HL Deb 09 May 2000 vol 612 cc1373-87

3.21 p.m.

Lord McIntosh of Haringey

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

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

On Question, Motion agreed to.

Clause 131 [Legal assistance scheme]:

Lord Saatchi

moved Amendment No. 149A: Page 63, line 16, leave out ("under section 123(4)"). The noble Lord said: My Lords, my noble friend Lord Kingsland will address this group of amendments. In the meantime, with your Lordships' leave and having given notice to the Minister, I should like to ask the Minister for clarification of a significant development which has occurred since the last Report day of this Bill in your Lordships' House.

Do any noble Lords who participated in our many days of debate on this Bill share my uneasy feeling that since we last met the ground has been shifting under our feet? I refer to the merger of the London Stock Exchange with the Frankfurt Stock Exchange. That appears to raise many questions in relation to this Bill and I shall be grateful for the Minister's response to them.

As a consequence of amendments introduced by the Government in your Lordships' House, the FSA is now the responsible listing authority for the London Stock Exchange and the relevant order affecting that has already been passed in both Houses of Parliament. In the light of that, can the Minister set our minds at rest on some of the issues?

Why does the chairman of the Swedish Stock Exchange say that this merger has political undertones? If that is true, is that an appropriate role for an independent regulatory authority to play? Why does the National Association of Pension Funds say that it could lead to a mismatch of pension fund assets and liabilities? Is it true that all technology companies will in future be quoted in euros in Frankfurt? Who will be the competent listing authority for those companies? Was this merger envisaged by those who designed this Bill? What amendments to the Bill will be required at 'Third Reading to reflect the merger? Will the merged exchange be a recognised investment exchange under Part XVIII of the Bill? How will the FSA discharge its supervisory role of the merged exchange? What assurance do we have that the FSA will not itself be merged with the German regulator or with a new European super-regulator without coming back to Parliament first?

I hope the Minister can give us a response to some of those questions at the end of the debate on the amendments. I beg to move.

Lord Elton

My Lords, I do not know what the procedure is under these circumstances, which might have taken place before we resolved to discuss the Report stage at all. But as we are on the question of the parameters within which we are working, I am only just taking on board the significance of what my noble friend said. It seems to me that there are parts of this Bill which may need to be recommitted and that we ought to be looking at the timetable for the whole Bill and not merely for today.

Lord Northbrook

My Lords, I rise to support my noble friend Lord Saatchi. Perhaps the Minister can tell us whether the merger of the London and Frankfurt Stock Exchanges contradicts the provisions of Clause 2, subsections (3)(e) and (3)(g), which state: In discharging its general functions the Authority must have regard to … the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom [and) … the desirability of facilitating competition between those who are subject to any form of regulation by the Authority".

Lord Boardman

My Lords, I share the concern expressed by my noble friend. The Stock Exchange is central to this Bill. The changes recently announced and the introduction of Frankfurt throw fresh light on large parts of the Bill. I wait to hear what the Minister says on that point.

Lord Kingsland

My Lords, it is my task to address Amendments Nos. 149A, 158C and 158D.

If Amendment No. 149A is accepted, legal assistance will not be restricted to market abuse proceedings, which are the subject of Section 123(4), but will extend to all disciplinary proceedings initiated by the authority under the Bill. As the Minister is well aware, legal assistance is expressly provided for under Article 6(3) of the European Convention of Human Rights; that is to say, it expressly applies to criminal offences. However, as the Minister is also aware, in three recent cases in the European Court of Human Rights, it has been held that the right to legal assistance is also inherent in the protection provided by Article 6(1). The leading case is, perhaps, Rowe v. Davis, where the court stressed that Article 6(3) merely sets out examples of a fair hearing; the obligation is already contained in Article 6(1). Indeed, that point was dealt with almost a decade earlier in the case of Edwards v. the United Kingdom.

In short, it is our contention that the protections provided by Article 6 apply to the determination of all civil rights and obligations, not merely to the rights in relation to criminal accusations. Therefore, all disciplinary proceedings under the Bill should, in appropriate circumstances, attract legal assistance to the aggrieved party.

As regards Amendments Nos. 158C and 158D, the Government have already accepted what has come to be known as "Saunders proofing" for proceedings under that part of the Bill which deals with market abuse. In that context it is worth mentioning that in the Saunders case, in which the United Kingdom government were the defendant, the European Court of Human Rights said that non-admissibility as regards evidence was required by the fair hearing provisions of Article 6.1 not just by the provisions of Article 6.3.

In brief, it is our contention that Saunders proofing ought to apply to disciplinary proceedings under the Bill and not just to proceedings concerning market abuse. I beg to move.

3.30 p.m.

Lord McIntosh of Haringey

My Lords, before I move to the amendments before us, perhaps I may thank the noble Lord, Lord Saatchi, for drawing the attention of the House to the proposed merger of the London Stock Exchange and the Deutsche Börse and other noble Lords who have supported him in his expression of concern. I can reassure the noble Lord, Lord Saatchi, without hesitation that the full details of the merger have yet to be worked out. The FSA will need to look carefully at the regulatory implications of what emerges.

However, I understand that the intention is that the merged company will be based in, and managed from, London and that the market for blue chip shares in London will continue to be a recognised investment exchange overseen by the Financial Services Authority. The London Stock Exchange and the Deutsche Börse have also said that it is not envisaged that there will be any change in the regulatory arrangements for national markets. The regulatory framework provided by the Bill is an appropriate one and therefore there is no need for any amendments to the Bill.

Lord Elton

My Lords, perhaps the noble Lord would be kind enough to expand on that. Where transactions of the new joint exchange take place in Germany and not in England, will they be subject to British or German regulation? How will inquiries etc. be managed in such cases?

Lord McIntosh of Haringey

My Lords, the noble Lord did not use the words "super euro regulator" but they have been used. I do not care for that form of words. If there were to be a super euro regulator, that would require legislation at Community level. I have no knowledge that that is proposed. As regards who will be the competent authority for listing following the merger, as has been recognised, we have already amended the Bill in the light of the proposed demutualisation. The competent authority is, and will continue to be, the FSA. Part IV of the Financial Services Act has already been amended by regulations made under Section 2(2) of the European Communities Act so that the authority is the UK competent authority for listing under that Act.

Lord Elton

My Lords, I am sorry to delay the House, but sometimes the most stupid Member is the most useful because he reveals difficulties which others may not have regarded as being difficult. If a German citizen has business conducted at the German end of this new body and believes that, perhaps with justice, he has been wrongfully dealt with, will his recourse be local or will it be to London? If it is to London, surely we need to take account of that in this legislation.

Lord McIntosh of Haringey

My Lords, as the noble Lord is perfectly well aware, we are in a transitional stage between host state and home state regulation. Therefore, any answer I give to the noble Lord would necessarily be a transitional answer, which might be changed at some future stage.

While there is host state regulation, it is the location of the authorised person which determines the regulatory authority. When a move to home state regulation is complete, it will be the location of the consumer which is the relevant consideration. I believe the noble Lord's concern is that there might be some stage at which there is no proper regulatory body. I can assure him that literally dozens of pages of the Act are devoted to the issue, which is not new and not dependent on the merger of the London Stock Exchange and the Deutsche Börse to ensure that there will be neither overlap nor a gap between the provisions of regulatory authorities in different countries.

As I have just been passed a note, perhaps I may see whether there is anything further that I can add to reassure the noble Lord, Lord Elton. I am advised that nothing has changed. People in Germany can trade on the London Stock Exchange now. Where people engage, for example, in abusive behaviour, it will be possible for the local regulator, and perhaps the overseas regulator, to take action. There are arrangements in place for co-operation. I believe that that confirms what I have already said off my own bat, so to speak, as regards the fact that there is no problem either of overlap or of a gap in jurisdiction.

Lord Saatchi

My Lords, will the Minister allow just a moment for me to sum up my understanding of what he has said and express some residual concerns which are left? I am grateful to the noble Lord for his reply and to other noble Lords who have spoken.

Perhaps I may reflect on the point made by my noble friend Lord Northbrook. Clause 2(3)(e) states, In discharging its general functions the Authority must have regard to"— we have discussed these words many times in our debates— maintaining the competitive position of the United Kingdom". It strikes many observers that there must be a conflict of interest in the job of being the regulator and supervisor of an exchange which includes another country. That is a problem which puzzles people.

Let us consider the EC directive on the mutual recognition of stock exchanges. That assumes that each country has its own designated stock exchange. Until last week that was true: each country had its own listing authority and stock exchange. After this merger we shall have two listing authorities, but only one stock exchange.

One of the points that arises is that as from 1st May one has to apply to the FSA to have one's shares admitted to the official list and then to the London Stock Exchange for the right to deal in those shares. But, following the merger, the admission to deal will be for dealing on the merged entity. Will the FSA have a supervisory reach over those newly listed shares on the new exchange? Is it not true that German and British shares are now subject to different listing requirements?

Therefore, is it not true that this Bill cannot be the last word on the regulation of the Stock Exchange? There will have to be consistency in listing requirements. Therefore one is bound to ask what proposals the Minister will bring forward in due course for a statutory framework for regulation of the new exchange without which the FSA will appear to be operating in an uncontrolled environment?

Lord McIntosh of Haringey

My Lords, since we are at Report stage and if we are to continue with this debate, it might be better if a separate opportunity were found for a proper debate on this matter. I am grateful to the noble Lord for seeking to raise the matter because perhaps that avoided a Statement, a Private Notice Question or some other more time-consuming business.

Clearly, my responses to the noble Lord must be confined to those matters which may be thought to be affected by this Bill. That is what I have done. I hope that I have given the noble Lord an absolute assurance that the problems he anticipates simply will not occur. In my first answer I said that the merged company will be based in, and managed from, London and that the market for blue chip shares in London will continue to be a recognised investment exchange overseen by the FSA.

I believe that that answers the noble Lord's quite specific point. As regards the more fanciful suggestions that the FSA might have to be merged with some other body, they are just that—fanciful suggestions. There are other regulatory bodies in other European countries and in particular in Germany. When and if the regulatory bodies in the other countries reach the standard which we believe we are pioneering in this country with this legislation, and when they are willing, ready and able to take on comparable responsibilities, then what is open to us is not a super regulator, in case anyone is afraid of that, but home state regulation, which is a more simple and rational basis for regulation than that which we have at the moment. The kind of border difficulties that seem to be anticipated by some noble Lords will no longer be in prospect. I give way.

Lord Hunt of Wirral

My Lords, I thank the Minister. I appreciate the flexibility that the noble Lord is showing when dealing with certain very fundamental questions about this Bill. However, perhaps we should bear in mind the fact that the FSA issued a press release in which it said it was working closely, with our German supervisory colleagues … with whom we already co-operate closely, to arrive at a sensible regulatory outcome for IX". I suppose that what both noble Lords and I are asking is that we should be kept informed as to what this "sensible regulatory outcome" will be. Perhaps the Minister will undertake to keep us in touch with such developments so that we can then consider, if possible before Third Reading, whether further amendments are needed to bring it into effect.

Lord McIntosh of Haringey

My Lords, I believe that my responsibilities begin and end with the assurance that I have given to the House that no amendments to this Bill are required as a result of the events that have taken place, or are in the course of so doing. Of course the FSA is in discussion with the German regulator; indeed, that is entirely right. No doubt the FSA will consider it its duty to make public the results of those negotiations as and when it thinks fit. That is not a responsibility of the Government and it is not my responsibility as the Minister responsible for steering the Bill through this House.

A confusion has arisen with which I believe I should now try to deal. The obligation in Clause 2 of the Bill to maintain the competitiveness of the United Kingdom is an obligation on the FSA; it is not an obligation on every single listed exchange or clearinghouse. Even before this merger was proposed, the London Stock Exchange was on line to be demutualised—in other words, to become a private company. It is not the role of government or of legislation to state what its object should be. As long as we stick to the rule that it is the FSA which has among its principles the maintenance of the competitiveness of the British economy, we shall not: fall into the trap of thinking that that must, therefore, be the obligation of all authorised persons.

There is a danger of confusing listing, which is dealt with in Part VI of the Bill, and the regulation of trading markets that is dealt with in Part XVIII. There is only one listing authority under Part VI—namely, the FSA—and its remit under those provisions is in relation to issuers. Part XVIII of the Bill provides sufficient flexibility to enable the FSA to regulate the proposed new markets.

With the leave of the House, I think it might be proper for me to move on now to deal with the amendments before us. Clause 131 gives the Lord Chancellor the power to establish a subsidised legal assistance scheme by regulations. This is a freestanding scheme for legal assistance and not an extension to legal aid.

Assistance is to be provided to individuals who have referred to the tribunal a decision of the FSA to impose a penalty for market abuse. It also covers cases where the FSA proposes to make a public statement that an individual has abused the market. The limitation to market abuse proceedings reflects the fact that this scheme is to be established, as a precaution, for this category of cases where we think it is appropriate to apply the full criminal protections under the European Convention on Human Rights.

The effect of Amendment No. 149A would be to widen the coverage of the scheme to cover all decisions referred to the tribunal. This is not necessary as a matter of law, and I do not think that it would be sensible to do this as a matter of public policy. Legal assistance is not generally available in tribunal proceedings, which are intended to be speedier and less formal than court proceedings.

As I said, the additional protections that have been put in the Bill in relation to market abuse were included as a precautionary measure because of concern expressed about the possibility that the market regime might be judged to be "criminal" for ECHR purposes. The noble Lord, Lord Kingsland, repeated the claim that he has made on a number of occasions—and, indeed, in the context of a number of Bills—that this has to be a criminal offence and that the ECHR has said so. I have to point out that lawyers disagree on this matter. I am aware of what the noble Lord, Lord Kingsland, says, just as I am aware of what the noble Lord, Lord Lester, and the noble and learned Lord, Lord Millett, say. However, our evidence to the Burns Committee from Sir Sydney Kentridge and Mr James Eadie made it clear that we take the view that this is primarily a civil regime.

Perhaps I may make an analogy with the professions. For example, doctors practising medicine are subject to regulation by the General Medical Council. The European Court has had occasion to consider whether the disciplinary regime that applies to doctors, lawyers and architects should be dealt with as a civil or a criminal matter for ECHR purposes. In each case, it decided that the regime was civil. That is the analogy; it is not with the legal assistance scheme we are proposing, which is confined to market abuse, but with the legal assistance scheme that would be extended in the way suggested by these amendments.

We do not see any need to extend this protection for the exercise of the various disciplinary and other supervisory powers of the FSA, such as the power to vary a Part IV permission to restrict the carrying on of a particular kind of regulated business. These decisions are concerned with the setting and policing of standards for the regulated community and, in that respect, are analogous, as I said, to the regulation of professions. There is no need to extend the scheme further. As authorised persons are to pay for legal assistance under the scheme, I suggest that they are entitled to be sure that we should keep the scheme within proper bounds.

Amendment No. 158D seeks to extend protections concerning the use of compelled evidence in proceedings to those involving disciplinary measures under Part XIV, in the same way as for penalties and statements for market abuse. Again, we have included this protection as matter of precaution for market abuse cases. The amendment is unnecessary as a matter of law, as Sir Sydney Kentridge said in our evidence to the Joint Committee. Similarly, it is undesirable as matter of policy because it would place an unhelpful restraint on the FSA's ability to deal with misconduct by regulated persons.

Criminal offences, or market abuse, may be committed by a wide range of people, but disciplinary penalties under Clause 202 apply only to authorised persons. Authorisation is not just a privilege that allows a person to do financial services business; it also involves obligations. One of the most important of those obligations is to be frank with the FSA about how the authorised person's business has been conducted, including in cases where there has been misconduct.

It is important that the regulatory system should be as effective as possible in order to protect consumers, maintain market confidence and reduce financial crime. In appropriate circumstances the use of compelled evidence can be valuable for the regulatory. The existing financial services regulators use compelled evidence at present. I can see no reason to put unnecessary obstacles in the way of effective regulation. I have to resist these amendments. I hope that the noble Lord will not press them.

3.45 p.m.

Lord Kingsland

My Lords, the Minister referred to "unnecessary obstacles" being put in the way of effective regulation. However, at an earlier stage of his intervention, he said that it was highly desirable for there to be disciplinary procedures under the Bill. The Minister indicates that perhaps my noble friend Lord Saatchi should now be responding. I understood from my noble friend's opening words that he was not introducing the amendments and that that would be my task.

From my noble friend's discussions with the Minister earlier today and before proceedings commenced, he understood that he could make his opening statement about the merged stock exchange but that I would move the amendments in this group. That is why at the end of my intervention I said, "I beg to move".

Noble Lords


Lord Kingsland

My Lords, I am much obliged to the Minister. I now have to recall what I .just said in order to press home the devastating point that I was about to make!

Lord McIntosh of Haringey

My Lords, I do not make the rules in this House; the rules are made by the House itself.

Lord Kingsland

My Lords, that is precisely my point. That is why I rise to speak, as I rose to speak previously. The House is clearly agreed that the procedure that I decided to follow is the appropriate procedure for your Lordships' House.

I think I was saying to the Minister that he was stressing the value, informality and speed of these proceedings. Nevertheless, the result of these informal, speedy proceedings may mean the unfair ruin of an authorised person. Therefore, the fact that these proceedings are informal does not mean that the protections under the convention, such as they are, ought not to apply.

The noble Lord said that the criminal provisions of Article 6 do not apply to disciplinary proceedings. I readily accept that that may be true, although it may not he true. That remains a matter of debate between those lawyers who are experts in this field.

However, it is not true to say that just because a matter is not a criminal matter for the purposes of Article 6, it should not nevertheless attract, in appropriate circumstances, legal assistance. My point is that, irrespective of whether disciplinary proceedings are criminal, a party who faces a trenchant punishment for being held to be in breach of the rules should, in appropriate circumstances, be the beneficiary of legal assistance.

I believe it to be further reinforced by the fact that the money that would be paid for such legal assistance comes from the authorised bodies themselves. The money does not come from the state. It comes from the pool of money that is provided by the City to the FSA. I contend, therefore, a fortiori that an authorised person, who is unable to provide for his own defence in a disciplinary proceeding, ought to have the support of the money that he himself, and the body that he worked for, paid to the FSA to provide the legal assistance which he requests.

I know that this matter will remain an issue between us throughout the afternoon and evening as regards other parts of the Bill. For that reason, at this stage I prefer to withdraw the amendment rather than press it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 133 [Funding of the legal assistance scheme]:

Lord Kingsland

moved Amendment No. 149 B: Page 64, line 20, leave out paragraphs (b) and (c). The noble Lord said: My Lords, I can deal with this matter extremely quickly. The issue here is simple. If an authorised body has paid money into the legal assistance scheme, it is our contention that it should be entitled to get it back in circumstances where there is a surplus, irrespective of whether that authorised body has any other debts which it owes; in other words, there should be no set-off against a surplus of legal assistance funds. I beg to move.

Lord McIntosh of Haringey

My Lords, the effect of opposition Amendment No. 149B would be, unfortunately, to reduce the flexibility of how funding for legal assistance is collected and distributed. As the noble Lord, Lord Kingsland, said in speaking to the previous amendment, the legal assistance scheme will be paid for by levies raised by the FSA from authorised persons. The Lord Chancellor will determine the costs of the scheme and set the total which the FSA is required to raise in levies from authorised persons for a particular period. The FSA will decide on the best way to apportion this cost.

One cannot forecast precisely the amount required for legal assistance in any forthcoming period. Subsection (1) of Clause 133 provides for levies to cover anticipated or actual costs. This enables the levy to be set on as accurate a basis as possible for the forthcoming period. If the forecast of anticipated costs is an overestimate, subsection (7) enables the FSA to distribute the money back to the authorised community. Paragraph (a) allows it actively to repay the money directly to those who paid the levy, while paragraph (b), which the amendment seeks to delete, allows it instead to reduce amounts which those persons are required to pay. Paragraph (c) allows for a combination of those methods. If we retain paragraph (a), but not paragraphs (b) or (c), the FSA would have to distribute small amounts which it can much more sensibly and economically offset against the following year's fees or levy for invoicing purposes. Removing options (b) and (c) could lead to excessive costs being incurred sending out cheques for derisory amounts.

Of course, the FSA will need to exercise its discretion. I am afraid that the amendment would simply make it more difficult for the FSA to exercise a perfectly reasonable, justifiable and economical discretion.

Lord Kingsland

My Lords, I am disappointed at the Minister's reply. In my submission, the legal assistance provision should be kept quite distinct from the general administrative budget. However, at this juncture, I do not think that it would be appropriate for me to ask the opinion of the House. Therefore. I beg leave to withdraw the amendment.

The Chairman of Committees (Lord Boston of Faversham)

My Lords, I believe that the House is not quite clear as to the intention of the noble Lord, Lord Kingsland. He said both that he wished to withdraw the amendment and that he wished to test the opinion of the House.

Lord Kingsland

My Lords, I beg the pardon of the House. I think that I said that I did not wish to test the opinion of the House and, therefore, wished to withdraw the amendment. I am sorry if I am even more inarticulate than usual this afternoon.

The Chairman of Committees

My Lords, I am sorry that I misheard the noble Lord, Lord Kingsland. I thank him for his comments.

Amendment, by leave, withdrawn.

Clause 135 [General rule-making power]:

Lord Hunt of Wirral

moved Amendment No. 150: Page 66, line 5, after ("from,") insert ("dependent on,"). The noble Lord said: My Lords, first I thank the Minister for having generously taken the time to meet the Association of British Insurers and the British Bankers' Association, together with myself, to discuss the definition of "consumer". To quote my noble friend Lord Kingsland, I was being offered the "Lord Hunt of Wirral facility". I have never been able to probe exactly what this means, but if it means the generosity of the Minister I thank him publicly for that. I, Mr Leighton and Mr Mason felt that we had an opportunity to air concerns about the definition of "consumer".

The definition is, of course, used throughout the Bill and is more generic than the normal use of "consumer" in that it extends to any user of an authorised person's services. In that context, the Minister will be aware that I have expressed some concern that it therefore extends to those who do not directly use the services of an authorised person but are nevertheless affected by the use of those services by another, for example, the clients of a fund manager or the beneficiaries of life insurance.

Although the wording currently found in Clause 135(7)(b)(ii) undoubtedly covers the situation of a trust beneficiary, I believe that it widens the scope of the definition too far by moving away from some kind of causation (derived from or otherwise attributable to) to a general adverse effect. I believe that I gave the Minister examples of third parties with no direct rights under liability insurance policies; small shareholders or employees, who may feel that their rights are adversely affected by the take-over activities of a pension fund user or fund manager; or, once mortgage lending has become a regulated activity, neighbours affected by a new purchaser with a mortgage. I also gave the Minister an example of someone who may be affected in some way by an environmental incident. Their rights obviously would exist if there was valid insurance; they would not exist if there was not.

If I might explain to the House, the Minister has tried to allay my fears by saying, "You have to read any definition within the Long Title of the Bill". I agree that the provisions in any Bill have to be read in the context of its long title, but I do not believe that one should have to rely on that in working out a particular definition. I am concerned about the potential coverage of persons who have rights or interests which may be "adversely affected". That is why the second amendment standing in my name seeks to delete those particular words.

The Minister kindly said that he would carefully consider the amendment. I hope that he will be able to give me a positive response. I beg to move.

4 p.m.

Lord Kingsland

My Lords, I rise to speak to Amendment No. 151ZA, which is in this group.

I am rather surprised that the Government have not moved a little more on this point as a result of the useful debate we had in Committee. Clause 135 is the provision in the Bill which sets out the authority's general rule making power. Rules made under Clause 135 apply to authorised persons. The governing principle for making these rules is that they must be, necessary or expedient"— in the view of the authority— for the purpose of protecting the interests of consumers". The definition of "consumers" is to be found in Clause 135(7) and it is used elsewhere in the Bill. It is therefore of some importance. The amendment proposed is intended only to clarify the position.

Subsections (8) and (9) of Clause 135 appear to be supplementary to subsection (7). Indeed, subsection (9) begins with the words, For the purposes of subsection (7)". There are no similar qualifying words in subsection (8).

The amendment seeks to correct what appears to be, quite simply, an omission. If this is not done, it would be possible to argue that subsection (8) is intended to have a more general application. One possible consequence is that all the beneficiaries of a trust—including potential beneficiaries under a discretionary trust—where the trustee is an authorised person, may be considered to be customers of that authorised person because, under subsection (8), they are to be treated as using the services of the authorised person. We assume that this is not the intention and that subsection (8) should apply only for the purposes of the "consumer" definition in subsection (7). We should simply like to have the issue clarified, hence our amendment.

Lord McIntosh of Haringey

My Lords, I am grateful to the noble Lord, Lord Hunt, for taking the trouble to table the amendments and for taking the time to come to see me, with his colleagues from the ABI and the BBA, to discuss his concerns.

As he said, he is concerned that the definition of "consumers" in Clause 135 is too broad because it extends to people who have rights or interests which may be adversely affected by the use of services by other people. In particular, he is concerned that this will mean that the FSA is trying to make wide and detailed rules to protect consumers who stand at some considerable distance from the use of financial services. I have considered this point carefully in the light of the points raised in Committee and in my discussions with him. I hope that I can offer him some reassurance.

As he recognised, one cannot analyse Clause 135 in isolation. It is not only a matter of the Long Title but of looking at the interests and protection of consumers with in the overall context of the Bill. In particular, first, the scope of the definition of "consumer" has to be seen in the context of the Bill's Long Title. The FSA's functions relate to the provision of regulated financial services and not to the general behaviour of customers where that is unconnected to the provision of such services.

Secondly, the FSA must exercise its functions in the light of the regulatory principles set out in Clause 2. These include the need to use its resources in the most economic and efficient way, and the desirability of facilitating competition. Both of these principles apply important balances to the scope of FSA regulation, but the key principle, also set out in Clause 2, is that regulation must be proportionate to the benefits.

Thirdly, Clause 5 makes it clear that the FSA should seek to secure the appropriate degree of protection. So it has to exercise its powers and seek to meet its objectives in a balanced, proportionate and appropriate way.

The reference to people who have rights or interests which may be "adversely affected" by the use of services by other people makes sure that rules can be made to protect those people for whom someone else—let us call him the middleman—uses financial services provided by an authorised person. Subsection (7)(b)(i) will cover persons whose rights or interests are derived from or are otherwise attributable to the middleman. An example might be a spouse or other person who is intended to benefit from a life insurance policy.

But where the middleman is acting in a fiduciary or representative capacity, these rights or interests may be derived from something other than the use of the service itself. For example, trust beneficiaries may have rights or interests deriving from the trust itself, or from decisions made by the trustee in exercising his discretion under the trust. If we are going to protect these people, we have to have the reference to people being "adversely affected" by the use of services in subsection (7)(b)(ii).

The amendments of the noble Lord, Lord Hunt, seek to replace the reference to "adversely affected" with a reference to people whose rights or interests are "dependent" on the use of services by other persons. It is a refinement on the amendment moved in Committee. I am grateful for the care that the noble Lord has given to the matter, but the concept of a right or interest being "dependent" on the use of services would not apply in all the circumstances in which a person can act on another's behalf and where we believe that it is appropriate that the FSA should be able to make rules with a view to protecting that other person's interest.

I am sure that the noble Lord, Lord Hunt, will appreciate that it is a difficult, technical matter to try to capture the people that we are seeking to protect But it is important that they should be protected. They include, for example, members of pensions schemes. They should not be left outside the definition of "consumer".

We feel that the concerns that have been raised about the effect of the definition of "consumer" on the scope of the FSA's regulatory activities are exaggerated. I have mentioned the safeguards that are, built into the Bill—the principles under Clause 2; the consumer-protection objective as defined by Clause 5: and the Long Title of the Bill.

But we have considered—I am willing to consider it further before Third Reading—whether it is possible to formulate a definition of "consumer" that offers a more explicit reassurance about the scope of the rule-making power without creating holes in the FSA's ability to protect consumers. As I mentioned, these amendments may exclude particular groups of persons who should be treated as consumers. I hope that the noble Lord will not press them.

I turn now to Amendment No. 151ZA, which deals with the provisions about trustees in Clause 135(8). The trustees with whom subsection (8) is concerned are those who themselves perform a regulated activity in their capacity as trustees. This is distinct from the example of a trustee using the services of a third party, which I gave earlier. The purpose of subsection (8) is to make clear that the beneficiaries of the trust in these circumstances fall within the definition of "consumers".

The core definition of "consumers" is indeed in subsection (7). It refers to people, who use, have used, or are or may be contemplating using … services". Strictly speaking, a trust beneficiary may not necessarily "use" the services provided by a trustee acting in his capacity as a trustee, and so he could fall outside the scope of the definition in subsection (7). So subsection (8) makes it clear that those trust beneficiaries are to be treated as "using services". In achieving this, it ties itself directly to the wording in subsection (7), saying that trust beneficiaries are to be treated as people, who use, have used, or are or may be contemplating using … the services". The two provisions are entirely interlinked. There can be no doubt that subsection (8) amplifies subsection (7), and that it does nothing more. I hope that the noble Lord will not press that amendment.

Lord Hunt of Wirral

My Lords, I thank the Minister for the generous way in which he has approached this subject and for his willingness to listen and to continue the search for clarity. We are all seeking to make the Bill more certain, particularly so far as concerns definitions. The way in which the Minister laid out how he believes the definition of "consumer" has been circumscribed by the context in which it is to be found was helpful. In those circumstances, I should like to reflect on what he said and join him in seeing whether there is a better way to achieve our combined objective. I therefore beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 151 and 151ZA not moved.]

Lord McIntosh of Haringey

My Lords, I beg to move that further consideration on Report be now adjourned.

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

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