraventions of directions. Without the mention, the Clause 141 provisions would not apply in these cases. The provisions that the amendment seeks to apply, which are to be found in Parts XXV and XIV of the Bill, on the other hand relate to the contravention of requirements. Clause 250 gives the authority power to make directions imposing certain requirements. So the provisions referred to automatically apply.

Lord Kingsland

I am much obliged to the noble Lord for that answer and the others he has given to amendments in the group. I shall read Hansard and reflect on what he has said. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McIntosh of Haringey

moved Amendment No. 254: Page 120, line 40, leave out ("further information") and insert ("such further information as it reasonably considers necessary to enable it to determine the application"). The noble Lord said: I have already spoken to this amendment. I beg to move.

On Question, amendment agreed to.

Clause 235, as amended, agreed to.

Clause 236 [Authorisation orders]:

[Amendment No. 254A not moved.]

6.15 p.m.

Lord McIntosh of Haringey

moved Amendment No. 254B: Page 121, line 14, at end insert— ("( ) If the Authority makes an order under subsection (1), it must give written notice of the order to the applicant."). On Question, amendment agreed to.

[Amendment No. 254C not moved.]

Clause 236, as amended, agreed to.

Clause 237 agreed to.

Clause 238 [Procedure when refusing an application]:

Lord McIntosh of Haringey

moved Amendments Nos. 2541D to 254F: Page 122, line 10, leave out ("refuses") and insert ("decides to refuse"). Page 122, line 12, leave out ("against the refusal"). Page 122, line 14, leave out subsection (3). The noble Lord said: I spoke to these amendments in the debate on Clause 188 stand part. I beg to move.

On Question, amendments agreed to.

Clause 238, as amended, agreed to.

Clauses 239 to 243 agreed to.

Clause 244 [Alteration of schemes and changes of manager or trustee]:

[Amendment No. 254G not moved.]

Lord McIntosh of Haringey

moved Amendment No. 254H: Page 125, line 24, after ("Authority") insert (", by written notice,"). The noble Lord said: I spoke to this amendment in the debate on Clause 188 stand part. I beg to move.

On Question, amendment agreed to.

Clause 244, as amended, agreed to.

Clause 245 [Procedure when refusing approval of change of manager or trustee]:

Lord McIntosh of Haringey

moved Amendments Nos. 254J and 254K: Page 125, line 43, leave out ("refuses") and insert ("decides to refuse"). Page 126. line 2,leave out subsection (5). The noble Lord said: I spoke to these amendments in the debate on Clause 188 stand part. I beg to move.

Lord Elton

Perhaps I am confused; however, I have the groupings list before me which indicates that Amendments Nos. 254H, 255J and 255K are a separate group. I take it that when the noble Lord says that the amendments were spoken to in relation to Clause 188 stand part, they were caught up, as it were, in spite of the published list. Am I right?

Lord McIntosh of Haringey

I am afraid that there is a mistake in the groupings. The group to which the noble Lord refers should in fact be Amendments Nos. 255H, 255J and 255K which are position amendments in Clause 277. If we were responsible for that, I am sorry.

Lord Jenkin of Roding

I am sure that the noble Lord was not responsible. If he was, we certainly accept his apologies. I find it extraordinarily difficult, going through the groupings list with such a complicated system of letters—sometimes three letters after three numbers—to get them all straight in my mind and mark them in the Bill. I cannot help feeling that there must be a better way of doing this. It is astonishingly confusing. If there is only one mistake in the groupings list, that says a great deal about the skill of the Public Bill Office in dealing with these very difficult matters.

Lord McIntosh of Haringey

I do not think that it was the Public Bill Office. It was probably those of us in the department who proposed the grouping wrongly. I think that the numbering itself was correct. I have a knock-down argument against the argument against all these government amendments, but I a m not going to waste it now.

On Question, amendment agreed to.

Lord Saatchi

moved Amendment No. 254KA: Page 126, line 3, at end insert— ("( ) If both the trustee and the manager are given a warning or decision notice, neither of them is to be treated as a third party for the purposes of section 375(2) or 376(2)."). The noble Lord said: We had thought that it might not be necessary to move this amendment in view of later government Amendments Nos. 275L and 275M which propose new clauses setting out the procedure regarding third party rights. However, we have had another look at the new clauses and we believe that it may be necessary after all to table amendments to the new clause introduced by Amendment No. 275L to achieve the effect that intended by our Amendment No. 252KA. That is because there is still a mismatch between the procedures described in Clause 245, which is the proposal to refuse replacement of the manager or trustee, and Clause 248, which deals with the proposal to revoke an authorisation order.

The new clause to be introduced by the Government in Amendment No. 275L will apply to warning and decision notices given in accordance with Clause 248 but, as we read it, will not apply to warning and decision notices given in accordance with Clause 245. I am aware that this is a technical matter. Nevertheless, we should like to understand it better. The provisions relate to the procedures regarding third parties when separate warning notices are given to the manager and trustee of a unit trust scheme. It is not completely clear why the procedure on refusing to replace a manager or trustee should be different from that relating to revocation of authorisation. It may be necessary to table amendments to the new clause on Report, to add references to Clause 245(2) in respect of warning notices, and to Clause 245(4) in respect of decision notices.

Is this the appropriate time to debate Amendment No. 254S?

Lord McIntosh of Haringey

My understanding is that Amendment No. 254KA was debated in the group relating to Clause 188. It is certainly the case that Amendment No. 254S was debated then. I do not have a brief for Amendment No. 254KA, so I ask the noble Lord to give me a rain check. I will advise him before Report—not as to what he should do but whether there is an issue to which he may feel it necessary to refer on Report.

Lord Saatchi

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 245, as amended, agreed to.

Clause 246 agreed to.

Clause 247 [Revocation of authorisation order otherwise than by consent]:

[Amendments Nos. 254L and 254M not moved.]

Clause 247 agreed to.

Clause 248 [Procedure]:

Lord McIntosh of Haringey

moved Amendment No. 254N: Page 126, line 41, leave out from ("Tribunal") to end of line 2 on page 127. On Question, amendment agreed to.

Clause 248, as amended, agreed to.

Clause 249 [Requests for revocation of authorisation order]:

Lord McIntosh of Haringey

moved Amendments Nos. 254P to 254R: Page 127, line 4, at end insert— ("( ) If the Authority makes an order under subsection (1), it must give written notice of the order to the manager and trustee of the scheme concerned."). Page 127. line 14, leave out ("refuses") and insert ("decides to refuse"). Page 127. line 16. leave out from ("Tribunal") to end of line 18. On Question, amendments agreed to.

Clause 249, as amended, agreed to.

Clause 250 [Directions]:

[Amendments Nos. 254RA and 254RB not moved.]

Clause 250 agreed to.

Clause 251 agreed to.

Lord McIntosh of Haringey

moved Amendment No. 245S: After Clause 251, insert the following new clause— PROCEDURE ON GIVING DIRECTIONS UNDER SECTION 250 AND VARYING THEM ON AUTHORITY"S OWN INITIATIVE (".—(1) A direction takes effect—

1. (a) immediately, if the notice given under subsection (3) 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 it relates is no longer open to review.

(2) A direction 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 power under section 250, considers that it is necessary for the direction to take effect immediately (or on that date). (3) If the Authority proposes to give a direction under section 250, or gives such a direction with immediate effect, it must give separate written notice to the manager and the trustee of the scheme concerned. (4) The notice must—

1. (a) give details of the direction;
2. (b) inform the person to whom it is given of when the direction takes effect;
3. (c) state the Authority's reasons for giving the direction and for its determination as to when the direction takes effect;
4. (d) inform the person to whom it is given that he may make representations to the Authority within such period as may be specified in it (whether or not he has referred the matter to the Tribunal); and
5. (e) inform him of his right to refer the matter to the Tribunal.

(5) The Authority may extend the period allowed under the notice for making representations. (6) If, having considered any representations made by a person to whom the notice was given, the Authority decides—

1. (a) to give the direction in the way proposed, or
2. (b) if it has been given, not to revoke the direction,

it must give separate written notice to the manager and the trustee of the scheme concerned. (7) If, having considered any representations made by a person to whom the notice was given, the Authority decides—

1. (a) not to give the direction in the way proposed,
2. (b) to give the direction in a way other than that proposed, or
3. (c) to revoke a direction which has effect,

it must give separate written notice to the manager and the trustee of the scheme concerned. (8) A notice given under subsection (6) must inform the person to whom it is given of his right to refer the matter to the Tribunal. (9) A notice under subsection (7)(b) must comply with subsection (4). (10) 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. (11) This section applies to the variation of a direction on the Authority's own initiative as it applies to the giving of a direction."). The noble Lord said: This was debated with Clause 188 stand part. I beg to move.

Lord Saatchi

I am genuinely curious about the nomenclature of amendments. I wish to understand for my own benefit, having little experience of such matters, why it is necessary to have such complicated designations. They are almost impossible to follow and the confusion felt by members of the Committee testifies to that. Perhaps the Minister can shed some light on the matter.

Amendment No. 254S worries us because the latest set of amendments to Clauses 251 to 255 appear to allow the FSA to exercise its powers of intervention in relation to a collective investment scheme without giving firms a minimum of 28 days in which to make representations. We acknowledge that provision may be necessary in rare and urgent cases but the new clause appears to apply also to non-urgent cases. The wording does not include any test of reasonableness in relation to the period allowed for representations. The changes have the effect of removing for managers and trustees the safeguards provided in Clause 375 in relation to warning notices.

We are puzzled, to say the least, as to why the Government want to make those changes at such a late stage of the Bill.

Lord McIntosh of Haringey

I am grateful to the noble Lord for reading the brief provided by AUTIF because this matter was distinctly debated with Clause 188. If I had not also read that brief, I would not have been able to reply.

The new clause for governing the procedure for issuing clirecticns to managers and trustees of authorised unit trusts requires the FSA to consider if necessary, having regard to the grounds for giving the direction, whether the direction is to have immediate or early effect. That is a stiffer test than requiring the FSA to consider reasonableness.

Earl Russell

The nomenclature of the amendments arises from the fact that it is possible to table amendments after the composition of the original Marshalled List. In a lengthy Bill such as this, people inevitably notice things that they might not have done on first, second, third, fourth or even fifth reading. One could either change the numbering of the amendments already identified, which would cause confusion, or stop the power to table amendments as we go along—which would restrict the power of the House. If amendments are to be added between Amendments Nos. 153 and 154, attaching letters is the only option. It is confusing and perhaps it is the worst system, except for the alternative.

Lord McIntosh of Haringey

There was an attempt a couple of years ago to change to the system in the other place, whereby amendments are numbered according to the order in which they are tabled. I was among those who resisted that change rather fiercely. I believe that it is essential for the proper conduct of business in this House that we go through the Bill exactly in the order in which it is printed. There should not be another climens.on—the date that an amendment is tabled. That would mean going backwards and forwards through the numbers. Of course the lettering system is difficult but it is logical.

Lord Elton

Since the noble Lord saved us from the imposition of such a system, we all owe him a great debt. The present system is very difficult to understand but the other one would have been impossible. To speak in defence of my noble friend on the Front Bench, this amendment may be part of a group that has already been spoken to, but the number of amendments in the groups that come before the Committee is such that those who are not full-time professionals with appropriate staff cannot always be expected to keep up to date with them.

6.30 p.m.

Lord Saatchi

I am grateful to my noble friend and also to the noble Earl, Lord Russell, for setting me straight on the procedure.

On Question, amendment agreed to.

Clause 252 [Procedure: giving directions and varying them otherwise than as requested]:

On Question, Whether Clause 252 shall stand part of the Bill?

Lord McIntosh of Haringey

I have already given notice of my intention to oppose the Question that Clause 252 stand part of the Bill.

Clause 252 negatived.

Clause 253 [Procedure: refusal to revoke or vary direction]:

Lord McIntosh of Haringey

moved Amendments Nos. 254T and 254U: Page 129, line 18, after ("proposes") insert ("— (a) to vary the direction otherwise than in accordance with the application, or (b)") Page 129, line 20, leave out subsection (2). The noble Lord said: Amendments Nos. 254T and 254U have already been spoken to in the same group. I beg to move.

Lord Elton

I am now becoming confused. The Minister said that these amendments had been spoken to in the same group. I cannot find Amendment No. 254T in the same group which begins with Amendment No. 254J.

Lord McIntosh of Haringey

It is in the group which begins with the Question whether Clause 188 stand part of the Bill. I shall be more explicit in future.

Lord Elton

The noble Lord refers to the gigantic group. I am grateful to him.

On Question, amendments agreed to.

[Amendment No. 254UA not moved.]

Lord McIntosh of Haringey

moved Amendments Nos. 254V and 254W: Page 129, line 22, leave out ("refuses") and insert ("decides to refuse"). Page 129, line 25, leave out subsection (4). The noble Lord said: Amendments Nos. 254V and 254W were spoken to in the group which includes the Question whether Clause 188 stand part of the Bill. I beg to move.

On Question, amendments agreed to.

Clause 253, as amended, agreed to.

Clause 254 [Procedure: revocation of direction and grant of request for variation]:

[Amendment No. 254X not moved.]

Clause 254 agreed to.

Clause 255 [Procedure in cases of urgency]:

[Amendment No. 254 Y not moved.]

On Question, Whether Clause 255 shall stand part of the Bill?

Clause 255 negatived.

Clauses 256 to 258 agreed to.

Clause 259 [Representations and references to the Tribunal]:

Lord McIntosh of Haringey

moved Amendments Nos. 254YA and 254YB: Page 133, line 34, leave out subsection (5). Page 133, line 38, leave out subsection (7). The noble Lord said: Amendments Nos. 254YA and 254YB were spoken to with Clause 188 stand part. I beg to move these amendments en bloc.

On Question, amendments agreed to.

Clause 259, as amended, agreed to.

Clause 260 agreed to.

Clause 261 [Power of Authority to suspend promotion of scheme]:

Lord McIntosh of Haringey

moved Amendments Nos. 254YC and 254YD: Page 134, line 19, leave out subsections (4) to (9). Page 135, line 10, at end insert ("and sections (Procedure on giving directions under section 261 and varying them on Authority own initiative) and (Procedure on application for variation or revocation of direction)"). The noble Lord said: Amendments Nos. 254YC and 254YD were spoken to with Clause 188 stand part. I beg to move them en bloc.

On Question, amendments agreed to.

Clause 261, as amended, agreed to.

Lord McIntosh of Haringey

moved Amendment No. 254YE: After Clause 261. insert the following new clause— PROCEDURE ON GIVING DIRECTIONS UNDER SECTION 261 AND VARYING THEM ON AUTHORITY"S OWN INITIATIVE (" .—(1) A direction under section 261 takes effect—

1. (a) immediately, if the notice given under subsection (3)(a) 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 it relates is no longer open to review.

(2) A direction may be expressed to take effect immediately (or on a specified date) only if the Authority, having regard to its reasons for exercising its power under section 261, considers that it is necessary for the direction to take effect immediately (or on that date). (3) If the Authority proposes to give a direction under section 261. or gives such a direction with immediate effect, it must—

1. (a) give the operator of the scheme concerned written notice; and
2. (b) inform the competent authorities in the scheme's home State of its proposal or (as the case may be) of the direction.

(4) The notice must—

1. (a) give details of the direction;
964
2. (b) inform the operator of when the direction takes effect;
3. (c) state the Authority's reasons for giving the direction and for its determination as to when the direction takes effect;
4. (d) inform the operator that he may make representations to the Authority within such period as may be specified in it (whether or not lie has referred the matter to the Tribunal); and
5. (e) inform him of his right to refer the matter to the Tribunal.

(5) The Authority may extend the period allowed under the notice for making representations. (6) Subsection (7) applies if, having considered any representations made by the operator, the Authority decides—

1. (a) to give the direction in the way proposed, or
2. (b) if it has been given, not to revoke the direction.

(7) The Authority must—

1. (a) give the operator of the scheme concerned written notice; and
2. (b) inform the competent authorities in the scheme's home State of the direction.

(8) Subsection (9) applies if, having considered any representations made by a person to whom the notice was given, the Authority decides—

1. (a) not to give the direction in the way proposed,
2. (b) to give the direction in a way other than that proposed, or
3. (c) to revoke a direction which has effect.

(9) The Authority must—

1. (a) give the operator of the scheme concerned written notice; and
2. (b) inform the competent authorities in the scheme's home State of its decision.

(10) A notice given under subsection (7)(a) must inform the operator of his right to refer the matter to the Tribunal. (11) A notice under subsection (9)(a) given as a result of subsection (8)(b) must comply with subsection (4). (12) 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. (13) This section applies to the variation of a direction on the Authority's own initiative as it applies to the giving of a direction."). The noble Lord said: This amendment was spoken to with Clause 188 stand part. I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendment No. 254YF: After Clause 261, insert the following new clause— PROCEDURE ON APPLICATION FOR VARIATION OR REVOCATION OF DIRECTION (" .—(1) If, on an application under subsection (10) or (11) of section 261, the Authority proposes—

1. (a) to vary a direction otherwise than in accordance with the application, or
2. (b) to refuse the application,

it must give the operator of the scheme concerned a warning notice. (2) If, on such an application, the Authority decides—

1. (a) to vary a direction otherwise than in accordance with the application, or
2. (b) to refuse the application,

it must give the operator of the scheme concerned a decision notice. (3) If, on such an application, the Authority decides to grant the application it must give the operator of the scheme concerned written notice. (4) If the Authority decides on its own initiative to revoke a direction given under section 261 it must give the operator of the scheme concerned written notice. (5) The Authority must inform the competent authorities in the scheme's home State of any notice given under this section."). On Question, amendment agreed to.

Clause 262 [Schemes authorised in designated countries or territories]:

Lord McIntosh of Haringey

moved Amendment 254YG: Page 135, line to, after ("Authority") insert (", by written notice,"). The noble Lord said: This amendment was spoken to with Clause 188 stand part. I beg to move.

On Question, amendment agreed to.

Clause 262, as amended, agreed to.

Clause 263 [Procedure]:

Lord McIntosh of Haringey

moved Amendments Nos. 254YH and 254YJ: Page 136, line 36, leave out ("refuses") and insert ("decides to refuse"). Page 136, line 39, leave out subsection (4). The noble Lord said: These amendments were spoken to with Clause 188 stand part. I beg to move these amendments en bloc.

Lord Elton

Perhaps I may take this opportunity to suggest that where large blocks of interleaved amendments in the list of groupings have been debated on an earlier day it may be helpful to know the head amendment so that Members can refer back to the appropriate date. At the moment one takes the matter entirely on trust, which one does happily.

Lord Jenkin of Roding

I endorse the observation of my noble friend. I kept all of the earlier lists of amendments and during the course of the morning tried to identify the particular amendments. I ran out of time and enthusiasm and gave it up. I believe that my noble friend's suggestion would be extraordinarily helpful. Perhaps, we should discuss these procedural matters in another forum.

Lord McIntosh of Haringey

I used to be infuriated when Ministers of another government stood up to say that an amendment had already been debated and begged to move it. Sometimes they did not even stand up. It is very good for me that I must continually stand up. I try to give the group in which the particular amendment appeared. I do not know whether there is a method of making that more generally available.

Lord Elton

It should not be beyond the wit of man to print that information on the list of groupings. However, my noble friend is quite correct: this is the wrong forum in which to hold that debate.

On Question, amendments agreed to.

Clause 263, as amended, agreed to.

Clause 264 [Individually recognised overseas schemes]:

[Amendment No. 254 YK not moved.]

Clause 264 agreed to.

Clause 265 [Matters that may be taken into account]:

[Amendments Nos. 254 YL and 254 YM not moved.]

Clause 265 agreed to.

Clause 266 [Applications for recognition of individual schemes]:

Lord McIntosh of Haringey

moved Amendment No. 255: Page 138, line 32, leave out ("further information") and insert ("such further information as it reasonably considers necessary to enable it to determine the application"). The noble Lord said: This amendment was debated with Amendment No. 155. I beg to move.

Lord Elton

As a matter of interest, I think that we have just passed the middle point of the Bill on the fifth and last day of debate in Committee.

Lord McIntosh of Haringey

Ligne de partage des eaux!

On Question, amendment agreed to.

Clause 266, as amended, agreed to.

Clause 267 [Determination of applications]:

Lord McIntosh of Haringey

moved Amendment No. 255A: Page 138, line 45, at end insert— ("( ) If the Authority makes an order under section 264(1), it must give written notice of the order to the applicant."). The noble Lord said: This amendment was spoken to with Clause 188 stand part. I beg to move.

On Question, amendment agreed to.

Clause 267, as amended, agreed to.

Clause 268 [Procedure when refusing an application]:

Lord McIntosh of Haringey

moved Amendment No. 255B: Page 139, line 3, leave out ("refuses") and insert ("decide5. to refuse"). The noble Lord said: This amendment was spoken to with Clause 188 stand part. I beg to move.

On Question, amendment agreed to.

Clause 268, as amended, agreed to.

Clause 269 [Alteration of schemes and changes of operator, trustee or depositary]:

Lord McIntosh of Haringey

moved Amendments Nos. 255C to 255E: Page 139, line 10, after ("Authority") insert (", by written notice,"). Page 139, line 12. leave out ("notified") insert ("given written notice to"). Page 139, line 13, leave out ("the proposal is not approved") and insert ("it has decided to refuse approval"). The noble Lord said: These amendments were spoken to with Clause 188 stand part. I beg to move.

On Question, amendments agreed to.

Clause 269, as amended, agreed to.

Clauses 270 and 271 agreed to.

Clause 272 [Procedure]:

Lord McIntosh of Haringey

moved Amendment No. 255F: Page 140, line 7, leave out subsection (3). The noble Lord said: This amendment was spoken to with Clause 188 stand part. I beg to move.

On Question, amendment agreed to.

Clause 272, as amended, agreed to.

Clause 273 agreed to.

Lord McIntosh of Haringey

moved Amendment No. 255G: After Clause 273, insert the following new clause— PROCEDURE ON GIVING DIRECTIONS UNDER SECTION 273 AND VARYING THEM OTHERWISE THAN AS REQUESTED (" .—(1) A direction takes effect—

1. (a) immediately, if the notice given under subsection (3) 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 it relates is no longer open to review.

(2) A direction 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 power under section 273, considers that it is necessary for the direction to take effect immediately (or on that date). (3) If the Authority proposes to give a direction under section 273, or gives such a direction with immediate effect, it must give separate written notice to the operator and (if any) the trustee or depositary of the scheme concerned. (4) The notice must—

1. (a) give details of the direction;
2. (b) inform the person to whom it is given of when the direction takes effect;
3. (c) state the Authority's reasons for giving the direction and for its determination as to when the direction takes effect;
4. (d) inform the person to whom it is given that he may make representations to the Authority within such period as may be specified in it (whether or not he has referred the matter to the Tribunal); and
5. (e) inform him of his right to refer the matter to the Tribunal.

(5) The Authority may extend the period allowed under the notice for making representations. (6) If, having considered any representations made by a person to whom the notice was given, the Authority decides—

1. (a) to give the direction in the way proposed, or
2. (b) if it has been given, not to revoke the direction

it must give separate written notice to the operator and (if any) the trustee or depositary of the scheme concerned. (7) If, having considered any representations made by a person to whom the notice was given, the Authority decides—

1. (a) not to give the direction in the way proposed.
2. (b) to give the direction in a way other than that proposed, or
3. (c) to revoke a direction which has effect,

it must give separate written notice to the operator and (if any) the trustee or depositary of the scheme concerned. (8) A notice given under subsection (6) must inform the person to whom it is given of his right to refer the matter to the Tribunal. (9) A notice under subsection (7)(b) must comply with subsection (4). (10) 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. (11) This section applies to the variation of a direction on the Authority's own initiative as it applies to the giving of a direction."). The noble Lord said: This amendment was spoken to with Clause 188 stand part. I beg to move.

On Question, amendment agreed to.

Clauses 274 and 275 negatived.

Clause 276 agreed to.

Clause 277 [Power to investigate]:

[Amendments Nos. 255H to 255K not moved.]

Clause 277 agreed to.

Clauses 278 and 279 agreed to.

6.45 p.m.

Clause 280 [Application by an investment exchange]:

On Question, Whether Clause 280 shall stand part of the Bill?

Lord Donaldson of Lymington

I want to speak to Clause 280 because it is the clause which provides for applications to be made for recognition by investment exchanges. A parallel clause, Clause 281, relates to clearing houses.

Anyone considering the Bill will be interested to know the conditions for the recognition of investment exchanges and clearing houses. The answer is provided in part on page 19 of consultation paper 39a. It relates to investment exchanges and states: Financial crime and market abuse. Without prejudice to the generality of sub-paragraph 5(1) —which I do not think matters— the RIE must ensure that appropriate measures are adopted to prevent market abuse"— that is a pretty formidable task; nevertheless it states that it must adopt appropriate measures to prevent market abuse, not to make it more difficult or anything like that— and financial crime, facilitate their detection and monitor their incidence". It does not say, and I should like to know, whether it is proposed that an investment exchange or a clearing house, having adopted measures designed to prevent market abuse and financial crime, and having taken measures to facilitate their detection and to monitor their incidence, should do any more about it by way, for instance, of bringing complaints against their members. I assume that the answer is "yes". At a much earlier stage I believed that the FSA was to take this over and I am told that that caused some alarm and despondency. So the load is to be shared.

The difficulty is that market abuse may not be so described in the rules of the exchange or clearing house. Nevertheless, if one looks at Clause 109, and the rules made by the FSA under Clause 109, it will be clear that that is what it is talking about. Even if both bodies speak the same words, we still have the problem of double jeopardy. It would be extremely difficult to be certain that to one was prosecuted by both bodies. I know that there is power for the FSA to call in. But if the FSA calls in, the complainant finds himself in an entirely different arena. He finds himself in an arena where there is an appeal to the tribunal.

Perhaps I may remove any misapprehension about the tribunal. We had the same problem with the industrial relations legislation where there was a national industrial relations court. The incoming government of a different political persuasion naturally—I dc, not blame them in any way—wanted to get rid of the idea of a court and called it a "tribunal". However, the constitution was word for word the same. The draftsman simply struck out the word "court" and wrote "tribunal".

Let there be no mistake about it: this is a court. There is a direct appeal—granted, it is restricted—to the Court of Appeal. That means immediately that the court/tribunal s of co-equal status with the initial stage of the High Court, the Queen's Bench Division, or whatever.

Therefore, that is something quite different which, I dare say, the complainant would welcome. However, if it is not called in and he is left with his domestic rules, there is a real risk that the courts will intervene. They may intervene on the basis of the Human Rights Act or on their ordinary historic jurisdiction if they believe that there has been any unfairness in the work of a tribunal. They would not accept the statement, "Oh, well, the person being pursued agreed to the rules", where the rules would affect his livelihood. There are many examples where the courts have moved in in such circumstances.

I do not want the courts to become involved in these issues. Even where people try unsuccessfully to involve the courts, the reputation of the system that we are trying to set up will be damaged. Therefore, I hope that serious thought can be given to the relationship between the disciplinary powers of the investment exchanges and the clearing houses and what is to be done when one has what is, in reality, the same offence falling within the jurisdiction of both.

No doubt it will be said that each investment exchange will be required, as part of its rules, to have an internal appeal procedure, but that is different from being able to appeal to a court with a right to go on to the Court of Appeal. It is probable that as so much is going on no one has time to set out the whole story. However, if thought is being given to the issue, it would be nice to know what it is; and if no thought—or insufficient thought—is being given, it is very much needed.

Lord McIntosh of Haringey

I am grateful to the noble and learned Lord for raising these issues. He has chosen to do so under Clause 280, but has justifiably widened the issues beyond the basis of application for recognition as a recognised investment exchange. Raising the issue in such a way enables me to put on the record the relevant content of a letter which I wrote to him yesterday.

Lord Donaldson of Lymington

I have not received it.

Lord McIntosh of Haringey

Well, now, it was sent to him yesterday. Perhaps I may refer to the relevant parts of my letter. I wrote: I do not disagree with the points made concerning the possible attitude of the courts in this area. While the disciplinary arrangements of recognised bodies have to be seen against the background of contractual relationships which they enter into with their members, I think that it is indeed possible that the courts would take the view that in certain respects these bodies are exercising public functions. This is particularly so in the light of the extension of statutory immunity to recognise bodies for the first time for things done in the discharge of their functions arising out of obligations to which they are subject under the Act, in particular the recognition requirements. I do not think, though 0that any change to the Fill is necessary either for European Convention on Human Rights reasons or to achieve any changes along the lines outlined in "our letter for policy reasons. In order to be recognised, and thus exempted from the general prohibition, an exchange or clearing house has to meet certain recognition requirements. These will be set out in regulations made by the Treasury, rather than the FSA, under the powers conferred by subsection (1) of Clause 27 of the Bill". Draft regulations were published for consultation in February last year.

The noble and learned Lord asked whether recognised investment exchanges and recognised clearing houses should be required to have independent tribunals. We are giving serious thought to what the recognition requirements made by the Treasury should say about the right to refer decisions of recognised bodies to an independent tribunal, and in doing so will certainly bear in mind the points that he has made.

It will be possible for the Treasury to provide for recognition requirements which will mean that exchanges and clearing houses must have fair and independent arrangements for dealing with disciplinary proceedings. But the exchanges are also commercial private bodies, which may mean that appeal to the High Court may not be appropriate.

If I have omitted any of the points which the noble and learned Lord made—I probably have—I had better burden him again with more correspondence.

Lord Donaldson of Lymington

I thank the Minister for the letter which I am yet to receive. I am sure that it is most helpful. I am worried about one issue; everything else can be sorted out by regulations. I AM worried because, as far as I can discover, there is no way in which one can move a system from the exchange or clearing house to the tribunal. Not only do I believe that it would be better if that were possible, but it would ensure a degree of consistency which might otherwise not exist. I hope that if regulations are to be made, they will require the investment exchanges and the clearing houses to treat the decisions of the tribunal as binding.

Lord McIntosh of Haringey

On 21st March, at col. 251 of Hansard, the noble and learned Lord pointed out that there would need to be a right of appeal from the RIE and RCH tribunals to the financial services and markets tribunal established by the Bill. That is the point he is making today—and that it would require an amendment to the Bill. I agree that if we were to make such a change, an amendment to the Bill probably would be required. However, we do not believe that it is necessary to do that in order to ensure that the RIE and RCH tribunals are fair, impartial and have the necessary degree of independence. We believe that we can achieve that through the recognition requirements—which, of course, brings us back to Clause 280.

Clause 280 agreed to.

Clause 281 agreed to.

Clause 282 [Applications: supplementary]:

Lord McIntosh of Haringey

moved Amendment No. 256: Page 145, line 43, leave out ("additional information") and insert ("such further information as it reasonably considers necessary to enable it to determine the application"). On Question, amendment agreed to.

Clause 282, as amended, agreed to.

Clause 283 agreed to.

Clause 284 [Liability in relation to recognised body's regulatory functions]:

Lord Kingsland

moved Amendment No. 256A: Page 146, line 33, at end insert(",reckless or negligent"). The noble Lord said: Part XVIII relates to recognised investment exchanges and clearing houses, called "recognised bodies". Clause 284(1) provides that a recognised body and its officers and staff will not be liable in damages for anything done or omitted in the discharge of that body's regulatory functions unless it is shown that the act or omission was in bad faith.

The amendment concerns the old chestnut of immunity from damages. In the first version of the Bill, the provision provided immunity from liability in damages only to the members of the relevant recognised body. However, the Government subsequently introduced amendments which extended the immunity to claims by all persons. The amendment adds the words "reckless or negligent" to the end of the provision. The next amendment adds to Clause 284(2) the words, or was in breach of Community law", as a further exclusion from the immunity provision.

Some Members of the Committee may recall that in an earlier part of the Bill giving statutory immunity to the authority itself, similar amendments were added to a similar immunity clause. Therefore, the Opposition's approach to the position of recognised bodies with respect to statutory immunity is exactly the same as it has been in relation to the authority.

So far as concerns Amendments Nos. 257B and 257C, Clause 293(1) requires the authority to make arrangements for the investigation of complaints about a recognised body. Amendment No. 257B would require the appointment of an independent person to investigate complaints. Amendment No. 257C would add new provisions which would allow the investigator to make recommendations to the authority on the steps, if any, which a recognised body should take to remedy a complaint which is well founded. Specified steps may include the payment by the recognised body of a specified sum to a specified person.

The Committee may recall that, with respect to recognised exchanges, originally the concept was not to give them statutory immunity. However, as I pointed out earlier, the Bill now gives it to them. In those circumstances, it is our contention that at this point it is necessary to inject into the Bill a counterbalance in the form of a genuinely independent complaints investigator who will mirror the independent complaints investigator whom we seek in relation to the authority.

We place very great importance on this amendment and we earnestly hope that the Government will feel inclined to accept it. I beg to move.

7 p.m.

Lord McIntosh of Haringey

Clause 284 gives recognised investment exchanges and clearing houses statutory immunity from liability in damages in respect of anything done or omitted in the discharge of their regulatory functions. I want to emphasise "regulatory functions" because those bodies have commercial functions and there is no immunity from them.

Amendments Nos. 256A and 256B seek to cut back on the scope of the immunity by removing it, first, in cases where the action complained of was reckless or negligent and, secondly, where the body concerned was in breach of European Community law. Of course, we considered similar amendments when we dealt with the statutory immunity of the FSA. The noble Lord, Lord Kingsland, will not be surprised to hear that I cannot accept these amendments any more than I could on the earlier occasion.

So far as concerns Amendment No. 256A, there is a balance to be struck in granting immunity. It must be sufficiently broad to enable the regulatory body to carry out its functions effectively without being inhibited by the threat of litigation. At the same time, it must not restrict unreasonably the ability of those who feel that they have been adversely affected by its actions to seek legal redress. I believe that the formula that we have proposed of allowing actions where the regulator has acted in bad faith, or where this concerns Section 6(1) of the Human Rights Act or through judicial review, strikes the right balance.

Like the FSA, the exchanges will have to take difficult regulatory decisions, sometimes very rapidly and perhaps without all the information about a situation which subsequently will be available. If they needed to be constantly alert to the possibility of an action alleging recklessness or negligence, that could seriously interfere with their effective functioning. They need to be able to devote their mind to the proper running of the market and not to be distracted by legal action. That is not only my view; it was the view of the Joint Committee of both Houses which considered the draft Bill.

On one level, Amendment No. 256B is simply unnecessary. The Bill does not, and cannot, override any obligations of European Community law to which the recognised Bodies may be subject. Therefore, there is no need for such an amendment. As I said when we debated the FSA's immunity, the responsibility for ensuring that proper effect is given to the UK's Community obligations is one which rests primarily with the Government. Where it is necessary for regulatory bodies to take action in order to implement a directive, the Government must ensure that relevant action is taken. If they fail to do so, the United Kingdom will be in breach of its Community obligations and the Government will be the proper respondent in infraction proceedings.

That is one reason why Clause 289 gives the FSA a power to give directions to recognised bodies which are in breach of their recognition requirements. If the recognised body was in breach of European Community law, undoubtedly it would be in breach of those requirements. If it did not take action to put matters right, the FSA would be able to make use of that power. However, if for some reason the FSA was reluctant to do that, the Treasury would be able to make use of its power under Clause 389 to direct the FSA to take action in order to ensure that the UK remained in compliance with its international obligations.

Amendments Nos. 257B and 257C deal with Clause 293, which gives the FSA power to make arrangements for the investigation of complaints against authorised bodies. I can understand what lies behind the amendments but still I cannot accept them. They seek to provide in the Bill for matters that we believe should be dealt with in the regulations which we shall make after the Bill comes into force. Those regulations will set out the recognition requirements for recognised bodies.

Clause 293 requires the FSA to make arrangements for the investigation of a complaint which is relevant to the question of whether a recognised body should remain a recognised body. Therefore, if someone felt that a recognised exchange or clearing house had taken action which was not in accordance with the recognition requirements—that is, the basic rules with which exchanges and clearing houses must comply in order to become and remain recognised—he would be able to complain to the FSA. If the FSA felt that that complaint demonstrated that the body did not meet the recognition requirements, it would be able to give the body concerned directions under the powers of Clause 289 or, in an extreme case, to revoke its recognition under Clause 291.

Therefore, the clause deals with complaints of major problems within a recognised body which are such that the FSA might be moved to intervene. However, it does not deal (because that is not its purpose) with what might be called "day-to-day" complaints where a person does not allege that the body is not fit to continue to be recognised but, nevertheless, has what might be a legitimate grievance which, rightly, he would expect to be addressed.

Although such complaints would not call into question the continuing recognition of the body concerned, that does not mean that they are not important. Indeed, I believe that it was that type of complaint that the Joint Committee had in mind when it said that the extension of immunity should be conditional on there being an adequate complaints procedure in place in each body. We accepted that recommendation of the Joint Committee. However, rather than put any requirements for complaints procedures on the face of the Bill, we continue to believe that the better way to deal with this matter is through the recognition requirements. This refers back to the point made by the noble and learned Lord, Lord Donaldson.

The draft recognition requirements on which we consulted last year currently require recognised bodies to have in place satisfactory arrangements for the investigation of complaints in respect of the use of their facilities. In due course, we shall review those requirements before we make regulations to bring them into effect. They will ensure that the complaints arrangements which a recognised body will be required to maintain provide for adequate and independent investigation of complaints about how it has acted.

Lord Elton

Perhaps I may intervene because this matter reads across to a letter which the noble Lord, Lord McIntosh, was kind enough to write to me in which he says that, wrongful payment due to the negligence of an institution holding clients money in an account held by an authorised person will not make the institution liable, as constructive trustee, under Clause 131(4) of the Bill. The institution has to be acting dishonestly— legal semantics will no doubt explain how a trustee can be either reckless or negligent and still be honest— before liability as constructive trustee is incurred. There is nothing elsewhere in the Bill to make such an institution liable for negligence. An authorised person who placed their clients money on trust might well have a case for action for negligence". However, it is the client—I am reading the noble Lord's words. If they seem surprising, I shall read them again.

Lord McIntosh of Haringey

I express concern only because the letter did not refer to recognised investment exchanges; it referred to constructive trusteeship.

Lord Elton

I stand corrected. However, I am trying to address a principle. If I come by the side door. I apologise. What puzzles me is that I believed that the Bill set out to provide a complete umbrella over the financial services industry and to protect all the customers or clients of the financial services industry by regulating practitioners in that industry. But here, as my noble friend pointed out, there is a large area where the penalties are not provided to extend that protection to those who may suffer as a result of the negligence or recklessness of the authorised persons.

It seems to me that that runs against the grain of the Bill itself. Before the Minister answers my noble friend in detail, perhaps he will reassure me that that is not against the philosophy of the Bill and that, by some means, clients are still protected and will not have to seek more expensive recourse outside the provisions of the Bill than the Bill itself provides.

Lord McIntosh of Haringey

I thought that that is what I said when I answered the noble Lord, Lord Kingsland, in detail. After all, the existence of a recognised investment exchange or a clearing house is, in a sense, a privilege because, although the FSA is responsible, as the noble Lord, Lord Elton said, for the whole of the financial services market, nevertheless, it delegates some of its responsibilities under certain circumstances to recognised investment exchanges and clearing houses.

It must then ensure—and I thought I spent quite a long time showing how it did so—that there are adequate procedures for the protection of the consumers of the products of those recognised investment exchanges and clearing houses. I made it clear that our view is that they should not be on the face of the Bill but should appear in recognition requirements. I made it clear that we have already published draft recognition requirements to bring that into effect and that, following consultation, we were proposing to bring into effect suitable recognition requirements to cover all those points after the Bill comes into force.

Lord Donaldson of Lymington

I support the Government's reluctance, indeed, refusal, to alter the immunity provisions as contained in the Bill. Members of the Committee must remember that this is a field where there is a lot of money swilling about. While the ordinary man in the street will hesitate, unless he is a lunatic, to start litigating as a tactical manoeuvre, in the financial markets, that is not unknown and the sums of money are so great that there may be very little disincentive for doing so.

Lord Kingsland

The Minister will not be surprised to learn that I am less than happy with his response in relation to all the amendments. Therefore, I have a choice between pressing the point on statutory immunity or pressing the point in relation to an independent investigator. My approach will be to ask leave to withdraw Amendment No. 256A and I shall not press, when we reach them, Amendments Nos. 256B and 257B but I give notice that when we arrive at the point on the Marshalled List, I shall test the opinion of the Committee on Amendment No. 257C relating to the independent investigator.

There is one other observation that I want to make on the Minister's reply; that is, on the question of European Community law. He said that our amendment on European Community law was not necessary because the state's international responsibility is engaged. But, in fact, I think I am right in saying that the authority, because of its regulatory responsibilities, will be classified in European law as an emanation of the state. There may be circumstances in which individuals will have directly effective rights against the authority. Therefore, the question of immunity in respect of those rights may be important.

Therefore, for clarity—and it may be a matter to which we shall return on Report—I believe that the Government should make the concession for which I have asked in Amendment No. 256B.

7.15 p.m.

Lord McIntosh of Haringey

Before the noble Lord withdraws Amendment No. 256A, I am grateful to him for his notification about Amendment No. 257C. I should say, for the benefit of anybody who may have difficulty with this amendment, that the provisions which we make to deal with the problem raised by the amendment are not provisions which are made now. They were made last year in the draft regulations. Those draft regulations have been the subject of consultation. There has been no dissent from the view expressed that the draft regulations were the right place for that, and I have made clear our determination, or the FSA's determination, to enforce those draft regulations after the Bill is passed.

In case there is any doubt on the matter, the issues covered by Amendment No. 257C are fully covered and have always been fully covered by our provisions.

Lord Kingsland

I hear what the noble Lord says. Of course, those arrangements will not be on the face of the Bill. It is our view that this matter is of such central importance to the matter of checks and balances within the Bill that to have it contained in secondary legislation is not enough. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 256B not moved.]

On Question, Whether Clause 284 shall stand part of the Bill?

Lord Taverne

On the question of whether Clause 284 shall stand part, there is one brief point that I want to make. This clause extends the immunity to recognised bodies. The fact that that immunity is extended in that way rather reinforces the point made by my noble friend Lord Sharman at col. 1781 on the first day in Committee, in which he moved an amendment which proposed that the immunity should be extended to any person who is, or is acting as, a member, officer, member of staff or in the capacity of an agent of the authority.

Indeed, he pointed out that paragraph 6(2) of Schedule 1 provides that: Those arrangements may provide for functions to be performed on behalf of the Authority by any body or person who, in its opinion, is competent to perform them". It seems to me that that strengthens the case for extending the immunity to agents. I hope that the Government will bear that in mind when they reconsider the amendment moved by my noble friend.

Lord McIntosh of Haringey

I am grateful to the noble Lord, Lord Taverne, for raising that matter. If he refers back, as I thought he was doing, to earlier debates, he will find that we have covered rather fully in debate the points which he raised; that is, both the difference between the regulatory and commercial functions of exchanges. I have forgotten what the second issue was. I was interrupted by my noble friend the Chief Whip, as so often happens, and I momentarily lost attention. I shall read carefully in Hansard what the noble Lord said. If there is any response that it would be helpful to give, I shall give it to him in writing.

Clause 284 agreed to.

Clauses 285 to 289 agreed to.

Clause 290 [Variation of recognition order in relation to recognised nominee]:

Lord McIntosh of Haringey

moved Amendment No. 257: Page 150. line 2, after first ("it") insert ("reasonably"). On Question, amendment agreed to.

Clause 290, as amended, agreed to.

Clause 291 agreed to.

Clause 292 [Directions and revocation: procedure]:

Lord Kingsland

moved Amendment No. 257A: Page 151. line 12, at end insert— ("( ) During the period for making representations, the recognised body shall be given access to the information and documents which the Authority has relied on in deciding on its proposed action."). The noble Lord said: As Members of the Committee are well aware, Clause 292 sets out the procedures before the authority. The authority may give a direction under Clause 289 or may make a revocation order under Clause 291(2). The usual decision notice procedure has not been included in Clause 289. The amendment includes one of the protections provided by that procedure; that is to say, during the period in which representations can he made to the authority. It specifies that the authority should give access to the information and documents upon which it has relied in deciding on its proposed action.

I am at a loss to understand why the procedure has been excluded. In my submission, if someone is under suspicion and an investigation is made and a decision taken to penalise that person, there should be a period between that decision and the imposition of the penalty itself during which the person concerned has access to the documents upon which the decision to penalise has been based, because he may well be able to give a satisfactory answer. That is the basis upon which the amendment has been tabled. I beg to move.

Lord Taverne

In our view there is some merit in the amendment and indeed also in Amendment No. 257C, which, I understand, the noble Lord will press to a vote. Regarding the second amendment, we do not believe that this is the right time at which to vote and so we shall abstain.

Lord McIntosh of Haringey

I return to Amendment No. 257A. When the FSA proposes to issue a direction under Clause 289 or to revoke recognition under Clause 291, it must follow the procedures set out in this clause. It must give written notice to the body concerned and, so far as is reasonably practicable, let members of the body know what is going on and publish the notice so that others who might be affected know what is happening. The notice must set out the reasons why the FSA is proposing to take action and draw attention to the right to make representations. The minimum period for representations is two months. The body, its members and those affected may make representations during that period and the FSA must have regard to them in deciding whether to carry out its proposal. It must then inform the recognised body of its decision to make or not make the order.

The procedures set out in the clause ensure that recognised bodies, their members and others affected or potentially affected by an FSA direction or revocation order can make full and proper representations. The noble Lord's amendment provides that when the FSA proposes to give a direction, or to make a revocation order and has given the recognised body notice of its proposal, it must allow the body concerned access to the information and documents on which it has relied in deciding the proposed action. I understand the thinking behind the amendment, but it is both unhelpful and unnecessary.

The purpose of the procedure in Clause 292 is to make the body concerned aware of why the FSA is proposing to take action and to give it the chance to inform the FSA of any information which might lead it to change its mind. Subsection 2(a) is quite clear about the matter. So the FSA cannot simply say, for example, that it is minded to revoke recognition of a body, without giving details of why it proposes to do so. That said, the FSA is not required to make available the actual evidence on which it relied in deciding upon the proposed action, but I do not see why that would be necessary. The FSA may have a great deal of material in its possession which it would be bureaucratic and overburdensome to expect it to have to disclose. The important thing is that it must make available to the body the reasons which led to its decision. The clause already provides for that.

That is different from a situation in which the FSA is proposing to take disciplinary action against an authorised person, just as recognised bodies themselves are different from authorised persons. In disciplinary cases, the authorised person has the right to refer the matter to a tribunal, so it is right that he should be aware of the evidence that the FSA may be preparing to put to the tribunal and have the chance to comment on it. In the case of recognised bodies, FSA decisions are of a supervisory rather than a disciplinary nature and there is no right to refer matters to the tribunal. That is because, as I have just been saying, recognition is a special privilege giving recognised bodies exemption from the general prohibition. The FSA cannot make conduct of business rules apply to recognised bodies in the same way that it could for an authorised person.

Recognised bodies also have quasi-regulatory functions under the Bill and, as a result, statutory immunity. They are therefore in a different position from authorised persons. We do not believe that it is right, given that position, that they should be able to challenge FSA decisions before a tribunal. That is not to say, of course, that recognised bodies have no recourse against a decision by the FSA which they consider unreasonable. In such a circumstance they could apply for judicial review of the FSA's decision and in that case it would be for a court to say what evidence the FSA was required to disclose.

Lord Kingsland

The Minister will not be surprised to hear that I am not satisfied with his reply, although I do not intend to press the amendment today. The Minister has referred me to Clause 292(2)(a) and (b), but how could the recognised body assess the reasons given for the direction if it cannot look at the underlying evidence? It seems illogical for the authority to give reasons and then, if challenged on them, to refuse to give the evidence upon which it reached its conclusions. This is a matter to which we shall certainly return on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 292 agreed to.

Clause 293 [Complaints about recognised bodies]:

[Amendment No. 257B not moved.]

Lord Kingsland

moved Amendment No. 257C: Page 151, line 43, leave out subsection (2) and insert— ("( ) The arrangements made by the Authority must provide for the investigator to report to the Authority on the result of his investigation and, if he considers a complaint to be well-founded, to make recommendations to the Authority on the steps (if any) which the recognised body should take to remedy the matter complained of. ( ) If the investigator reports to the Authority that a complaint is well-founded, the Authority may direct the recognised body to take specified steps in response to the investigator's report. ( ) Specified steps may include the payment by the recognised body of a specified sum or specified suits to a specified person or specified persons. ( ) "Independent" means appearing to the Authority to be independent of the recognised body. ( ) "Specified" means specified by the Authority.").

7.27 p.m.

On Question, Whether the said amendment (No. 257C) shall be agreed to?

Their Lordships divided: Contents, 30; Not-Contents, 73.

Division No. 1
CONTENTS
Anelay of St. Johns, B.	Howe, E.
Attlee,E.	Jenkin of Roding, L.
Blatch, B.	Kingsland, L.
Bowness, L.	Lyell, L.
Byford,B.	Marlesford, L.
Colwyn, L.	Mayhew of Twysden, L.
Courtown, E. [Teller]	Northbrook, L. [Teller]
Cox, B.	Northesk, E.
Dixon-Smith, L.	Onslow, E.
Dundee, E.	Park of Monmouth, B.
Eccles of Moulton, B.	Patten, L.
Elton, L.	Pearson of Rannoch, L.
Flather, B.	Renton, L.
Glentoran, L.	Saatchi, L.
Home, E.	Skelmersdale, L.
NOT-CONTENTS
Allenby of Megiddo, V.	Hilton of Eggardon, B.
Alli,L.	Hollis of Heigham, B.
Amos, B.	Howells of St.David, L.
Archer of Sandwell, L.	Hoyle, L.
Bach, L.	Hughes of Woodside, L.
Bassam of Brighton, L.	Hunt of Kings Heath, L.
Beaumont of Whitley, L.	Jay of Paddington, B. (Lord Privy Seal)
Borrie, L.
Brooke of Alverthorpe, L.	Jeger, B.
Brookman, L.	Lea of Crondall, L.
Burlison, L.	Lipsey, L.
Burns, L.	Macdonald of Tradeston, L.
Carter, L. [Teller]	McIntosh of Haringey, L. [Teller]
Christopher, L.
Clarke of Hampstead, L.	MacKenzie of Culkein, L.
Cocks of Hartcliffe. L.	Massey of Darwen, B.
Craigavon, V.	Milner of Leeds, L.
Crawley, B.	Morris of Manchester, L.
David, B.	Nicol, B.
Davies of Oldham, L.	Pitkeathley, B.
Dean of Thornton-le-Fylde, B	Puttnam, L.
Donaldson of Lymington, L.	Ramsay of Cartvale, B.
Dormand of Easington, L.	Rea, L.
Dubs, L.	Rendell of Babergh, B.
Eatwell, L.	Richard, L.
Farrington of Ribbleton, B.	Sawyer, L.
Faulkner of Worcester, L.	Sewel, L.
Gale, B.	Simon, V.
Goldsmith, L.	Stone of Blackheath, L.
Goudie, B.	Symons of Vernham Dean, B
Gould of Potternewton, B.	Turner of Camden, B.
Grabiner. L.	Uddin, B.
Graham of Edmonton, L.	Walker of Doncaster. L.
Hardy of Wath, L.	Warwick of Undercliffe, B.
Harris of Haringey, L.	Whitty, L.
Harrison, L.	Wilkins, B.
Hayman, B.	Woolmer of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.

7.36 p.m.

Clause 293 agreed to.

Clauses 294 to 300 agreed to.

Lord McIntosh of Haringey

I beg to move that the House do now resume. I suggest that the Committee stage begin again not before 8.38 p.m.

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

House resumed.