Financial Services and Markets Bill

HL Deb 09 May 2000 vol 612 cc1457-562

Further consideration of amendments on Report resumed.

Clause 155 [Interpretation]:

[Amendment No. 157A not moved.]

Lord McIntosh of Haringey

moved Amendment No. 158: Page 75, line 30, after ("have") insert (", or are intended or likely to have,"). The noble Lord said: My Lords., in moving this amendment, I should like to speak also to Amendments Nos. 158A, 158B, 158BA, 158BB, 170CH, 170CJ, 17OCK and 217. These amendments make a number of minor improvements to the competition provisions of the Bill in the light of commitments made to noble Lords opposite and are designed to ensure that the Bill works properly.

Amendments Nos. 158A, 158B, 170CH and 170CJ give effect to a commitment that I gave in Committee to noble Lords opposite. They will ensure that the same limitation as applies to the documents that the director can require people to produce—namely, that they relate to a matter relevant to his investigation—also applies in the case of information.

Amendment No. 217 to Clause 407 makes a change to the definition of the word "Commission" as used in various provisions of the Bill. At present, this says that "Commission" means the "European Commission". This is relevant, for example, in Clause 195(7). However, "Commission" is also used as shorthand in Chapter III of Part X to refer to the Competition Commission. This amendment will ensure that the right meaning is attached to the term "Commission" where it occurs in the Bill. I am sure that the House will agree that that is quite an important clarification.

Finally, Amendments Nos. 158BA, 158BB and 170CK will ensure that the wording in Parts X and XVIII are consistent. I commend the amendments to the House and beg to move.

Lord Saatchi

My Lords, as the Minister quite correctly said, Amendment No. 158 is a drafting amendment relating to competition scrutiny provisions and is absolutely fine with us. Indeed, we are grateful to him for it. Amendments Nos. 158A to 158BB relate to the power of the Director-General of Fair Trading to request information for the purposes of his review of the FSA's regulations and practices, and the sanctions that he can ask the court to impose for failure to comply with the information requirement. These are drafting amendments only and we are most grateful for them.

On Question, amendment agreed to.

Clause 157 [Power of the Director to request information]:

Lord McIntosh of Haringey

moved Amendments Nos. 158A to 158BB: Page 76, line 42, leave out from ("control") to end of line 43. Page 77, line 6, at end insert— ("( ) A requirement may be imposed under subsection (2) or (3)(a) only in respect of documents or information which relate to any matter relevant to the investigation."). Page 77, line 13, leave out ("punish") and insert ("deal with"). Page 77, line 14, leave out ("had been guilty of contempt of court") and insert ("were in contempt"). On Question, amendments agreed to.

8.45 p.m.

Clause 161 [Authority's power to require information]:

Lord Kingsland

moved Amendment No. 158BC: Page 80, line 14, leave out ("without delay") and insert ("before the end of such reasonable period as may be specified"). The noble Lord said: My Lords, this amendment is a repeat of one put forward in Committee. It has been repeated only to prompt an explanation from the Government. Under Clauses 161(2)(a), the authority can require an authorised person to provide information and documents, before the end of such reasonable period as may be specified However, when the authority authorises one of its officers to require an authorised person to provide information or documents under Clause 161(3), the officer can require that such information or documents be provided "without delay". Why is it that the authority must stipulate a "reasonable period" for providing information and documents, while one or its officers can require that they should be provided "without delay"? The amendment would merely align the two provisions so that they would be consistent.

The Government have tabled Amendments Nos. 158BD to 158BK in relation to Clause 164 and they also feature in this grouping. This series of amendments appears to reorganise Clause 164. The reorganisation will leave Clause 164(1) cove ring only paragraphs (b) and (c). It applies, if the circumstances arise, in the view of not only the authority but also the DTI—referred to collectively as the "investigating authorities".

Subsection (2) will be expanded to apply to both investigating authorities and not just "the Authority". Therefore, subsection (4)—the equivalent, in the case of the DTI, to subsection (2)—will be deleted. Instead, there is a replacement to subsection (4) which picks up for the authority the deleted paragraphs in subsection (1) and adds to them circumstances suggesting that there may be a contravention of other enactments where the FSA can prosecute but which are outside the new subsection (2). The only situation to which I can think that this might apply is money laundering.

Subsection (5) is deleted as part of the reorganisation. It defines "related offence", which was the previous paragraph (d) in subsection (1) but which has now been deleted and replaced by paragraph (b) in the new subsection (4). Despite the scale of this reorganisation, it seems to us to be acceptable.

Amendments Nos. 158BL to 158BM are to Clause 165. These amendments are consequential and perfectly acceptable. However, perhaps the Government could tell your Lordships whether in Clause 165(2) there should also be a reference to an investigator appointed under Clause 164(5). My reason for asking that is that subsection (2) refers to Clause 164(3) only "so far as relating to" subsection (1), now amended to "as a result or' subsection (1), and the new subsection (5) covers most of what was covered by subsection (1).

Amendments Nos. 158BM to 158NS to Clause 166 are consequential and therefore acceptable. Amendment No. 158BT to Clause 168 is consequential, but did the Government mean to delete subsection (5)?—because, if not, the amendment should require the deletion only down to the end of line 19. The other amendments, the Government will be relieved to know, in our interpretation are consequential. I beg to move.

The Deputy Speaker (Baroness Hooper)

My Lords, I should draw to your Lordships' attention that Amendment No. 158BT contains a printing error. The amendment should state, to end of line 19", rather than, to end of line 20".

Lord Bach

My Lords, we are grateful to the noble Lord, Lord Kingsland, for describing the government amendments in the group. I have a little more to say about them, but not much. There is one opposition amendment in the group compared with 20 government amendments.

Lord Kingsland

My Lords, I am most grateful to the noble Lord for giving way. I had no wish to describe the government amendments but I was compelled to do so by the way the grouping is arranged. We had tabled one amendment which, unfortunately, turned out to be the first in the group. Therefore it fell to me to deal with the rest.

Lord Bach

My Lords, I hope that the noble Lord does not misunderstand me. We are extremely grateful to him for doing that, perhaps more than he realises. As regards his amendment—

Lord Kingsland

My Lords, I am always pleased to throw light on the Government's amendments.

Lord Bach

My Lords, I do not think that I said that.

As I said in Committee in dealing with the opposition amendment, it is clearly important that the authority can get access to information and documents on a timely basis. This is vital for effective regulation. It is for this reason that subsection (3) of Clause 161 provides that the authority can require the information or documents "without delay".

As I attempted to explain when we considered this same amendment before, we do not agree that there should be a requirement for all requests for information to be subject to some specified period for compliance. That would be bureaucratic and quite unnecessary. The authority must, of course, be reasonable in its expectations of when information may be forthcoming. As was explained on the previous occasion, the term "without delay" means without unjustified or unreasonable delay. It does not mean instantly. That would be an absurd interpretation of the phrase.

Therefore it is clear that subsection (3) does not require a person to meet some unreasonable or impractical requirement. Imposing a requirement on the FSA to specify some reasonable period within which the requirement for information must be complied with would simply add an unnecessary bureaucratic burden. It would place a quite unnecessary onus on the FSA to decide in each case what period must reasonably be allowed for producing the information. The current wording enables the provider of the information to take such time as is necessary for providing the information so long as he does not delay in the normal sense of that word.

The noble Lord drew attention to a difference in wording between various parts of the clause. Clause 161(2) deals with the FSA sending out an information request. Subsection (3) deals with the situation where it has been deemed necessary to authorise a specific officer to obtain the documents or information. The term "without delay" reflects the more immediate purpose or nature of such a requirement, but it still means without unreasonable delay. That is why we believe that the wording in subsection (2) is appropriate in the first situation and the wording in subsection (3) is appropriate for a situation where it has been deemed necessary to authorise a specific officer to obtain documents or information.

The government amendments all constitute improvements to the drafting. They reflect the continuing commitment of the Government to make this legislation, which is bound to be technical and complicated, as user-friendly as possible. In the course of looking at ways in which we need to align the investigation powers under Part XVII with the comparable provisions under Part XI, we have also dealt with some potential ambiguity in the drafting of Part XI.

These amendments simplify the drafting of Clause 164, which gives the authority the powers it needs to investigate possible offences and other contraventions under the Bill. They deal in a more elegant way with the fact that some types of investigation—for instance, into possible insider dealing—are powers held concurrently by both the authority and the Secretary of State for Trade and Industry.

I hope that noble Lords have seen a version of the clause as it would look if the House amends it tonight, to assist your Lordships with the changes that are made.

Building on the restructured Clause 164, the other government amendments improve the clarity of the cross references in other clauses in Part XI to the different types of investigation that may be mounted under Clause 164, and correct technical defects in the existing wording of Clauses 165(2), 168(4) and 169(5). It was not clear that these references worked correctly in identifying the cases to which those subsections apply.

These are essentially technical drafting amendments and do not represent any change in the effect of the provisions in Part XI, although the restructuring of Clause 164 has led to a relatively large number of purely consequential amendments, including additional amendments to Clause 280.

Amendment No. 158BF is part of the rearrangement of Clause 164, in that it removes subsection (1)(d), which is replaced by subsection (4)(b) in Amendment No. 158BK. But this amendment makes a subtle change to the effect of the clause, in that it deletes subsection (1)(e), which is not replaced by the other amendments. This removes an unnecessary and potentially unhelpful reference to offences that may have been committed by virtue of Clause 395. Clause 395 is concerned with circumstances in which an individual may be deemed guilty of an offence committed by a corporate body or partnership. Where it applies, its effect is that the individual is guilty of the offence under the provision which originally creates the offence. Therefore it is unnecessary to have to refer expressly to Clause 395 in Clause 164. To do so might cast doubt on the way in which Clause 395 was intended to operate. Subsection 1(e) is therefore removed.

Finally, Amendment No. 158BL brings Clause 165 into line with Clauses 163 and 164 by making it clear that one or more persons may be appointed to conduct an investigation, and that they must be competent persons.

The noble Lord, Lord Kingsland, asked whether Clause 165(2) should refer to Clause 164(5). That is not necessary, as the powers under Clause 164(3)and (5) will be the same. I hope that that answer satisfies t he noble Lord.

9 p.m.

Lord Kingsland

My Lords, that final answer to one of my questions sums up much of the proceedings of this Bill—"it all depends by what you mean by…", and so on.

So far as concerns my Amendment No. 158BC, I am most grateful to the Minister for his explanation. I think he is saying that what I wanted to achieve from my amendment is already on the face of the Bill, and therefore I have nothing to worry about. If that is so, I happily beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Clause 164 [Appointment of persons to carry out investigations in particular cases]:

Lord Bach

moved Amendment No. 158BD: Page 82, line 14, leave out ("the Authority") and insert ("an investigating authority"). The noble Lord said: My Lords, I beg to move.

Lord Elton

My Lords, the odd grouping of my noble friend's amendment at the beginning of this group means that when the Minister spoke to his amendments for the first time it blocked out any comments on them because, of course, no one can speak to an amendment at Report stage after the Minister. Therefore, I am speaking on the first amendment in his group.

I wish merely to express my thanks for the circulation of the interpretation of the effect of this vast shoal of amendments, which would have been beyond me had he not sent it. Even so, the task of keeping up with the flow of government amendments—even with this facilitating assistance—is something which would normally be a full-time job for people who had the time in which to do it. I repeat the complaints made earlier by my noble friends—we have perhaps rather lost sight of the resentment that we felt in the early stages—that it is very difficult indeed for a House which is not supposed to consist of full-time professionals to keep up with the volume of technical changes that the Government are making; to highly technical legislation. But I am grateful to the Minister for having done his best to help us with the nearest thing to a Keeling schedule that he can provide. That is the point I wished to make.

Lord Bach

My Lords, I am very grateful to the noble Lord. Although it is painful to have to go through technical amendments such as these, it may be that in years to come others will thank us for having taken the trouble to do so, even shortly.

On Question, amendment agreed to.

Lord Bach

moved Amendments Nos. 158BE to 158BK: Page 82, line 16, leave out paragraph (a). Page 82, line 21, leave out paragraphs (d) and (e). Page 82, line 24, leave out paragraphs (f) to (1). Page 82, line 39, leave out ("the Authority") and insert ("an investigating authority"). Page 83, line 2, leave out ("Authority") and insert ("investigating authority"). Page 83, line 4, leave out subsections (4) and (5) and insert— ("(4) Subsection (5) applies if it appears to the Authority that there are circumstances suggesting that—

1. (a) a person may have contravened section 18;
2. (b) a person may be guilty of an offence under any enactment other than this Act—
1. (i) which the Authority has power to prosecute under this Act; but
2. (ii) which it would not otherwise have power to investigate;
3. (c) an authorised person may have contravened a rule made by the Authority;
4. (d) an individual may not be a fit and proper person to perform functions in relation to a regulated activity carried on by an authorised or exempt person;
5. (e) an individual may have performed or agreed to perform a function in breach of a prohibition order;
6. (f) an authorised or exempt person may have failed to comply with section 55(5);
7. (g) an authorised person may have failed to comply with section 58(1) or (2);
8. (h) a person in relation to whom the Authority has given its approval under section 58 may not be a fit and proper person to perform the function to which that approval relates; or
9. (i) a person may be guilty of misconduct for the purposes of section 65.

(5) The Authority may appoint one or more competent persons to conduct an investigation on its behalf. (6) "Investigating authority" means the Authority or the Secretary of State."). On Question, amendments agreed to.

Clause 165 [Investigations etc. in support of overseas regulator]:

Lord Bach

moved Amendments Nos. 158BL and 158BM: Page 83, line 22, leave out ("a person") and insert ("one or more competent persons"). Page 83, line 24, leave out ("(so far as relating to") and insert ("(as a result of"). On Question, amendments agreed to.

Clause 166 [Investigations: general]:

Lord Bach

moved Amendments Nos. 158BN to 158BS: Page 84, line 25, leave out ("the Authority") and insert ("an investigating authority"). Page 84, line 26, after (" 164(3)") insert ("or (5)"). Page 84, line 28, leave out paragraph (b). Page 84, line 35, after (" 164(1)") insert ("or (4)"). Page 84, line 39, leave out from ("(2)") to second ("of") in line 40. On Question, amendments agreed to.

Clause 168 [Additional power of persons appointed as a result of section 164(1)]:

Lord Bach

moved Amendment No. 158BT: Page 86, line 18, leave out from ("appointed") to end of line 20 and insert ("as a result of subsection (1) or (4) of section 164"). On Question, amendment agreed to.

Clause 169 [Powers of person appointed to investigate as a result of section 164(2)]:

Lord Bach

moved Amendments Nos. 158BU and 158BV: Page 86, line 35, leave out ("or (4)"). Page 86, line 36, leave out ("(so far as relating to") and insert ("(as a result of"). On Question, amendments agreed to.

Clause 170 [Admissibility of statements made to investigators]:

[Amendments Nos. 158C and 158D not moved.]

Lord McIntosh of Haringey

moved Amendment No. 158DA: Page 87, line 15, leave out ("(4)") and insert ("(5)"). The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 158BC. I beg to move.

On Question, amendment agreed to.

Clause 171 [Information and documents: supplemental provisions]:

Lord McIntosh of Haringey

moved Amendment No. 158DB: Page 88, line 10, leave out ("(4)") and insert ("(5)"). The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 158BC. I beg to move.

On Question, amendment agreed to.

Clause 172 [Entry of premises under warrant]:

Lord McIntosh of Haringey

moved Amendment No. 158DC: Page 89, line 31, leave out ("(4)") and insert ("(5)"). The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 158BC. I beg to move.

On Question, amendment agreed to.

Clause 174 [Obligation to notify the Authority]:

Lord Kingsland

moved Amendment No. 158E: Page 90, leave out lines 27 and 28 and insert ("Before a person can acquire"). The noble Lord said: My Lords, I shall speak first to Amendments Nos. 158E, 158EA, 158EB, 158EC, 158H, 158J, 158K, 158L and 158M.

These amendments were tabled by the Opposition in Committee. If I recall correctly, the Minister said in Committee that he was broadly in agreement with the objectives of these amendments and that he would think about the points that had been made. The Government have not tabled any amendments to this clause, and as a reminder of the Minister's remarks, we have tabled our amendments again.

The Minister will be relieved to hear that I do not want to repeat what I said in Committee, except to say that the corresponding provisions dealing with the obtaining of new or increased control in relation to UK authorised investment firms under the existing Investment Services Regulations 1995 use wording which mirrors our amendments. Regulation 41(1) of those regulations states that: No person shall become"— a relevant controller of a UK authorised investment firm unless — he has served on each relevant regulator written notice that he intends to become such a controller". We have followed this approach with our amendments as we believe that this form of wording is clearer than the present form of words in Clauses 174 and 186. I should remind your Lordships that these are not merely technical points: failure to comply with Clauses 174 and 186 constitutes a criminal offence.

So far as concerns Amendments Nos. 158F and 158G, they relate to the definition of "controller" as used for the purposes of the "control over authorised persons provisions". They refer specifically to the definition of an "associate". Importantly, it is necessary to aggregate with the acquired's own holding of shares or voting rights, the shares or voting rights of his associates, and it is provided in Clause 175(5) that "associate" has the same meaning as in Clause 412.

Clause 412 repeats the definition in the implementing regulations relating to all three single market directives. However, it seems to include as an associate a nominee company and as a result all shares held by the nominee company have to be aggregated, and this could in itself bring the notification procedures into play. Similarly, the definition extends to cover parties to an agreement for the acquisition or disposal of shares and, although acquisition and disposal probably relate to transfer of the legal title, it would be dangerous to assume that this does not include brokerage agreements.

Accordingly, it would be necessary to regard the broker as an associate and all the interests of that broker would have to be aggregated. Even worse than this, if the acquirer is the nominee company or broker, it will be necessary to aggregate with him all the holdings and voting rights of all clients, even if they have nothing to do with the nominee or broker at all. That is going far too far, especially in the case of control over authorised persons provisions, but also even in so far as the control provisions generally are concerned. In addition, I do not see how the person "H" in Clause 412(4) can possibly discover the facts which the definition of "associate" requires him to do in this regard.

The Treasury's Explanatory Notes say that the Treasury will be given the power to provide exemptions from Part XII where, for example, the definition of "associates" has the effect that two or more people would have to notify the same acquisition of shares or voting rights. That is exactly what the wide definition of "associates" always requires, as it catches two people in relation to the same holding of shares rather than agreements relating to two different holdings, as is surely intended. As I have explained, the scope of "associates" can be far wider than this as it can apply to all client relationships. In my submission, therefore, the Government ought to agree to this amendment or, better, agree it in Clause 412 itself.

I speak now to Amendments Nos. 219A to 219F. As your Lordships will be aware, Clause 412(1) provides that its definition of "controller" applies throughout the Bill. However, there are similar but different provisions relating to who is a controller for the purposes of Part XII—control over authorised persons—and therefore that should be expressly excluded from the terms of Clause 412(1). The definition of "associate" applies both in relation to a company in which each holder holds shares and in relation to another company in which each holder can exercise or control the exercise of voting rights. Applying that in paragraph (g), which is in any event far too wide, leads to a ridiculous situation. It means that, if a holder has a relevant agreement or arrangement with another person in relation to the company in which he holds shares, that other person is also an associate in relation to the company in which he has voting rights, even though the agreement has nothing to do with it. The converse is also true. I can therefore see no justification for this wide definition, which would lead to absurd results.

I would also emphasise that the amendment follows the wording which is in the single market implementing regulations. Those are the regulations under the European Communities Act which implement the four single market directives. It may be that the draftsman of the Bill was being over-precise in separating out the two different holdings into two different companies, but we surely have to insist that the "associate" definition stays as it is in the implementing regulations. Even if it does, it still has the problems which Amendment No. 11 tries to solve, but this peculiar extension only makes the position more inexplicable. There is really no way that any company can possibly police it. Amendments Nos. 219D and 219E delete "D" from paragraph (g) as a consequence of going with a single company test. I beg to move.

Lord McIntosh of Haringey

My Lords, in this large group of opposition amendments there is one lone government amendment, Amendment No. 159, to which I should like to speak before I refer to the opposition amendments.

The Bill introduces the controllers regime to replace the current patchwork of arrangements set out in various pieces of legislation with a single set of coherent prohibitions—provisions; it was a Freudian slip! The regime has attracted much debate during the passage of the Bill both here and in another place. The principal matter for discussion has been the scope of the obligation to notify a change in control. A number of interesting and technical examples have been put forward where it is felt that these obligations fall too heavily or too indiscriminately in certain circumstances.

The Government are committed to creating a regime which is both effective and fair while also ensuring that we fully and properly implement our obligations under European law. The single market directives constrain our room for manoeuvre in this area to a large degree, but we have been persuaded that there is a case for greater flexibility. With that in mind, we have tabled Amendment No. 159 to Clause 188, which introduces a power for the Treasury to exempt by order certain persons from the obligations to notify the FSA of acquisition or divestment of control. In the case of a provisional agreement to sell shares, for instance, we do not consider it necessary to require both the buyer and the seller to notify the agreement. In that situation, the seller might be exempted from the obligation to notify.

We do not think it is appropriate or sensible to seek to be definitive on the face of the Bill about the circumstances in which it would be reasonable and proportionate to disapply the notification requirements. Our discussions on this part of the Bill have thrown up a number of fairly detailed technical points and it seems likely that other circumstances will arise or will be identified in the future in which it is desirable to relieve persons of the obligation to notify using this power. But I must emphasise that this power can be exercised only in accordance with the single market directive.

In addition, the Delegated Powers and Deregulation Committee judged that the amendment raises no problems in relation to the delegated power provided for here, and I hope that the amendment will be acceptable to the House.

I turn to the Opposition amendments, beginning with those relating to nominees. The point raised by Amendments Nos. 158F—and by 158G, which seems to be a straight duplicate of Amendment No. 158F; I hope I understand it correctly—and Amendment No. 219F—

Lord Elton

My Lords, it is clear to me and it surely cannot have escaped my noble friend's notice that the last line of Amendment No. 158F contains the words, at the direction of Y", and in the last line of Amendment No. 158G the words are, at the discretion of Y". Presumably, therein lies the difference.

Lord McIntosh of Haringey

My Lords, I had not noticed that either. I wonder whether, with the leave of the House, the noble Lord, Lord Kingsland, would like to explain the difference between the two.

Lord Kingsland

My Lords, because I realised that there could be a difference, I referred to the amendments, rightly, as "they" and not "it"!

Lord McIntosh of Haringey

My Lords, I have already used my Browning example. Noble Lords will recall that Browning was asked late in life what his early poem, "Sordello" meant. He said, When it was written, God and Robert Browning knew what it meant; now only Gods knows".

Lord Kingsland

My Lords, that applies to a number of places in this building!

Lord McIntosh of Haringey

My Lords, I am delighted to have discovered the difference between the two amendments, for which I am grateful to the noble Lord, Lord Elton.

Amendment 219F, which is not the same, also concerns circumstances where there may be a degree of unnecessary double counting of shares and voting rights. The amendments seek to exempt a nominee or agent who only acts on the instructions of another person.

Unfortunately, as I explained in Committee, we cannot agree to this amendment as the terms in which it is drafted would breach the European directives; namely, Article 11 of the second banking directive and Article 9 of the investment services directive, which require notification of the holding of either capital or voting rights. I shall gladly look further at examples of possible duplication in the notification requirements to see whether we should exercise the new power to exempt particular circumstances. But that cannot be at the expense of giving full effect to the requirements of the directives.

Amendments Nos. 158E to 158EB and Amendments Nos. 158H to 158L refer to "taking steps". We are in complete agreement with the noble Lord, Lord Kingsland, that it should be only the step which results in the acquisition of control that should need to be notified. Equally, it is important that it is clear that this step should not proceed without approval.

We amended Clause 174 in another place precisely to make this clear. However, in view of the concerns expressed by the noble Lord, Lord Kingsland, in Committee, we have again consulted parliamentary counsel. We are satisfied that it is implicit that the steps referred to in Clause 174 are the steps which, if taken, would directly lead to the person concerned acquiring control and not some prior steps, and that the courts will not take the view that some first tentative step on the path to acquiring control should be notified. To be more precise, we are clear that merely instructing your broker to ask the price at which your target shares are currently trading would not trigger the obligation to notify.

We have considered whether there is anything further that might be done to make that conclusion any more secure. We do not see that there is. We certainly do not think that the amendments achieve that. We therefore take the view that the text of the Bill is correct as it stands.

I turn now to Amendment No. 219A, which appears to seek to separate the definition of "controller" under Clause 412 as it applies for the purposes of other parts of the Bill—for example, Part XI on investigations—from the circumstances in which acquisition of control requires notification under Part XII.

I do not think that such a separation is helpful. The concepts to be applied are the same. Having a separate definition of "controller" in Clause 412 can be seen as rather duplicative, but we think it is necessary to have a single Bill-wide definition of the term.

In practice, we shall want to keep the definition under Clause 412 in step with the notification requirements tinder Clause 175, which is why we have included a power to amend Clause 412 with the power to amend the notification requirements. I am happy to make clear for the record our intention to keep these provisions in line if that provides any reassurance.

Finally, Amendments Nos. 21913 to 219E and Amendments Nos. 158EC, 158M and 158N appear to be drafting amendments. We do not see that they add any value and we are not, therefore, inclined to accept them. I hope that the House will approve our Amendment No. 159 and that noble Lords will not feel it necessary to press the other amendments.

Lord Kingsland

My Lords, I thank the Minister for his response and derive some comfort from it in relation to our amendments. I shall look carefully at the text of Hansard to see whether I must pursue the matter at Third Reading.

The noble Lord asked whether the Opposition was prepared to support Amendment No, 159. I hope that the Minister will allow me one further request for clarification. Following on his observations, my understanding is that the amendment allows the Treasury to provide for exemptions from the notification requirements. To that extent it is, therefore, applauded. The Treasury's Explanatory Notes make clear that the power of exemption is intended to protect persons from an unnecessary obligation to notify the authority. It is explained that exemptions will be granted only in cases where the single market directives do not apply or where, for example, the definition of "associates" has the effect that two or more people must notify the same acquisition of shares or voting rights.

However, we believe that what would do most to prevent unnecessary obligations to notify would be a change in the phraseology of the notice requirement in Clause 174. It is very difficult to be able to identify the precise step that will result in somebody acquiring control under Clause 174(1). Accordingly, any act which is likely to lead to a person acquiring control may in practice cause that person to notify. The Minister has been quite helpful on that point, but it shows the importance of accepting at least the spirit of our amendment to the clause. I hope that what the Minister said does that. If so, I do not believe that we shall need to return to the matter at Third Reading.

Lord McIntosh of Haringey

My Lords, with the leave of the House, we have dealt with it in an amendment to Clause 188 because of the difficulties under Clause 174 of conformity with the European directives. The amendments to Clause 174 which the Opposition have tabled, and any others that we have tried to think of, simply do not work. We believe, however, that the amendment to Clause 188 provides the necessary flexibility and makes it possible for the Treasury to exempt persons under certain circumstances from the notification requirements. We share the view of the noble Lord that we should, as far as possible, reduce the burden of notification, and we believe that our Amendment No. 159 is the best way to achieve that.

Lord Kingsland

My Lords, I am most grateful to the noble Lord for again responding so fully. In the spirit of his constructive response, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 158EA to 158EC not moved.]

Clause 175 [Acquiring control]:

[Amendments Nos. 158F and 158G not moved.]

Clause 186 [Notification]:

[Amendments Nos. 158H to 158M not moved.]

Clause 187 [Offences under this Part]:

[Amendment No. 158N not moved.]

Clause 188 [Power to change definitions of control etc.]:

Lord McIntosh of Haringey

moved Amendment No. 159: Page 98, line 30, at end insert— ("( ) provide for exemptions from the obligations to notify imposed by sections 174 and 186;"). On Question, amendment agreed to.

Clause 196 [Rescission and variation requirements]:

Lord Bach

moved Amendment No. 160: Page 103, line 28, after ("power") insert ("of the Authority on its own initiative"). The noble Lord said: My Lords, on behalf of my noble friend I rise to move Amendment No. 160 and speak to Amendment No. 161. These amendments represent minor drafting changes and remove a degree of overlap between subsections (2) and (3) of Clause 196. At present both subsections deal with the decision of the authority to vary a requirement ors its own initiative, but subsection (2) deals also with the decision to rescind. The amendment limits subsection (2) to the situation in which the FSA decides to rescind a requirement on its own initiative. In this case a written notice must be issued specifying the date on which the requirement ceases to have effect. Subsection (3) continues to deal with the variation of a requirement of the FSA's initiative, with the lull supervisory procedure under Clause 193 being applied. This is the same procedure as applies to the original decision to impose the requirement. I beg to move.

On Question, amendment agreed to.

Lord Bach

moved Amendment No. 161: Page 103, line 28, leave out ("or vary"). The noble Lord said: My Lords, I beg to move this amendment formally.

On Question, amendment agreed to.

Clause 206: [Statements of policy]:

Lord Kingsland

moved Amendment No. 161TA: Page 106, line 32, at end insert ("and (c) the circumstances in which the Authority will take disciplinary measures under this Part."). The noble Lord said: My Lords, under Clause 206(1) the authority must prepare and issue a statement of policy with respect to (a) the imposition of penalties under Part XIV and (b) the amount of penalties under Part XIV as well. Part XIV is that section of the Bill dealing with the power of the authority to take disciplinary measures against an authorised person who has contravened a requirement imposed on him by or under the Act.

The authority's statement of policy on the imposition of penalties and the amount of penalties themselves is important. We believe the statement should be extended to cover the authority's policy on the circumstances in which it will take disciplinary proceedings. No doubt the authority will have a policy on taking disciplinary proceedings and, in the interests of transparency, we believe that policy should be made public and be made subject to consultation under Clause 207.

Clause 206(2) sets out those matters to which the authority must have regard in the context of its policy on the scale of penalties. Amendment No. 161UA reflects our proposal that the authority's statement of policy should be extended to cover its policy on the circumstances in which it will take disciplinary proceedings. Amendment No. 161VA would add a further matter to which the authority must have regard: namely, whether the person who contravened a requirement brought the matter to the authority's attention.

We believe that this is an important consideration for the authority to have regard to when fixing penalties. On the assumption that those who do bring contraventions to the authority's attention will be eligible for lower penalties, this provision will encourage authorised persons to come forward, rather than hoping that the matter will remain undiscovered.

I now turn to Amendment No. 161WA. Financial institutions in general, and the City in particular, are very concerned, as your Lordships must by now be aware, about the authority's disciplinary powers. I hasten to add that this is not because they are frightened of being disciplined for genuine wrongdoing, but rather because of the almost unlimited circumstances in which they are at risk of being so disciplined.

The reason that firms are so concerned about discipline is the following: first, FSA rules cover virtually every aspect of an authorised person's regulated activities; secondly, the rules are generally drafted in absolute terms which apply to every single transaction. For example, a broker will normally be required to achieve timely execution on every trade, and a financial adviser to give suitable advice on every occasion. Accordingly, a single failure amounts to a rule breach.

Thirdly, there is no de minimus provision, which provides that a small number of failures will not amount to a rule breach. Fourthly, firms are required to keep records of their activities and generally to log rule breaches. Finally, firms are required to notify serious rule breaches to the authority, which in any case carries out routine inspections of firms.

Virtually every authorised firm will therefore be in breach of one or more rules for much of the time and will feel exposed to the risk of disciplinary action. For this reason, understandably enough, firms are concerned to ensure that there should be adequate safeguards built into the disciplinary process.

This amendment seeks to address one particular concern, which is that once the authority has decided to commence disciplinary action, by the issue of a warning notice, there should be ample opportunity for firms, and also approved persons and individuals being disciplined for market abuse, to be able to speak to an independent committee within the authority in order to attempt to settle the matter in advance of a formal tribunal hearing. At present the Bill contains very little about the procedure which is to apply between the issue of the warning notice, dealt with by Clause 203, and the issue of the decision notice, dealt with by Clause 204.

There is provision in Clause 390 that the authority must have a procedure in relation to the giving of warning and decision notices. Subsection (2) states that the procedure must ensure that the decision to give such notice should be taken by someone who is not directly involved in establishing the evidence upon which the decision was based. However, in our submission, this does not go far enough. The proposed new clause after Clause 207 seeks to codify what the authority has recommended in its response to Consultation Paper 17.

Consultation Paper 17, issued in December 1998, sets out the authority's proposals for enforcing the new regime. It attracted, as many noble Lords will doubtless be aware, a significant amount of comment, in particular in relation to ensuring that firms were able to make effective representations to the FSA without needing to go to the trouble and expense of a formal disciplinary hearing.

The authority published its response in July 1999 taking into account various responses received from the financial services industry. Pages 4 to 7 set out the authority's comments on the decision-making process. Paragraph 18 states that the authority is attracted to a disciplinary decision-making process with most of the features now contained in the proposed new clause after Clause 207.

The reason for setting the process out in the Bill rather than hoping that the authority will adopt this procedure and continue to keep it in force is to give confidence and certainty to regulated firms. Without in any way seeking to diminish the importance of observing the rules in the first place, and without denying that in many circumstances disciplinary action is wholly justified, firms are anxious to ensure that, if threatened with such proceedings, they have the assurance of a reasonable opportunity to seek to persuade the authority that it should not so proceed. It could, for example, be because the authority is mistaken as to the facts, has overlooked mitigating circumstances or perhaps is even treating the firm unfairly or inconsistently. I beg to move.

9.30 p.m.

Lord Bach

My Lords, Amendment No. 161VA would add a new factor to which the authority must have regard in its policy on setting penalties: whether the alleged contravenor brought the matter to the FSA's attention.

Everyone would agree that any reasonable public authority is bound to take due account of whether a person drew the authority's attention to a contravention. In another field it would be called good mitigation. The act of "owning up" is clearly a factor that should be taken into account. That is part of establishing an effective collaborative relationship between regulator and regulated.

Indeed, the authority has already made clear that this would be one of the factors that it would take into account in its policy on imposing fines on authorised persons under Part XIV and approved persons under Part V. As has been pointed out, this was factor (g) in a list of factors to be taken into account on page 36 of the authority's Consultation Paper 17, entitled Enforcing the New regime, published in December 1998.

Other factors listed on page 36 of that paper include the degree of co-operation shown in the investigation of a breach, or steps taken to prevent similar problems arising in future, neither of which appears on the face of the Bill.

Similarly, the authority dealt with the factors to be taken into account when deciding to impose financial penalties for market abuse on page 53 of CP17. These include the degree of co-operation with FSA inquiries and steps taken to address the misconduct in question. It is in any case right that we should not include factors here that are not included in the exactly equivalent provisions in relation to the financial penalty powers in, first, Part V, approved persons in Clause 69, secondly, Part VI, official listing in Clause 91, and, thirdly, Part VIII, market abuse in Clause 120.

The point is that we have identified in Clause 206 particular factors which the joint committee said should be given particular weight, but these are not exhaustive. There are clearly other factors that any reasonable public authority should take into account, one of which is whether or not the person owned up.

The FSA is well aware of that and has reflected it in its proposed policy. Indeed, it has reflected it on a wider basis than would be implied by the amendment in isolation. The policy will be carried through to its enforcement manual, which it will publish soon for further consultation.

Amendments Nos. 161TA and 161UA seek to expand the scope of the statement of policy to be issued under Clause 206 to include a statement as to the circumstances in which the FSA will take disciplinary measures under Part XIV as opposed to the policy on imposing financial penalties. We submit that that, too, is unnecessary.

Page 35 of CP17 listed criteria which the FSA proposed to take into account in determining whether to take disciplinary action. As with the factors in fining decisions already referred to, these criteria for disciplinary actions received broad support during the process of consultation on CP17. Again, the FSA's draft enforcement manual will specifically cover these criteria, so there will be a further opportunity for consultation on them.

Our point is that we have followed the recommendation of the joint committee in prescribing what must be covered by the statement of policy. That does not mean that the authority should not publish and consult on other aspects of its policy—as indeed it has been doing—but we have not attempted to make this provision exhaustive and we do not think it necessary to do so. It is on that basis that we hope the noble Lord will agree to withdraw his amendment.

The proposed new clause after Clause 20'7 seeks to legislate for the enforcement committee, the arrangements for which were also set out in CP17. As we have made clear on a number of occasions, including in the Government's response to the Burns committee and in another place, we do not think it appropriate or desirable to set out the administrative arrangements which the FSA must follow in such detail. Instead, we have used the Bill to impose certain important parameters.

Clauses 390 and 391 require the authority to consult on and publish a statement of its procedures. In keeping with the recommendation of the Burns committee that, the FSA should set up an enforcement committee or some equivalent mechanism to separate the functions of investigation and enforcement", the Government introduced subsection (2) of Clause 390. It requires that, among other things, the published procedures must be designed to secure an appropriate separation between those directly involved in building a disciplinary case and those taking the decision to proceed with the disciplinary action.

Thus the enforcement committee is the means by which the FSA currently proposes to meet that requirement, but the Bill does not prevent these administrative arrangements being developed and improved in future. Deliberately, Clauses 390 and 391 leave the way open to future development of the procedure. That is entirely in keeping with the Burns committee recommendation.

The FSA will allow time for representations to be made following the warning notice. That is already a requirement under Clause 382. The FSA has also announced that representations can be both written and oral. However, we cannot accept that there should be a requirement in the Bill that the enforcement committee should take oral representations from the authorised person, his legal representatives or the authority. In our opinion, that would be going too far in turning the committee into an additional tribunal.

The Government have made clear again and again that we do not believe it is desirable that the authority's internal arrangements should be turned into a rival tribunal to the independent financial services and markets tribunal established under Part IX of the Bill. That tribunal is a fully independent, first-instance tribunal and, as such, is the guarantor of a person's right to a fair hearing. Inserting a prior quasi-tribunal stage would serve only to increase the time and expense involved before the person concerned has access to the proper tribunal.

We believe that the amendment suffers from other problems; for example, the notification required under subsection (10)(a) would duplicate the notice of discontinuance which the authority is required to issue under Clause 384 where it decides not to proceed with an action proposed in a warning notice.

It is also important that we do not fudge the matter of who is taking the action in question. The amendment appears to give that responsibility to the committee, as distinct from the Financial Services Authority, although the powers are the authority's and it must be the authority that is accountable for their use.

By appearing to give the committee separate responsibility for the exercise of the authority's powers, there is a danger that the committee will separately become a competent authority for the purposes of the European directives. We have already amended Part IX of the Bill to avoid precisely that possible, and we believe unwelcome, outcome for the tribunal. It is for those reasons that we invite the noble Lord to withdraw his amendments tonight.

Lord Kingsland

My Lords, I thank the Minister for his characteristically full reply. I am, of course, disappointed that he should consider that the first three amendments to which I spoke should demand a degree of precision on the face of the Bill which he is reluctant to concede. This is not the first time that the Opposition have been presented with that view and it will probably not be the last. I have come to accept that the Government are keen to maximise the discretion that the authority should have in these circumstances. Although the Opposition disagree with that approach, it appears that that is what the City will end up with.

So far as concerns the amendment to additional Clause 207A, I should like to look in full at the answer that the noble Lord gave before I tell him whether or not this is a matter that the Opposition intend to pursue at Third Reading. For what it is worth, my own view is this: I believe that the Government are running a very high-risk policy with Article 6.1 of the European Convention on Human Rights. Should the Government's interpretation prove wrong, it is almost certain that the Bill will have to be amended.

Clause 207A provides an extremely useful cushion to the FSA to deal with situations which, if dealt with formally, might expose the inadequacy of the protection of the individual in the Act. Therefore, I ask the Minister to reflect on what he said about our proposal. Perhaps he will surprise me and come back at Third Reading with an amendment that reflects our own. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 161UA and 161VA not moved.]

[Amendment No. 161WA not moved.]

Clause 211 [Rights of the scheme in relevant person's insolvency]:

9.45 p.m.

Lord Hunt of Wirral

moved Amendment No. 161XA: Page 110, line 21, at end insert ("; and ( ) for transferring to the scheme manager a right of recovery against that person"). The noble Lord said: My Lords, in moving this amendment, I should like to raise an important point about the financial services compensation scheme. In essence, as your Lordships will know, it is proposed to have the power to extinguish policyholders' rights to recovery and replace those rights with a claim under the compensation scheme. So the compensation scheme will have a new right to proceed as a creditor of the failed firm.

As many noble Lords will know, reinsurance contracts usually restrict liability to payments actually made by the insurer and I am concerned that the Bill's provisions will sever that link. The reinsurer would not have a contractual liability to the compensation scheme and its new right of recovery. Therefore, this amendment seeks to extend Clause 211 to allow rules to be made which transfer the liability of the insurance company in respect of the claimant to the scheme. That will be in addition to the power to extinguish the liability and confer new rights on the scheme.

However, the amendment seems to solve the problem. I should be very happy if the Government were to accept it and thus to ensure that the reinsurer would have a contractual liability under the compensation scheme. I beg to move.

Lord McIntosh of Haringey

My Lords, I am grateful to the noble Lord, Lord Hunt, for moving his amendment, for writing to me in advance and, indeed, for the positive and constructive contribution which he has been making to the Bill on a number of occasions.

I have problems with the drafting of the amendment but I shall not weary the House with those problems unless the noble Lord, Lord Hunt, wants me to. Perhaps we can have a few words in private about that.

However, I have a question as to whether the issue which he has raised needs to be addressed. On balance, we do not believe that it does. We reached that conclusion by looking at Clauses 211 and 213 together. Clause 211 deals with the rights of the compensation scheme manager in the event that compensation is paid out to the customers of a firm which is unable or likely to be unable to meet its liabilities. For most firms, that does not raise any issues in connection with reinsurance contracts because they are not relevant to most types of business.

The issue here is effectively confined to cases of insurance company insolvency, as the noble Lord recognised. In practice, however, we believe that it will almost certainly be necessary and desirable for the scheme manager to take measures under Clause 213 where an insurance company is in financial difficulties.

Under Clause 213, the FSA will be able to make provision for the scheme manager to take measures to avoid the inconvenience and expense of allowing insurance companies to become insolvent by effecting the transfer of policies to another insurer or by providing assistance to the relevant insurer to enable it to remain in business, so allowing for a more orderly and less expensive run-off of the liabilities on its policies. Indeed, that is what the Policyholders Protection Board does at the moment.

Those measures are important. The administrative costs of liquidation for insurance companies can be extremely high because the run-off of insurance liabilities can last for several years. Not only does liquidation push up costs, it can also mean inconvenience for customers, who may face substantial delays as the liquidator seeks to calculate the insurer's overall liabilities and so determine what can be paid to individual claimants.

Where assistance under the compensation scheme is given to the insurance company under Clause 213, that will enable the insurance company to pay its policyholders itself. There will be no need to rely on the provisions in Clause 211 and therefore there is no doubt that the insurer can claim against it reinsurers.

So it is difficult to envisage the circumstances which would, in practice, give rise to the problem which is raised by this amendment. I hope that that reassures the noble Lord and, indeed, the Association of British Insurers and that he will not feel it necessary to press the amendment.

Lord Hunt of Wirral

My Lords, I thank the Minister for that response. The amendment arises from the concern about the effect on reinsurance contracts and he has given some reassuring words which I should like to consider and I know that the Association of British Insurers would also wish to read what he said. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 224 [Determination under the compulsory jurisdiction]:

Lord Saatchi

moved Amendment No. 161YA: Page 118, line 18, leave out subsections (4) to (7) and insert— ("(4) The ombudsman's determination shall be binding on the respondent and the complainant and shall be final. (5) The ombudsman's statement must—

1. (a) give the ombudsman's reasons for his determination; and
2. (b) be signed by him.").

The noble Lord said: My Lords, there are four amendments in this group. They all make distinct and different points so, perhaps tediously for your Lordships, I am obliged to describe them in turn. They all deal with what we perceive to be anomalies in the crucial ombudsman scheme. I must also confess that Amendment No. 161ZA has been tabled incorrectly. It should relate to line 13 on page 118 and not to line 37.

Clause 224(2) states that, A complaint is to be determined by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case". That sounds fine. However, our concern with that 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. We believe that that could be unfair to firms. It would also remove the level of certainty that firms need when devising their procedures under this regulatory regime. Therefore, this amendment proposes that the ombudsman will uphold a complaint only when the respondent has breached a rule or failed to satisfy a legal obligation or duty owed to the complainant.

Amendment No. 161YA repeats an amendment that we tabled in Committee. I shall explain again why we believe that the current provisions in subsections (4) to (7) of Clause 224 are unfair and should be amended in this way. At present, most of the existing ombudsman schemes include a provision along the lines of the current wording of subsections (4) to (7), which provides that the ombudsman's determination is not binding on the complainant but is binding on the respondent. The difference is that those schemes are voluntary schemes. They are not compulsory as is the scheme under this Bill.

There is a significant difference in principle in relation to voluntary schemes where the authorised person can choose to have the benefits of the scheme, knowing that the price that he has to pay is that any determination will be binding on him and not on the complainant. However, we believe that it is different where the authorised person has no choice about whether to join the scheme or not. It must be remembered that the complainant's position is already well protected, not least because the complainant chooses whether or not to refer a complaint to the ombudsman in the first place. We believe that if he decides to use the ombudsman scheme, he must accept that the ombudsman's determination will be binding on him.

Amendment No. 161B relates to Clause 225(3) which provides that the ombudsman may award compensation of the same kind as a court can award for breach of contract. The issue here is that there are two different kinds of damages recognised by the law. The first is damages in negligence which are designed to place an investor back in the position he would have been in had he not been given poor advice. Typically, that is achieved by a return of the contribution that has been paid, plus interest to the investor where an unnecessary life assurance policy has been sold. That is the measure of compensation normally awarded to retail investors under the existing Financial Services Act.

By contrast, an award of damages in contract is intended to put the investor back into the position he would have been in had the contract been performed; for example, if an investor has been sold an investment with a guaranteed 9 per cent return, a court would compensate for any under-performance by requiring the firm to pay the guaranteed growth rate.

Under Clause 225(3), in most cases it will be appropriate for the ombudsman to award damages in negligence rather than in contract. It seems to us that the clause, as drafted, suggests that the ombudsman should award damages only in contract. Therefore, as indicated by our amendment, we believe that it is highly desirable for the words "or negligence" to be inserted at the end of the clause to make it clear that the ombudsman should award whatever compensation is appropriate in the circumstances and not necessarily compensation based only on breach of contract.

I turn now to the last in this group of amendments, Amendment No. 161C. This amendment amends Clause 226 which is concerned with the ombudsman's power to award costs. Again, Clause 226(3) provides that, Cost rules may not provide for the making of an award against the complainant in respect of the [company's] costs". However, under subsection (4), these rules can provide for an award in favour of the company where, in the opinion of the ombudsman, the complainant's conduct was "improper or unreasonable" or, the complainant was responsible for an unreasonable delay". In our view, this does not appear to be balanced. Authorised persons are bound to participate in the ombudsman scheme, but they have no redress even where the complainant acts improperly or unreasonably or has been responsible for unreasonable delay. Amendment No. 161C would allow the ombudsman scheme rules to provide for an award against the complainant in respect of the respondent's—the company's—costs in the same circumstances as already provided for in subsection (4). I beg to move.

The Chairman of Committees

Because Amendments Nos. 161A, 161B and 161C are being spoken to along with Amendment No. 161YA, I should point out to the Committee that if Amendment No. 161A is agreed to, I shall not be able to call Amendment No. 161B. If Amendment No. 161C is agreed to, I shall not be able to call Amendment No. 162.

10 p.m.

Lord Hunt of Wirral

I welcome the opportunity to explain the thinking that lies behind Amendment No. 161A. In doing so, I should like to mention my personal feelings about the ombudsman scheme. Noble Lords will know that for 35 years I have been a solicitor involved in advising insurance companies and their trade association, the Association of British Insurers, and the predecessor bodies.

Just under 20 years ago, as solicitor to two insurance companies in particular, I was one of the authors of the original industry scheme for the insurance ombudsman. After discussions with the National Consumer Council, we set up the scheme. Its themes could be described as informality, flexibility and speed. I believe that the scheme has been a tremendous success, as indeed have been the other schemes. I am moving this amendment in the hope that we shall retain that flexibility and speed in the new scheme, and I know that the chief ombudsman and his colleagues share that view.

What I and a number of other noble Lords seek to do in this amendment is to draw attention to what I believe to be a fairly obvious defect in the drafting of what is now Clause 225(3). Perhaps I may say how pleased I am to see sitting in their places the noble Lord, Lord Borrie, and the noble and learned Lord, Lord Donaldson of Lymington. I know that the noble Lord, Lord Phillips of Sudbury, would have been here had it been possible for him to be present. That is because we are all concerned about the defect which I shall explain and which I understand was brought to the attention of the Treasury as long ago as August last year. The Government have been on notice for several months as regards anxiety about the defect which is shared not only by the chief ombudsman, but also by the Financial Services Agency and the scheme operator whom we now know as the financial ombudsman service.

If ever there was a provision in the Bill that needs to be clear for ordinary consumers, surely this is it. Among all the provisions of the Bill, those concerning the powers of the ombudsman are most likely to be of interest to ordinary consumers. Furthermore, it is crucial for responsible members of the industry. It is of the utmost importance that everyone should be clear about the powers of the ombudsman in relation to the size and the make-up of money awards.

Of course, the whole purport behind the scheme is a reflection of the fact that the industry is rightly placing more emphasis on curing the problem as soon as possible. The FSA will be making rules to govern firms' complaints-handling activity. And most large financial service firms—banks and insurance companies—have in-house complaints-handling units. The current schemes, and indeed the new scheme, are intended to be a last resort after a complaint has been considered at senior level within a firm. On average, firms probably deal with between six and 10 times the number of complaints that the ombudsman ever receives.

Against that background, it is critical for complainants and their advisers to be clear about the powers of the ombudsman to make money awards. It would be most unfortunate if the ambiguity had to be the subject of regular argument before the ombudsman by sets of advisers, or, even worse, before the courts, before a clear interpretation could be established. That would do little for confidence in the industry and, indeed, for confidence in the scheme itself. Speaking as a solicitor, I feel strongly that the last thing the ombudsman scheme wants is intense learned argument over a considerable period of time.

The figures to which I have been referring as to the number of complaints handled by in-house complaints departments are not untypical throughout the industry. The cases that reach the ombudsman are, in effect, disputes that cannot be resolved even by the application of expertise and goodwill by experienced staff in complaints-handling units in industry. The complexity or novelty of the matters in issue, or perhaps the bitterness and lack of trust that may have developed, mean that the matter must be referred for independent adjudication. At that stage, therefore, when a matter is referred to the ombudsman, he must expect the parties to an unresolved dispute to be at loggerheads. It would be unfortunate, therefore, if there were further room for dispute over the ombudsman's powers because this House had failed to enact a clear provision.

I have envisaged situations where a financial firm complained of had the benefit of professional advice. But many will not seek advice. The whole ombudsman scheme is designed to be used without professional assistance. Let us consider a dispute with an investor over what is alleged to have been negligent advice. Both might stare long and hard at the words of this subsection before trying to guess its meaning, and that is the topic I want to address.

Let me for a moment reflect on the process that the Bill provides for a determination to be made. Clause 224 empowers the ombudsman to determine a complaint on the basis of what is "fair and reasonable". That is clearly wider than the definition used within a court. For example, the ombudsman might conclude, "I find that, while this company has not broken any rule or legal duty, it behaved unfairly towards the complainant and that behaviour caused the complainant financial loss of X amount and much anxiety and distress". On that basis the complaint is upheld. But what redress can follow? That is where the problem arises.

Under Clause 225, the ombudsman can either make a direction or a money award. By virtue of Clause 225(2)(b) the ombudsman may make a direction the financial consequences of which are unlimited and such a direction can encompass requirements that courts are unable to make. So in the case we are considering, the ombudsman could, for instance, direct that the institution should apologise; that it should write to other organisations reassuring them about the complainant's creditworthiness if that had been put in doubt; that it should reconstitute the complainant's account, as directed, and should treat as valid certain transactions it had purported to invalidate. All these matters are within the ombudsman's power even though the cost might exceed the monetary limit. They are certainly powers which are not exercisable by a court—that is my key point—nor rightly does the subsection try to constrain the ombudsman's powers by reference to the powers of a court. Such is the wide variety of possible remedies that might be appropriate in a scheme where disputes need to be settled with the minimum of authority than the power of the ombudsman needs to be generously defined.

But when considering a money award, the Bill adopts a very different approach. The ombudsman must then look to Clause 225(3) and try to understand what it means. In a money award he is required only to compensate for the kinds of loss or damage for which a court could order, if it were deciding an action for breach of contract". What on earth does that mean?

There are two very different possible interpretations of that provision. The first could follow these lines: the ombudsman is permitted to construct a hypothetical contract which contemplates any form of loss or damage as potentially resulting in an award of damages for a breach of that hypothetical contract. If it is possible to envisage any contract resulting in the kind of loss for which a court could award, then the ombudsman can make an award. I shall not go into any further detail on that matter.

The second possible construction is that the ombudsman must look to the actual contract entered into by the complainant and the respondent and then consider the kind of damages that a court would have power to award for breach of that particular contract. But the problem with that interpretation is that often there will be no contract at all. What the complainant complains about is, for instance, that he has been wrongly discriminated against and has been unable to take out a contract so there is not one. Alternatively, he is a third-party beneficiary under a trust or an insurance policy and under those circumstances he is not party to a contract at all. Even if he is party to a contract, that approach might turn out to be too narrow, depending on that, if anything, which is finally specified under subsection (3)(b).

I hope that I am taking the Minister with me so far because this is such a crucial and critical point. Surely it would be absurd for the ombudsman to declare, "I find that this complaint should be upheld on the basis that in my opinion it would be fair to do so, even though a court would not. However, I am unable to award compensation for the complainant because a court would not do so".

There appears to be a clash here between the requirement that the ombudsman should determine the outcome of complaints on a basis different from and wider than that used by the courts on the one hand, and the attempt to constrain the money awards that the ombudsman may make by reference to the powers of the court.

We have to remember that these provisions may have to be interpreted in the courts. It is that which I am seeking to avoid. In a similar context the courts have been found to be very cautious about interpreting generously provisions such as these. Unless clear words are used on the face of the legislation the courts normally say that the powers of decision-makers are to be construed no wider than the powers of the courts themselves. That is the approach that the courts have taken to quite similar provisions in the legislation relating to the powers, for example, of the pensions ombudsman. That ombudsman will be very different from the one proposed here. The courts will have their minds lead to such precedents.

My amendment and that of my noble friend, seek to clarify matters. It would make a more natural and commonly recognised distinction between financial loss under paragraph (a) and other forms of loss or damage under paragraph(b). The policy aim in separating all this is that the authority should be enabled to impose a separate limit on these forms of loss or damage under paragraph (b). I believe that the amendment would permit that to be done.

In proposing this amendment I am seeking to assist the Government to get this rather important clause right and to make sure that it is clear on the face of the Bill. There is a clear and recognised ambiguity here. I hope that it will be accepted that this ambiguity can be eradicated by enacting my amendment. The Minister may say that it is not a perfect amendment—I do not know yet. It can be argued that the expression "financial loss" should be expanded so that it could refer to future uncrystalised losses. Some people may prefer that, as a matter of policy, the authority should specify the heads of loss or damage if these are to be the subject of a separate limitation. However, these issues are of less importance than the ambiguity contained in the main provision.

I am aware that disquiet has been expressed by the FSA and by the ombudsman about the drafting of the clause. The concern was also shared by the current ombudsman schemes. I could quote from the letter from the chairman of the Council of the Banking Ombudsman dated 26th January of this year, but the Minister will be aware of that communication. Therefore, I shall just make a passing reference to it. When the Economic Secretary replied on 14th March, he said: It is, of course, the Government's intention that the meaning of these provisions should be clear, and I have therefore asked my officials to consider whether the clause needs amending". I hope that my noble friends and I have given the Government that opportunity.

Lord Borrie

My Lords, I should like to express my support for the amendment to which the noble Lord, Lord Hunt, has just been speaking. He has explained the amendment so admirably that I do not feel that I need to add to his explanation. I shall simply express my support and point out that the amendment to which my name is attached is a constructive measure and one which will be helpful in trying to explain more clearly what we all believe is the intention behind the clause; namely, the way in which the ombudsman should determine the amounts that he might award.

I wish to speak about the other amendments in this grouping, which were spoken to by the noble Lord, Lord Saatchi. I shall leave one of those amendments aside—the one referring to negligence which would be unnecessary. It cannot be read along with the amendment to which the noble Lord, Lord Hunt, myself and others have subscribed. In my view, the other three amendments to which the noble Lord, Lord Saatchi, spoke are wholly retrograde and undesirable. They show either a misunderstanding of the ombudsman system that we have come to know over many years, or a distrust or dislike of the system. I do not know which it is.

Noble Lords will already be aware that the private sector ombudsman, starting with the insurance one, began in the early 1980s—so I suppose that it has reached its majority. The parliamentary ombudsman dates back to 1967 and is concerned with matters other than breach of the law. He also deals with maladministration, if I may use the omnibus word in respect of what that particular ombudsman deals with and, similarly, do so in respect of the other ones in the public sector. The reason why I suspect a certain misunderstanding of the ombudsman system is that all of them are concerned with what one might call fairness, reasonableness and equity; they are not just concerned with the narrow question of whether someone has broken the law or certain rules.

Clause 224(2) says that the ombudsman's determination shall be on the basis of what is, fair and reasonable in all the circumstances of the case". That is disliked by the Opposition Front Bench, but it follows the precedent of ombudsman schemes that I have described. I must stress that it is not intended under existing systems—or, indeed, under this Bill—that the ombudsman scheme should be a court of law.

The noble Lord, Lord Saatchi, did not mention the fact that the compensation awards are limited. The Minister will correct me if I am wrong, but I understand that it is intended that the limit of what the ombudsman can award in this area is 100,000, even in the most serious cases. Of course, if someone wishes to pursue a legal claim for more than that, he or she has the right to go to court.

That brings me to the point of how important it is that the right to go to court should be retained. In my view it should be retained until the very moment when the complainant accepts an award that has been made by the ombudsman. I believe that it is quite wrong for the Opposition Front Bench to suggest that the complainant should be forced to choose—ex ante, as it were, before he approaches the ombudsman at all—between a court of law and the ombudsman.

I suggest that there is a misunderstanding here. All the ombudsman schemes, including the one in this Bill, are surely designed with the idea that people should be encouraged to use them rather than a court of law. This is achieved by making the ombudsman scheme informal, by not involving lawyers and costs and certainly not by doing what the noble Lord, Lord Saatchi, wants; namely, to impose a risk that if the complainant loses his case he may have to pay the costs and the costs of the lawyers engaged by the other side. Each and every one of the three amendments which the noble Lord, Lord Saatchi, has tabled in the group we are discussing are to my mind wholly retrograde to what I might call "ombudsmanship", if there is such a word. The whole essence of the ombudsman arrangements is informality. They seek to avoid the rule that costs should follow the event; that if one loses one pays the other side's costs; and the matter of being compelled to choose between an ombudsman and a court of law right from the start.

I remind the noble Lord, Lord Saatchi, that even in the courts lawyers have recognised, at least for 20 or 30 years, that the costs rule in civil cases often has a retrograde and discouraging effect on people taking perfectly good and reasonable cases to court because they are so worried that if they lose they will have to pay the uncertain, unknown figure of costs that the other side incurs with their lawyers. Hence in the 1970s—Conservative Lord Chancellors agreed with this approach—one could bring small claims to the County Court satisfied in the knowledge that if one failed one would not have to pay the other side's costs.

I find it amazing that in the year 2000 the noble Lord, Lord Saatchi, should want to apply to the ombudsman schemes a rule that has fallen into a certain amount of desuetude, and certainly dislike, in the ordinary courts of the land. I am extremist in my views on this group of amendments. I am wholly in favour of the amendment that is proposed by the noble Lord, Lord Hunt. Noble Lords will notice that it is supported by the Cross Benches, the Liberal Democrats and a Back-Bench Conservative former Cabinet Minister. It is wholly worthy of support. The amendments proposed by the noble Lord, Lord Saatchi, on the other hand, are wholly worthy of dismissal.

10.15 p.m.

Lord Newby

My Lords, I speak to Amendment No. 162, which stands in my name and that of my noble friend Lord Sharman. I wish to comment also on other amendments in the group that we are discussing.

Like the noble Lord, Lord Hunt, we on these Benches believe that the principles of informality, flexibility and speed should characterise the work of the ombudsman in this area, as with other ombudsmen. We believe too in the principles of ease of access and cost-free access. Those principles informed our view of all the amendments in this group and led to the tabling of the amendment in our name.

As our amendment has not yet been spoken to, I should remind your Lordships that it seeks to delete subsection (4), which allows cost awards to be made, to put it in shorthand, against a vexatious litigant. I am sorry that even in his extremism the noble Lord, Lord Borrie, did not speak in support of this amendment. Given the arguments that he made, it is an amendment that is worthy of his support.

As I understand the situation at the moment, there are a number of ombudsmen in the financial services sector and a number of ombudsmen in other sectors. As a general rule, costs are not awarded, in any circumstances, against anyone who brings a case to the ombudsman. Obviously in some cases it may be the view of the ombudsman—it may be the view of a reasonable man or woman—that the person bringing a case to the ombudsman is absolutely obsessed by something which has no merit. But it is a part of the role of the ombudsman to deal with such cases, as well as to deal with cases that are very well founded.

If we get to a situation where ordinary people—not only obsessives—when considering what action to take after being badly done by feel that they may run into a costs award against them, this will deter the very people who should be applying to the ombudsman for redress from doing so because they will be worried that they will not be able to pay the costs. In our view, it is not a part of the plan for the ombudsman to be draconian in this respect, but, as long as this provision remains on the statute book, it will deter from going to the ombudsman the kind of people the scheme is designed to benefit.

At the same time, it will do nothing to deter the obsessive. A person with a burning grievance will take it to the ombudsman; if the ombudsman turns it down, he or she will pursue it through the courts until they reach the end of every conceivable level of redress. Not only is it wrong in principle, but it will be ineffective in practice. It will not stop the vexatious litigant from applying to the ombudsman. I urge the Government to drop this measure.

As to the other amendments, it almost goes without saying that we oppose Amendment No. 161C, which would broaden the scope for making cost awards against people bringing cases to the ombudsman. We support Amendment No. 161A. It is constructive and clarificatory and we hope that the Government will support it.

I apologise for taking the amendments in reverse order. We oppose Amendment Nos. 161ZA and 161YA. Amendment No. 161ZA would exclude a raft of cases which fall under the general heading of "maladministration" rather than a formal breach of rules. If an ombudsman is there to do anything, he is there to look at cases of plain, straightforward maladministration which the "maladministrator"—if that is the right word—refuses to accept. We believe that Amendment No. 161ZA would unduly constrain the kind of case in which an ombudsman can make a determination.

As the noble Lord, Lord Borrie, said, Amendment No. 161YA appears to require a potential complainant to the ombudsman to decide, before making a complaint, whether to go down the ombudsman route or the court route. This is an unnecessary and unsatisfactory choice to require people to make. It may force some people to decide on a court route who would receive a perfectly satisfactory outcome through the ombudsman route, which must be a preferable way of dealing with these issues.

In moving this amendment, the noble Lord, Lord Saatchi, said that one of the thoughts behind it was that this was a compulsory scheme rather than a voluntary scheme, and that that put it in a different category from other ombudsman schemes. That is a complete red herring. I do not see the relevance of that argument at all. Everyone, including the noble Lord, Lord Saatchi, believes that this scheme should apply across the board in the financial services sector and therefore the broad principles which apply to ombudsman schemes elsewhere should apply to it. Therefore, I would not support Amendment No. 161YA. We look forward to hearing from the Minister that he is prepared to move that little distance by agreeing to Amendment No. 162.

Lord Donaldson of Lymington

My Lords, I, too, look forward to the Minister saying that. I shall speak briefly to the amendments because they have been so fully explained.

If Amendment No. 161YA were accepted the ombudsman would be confined to dealing with cases where there had been a breach of a rule or a failure to satisfy a legal obligation. I am sure that that would be very restrictive. As has been pointed out, there have been cases of maladministration or just plain rudeness which do merit consideration by the ombudsman and in some circumstances would undoubtedly merit an award against the respondent. I know that it looks odd that one should have a unilateral ombudsman scheme—a one-way street—in which the complainant can take the matter up to, but not as far as, the award and then say, "I have not done very well here. I shall now go off to a court. Perhaps I shall do better there". But that is not what happens.

The proof of the pudding is that over many years this has been the pattern for all the ombudsman schemes. The dialogue that takes place between a complainant and the ombudsman, including very often a draft award telling the complainant what the award would contain if he persisted, has settled the matter completely. It may be illogical but it works. If ever there was a case for leaving it to work, this is it. We are not trying to invent a new ombudsman scheme. We are merely trying to rationalise a large number of ombudsman schemes, almost all of which have in common the feature that the respondent can be caught by an award but not the complainant.

I shall move briefly on to Amendment No. 161B. I respectfully suggest to the noble Lord, Lord Kingsland, although he is not in his place, that he does not mean "negligence". He means "tort". There are many things such as defamation and the like which come under that broader heading. I just thought that I might put in my two penn'orth on that one.

Amendments Nos. 161C and 162 deal with costs. I have never litigated, except on one occasion, for fear of the costs. Perhaps I may describe the occasion when I did it. I had gone round advocating that people should put a legal expenses addition to their household comprehensive policy. The time came when I thought that I should perhaps put my money where my mouth was, provided that it was not too much money. I discovered that it was only £10 and so I did it. I then found myself in dispute with a marine surveyor and handed over the matter to the legal expenses insurers, who took it from there. It was very satisfactory. I was insured against any liability to the other side in respect of costs. This scheme will fail if people are frightened of costs.

That brings me to the amendment to which I subscribe. I agree with all the reasons which have been given. I had to ring the chief ombudsman and ask what are the rules for damages in contract. He told me about it—he reminded me of it is a better way of putting it. They are very limiting—much more limiting than they ought to be, even in regard to court cases. They certainly have no place here. I very much hope that the Minister will be able to accept our much broader suggestion.

10.30 p.m.

Lord Boardman

My Lords, I have been concerned with the creation of certain ombudsman schemes during my time in business. To the best of my knowledge, they have all worked satisfactorily from the point of view of the organisations that established them and the number of complainants whose core complaints have been met. I agree with the remarks of my noble friends Lord Saatchi and Lord Hunt of Wirral regarding the essential requirements, the fact that they can be dealt with speedily and the way in which awards were made—somewhat generously, but not generously in terms of the cost if people had suffered through their problems not being met or going to the courts.

I support the amendments. Two queries have been raised regarding the proposals of the noble Lord, Lord Saatchi. The matter of negligence was raised by the noble Lord, Lord Borrie. I interpret that as a measure of assessing the damages which could properly be awarded by an ombudsman, taking into account the various circumstances. To that extent negligence widens the field rather more than was otherwise appropriate.

The second relates to costs. I am not sure that I understood the noble Lord, Lord Newby, but as I understand it his amendment strikes out all reference to costs. Yet the noble Lord explained that costs seemed essential to stop someone going from court to court and running them up. Whatever the noble Lord's reasoning, I believe that the provision of a deterrent in the form of costs to stop the aggressive litigant abusing the system is quite a good thing. Such a provision should be used with considerable discretion. The costs certainly should not follow the event. But if someone abuses the system by making unreasonable complaints, it should be up to the ombudsman to provide a deterrent for the future by awarding costs against that person. Subject to those qualifications, I support the amendments that have been proposed.

Lord Bach

My Lords, on behalf of the Government, let me try to take a rather tricky walk down the middle of the various amendments, incompatible as they are.

When we considered a similar clutch of amendments in Committee, I prefaced my remarks by explaining that the purpose of the ombudsman scheme was to provide a quick, cheap and informal mechanism for resolving disputes between authorised firms and consumers. It was also mentioned that over 80 per cent of complaints under the schemes we are replacing were resolved between the parties without the ombudsman having to take a decision one way or another. That is important, because it sets in context questions about who should be bound by the determination and on what basis such determinations should be reached. These issues do not even arise in the vast majority of cases.

I turn first to Amendment No. 161YA, proposing that decisions should not bind respondents. The amendment deals with the question of whether the ombudsman's decision should be binding on the complainant. This question has been raised before and has been given careful consideration. We believe that the approach taken in the Bill is the correct one. It is fundamental to the character of an ombudsman scheme that decisions should not be binding on complainants. Existing schemes are based on that premise. They provide consumers with an alternative to court action but do not deprive them of their legal rights at any stage before they decide to accept the determination. We do not believe that it would be appropriate in any way to design a new scheme in such a way as to put consumers in a less favourable position than under current schemes.

Apparently, over the past number of years, in general, complaints have been upheld only in a minority of cases: roughly 30 per cent in insurance, and roughly 40 per cent in investment matters. In the majority of cases complainants are disappointed.

However, experience is that over the past 20 years a handful of dissatisfied complainants have gone on to take advantage of their right to pursue maters by way of court proceedings. If complainants were required to choose between the ombudsman route and abandonment of their legal rights—that might well be the effect of the amendment if passed—or to preserve their rights by issuing proceedings, it is possible that many more would choose the court route. We believe it is unlikely that that outcome will be welcomed by the financial services industry, and we invite the noble Lord, Lord Saatchi, to withdraw his amendment.

Amendment No. 161ZA relates to Clause 224. It is perhaps helpful if I explain briefly the basis on which we believe that the ombudsman should determine cases for which the Bill makes provision. We believe it is right to require the ombudsman to determine cases on the basis of what is fair and reasonable in all circumstances. Existing schemes determine cases on that basis. We believe that this arrangement has worked well, as a number of noble Lords have said this evening, and it should continue. The scheme must be quick and informal. It would be wrong to constrain the ombudsman by requiring a purely legalistic focus, or a focus on rules to the exclusion of everything else. To do so might mean that he was unable to examine all the matters, such as delay or maladministration, which were relevant to a complaint. We would certainly expect the ombudsman to take into account, where relevant, the matters mentioned in the amendment—breaches of rules or legal duties and obligations—but it would be too prescriptive to limit his role to those matters.

I turn to the first set of incompatible amendments: Amendments Nos. 161A and 161B. Amendment No. 161A in particular, with no disrespect to Amendment No. 161B, gives us some food for thought. These amendments deal with the provisions under which the ombudsman will be able to make awards of compensation for loss or damage suffered by complainants. I briefly outline the intended purpose of Clause 225(3) which has been subject to some gentle but severe criticism during the course of this evening's debate. Ombudsmen have traditionally made awards which reflect not only financial loss and other losses compensable in general commercial matters but other matters such as distress and inconvenience. Clause 225(3) is intended to allow that to continue while ensuring that the ombudsman's power to make awards for loss or damage not generally compensable in commercial litigation is limited to matters specified in rules made by the FSA.

Subsection (3)(a) is intended to cover losses for which damages would be recoverable in a breach of contract action. Subsection (3)(b) is intended to allow the FSA to specify other types of loss in respect of which the ombudsman can award compensation. We believe that that approach strikes the right balance and allows the ombudsman sufficient discretion to award compensation while ensuring clarity for the industry in respect of awards for loss or damage not generally compensable in commercial litigation.

We have some concerns about Amendment No. 161A. We believe that that amendment, spoken to notably by the noble Lord, Lord Hunt, which removes the requirement that awards under paragraph (b) should be specified in rules, rather detracts from what we seek to achieve. We do not believe that Amendment No. 161B is appropriate. I do not want to go into details at this stage. The noble and learned Lord, Lord Donaldson, suggests that "tort" is better than "negligence" but that neither is appropriate. The Government also take that view.

We have listened with care to, and will read with even greater attention, the points made this evening and consider whether we can do anything to clarify Clause 225. If it is appropriate to do so we shall table an amendment at Third Reading. It may be that the days in between could be taken up by some discussion on possible ways round this. I do not want to hold out too much hope of movement, but we have been impressed by the arguments that have been put forward, particularly in relation to Amendment No. 161A. In view of that, I hope that the noble Lord, Lord Hunt, will not press his amendment at this particular stage.

Now I move to Amendments Nos. 161C and 162. They deal with the provisions under which the scheme operator can make rules allowing the ombudsman to award costs. We discussed similar amendments in Committee and I can assure noble Lords that we have given full and careful consideration to these provisions since that discussion.

Clause 226 as it stands allows no scope for the ombudsman to make an award of a firm's costs against a consumer. We believe that is right. The scheme is intended to provide consumers, many of whom simply will not have the resources to pursue a case through the courts, with a free means of redress. To allow a firm's costs to be awarded against a consumer could discourage consumers from using the scheme. Indeed, if such an amendment is passed, it is arguable that responsible financial companies might arm themselves with lawyers as soon as a complaint was lodged, and the ombudsman scheme would then have to make the complainant aware that he was at risk of payment of costs if he pursued his complaint.

That might be a really serious inhibition on consumers pursuing complaints. Of course we recognise that the amendment of the noble Lord, Lord Saatchi, (Amendment No. 161C) would allow such awards to be made only where the consumer had behaved improperly or unreasonably, but we still do not think that the changes proposed are desirable. We want to make sure that any action that could be taken in response to improper or unreasonable behaviour is, and is seen by consumers considering whether to use the scheme to be, controlled and proportionate. A respondent's costs could be very high, and they are beyond the control of the scheme operator.

Turning to the amendment of the noble Lord, Lord Newby, to protect against the possibility that consumers may misuse the scheme, the Bill allows the ombudsman—this is what the noble Lord seeks to delete—in limited circumstances to make an award of the scheme operator's costs against a complainant. We want to emphasise once again that there is no scope under the Bill for the ombudsman to award costs against a complainant, except where that person has acted improperly or unreasonably or has been responsible for unreasonable delay. We expect an award to be made only in extreme cases and only after prior warnings had been given to the complainant.

In addition—and this we consider important—the ombudsman cannot award costs against any consumer at all, even if they have behaved badly, improperly or unreasonably, unless rules have been made to allow it. The authority and the scheme operator have made it clear that there are no plans at present to allow the ombudsman to make such awards. Such rules would be made only if, in the light of experience, it proves necessary to do so.

Therefore I would describe the authority's attitude about this as being a "reserve" reserve power. The rules are not there: there is no intention to make them. They would be made only if it was thought appropriate to do so, and thus no award could be made until the rules were made.

The scope of the power to award costs to consumers who behave unreasonably or improperly is clearly defined. We would expect it to be used only in the worst cases—my next three words are important—if at all. However, we do think that it is important to have it in the Bill against potential abuse of the scheme. The scheme will give consumers access to a coherent and effective mechanism for seeking redress, and it is only fair to ask that those consumers use the scheme responsibly. It is in that context that I invite the noble Lord, Lord Newby, not to move his amendment.

Lord Saatchi

My Lords, I am grateful to noble Lords who have taken part in the short debate on this important scheme which we fully support. As I said, we see some anomalies. I can understand the merit of the amendment in the name of my noble friend Lord Hunt. He has highlighted a key point about the vagueness of the concept of a breach of a notional contract. I was encouraged by the Government's response.

However, having heard my noble friend Lord Hunt and other noble Lords describe the many merits of their amendment, I am even more confident about the merits of our amendments. The noble Lord, Lord Borrie, said that he wants more informality. That is fine. But we want more balance—if that means more formality, we say, "So be it"—so that the ombudsman will not be able to uphold complaints where a firm has observed all the FSA's rules and will be able to make claims against an unreasonable and improper complainant. I should like to test the opinion of the House.

10.45 p.m.

On Question, Whether the said amendment (No. 161YA) shall be agreed to?

Their Lordships divided: Contents, 17; Not-Contents, 86.

Division No. 2
CONTENTS
Astor of Hever, L.	Lindsay, E.
Blatch, B.	Mackay of Ardbrecknish, L.
Boardman, L.	Montrose, D.
Burnham, L.	Moynihan, L.
	Northbrook, L. [Teller]
Dundee, E.	Northesk, E.
Henley, L.[Teller]	Norton of Louth, L.
Home, E.	Saatchi, L
Kingsland, L.	Skelmersdale, L.
NOT-CONTENTS
Acton, L.	Howie of Troon, L.
Alli, L.	Hoyle, L.
Amos, B.	Hughes of Woodside, L.
Archer of Sandwell, L.	Hunt of Kings Heath, L.
Bach, L.	Irvine of Lairg, L. (Lord Chancellor)
Bassam of Brighton, L.
Berkeley, L.	Jay of Paddington, B. (Lord Privy Seat)
Blackstone, B.
Borrie, L.	Lea of Crondall, L.
Brett, L.	Lipsey, L.
Brooke of Alverthorpe, L.	Macdonald of Tradeston, L.
Brookman, L.	McIntosh of Haringey, L.
Burlison, L.	McIntosh of Hudnall, B.
Carter, L.[Teller]	MacKenzie of Culkein, L.
Chandos, V.	Mackenzie of Framwellgate, L.
Christopher, L.	Massey of Darwen, B.
Cocks of Hartcliffe, L.	Morris of Castle Morris, L.
Cohen of Pimlico, B.	Newby, L.
Craig of Radley, L.	Pitkeathley, B.
Crawley, B.	Plant of Highfield, L.
Davies of Oldham, L.	Prys-Davies, L.
Donaldson of Lymington, L.	Ramsay of Cartvale, B.
Dormand of Easington, L.	Rea, L.
	Rendell or Dabergn, B.
Dubs, L.	Richard, L.
Elder, L.	Sainsbury of Turville, L.
Evans of Parkside, L.	Sawyer, L.
Farrington of Ribbleton, B. [Teller]	Scotland of Asthal, B.
	Sewel, L.
Faulkner of Worcester, L.	Sharman, L.
Filkin, L.	Sheppard of Liverpool, L.
Gale, B.	Simon, V.
Gavron, L.	Smith of Gilmorehill, B.
Gilbert, L.	Smith of Leigh, L.
Goldsmith, L.	Stone of Blackheath, L.
Gordon of Strathblane, L.	Symons of Vernham Dean, B.
Goudie, B.	Taverne, L.
Gould of Potternewton, B.	Thornton, B.
Grenfell, L.	Tomlinson, L.
Hardy of Wath, L.	Warner, L.
Harris of Haringey, L.	Warwick of Undercliffe, B.
Harrison, L.	Wedderburn of Charlton, L.
Hilton of Eggardon, B.	Whitaker, B.
Hollis of Heigham, B.	Whitty, L.
Howells of St Davids, B.	Williams of Mostyn, L.

Resolved in the negative, and amendment disagreed to accordingly.

10.56 p.m.

[Amendment No. 161ZA not moved.]

Clause 225 [Awards]:

[Amendments Nos. 161A and 1618 not moved.]

Clause 226 [Costs]:

[Amendments Nos. 161C and 162 not moved.]

Clause 232 [Open-ended investment companies]:

Lord Kingsland

moved Amendment No. 162A: Page 122, line 28, at end insert— ("(4A) In determining whether the investment condition is satisfied, participation in the scheme shall he deemed to take place either at the time shares in, or securities of, BC first become available for purchase or subscription by investors or on any occasion thereafter on which the arrangements constituting BC are changed to a material extent."). The noble Lord said: My Lords, Clause 232 sets out the new definition of open-ended investment companies. Amendment No. 162A is intended to raise a number of issues relating to the definition that we would like to have clarified.

As I said to your Lordships in Committee, broadly we welcome the definition but we believe that it has a potential flaw. The flaw is that the question of whether or not an entity is an open-ended investment company depends on the expectations of a reasonable investor participating in the collective investment scheme in relation to his ability to realise his investment.

The expectations of a reasonable investor may well differ depending on when the investment is treated as taking place. As a result, the categorisation of a collective investment scheme will depend not on the nature of the scheme itself but on what an investor's expectations may be at a particular moment in time.

I can illustrate that by reference to an example. The example assumes that subsection (4) of Clause 232 is not a desistance. An investment company is launched in year one and states that in year five it will redeem at net asset value the shares of any investor who wishes to have the shares redeemed. After year five there will be no further opportunity for investors to have their shares redeemed. I would suggest that at year one the company would not be an open-ended investment company because a reasonable investor in year one would not expect to be able to realise his investment within a reasonable period—five years being too long a period for these purposes. However, in year four a reasonable investor may expect that he would be able to realise his investment within a reasonable time—one year possibly being a reasonable period for these purposes.

Does that mean that at that point the company converts from being a closed-ended to an open-ended investment company? After year five, the opportunity for investors to have their shares redeemed would have passed. Investors would no longer have an expectation of realising their investment within a reasonable period. Does the company then become a closed-ended investment company again? I should be interested to hear the Minister's response.

In Committee the noble Lord said: 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". [Official Report, 9/3/2000; col. 944.] That is a helpful statement but I believe that my example will have demonstrated that, inevitably, the question of whether a company is an open-ended investment company will be asked at points in time. At those points in time, the expectations of the reasonable investor must be considered and those expectations will change, leading to the consequences I have tried to illustrate.

Our suggested Amendment No. 162A deals with the issue by asking the question at the launch of the company, when shares in the company become available to purchase for the first time, and on each occasion thereafter when the constitutional arrangements of the company—typically, its articles of association—are changed to a material extent.

Minor variations to the articles of association—for example, to comply with listing rules—would be unlikely to result in a significant change to the constitution of the company. Therefore, we propose that those are ignored. The amendment is only a suggestion to meet the concerns that I have outlined.

When replying, I should be grateful if the Minister will deal with the following additional questions. First, when considering the reasonable investor and his expectations about realising his investment, is it necessary to consider the entirety of the investor's investment? In other words, if the investor has a reasonable expectation that he will be able to realise only half of his investment but not the whole of his investment within a reasonable time, would that satisfy the investment condition in subsection (3)?

Secondly, will the Minister please clarify what is meant by, calculated wholly or mainly by reference to the value of property", in Clause 232(3)(b)? If the realisation price was equal to a Stock Exchange quoted price for the shares, I assume that that would not be calculated wholly or mainly by reference to the value of property in respect of which the scheme makes arrangements. Does the reference to "property" mean the actual property of the scheme or property of the same kind? Perhaps the word "the" should be inserted before "property" to make that point clear.

Again, what is the position if part of an investor's investment is realised on a basis, calculated wholly or mainly by reference to the value of property", and part is calculated on a different basis?

One final point I should like to make is that the FSA will be able to give guidance under Clause 153 in relation to the interpretation of Clause 232, assuming that the FSA's power to give guidance with respect to the operation of the Act covers guidance on the interpretation of the definitions in the Act. However, any FSA guidance on the meaning of Clause 232 can only ever be the authority's view of what the clause means. Only a court will be able to determine what meaning should be given to the clause. I beg to move.

11 p.m.

Lord McIntosh of Haringey

My Lords, I am grateful to the noble Lord, Lord Kingsland, for his recognition of the Government's achievement in Committee in framing a generally acceptable definition of an open-ended investment company, although he rather spoiled it by the criticisms that he made thereafter of what I thought had gained fairly general agreement, not only in this House but in the long and fruitful consultation with industry representatives. We thought then, and think now, that we have a robust, targeted and flexible definition of an OEIC.

I stress the flexibility because the definition has to serve a number of purposes. It describes the number of companies that can be incorporated and carry on collective investment; it determines the companies to which regulations are made by the Treasury and rules made by the authority in relation to OEICs supply; and more importantly it determines the companies constituted outside the UK that are caught by the rules and regulations relating to OEICs and to collective investment schemes generally.

Largely because of that final purpose—companies constituted outside the UK—the amendment proposed carries significant risks. It reduces the flexibility of the definition by putting a qualification on the investment condition leg. As the House will recall, the definition of an OEIC in Clause 232 is framed by reference to two conditions: property and investment.

The noble Lord, Lord Kingsland, asked about the property condition. As his amendment refers to the investment condition only, I hope that he will forgive me if I deal with the matter in writing.

The investment conditions contain a requirement that a reasonable investor would, if he were to participate in the scheme, expect that he would be able to realise, within a time appearing to him to be reasonable, his investment in the scheme. That allows his expectation in relation to participation at any time in the life of the scheme to be considered.

The amendment proposes that the clause should specify the points of time by reference to which a potential participant's view of his ability to realise his investment in the scheme can be considered. Participations would be limited to the times when the shares in, or the securities of the companies first become available for purchase or subscription, or when, thereafter, the arrangements constituting the company are changed to a material extent.

As I said in Committee, the definition deliberately does not specify a time at which the open-endedness of a company must be considered. It is important that the nature of the company can be judged at any time.

The amendment would exclude from the definition, for example, a company that offered investors no right to redeem their investments for the first, say, six months after its shares became available for subscription. At that point, a reasonable investor would be likely to consider that, were he to participate in the scheme, he would not be able to realise his investment within a reasonable time. However, the same scheme could offer continuous redemption from the six-month point onwards without any change, material or otherwise, to the arrangements constituting it. But it would still not meet the definition of an OEIC.

Of course, it is essential that shares are capable of coming within the definition of an OEIC so that the rules and regulations covering collective investment schemes, for example in relation to the promotion of schemes, apply to it. Whereas Treasury regulations and FSA rules will determine the nature of OEICs that can be established in the UK, the definition has to apply to overseas established schemes as well, over whose constitution the UK authorities have no control. It is imperative that the OEIC definition is broad enough to cover a variety of such schemes that are capable of offering collective investments.

This is a new type of scheme that has been growing rather rapidly. The nature of OEICs that are being set up varies. If we were to start to lay down restrictions of the sort that are proposed by this amendment, we would run a serious risk of strangling the baby not quite at birth but in early infancy. We want OEICs to exist. They are valuable investment schemes. It is important that they should be allowed to exist and to be regulated. It would be a great shame if a restriction of this kind, which seems to be largely formalistic, were to endanger the possibility of new forms of OEICs that conform with the general definition that we agreed in Committee.

The noble Lord, Lord Kingsland, asked for an example of company changes over the years. Over time, it is perfectly possible for a company to change from closed-ended to open-ended investment. It is right that from time to time the assessment should be made. In that sense the definition is designed to be "ambulatory"—I believe I understand what that means. A hypothetical reasonable investor looks at the type of company in which he is considering investing and forms a view as to the nature of the company in the example given. The fixed term company will probably fall to be considered as a closed-ended company throughout its life, even though in its final year a view may he taken that redemption of the investment could be achieved within a reasonable period.

We cannot allow a loophole of the kind that would he provided by this amendment. More generally, the Committee will recall the government amendment in Committee which introduced a power for the Treasury to amend the OEIC definition should that become necessary. For that reason, restricting the definition, which this amendment would do, would run counter to the approach the Government are seeking to adopt here. We are deliberately looking for a broad and flexible definition, one that captures the essence of the beast while still allowing changes to be made if experience shows that they are needed. As I said in Committee, any order making such a change would be subject to the affirmative resolution procedure. I hope that, on the basis of the arguments I have put to the Committee, the noble Lord will not press his amendment.

Finally, government Amendment No. 219 is a consequential amendment arising from the changes made in Committee to the definition of an open-ended investment company.

Lord Kingsland

My Lords, with great respect to the Minister, I think it is a little rich of him to suggest that we are trying to stifle enterprise by seeking greater precision in the Bill. I believe I can honestly say that throughout the proceedings on the Bill we have sought greater precision in order to encourage enterprise, because the greater the amount of imprecision there is, the greater will be the uncertainty for those who must operate under it. The greater that uncertainty, the more likely it will be that people will become less resourceful. The whole object of seeking greater precision in these definitions is to encourage enterprise and to make OEICs work—as the Minister put it so evocatively.

Despite what the Minister has said, I hope that over the next few days he will reflect on the enhanced quality that the Opposition believe this amendment would bring to the Bill so that on Third Reading at least a little movement might be seen on this. I hope very much that we shall not have to discuss this matter again at that stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 253 [Directions]:

Lord Kingsland

moved Amendment No. 162B: Page 123, line 16, leave out from ("communicate" I to end of line 17 and insert— ("to a person in the United Kingdom—

1. (a) an invitation to participate in a collective investment scheme; or
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: My Lords, Amendments Nos. 162B and 162C concern restrictions on promotion. Clause 234 imposes special restrictions on the marketing of collective investment schemes. As it stands, the prohibition applies to even non-UK branches of the authorised person—even in relation to investors outside the UK. We wish to make the same amendments to the prohibition as we are proposing for financial promotion generally.

In another place the honourable Mrs Melanie Johnson, the Economic Secretary, said in Committee that she was beginning to realise that marketing restrictions applicable to authorised persons under the provisions of Clause 231 do not need to be as wide as those applicable to non-authorised persons under Clause 19. That is why the amendment restricts the prohibition to communications, to a person in the United Kingdom". This restriction follows the existing law. We tried several times to persuade the Minister that it would damage UK competitiveness if the local regulator allowed the marketing of collective investment schemes to particular categories of investor not allowed by the FSA—typically high net worth individuals—nd the only firms which could not market such schemes to them were authorised persons.

The prohibition applies to all authorised persons, not only UK firms. Why should non-UK firms that establish a branch in the United Kingdom, perhaps using an EC passport, have to be subject to a worldwide prohibition on marketing investment funds to prohibited categories of investor from that UK branch? In addition, if the collective investment scheme that they want to market is established in the UK—typically an English limited partnership—the non-UK firm cannot market it from any branch anywhere in the world, which is perhaps going a bit over the top. The imposition of the world-wide prohibition is likely to induce United Kingdom, or non-UK, authorised persons to use an offshore group company—for example, a special purpose subsidiary—o market the collective investment scheme to prohibited categories of investors outside the United Kingdom. It does not do anyone any good to force them to take that step and perhaps incur substantial expense.

Amendment No. 1620 seeks to make a similar amendment to the special restrictions on promoting collective investment schemes as the amendment proposed to the general prohibition on "financial promotion" marketing in Clause 19. I beg to move.

11.15 p.m.

Lord McIntosh of Haringey

My Lords, we discussed a similar issue in relation to Clause 19. This is another area where, as I indicated then, the differences between the Government and the noble Lord, Lord Kingsland, may be narrowing.

Amendment No. 162B to Clause 234(1) seeks to delete "inducement" and replace it with, (a) an invitation to participate in a collective investment scheme; or (b) information which is intended or might reasonably be presumed to be intended to induce any person to do so". I understand the importance which the Opposition attach to this amendment. But there is not a great deal of difference between us in terms of policy. In Committee I undertook to look at whether Clause 234(1) needed further clarification in respect of the meaning of "inducement". As the Government said repeatedly in relation to this clause and the corresponding words of Clause 19, only promotional communications will be targeted by the prohibition. I believe that is also the intention of the Opposition's amendment.

As things stand, in my view, Clause 234 as drafted is the best way of tackling these issues. The term "inducement" should, we believe, only catch communications of a promotional nature. The noble Lord, Lord Kingsland, kindly agreed to meet me this Thursday to discuss the matter in the context of Clause 19. I should like to reserve any further judgment on his amendment until we have had the opportunity to have that meeting. I hope that on that basis he will feel able to withdraw it.

Amendment No. 162C seeks to amend subsection (3) of Clause 234 so that subsection (10), which sets out the basic prohibition, does not apply unless the communication is intended or might reasonably be presumed to be intended to be acted on by a person in the United Kingdom. That too was a Committee stage amendment. But there is concern that the clause is not sufficiently clear; that the communication will only be caught if it is targeted or "directed at" a person in the UK. We have said that we believe the issue is one best dealt with in subordinate legislation and have proposed something designed to achieve that in the draft order set out in the second consultation document; namely, cutting back the "capable of having effect" test in subsection (3).

The amendment proposed by the noble Lord, Lord Kingsland, indicates why the Government's approach is prudent. It is not at all clear what "acted on" means. For example, if a communication is sent from abroad for onward transmission by an agent in the United Kingdom, is that a communication which is intended to be "acted on" by a person in the United Kingdom?

Another intention behind the amendment may be the need to address our Community obligations. Let me say categorically that the UK takes its Community obligations seriously in respect both of our treaty obligations in general and any specific legislation such as the proposed e-commerce directive, in particular with regard to the territorial jurisdiction and other requirements it might place on the UK's rules. We are committed to ensuring that these rules comply with all Community requirements. Clause 234 was amended in Committee to clarify that the Treasury can adjust the scope of the Bill's financial promotion regime in order to take full account of international and technological developments. Given our intention to modify the scope of prohibition using secondary legislation, the Government will continue to resist this amendment. I hope that noble Lords will not press it.

Lord Kingsland

My Lords, the Minister reminded me of our meeting on Thursday at 3.30 p.m. That seems a long way away at 11.20 p.m. when we have got through only half of the amendments on the third day of Report stage. Nevertheless, it has sufficient allure for me to thank the Minister for his response and the prospect of discussing all these matters again in 48 hours. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No.162C not moved.]

Clause 248 [Procedure when refusing approval of change of manager or trustee]:

Lord Kingsland

moved Amendment No. 162D: Page 130, line 9, leave out from ("notice") to end of line 10 and insert—

1. ("(a) to the manager if notice of the proposal was given under section 247(1) and, unless the Authority considers that there are good reasons not to do so, to the trustee; and
2. (b) to the trustee if the notice of the proposal was given under section 247(3) and, unless the Authority considers that there are good reasons not to do so, to the manager.").

The noble Lord said: My Lords, this amendment relates to an issue that we also discussed in Committee concerning Clause 248. As your Lordships are doubtless well aware, that clause deals with the procedure to be adopted by the authority when refusing approval of a change of manager or trustee or an alteration to an authorised unit trust scheme. Under Clause 248(1) notice of the refusal is only to be given to a person who gave notice of the proposal. In turn, that notice will be given by the trustee or the manager of the unit trust.

However, both are likely to be involved in the outcome. Our amendment in Committee was to the effect that notice of refusal should be given both to the trustee and the manager. That did not find favour on the basis that there may be confidential information in the notice which should be restricted to one party.

We accept that there should be a confidentiality override. Our amendment would oblige the authority to give the notice of refusal to both parties unless, in the case of the person who did not give notice of the proposal, the FSA considers that there are good reasons for not giving the notice of refusal to that person. In Committee the Minister said that if, as proposed, the notice went only to the applicant, the authority could, under Clause 257(4) pass on to the other party, such information about the revocation or variation, in such a way, as it considers appropriate".—[Official Report, 27/3/00, col.629.] However, as is clear, Clause 257(4) deals with revocation or variation and does not address the circumstances set out in Clause 248(1). There is no provision elsewhere for passing on information in the event of the refusal of a request to replace the manager or trustee.

As regards Amendment No. 264A, the introduction of the supervisory notice procedure for certain types of enforcement action has resulted in the removal of these cases of the 28-day minimum period for representations. Without fettering the authority's discretion, we believe that it is important to introduce a test of reasonableness in Clause 255(4)(d) for making representations. The authority would still be able to specify a period which allowed for no representations before the event in the case of an urgent decision, but would require a reasonable period for representations after the decision had been taken. It would also establish a discipline requiring a reasonable period to be specified in non-urgent cases. I beg to move.

Lord McIntosh of Haringey

My Lords, it is no disrespect to the amendment to remind the House of the very specialist nature of the clauses that it is proposed to amend. We are talking about a requirement on the authority to give a warning notice under Clause 248 when it has been notified of a proposed change in the identity of either the trustee or the manager.

In Clause 247, the Bill requires the manager to notify a proposal to replace the trustee and the trustee to notify a proposal to replace the manager. The amendment says that the authority has to give a warning notice to both. As the Bill stands, if the authority proposes to refuse to approve such a replacement—and only in those circumstances—it must simply give a warning notice to the party that notified it of the proposal.

The amendment would simply put an extra administrative burden on the FSA and would complicate the procedures. It is not just that extra notices would be required; the issue of a decision notice to persons who have received a warning notice also triggers the right for the party that has been given the notice to refer the matter to the tribunal. It would be quite inappropriate for both parties to have rights of referral to the tribunal when the refusal would generally be counter only to the interests of the party proposing the change, who would not of course be the one whose replacement was being refused.

It is also important that the person who has to present the case, both to the authority and to the tribunal if necessary, is the person who will retain a continuing responsibility for the scheme. He will be the party with the interest in the proposed replacement of the other party and must make the case for it. It may be that the person who is to be replaced wishes to give up his role in relation to the scheme. In such a case, if he were aggrieved by a refusal from the authority effectively to release him from his obligations, he could seek judicial review of the authority's conduct in an appropriate case.

Of course we appreciate that a change in the manager or trustee of a scheme has a significant impact on the regulation of the scheme. It may well be that the authority chooses to discuss the matter with the party who it is proposed to replace. However, that should not be an obligation as suggested in this amendment.

Amendment No. 164A would require the authority to specify a "reasonable" period within which a person to whom it has issued a notice of its proposal to issue a direction under Clause 253 may make representations to the authority. The amendment is unnecessary as the authority, being a public body, is bound in any event to act reasonably. Persons to whom notices are issued would have recourse to the normal legal remedy of judicial review were it not to allow a reasonable period for representations. The amendment would add nothing to that. Moreover, it would contrast with similar provisions in other clauses of the Bill; for example, in the second new procedure clause recently inserted after Clause 51. It would also be unhelpful to cast doubt on the authority's duty to act reasonably in these cases by explicitly specifying such a requirement in Clause 255. I hope that noble Lords will not pursue these amendments.

Lord Kingsland

My Lords, I am most grateful to the Minister for his reply. I have heard many reasons for not inserting the word "reasonable" in an Act of Parliament but never that one. So, yet again, the noble Lord has made legislative history.

Lord McIntosh of Haringey

My Lords, it was exactly the same sort of argument.

Lord Kingsland

My Lords, as I said, the Minister has made legislative history yet again. Indeed, the noble Lord has confirmed what I just said.

I make no apology for the fact that these amendments concern very specific matters in the Bill. But, of course, the Bill is about individuals conducting their economic life on a daily basis. These details matter enormously to the success of their enterprise. In my submission, it is perfectly proper for the Opposition to deal with detailed matters by way of amendments where that is appropriate. However, I might have misunderstood what the Minister said.

Lord McIntosh of Haringey

My Lords, I deeply apologise if there was any suggestion in my response that it was inappropriate or improper for the Opposition to raise these matters. I had no intention of giving that impression. I was simply pointing out the very specialist nature of the clauses which it is proposed to amend.

Lord Kingsland

My Lords, I am much obliged to the Minister for his response. Perhaps I read too much into his opening remarks. I thought he was suggesting that the amendment was unnecessary or, perhaps, rather tiresome. However, he clearly took neither view and I am most grateful to him for his clear explanation.

I very much regret that the amendments seem to have had no impact whatever on the Minister. However, he will be relieved to hear that instead of pressing them now I shall read what he has said and consider whether they ought to be brought back at Third Reading. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

11.30 p.m.

Clause 253 [Directions]:

Lord McIntosh of Haringey

moved Amendments Nos. 163 and 164: Page 132, line 6, leave out from ("scheme") to end of line 8. Page 132, line 9, leave out from ("up") to end of line 11. The noble Lord said: My Lords, these amendments have already been spoken to with Amendment No. 107. I beg to move Amendments Nos. 163 and 164 en bloc.

On Question, amendments agreed to.

Clause 255 [Procedure on giving directions under section 253 and varying them on Authority's own initiative]:

[Amendment No. 164A not moved.]

Lord McIntosh of Haringey

moved Amendments Nos. 165 and 166: Page 133, line 29, at end insert— ("( ) If the direction imposes a requirement under section 253(2)(a), the notice must state that the requirement has effect until—

1. (a) a specified date; or
2. (b) a further direction.

( ) If the direction imposes a requirement under section 253(2)(b), the scheme must be wound up—

1. (a) by a date specified in the notice; or
2. (b) if no date is specified, as soon as practicable.").

Page 134, line 7, at end insert— ("(12) For the purposes of subsection (1)(c), whether a matter is open to review is to be determined in accordance with section 386(6A)."). The noble Lord said: My Lords, these amendments were debated with Amendment No. 107. I beg to move Amendments Nos. 165 and 166 en bloc.

On Question, amendments agreed to.

Clause 263 [Power of Authority to suspend promotion of scheme]:

Lord McIntosh of Haringey

moved Amendment No. 167: Page 137, line 29, leave out ("of a kind mentioned in section 234(1)"). The noble Lord said: My Lords, this amendment was debated with Amendment No. 48. I beg to move.

On Question, amendment agreed to.

Clause 264 [Procedure on giving directions under section 263 and varying them on Authority's own initiative]:

Lord McIntosh of Haringey

moved Amendment No. 168: Page 139, line 28, at end insert— ("(14) For the purposes of subsection (1)(c), whether a matter is open to review is to be determined in accordance with section 386(6A)."). The noble Lord said: My Lords, this amendment was debated with Amendment No. 107. I beg to move.

On Question, amendment agreed to.

Clause 265 [Procedure on application for variation or revocation of direction]:

Lord McIntosh of Haringey

moved Amendment No. 169: Page 139, line 39, at end insert— ("( ) If the application is refused, the operator of the scheme may refer the matter to the Tribunal."). The noble Lord said: My Lords, this amendment was debated with Amendment No. 107. I beg to move.

On Question, amendment agreed to.

Clause 278 [Procedure on giving directions under section 277 and varying them otherwise than as requested]:

Lord McIntosh of Haringey

moved Amendment No. 170: Page 146, line 23, at end insert— ("(12) For the purposes of subsection (1)(c), whether a matter is open to review is to be determined in accordance with section 386(6A)."). The noble Lord said: My Lords, this amendment was debated with Amendment No. 107. I beg to move.

On Question, amendment agreed to.

Clause 280 [Power to investigate]:

Lord McIntosh of Haringey

moved Amendment No. 170A: Page 146, line 40, leave out ("The Authority or the Secretary of State") and insert ("An investigating authority"). The noble Lord said: My Lords, in moving Amendment No. 170A I wish to speak also to Amendments Nos. 170AA, AB, AC, AD, AE, AF, AG, AH AJ, AK and AL. This group of amendments has come about in part as a result of concerns raised in Committee about the need to align the circumstances in which an investigator appointed under this clause may obtain information subject to banking confidentiality with those set out in Clause 171 for investigations under Part XI.

Amendment No. 170AK amends Clause 280 so that it accords precisely with the circumstances set out in Clause 171 by inserting the provision for banking confidentiality to be lifted when the investigating authority directs, or when the person to whom confidentiality is owed permits. We have also, as I indicated to your Lordships that we would, tabled amendments to introduce further aspects of the Part XI investigations provisions which are appropriate for investigations concerning collective investment schemes. These amendments ensure that the provisions in the Bill are not any less effective than those in the 1986 Act.

Overall, this group streamlines the drafting, and reduces the potential for ambiguity or uncertainty arising from differences in terminology. I have taken the opportunity to supply noble Lords with a copy of Clause 280, as amended by these amendments.

Amendments Nos. 170A, AB, AC, AE and AF are all drafting amendments adjusting the wording of Clause 280 to reflect the use of the term "investigating authority" in Part XI as a result of the amendments we have discussed to that part.

Amendment No. 170AL ensures that the term "investigating authority" has the same meaning as it has under Part XI, that is, either the FSA or the Secretary of State. Amendment No. 170AG is a further consequential drafting change.

Amendment No. 170AD deletes subsection (4) to Clause 280 which allows the administering of oaths to those under investigation. This is unnecessary, and potentially confusing, as Clause 173, which applies to investigations under this clause by virtue of subsection (7), already allows the courts to deal with a person who does not comply with the requirements of the investigations regime as if he were in contempt. Also, Clause 173(4) already makes it an offence to provide false information. Again, this aligns the clause more precisely with Part XI.

Clause 280(7) currently ensures that lawyers may be required to furnish the names of their clients and that liens are not affected by the production of a document. Amendment No. 170AH extends certain other provisions of Clause 171 which are also appropriate to this kind of investigation. These are the powers to take copies or extracts of documents; to require explanations of documents; and to require a person to give an explanation where he fails to produce a document.

Amendment No. 170AJ provides for a power of entry of premises under warrant for collective investment schemes investigations. This is a vital element in ensuring that these powers are effective and it will bring Clause 280 more fully in line with the current position under the Financial Services Act 1986.

Amendment No. 170AA is a drafting amendment which aligns the wording of the Part XVII regime with that of Part XI as regards the persons permitted to conduct investigations.

I hope that noble Lords will appreciate the desirability of these amendments. I beg to move.

Lord Kingsland

My Lords, as I understand them, these amendments bring the power of the authority to appoint investigators in relation to collective investment schemes into line with the provisions relating to investigations generally, and they seem satisfactory. They give the authority and the Secretary of State the power to enter premises under a warrant; to require an authorised person or an employee to explain what is meant by a document disclosed to the investigator; and to tell the investigator where a missing document is.

I have one suggestion, which I offer with great respect, and it concerns new subsection (9) introduced by Amendment No. 170AK. As we have been made aware by the Minister, this amendment provides for the obligation of confidence to be overridden on the instructions of the investigating authority. In my view, this is so serious that I should like to propose to the Minister that the instruction ought to be given by a senior official not personally involved in the meeting with the authorised person concerned.

Lord McIntosh of Haringey

My Lords, I am grateful for the general welcome. I am interested in what the noble Lord said about Amendment No. 170AK. This amendment inserts the provision for banking confidentiality to be lifted when the investigating authority directs or when the person to whom confidentiality is owed permits. I do not think it would be particularly necessary to have a senior officer of the investigating authority required to lift confidentiality when the person to whom confidentiality is owed permits, but I shall think about the requirement for a senior officer of the investigating authority to be called in in other circumstances. If I may, I shall write to the noble Lord on that point.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendments Nos. 170AA to 170AL: Page 146, line 40, leave out ("a person") and insert ("one or more competent persons"). Page 146, line 41, leave out ("and report on") and insert ("on its behalf'). Page 147, line 7, leave out ("Authority or the Secretary of State") and insert ("investigating authority"). Page 147, line 30, leave out subsection (4). Page 147, line 35, leave out ("the Authority") and insert ("an investigating authority"). Page 147, line 37, leave out paragraph (b). Page 147, line 39, leave out ("cases") and insert ("case"). Page 147, line 43, after ("Subsections") insert ("(2) to"). Page 147, line 44, at end insert— ("( ) Subsections (1) to (9) of section 172 apply in relation to a person appointed under subsection (1) as if—

1. (a) references to an investigator were references to a person so appointed;
2. (b) references to an information requirement were references to a requirement imposed under section 171 or under subsection (3) by a person so appointed;
3. (c) the premises mentioned in subsection (3)(a) were the premises of a person whose affairs are the subject of an investigation under this section or of an appointed representative of such a person.").

Page 147, line 47, after ("unless") insert ("subsection (9) or (10) applies. (9) This subsection applies if—

1. (a) the person to whom the obligation of confidence is owed consents to the disclosure or production; or
2. (b) the imposing on the person concerned of a requirement with respect to information or a document of a kind mentioned in subsection (8) has been specifically authorised by the investigating authority.

(10) This subsection applies if'). Page 148, line 6, at end insert— ("( ) "Investigating authority" means the Authority or the Secretary of State."). On Question, amendments agreed to.

Clause 281 [Exemption for recognised investment exchanges and clearing houses]:

Lord McIntosh of Haringey

moved Amendment No. 170AM: Page 148, line 17, leave out ("and its recognised nominee (if any) are") and insert ("is"). The noble Lord said: My Lords, I am afraid this is an even worse list. In moving Amendment No. 170AM I shall speak also to Amendments Nos. 170AN, 170AP, 170AQ, 170AR, 170AT, 170AU, 170AV, 17OAW, 170AX, 170BA, 170BB, 170BC, 170BF, 170BG, 170BH, 170BJ, 170BK, 170BL and 170U. I think that is the list.

These amendments remove the provisions concerning recognised nominees from the Bill. The effect of these provisions would have been to allow a recognised body to apply for exempt status to be given to bodies carrying out certain functions on its behalf.

We introduced this concept into the Bill in another place in order to facilitate the application for recognised status by two or more bodies which together formed an exchange or clearing house but which singly did not do so and might, therefore, have had difficulty in applying for recognition.

The particular case which prompted us was that of ISMA (the International Securities Market Association), which sets the rules for the Eurobond market, and ISMA Limited, a subsidiary which carries out functions on ISMA's behalf. However, following the introduction of the recognised nominee provisions we have reviewed the regime closely with the FSA and have had discussions with the recognised bodies and with ISMA. We have identified a flaw in the way the provisions work which has convinced us that it would not be safe to proceed with them.

Recognised bodies will be subject, as now, to recognition requirements concerning their fitness and properness, financial resources and so on. Where they breach these requirements, the FSA can take action. Under the Bill, this will include a power to direct the recognised body to comply with the requirements as well as, in extremis, to revoke the body's recognition.

The flaw in the recognised nominee arrangements is that it may not be possible for the FSA to take action against a recognised nominee, or indeed a recognised body, where the recognised nominee does something which would have been a breach of the recognition requirements if the recognised body had done the same thing itself—that is, the recognised nominee would not be "standing in the shoes" of the recognised body. This potential problem arises because the recognition requirements do not bite directly on the recognised nominee. This creates a serious shortcoming in the supervision of recognised bodies.

Having looked at the options available to us, we have concluded that the best alternative is to remove the recognised nominee arrangements from the Bill. As far as ISMA is concerned, we intend to address the matter in the regulated activities order. Our intention is broadly to replicate the existing arrangements in the Financial Services Act 1986 under which ISMA is recognised as an international securities self-regulating organisation. I beg to move.

Lord Kingsland

My Lords, as the Minister said, the idea of recognised nominees was conceived in the course of the passage of the Bill through another place and was so inserted. Here we are, several stages on in your Lordships' House and now the Minister has informed us, doubtless for very good reasons, that the concept of recognised nominees is being expunged. The Minister is a well-known expert on English literature. He will recall the name of the author, because I cannot, who claimed to have spent the whole of the morning inserting a comma in his text and the whole of the afternoon deciding on whether or not to take it out. Was it Henry James? I cannot believe that, for once, I have stumped the noble Lord.

Lord McIntosh of Haringey

My Lords, the noble Lord teases me. I am embarrassed. I commend the amendment to the House.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendments Nos. 170AN to 170AR: Page 148. line 22, leave out ("or by its recognised nominee on its behalf—). Page 148, line 24, leave out ("and its recognised nominee (if any) are") and insert ("is"). Page 148, line 27, leave out ("or by its recognised nominee on its behalf"). Page 148, line 29, leave out subsection (4). On Question, amendments agreed to.

Clause 282 [Qualification for recognition]:

Lord Saatchi

moved Amendment No. 170AS: Page 149, line 11, at end insert ("(6) Regulations made under subsection (1) must provide as recognition requirements—

1. (a) a requirement that the investment exchange or clearing house must establish and maintain arrangements for the investigation by a person independent of the investment exchange or clearing house of complaints arising in connection with the activities of the investment exchange or clearing house;
2. (b) a requirement that the arrangements established by the investment exchange or clearing house for the taking of disciplinary measures in relation to its members comply with the requirements of the European Convention on Human Rights; and
3. (c) a requirement that the investment exchange or clearing house is subject to restrictions on the disclosure of confidential information obtained from other persons equivalent to the restrictions which apply to the Authority under this Act.").

The noble Lord said: My Lords, Amendment No. 170AS concerns Clause 282 and the Treasury's regulations setting out the requirements which must be satisfied by an investment exchange or .a clearing house if it is to qualify as a body in respect of which the FSA may make a recognition order and which, if a recognition order is made, it must continue to satisfy if it is to remain a recognised body.

Such recognised bodies are regulated entities, and regulators themselves in that they regulate the conduct of their members and take disciplinary action against them. To some extent, the role of these quasi-regulators has escaped detailed scrutiny during the passage of the Bill. The purpose of Amendment No. 170AS is to raise a number of issues concerning the criteria which the Treasury will lay down as recognition requirements under Clause 282.

The amendment proposes as recognition requirements matters which already apply to the FSA; notably, an independent complaints investigator, disciplinary measures in relation to members of the recognised body which comply with the requirements of the ECHR, and an obligation not to disclose confidential information obtained from third parties. I hope the Minister will be able to confirm that these requirements represent the bare minimum that the Treasury will be setting out in the regulations under Clause 282.

Perhaps the Minister would also confirm that these are indeed the recognition arrangements that will apply to the merged LondonFrankfurt recognised exchange.

11.45 p.m.

Lord McIntosh of Haringey

My Lords, when we discussed the Bill's provisions dealing with recognised bodies in Committee, I made it clear that we should deal with the requirements on internal arrangements and the operation of recognised investment exchanges and recognised clearing houses in the recognition requirements that the Treasury will make under the powers of Clause 282(1)—in other words, not on the face of the Bill. We consulted on a draft of these requirements in February last year. So, although I agree with much of the substance of the amendment, I do not think it would be appropriate to place such a provision on the face of the Bill.

The noble Lord, Lord Saatchi, seeks to place on the face of the Bill details of how recognised bodies should operate. The problem with that, and the reason that we decided to do it by secondary legislation in the first place, is that we should not be able to update the requirements as necessary to take account of developments in the industry. We should run the risk of either over-loading the face of the Bill with detail or of missing some important points.

The amendment would do three things. First, paragraph (a) would require each recognised body to appoint an independent complaints investigator. One of the recommendations of the Burns committee was that the recognised body should be required, as a condition of having statutory immunity, to have "an adequate complaints procedure in place". The Government have accepted that recommendation. They have given a commitment that the recognition requirements will provide that all recognised bodies must have independent and fair arrangements for dealing with complaints. I am happy to repeat that commitment. I do not believe the amendment to be necessary.

Paragraph (c) of the amendment provides that recognised bodies must maintain restrictions on the disclosure of confidential information "equivalent" to those imposed on the FSA. I share concern that the recognised bodies should not be able to disclose information that they have received in confidence unless there is a good reason for doing so. They will, of course, be subject to the common law duties of confidentiality as they are now, so they will not be able to disclose confidential information unless the public interest in disclosing it outweighs the public interest in maintaining confidence.

If anything further is required—and I do not think it is—that can be addressed when we come to make the recognition requirements. If anything needs to be done, it should not be done by applying arrangements that are the equivalent, or the same as, those applying to the FSA. The FSA is a different animal from the recognised bodies, having different functions under the Bill.

Paragraph (b) of the amendment would require recognition requirements to be made under which recognised bodies would have to comply with the requirements of the European Convention on Human Rights. In one sense, that is simply unnecessary. The Bill is drafted on the assumption that the recognised bodies will be public authorities for the purpose of the Human Rights Act 1998. But in so far as it is necessary to make provisions to take account of that in the recognition requirements, we should of course do so.

The noble Lord asked whether these criteria would apply to the merged exchange. As I said earlier, that is the expectation, although the exact form of the merged body, and hence the regulatory arrangements, are not yet clear.

Even in the absence of the noble and learned Lord, Lord Donaldson, for the record I should like to refer to a matter that he raised and argued in Committee; namely, that, in order to ensure consistency between the disciplinary arrangements of recognised bodies and the market abuse regime under the Bill, it would be helpful if the tribunal to be established under the Bill were to have a role in relation to the disciplinary decisions of recognised bodies. I said at the time that I was not attracted to the idea, but since then I have talked to the noble and learned Lord and corresponded with him. We have concluded that, given the overlap between the market abuse regime and some of the rules of recognised bodies, there is merit in ensuring that it would be possible for the tribunal to be given a role in such disciplinary cases if that were considered desirable in the future.

We have decided to table amendments to deal with this matter at Third Reading. We intend that the power should take the form of allowing the Treasury to extend the jurisdiction of the tribunal to cover specified types of hearing before the disciplinary proceedings of recognised bodies. Before such power is implemented we shall consult the exchanges and the clearing houses. I am sorry to add that point to my response, but I want to put it on the record for the benefit of the noble and learned Lord, Lord Donaldson. As to the amendment that we are now debating, I hope that I have persuaded the noble Lord not to press it.

Lord Saatchi

My Lords, I thought I heard the Minister say that in the context of the merged London and Frankfurt exchanges, the regulatory arrangements were not yet clear.

Lord McIntosh of Haringey

My Lords, that was not quite what I said. I said that the exact form of the merged body was not clear which meant that the appropriate regulatory arrangements for that merged body were not clear. That does not mean that there is any doubt about the availability of suitable regulatory arrangements.

Lord Saatchi

My Lords, does the Minister accept that the statement that the regulatory arrangements are not yet clear is slightly at odds with his view expressed earlier today that the regulatory arrangements are as contained in this Bill? If they are not yet clear, how can he be certain that the arrangements are as described in this Bill?

Lord McIntosh of Haringey

My Lords, I do not want to leave the House with the wrong impression. This Bill provides for suitable regulatory arrangements for any possible final constitution of the merged body.

Lord Saatchi

My Lords, I shall not press the point further. I am sure that the Minister understands what I am getting at. I should like to study the Minister's response in Hansard—I was distracted by the interest generated in the statement of the noble Lord—before deciding what to do at Third Reading. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 283 [Application by an investment exchange]:

Lord McIntosh of Haringey

moved Amendments Nos. 170AT to 170AX: Page 149, line 16, leave out subsection (2). Page 149, line 23, leave out paragraph (d). Clause 284 [Application by a clearing house]: Page 149, line 39, leave out subsection (2). Page 150, line 3, leave out paragraph (d). Clause 286 [Recognition orders]: Page 150, line 31, leave out subsections (2) and (3). The noble Lord said: My Lords, I beg to move Amendments Nos. 170AT to 170AX en bloc.

The Deputy Speaker (Lord Skelmersdale)

My Lords, I am in the hands of the House but it is a bit naughty.

On Question, amendments agreed to.

Lord McIntosh of Haringey

moved Amendment No. 170AY: Page 150, line 39, leave out ("299") and insert ("(Recognition orders: role of the Treasury)"). The noble Lord said: My Lords, it is perfectly proper at Report stage to move en bloc amendments which cover more than one clause.

In moving Amendment No. 170AY, I should like to speak also to Amendments Nos. 170B, 170BD, 170BE, 170BM, 170BT, 170BX to 170CG, 170D to 170L and 170V. It takes half an hour to turn over the pages of the amendments. It reminds me of the time that I began to read Proust's A la recherche du temps perdu in French. I say this for the benefit of the noble Lord, Lord Kingsland. It took me two hours to cut the pages, which was as long as I would normally have spent reading an entire book.

This group of amendments brings the competition scrutiny arrangement for recognised bodies into line with those which have been put in place for the FSA in Chapter III of Part X. We indicated on a number of occasions that we would table amendments to this end. We have already debated these arrangements as far as concerns the FSA. The key changes which the arrangements make are to give the Competition Commission an important role in scrutiny arrangements and to restrict the role of the Treasury in second-guessing the competition authorities compared with the position now. I hope that, provided noble Lords are satisfied with such details as they wish to have, they agree that the objective of the amendments is wholly admirable.

We believe that these are important changes. Like the FSA, it is possible that recognised bodies which have regulatory functions in relation to the markets that they run and the clearing services that they provide can do things which have an adverse impact on competition. Although there may be good reasons to justify this in a particular case, it is important that these bodies are subject to a robust, thorough and effective external scrutiny in this respect. Ensuring that action can be taken where competition is damaged unnecessarily is vital to getting the regulatory balance right. This was recognised in the Financial Services Act 1986, which put in place a similar competition scrutiny regime for recognised bodies. It is, if anything, even more important now in the age of globalisation.

I should draw attention to two main differences of substance between the arrangements put in place for recognised bodies in Part XVIII and those which we have debated in respect of the FSA in Part X. These are, first, that the regime has to cover applicants for recognition, as well as bodies which are already recognised. This adds not inconsiderably to the complexity of these clauses, compared with those in Part X.

The second difference is that the recognised bodies themselves can exploit the strength of their market position. This is because, in spite of having some regulatory responsibilities, they arc also commercial bodies. The FSA is not in the same position and it is therefore necessary for the competition scrutiny regime to be able to consider whether an exchange or clearing house is exploiting its strong market position, for example, to keep potential new entrants at bay. Apart from these differences, the regime put in place is the same as that which we have agreed should apply to the FSA. I hope that I may commend these amendments to the House. I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendment No. 170B: Page 151, line 3, leave out ("299") and insert ("(Recognition orders: role of the Treasury)"). The noble Lord said: My Lords, I beg to move this amendment.

On Question, amendment agreed to.

Clause 287 [Liability in relation to recognised body regulatory functions]:

Lord McIntosh of Haringey

moved Amendment No. 170BA: Page 151, line 4, leave out from ("body") to ("are") in line 5 and insert ("and its officers and staff"). The noble Lord said: My Lords, I beg to move this amendment, already spoken to.

On Question, amendment agreed to.

Clause 289 [Notification requirements]:

Lord McIntosh of Haringey

moved Amendments Nos. 170BB, 170BC, 170BD and 170BE: Page 152, line 11, leave out ("or its recognised nominee (if any)"). Page 152, line 16, leave out ("or its recognised nominee (if any)"). Page 152, line 40, leave out subsection (8). Page 152, line 43, leave out ("(8)") and insert ("(7)"). The noble Lord said: My Lords, I beg to move these amendments en bloc. They have been spoken to.

On Question, amendments agreed to.

Clause 292 [Authority's power to give directions]:

Lord McIntosh of Haringey

moved Amendment No. 170BF: Page 153, line 38, leave out ("or its recognised nominee (if any)"). The noble Lord said: My Lords, I beg to move this amendment, which has already been spoken to.

On Question, amendment agreed to.

Clause 293 [Variation of recognition order in relation to recognised nominee]:

Lord McIntosh of Haringey

moved Amendment No. 170BG: Leave out Clause 293. The noble Lord said: My Lords, I beg to move this amendment, which has already been spoken to.

On Question, amendment agreed to.

Clause 295 [Directions and revocation: procedure]:

Lord McIntosh of Haringey

moved Amendments Nos. 170BH, 170BJ, 170BK, 170BL and 170BM: Page 155, line 8, leave out ("or (4)(b)"). Page 155, line 15, leave out subsection (4). Page 155, line 31, leave out ("or (4)(b)"). Page 155, line 40, leave out subsection (8). Page 156, line 7, leave out subsection (11). The noble Lord said: My Lords, I beg to move these amendments en bloc. They have already been spoken to.

On Question, amendments agreed to.

Clause 298 [Interpretation]:

Lord McIntosh of Haringey

moved Amendment No. 170BN: Page 157, line 23, at end insert— (""practices" means—

1. (a) in relation to a recognised investment exchange, the practices of the exchange in its capacity as such; and
2. (b) in relation to a recognised clearing house, the practices of the clearing house in respect of its clearing arrangements;").

The noble Lord said: My Lords, in moving Amendment No. 170BN, I should like to speak also to Amendments Nos. 170BP, 170BQ, 170BR, 170BS, 170BU, 170BV, 170BW, 170N, 170P, 170R and 170S. These amendments are a further part of the changes that we have said that we should make to bring the competition scrutiny regime in Part XVIII into line with that of Part X. They concern the description of what is covered by the regime. As in the case of the FSA, the director general will keep under review the rules, guidance and practices of recognised bodies.

Amendments Nos. 170BN, 170BP and 170BQ define what the practices of recognised bodies are for that purpose and make a drafting correction concerning the description of the criteria which recognised bodies laid down when determining to whom they will provide clearing services.

Amendments Nos. 170BR and 170N, 170P and 170R simply remove a number of unnecessary references in this part of the Bill to the trading practices of those subject to the rules of recognised exchanges and clearing houses. That is because the regime is concerned with ensuring that the recognised bodies do not require their members to engage in practices which are unnecessarily anti-competitive. It is not concerned with what those members get up to of their own accord. That is a matter covered by the Competition Act 1998.

Amendment No. 170BS brings the description of what the regime is aimed at—things which have a significantly adverse effect on competition—into line with the wording introduced in Part X in Committee.

Finally, Amendments Nos. 170BU, 170BV and 170BW make a drafting correction to Clause 298, which currently talks about guidance where it should talk about regulatory provisions, which includes rules as well as guidance. I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendments Nos. 170BP to 170BW: Page 157, line 29, leave out ("particulars described") and insert ("criteria mentioned"). Page 157, line 31, leave out ("particulars described") and insert ("criteria mentioned"). Page 157, leave out lines 32 to 41. Page 157, line 42, leave out from ("Chapter") to end of line 45 and insert ("regulatory provisions or practices have a significantly adverse effect on competition if—

1. (a) they have, or are intended or likely to have, that effect; or
2. (b) the effect that they have, or are intended or likely to have, is to require or encourage behaviour which has, or is intended or likely to have, a significantly adverse effect on competition.

( ) If regulatory provisions or practices have or are intended or likely to have, the effect of requiring or encouraging exploitation of the strength of a market position they are to be taken, for the purposes of this Chapter, to have an adverse effect on competition."). Page 158, line 1, leave out subsection (3). Page 158, line 8, leave out ("guidance has, or is") and insert ("regulatory provisions have, or are intended or"). Page 158, line 9, leave out ("it is") and insert ("the provisions concerned are"). Page 158, line 10, leave out ("it") and insert ("them"). On Question, amendments agreed to.

Clause 299 [Examination of rules and guidance]:

Lord McIntosh of Haringey

moved Amendment No. 170BX: Leave out Clause 299. On Question, amendment agreed to.

Clause 300 [Continuing scrutiny]:

Lord McIntosh of Haringey

moved Amendment No. 170BY: Leave out Clause 300. On Question, amendment agreed to.

Clause 301 [Initial report by Director General of Fair Trading]:

Lord McIntosh of Haringey

moved Amendments Nos. 170C to 170CC: Page 159, line 13, leave out from ("284") to ("in") in line 14 and insert— ("( ) The Authority must send to the Director such information in its possession as a result of the application for recognition as it considers will assist him in discharging his functions"). Page 159, line 16, leave out from ("must") to end of line 24 and insert ("issue a report as to whether—

1. (a) a regulatory provision of which a copy has been sent to him under subsection (1) has a significantly adverse effect on competition, or
2. (b) a combination of regulatory provisions so copied to him have such an effect.").

Page 159, leave out lines 26 to 34 and insert ("significantly adverse effect on competition,"). Page 159, line 35, at end insert— ("( ) When the Director issues a report under subsection (2), he must send a copy of it to the Authority, the Competition Commission and the Treasury."). On Question, amendments agreed to.

Lord McIntosh of Haringey moved Amendment No. 170CD: After Clause 301, insert the following new clause—

FURTHER REPORTS BY DIRECTOR GENERAL OF

FAIR TRADING

(".—(1) The Director must keep under review the regulatory provisions and practices of recognised bodies. (2) If at any time the Director considers that—

1. (a) a regulatory provision or practice has a significantly adverse effect on competition, or
2. (b) regulatory provisions or practices, or a combination of regulating provisions and practices have such an effect,

he must make a report. (3) If at any time the Director considers that—

1. (a) a regulatory provision or practice does not have a significantly adverse effect on competition, or
2. (b) regulatory provisions or practices, or a combination of regulatory provisions and practices do not have any such effect,

he may make a report to that effect. (4) A report under subsection (2) must contain details of the adverse effect on competition. (5) If the Director makes a report under subsection (2), he must—

1. (a) send a copy of it to the Treasury, to the Competition Commission and to the Authority; and
2. (b) publish it in the way appearing to him to be best calculated to bring it to the attention of the public.

(6) If the Director makes a report under subsection (3)—

1. (a) he must send a copy of it to the Treasury, to the Competition Commission and to the Authority; and
2. (b) he may publish it.

(7) Before publishing a report under this section, the Director must, so far as practicable exclude any matter which relates to the private affairs of a particular individual the publication of which, in the opinion of the Director, would or might seriously and prejudicially affect his interests. (8) Before publishing such a report, the Director must exclude any matter which relates to the affairs of a particular body the publication of which, in the opinion of the Director, would or might seriously and prejudicially affect its interests. (9) Subsections (7) and (8) do not apply to the copy of a report which the Director is required to send to the Treasury, the Competition Commission and the Authority under subsection (5)(a) or (6)(a). (10) For the purposes of the law of defamation, absolute privilege attaches to any report of the Director under this section.").

On Question, amendment agreed to.

Clause 302 [Further reports by Director General of Fair Trading]:

Lord McIntosh of Haringey

moved Amendment No. 170CE: Leave out Clause 302. On Question, amendment agreed to.

Clause 303 [Reports: supplementary]:

Lord McIntosh of Haringey

moved Amendment No. 170CF: Leave out Clause 303. On Question, amendment agreed to.

Clause 304 [Investigations by Director General of Fair Trading]:

Lord McIntosh of Haringey

moved Amendments Nos. 170CG to 170CK: Page 160, line 40, leave out ("302") and insert ("(Further reports by Director General of Fair Trading)"). Page 161, line 3, leave out from ("control") to end of line 4. Page 161, line 10, at end insert— ("( ) A requirement may be imposed under subsection (2) or (3)(a) only in respect of documents or information which relate to any matter relevant to the investigation."). Page 161, line 20, leave out from ("Court;") to ("Scotland") in line 21 and insert ("or (b) in"). On Question, amendments agreed to.

Lord McIntosh of Haringey moved Amendments Nos. 170D to 170G: After Clause 304, insert the following new clause—

("Role of the Competition Commission

CONSIDERATION BY COMPETITION COMMISSION

.—(1) If subsection (2) or (3) applies, the Commission must investigate the matter which is the subject of the Director's report. (2) This subsection applies if the Director sends to the Competition Commission a report —

1. (a) issued by him under section 301(2) which concludes that one or more regulatory provisions have a significantly adverse effect on competition, or
2. (b) made by him under section (Further reports by Director General of Fair Trading)(2).

(3) This subsection applies if the Director asks the Commission to consider a report—

1. (a) issued by him under section 301(2) which concludes that one or more regulatory provisions do not have a significantly adverse effect on competition, or
2. (b) made by him under section (Further reports by Director General of Fair Trading)(3).

(4) The Commission must then make its own report on the matter unless it considers that, as a result of a change of circumstances, no useful purpose would be served by a report. (5) If the Commission decides in accordance with subsection (4) not to make a report, it must make a statement setting out the change of circumstances which resulted in that decision. (6) A report made under this section must state the Commission's conclusion as to whether—

1. (a) the regulatory provision or practice which is the subject of the report has a significantly adverse effect on competition, or
2. (b) the regulatory provisions or practices or combination of regulatory provisions and practices which are the subject of the report have such an effect.

(7) A report under this section stating the Commission's conclusion that there is a significantly adverse effect on competition must also—

1. (a) state whether the Commission considers that that effect is justified; and
2. (b) if it states that the Commission considers that it is not justified, state its conclusion as to what action if any the Treasury ought to direct the Authority to take.

(8) Subsection (9) applies whenever the Commission is considering, for the purposes of this section, whether a particular adverse effect on competition is justified. (9) The Commission must ensure, so far as that is reasonably possible, that the conclusion it reaches is compatible with the obligations imposed on the recognised body concerred by or under this Act. (10) A report under this section must contain such an account of the Commission's reasons for its conclusions as is expedient, in the opinion of the Commission, for facilitating proper understanding of them. (11) The provisions of Schedule 14 (except paragraph 2(b)) apply for the purposes of this section as they apply for the purposes of section 158. (12) If the Commission makes a report under this section it must send a copy to the Treasury, the Authority and the Director."). After Clause 304, insert the following new clause—

("Role of the Treasury

RECOGNITION ORDERS: ROLE OF THE TREASURY

.—(1) Subsection (2) applies if, on an application for a recognition order—

1. (a) the Director makes a report under section 301 but does not ask the Competition to consider it under section (Consideration by Competition Commission);
2. (b) the Competition Commission concludes—

1. (i) that the applicant's regulatory provisions do not have a significantly adverse effect on competition; or
2. (ii) that if those provisions do have that effect, the effect is justified.

(2) The Treasury may refuse to approve the making of the recognition order only if they consider that the exceptional circumstances of the case make it inappropriate for them to give their approval. (3) Subsection (4) applies if, on an application for a recognition order, the Competition Commission concludes—

1. (a) that the applicant's regulatory provisions have a significantly adverse effect on competition; and
2. (b) that that effect is not justified.

(4) The Treasury must refuse to approve the making of the recognition order unless they consider that the exceptional circumstances of the case make it inappropriate for them to refuse their approval."). After Clause 304, insert the following new clause—

DIRECTIONS BY THE TREASURY

(".—(1) This section applies if the Competition Commission makes a report under section (Consideration by Competition Commission)(4) (other than a report on an application for a recognition order) which states the Commission's conclusion that there is a significantly adverse effect on competition. (2) If the Commission's conclusion, as stated in the report, is that the adverse effect on competition is not justified, the Treasury must give a remedial direction to the Authority. (3) But subsection (2) does not apply if the Treasury consider—

1. (a) that, as a result of action taken by the Authority or the recognised body concerned in response to the Commission's report, it is unnecessary for them to give a direction; or
2. (b) that the exceptional circumstances of the case make it inappropriate or unnecessary for them to do so.

(4) In considering the action to be specified in a remedial direction, the Treasury must have regard to any conclusion of the Commission included in the report because of section (Consideration by Competition Commission)(7)(b). (5) Subsection (6) applies if—

1. (a) the Commission's conclusion, as stated in its report, is that the adverse effect on competition is justified; but
2. (b) the Treasury consider that the exceptional circumstances of the case require them to act.

(6) The Treasury may give a direction to the Authority requiring it to take such action—

1. (a) as they consider to be necessary in the light of the exceptional circumstances of the case; and
2. (b) as may be specified in the direction.

(7) If the action specified in a remedial direction is the giving by the Authority of a direction—

1. (a) the direction to be given must be compatible with the recognition requirements applicable to the recognised body in relation to which it is given; and
2. (b) subsections (3) and (4) of section 292 apply to it as if it were a direction given under that section.

(8) "Remedial direction" means a direction requiring the Authority—

1. (a) to revoke the recognition order for the body concerned; or
2. (b) to give such directions to the body concerned as may be specified in it.").

After Clause 304, insert the following new clause—

STATEMENTS BY THE TREASURY

(".—(1) If, in reliance on subsection (3)(a) or (b) of section (Directions by the Treasury), the Treasury decline to act under subsection (2) of that section, they must make a statement to that effect, giving their reasons. (2) If the Treasury give a direction under section (Directions by the Treasury) they must make a statement giving—

1. (a) details of the direction; and
2. (b) if the direction is given under subsection (6) of that section, their reasons for giving it.

(3) The Treasury must—

1. (a) publish any statement made under this section in the way appearing to them best calculated to bring it to the attention of the public; and
2. (b) lay a copy of it before Parliament.").

On Question, amendments agreed to.

Clause 305 [Procedure on exercise of certain powers by Treasury]:

Lord McIntosh of Haringey moved Amendments Nos. 170H to 170L: Page 161, line 22, leave out from beginning to ("such") in line 24 and insert— ("(1) Subsection (2) applies if the Treasury are considering—

1. (a) whether to refuse their approval under section (Recognition orders: role of the Treasury);
2. (b) whether section (Directions by the Treasury)(2) applies; or
3. (c) whether to give a direction under section (Directions by the Treasury )(6).

(2) The Treasury must— (a) take"). Page 161, line 29, leave out ("302;") and insert ("(Further reports by Director General of Fair Trading) or by the Competition Commission under section (Consideration by Competition Commission):"). Page 161, line 31, leave out ("299 or 300:") and insert ("(Recognition orders: role of the Treasury) or (Directions by the Treasury):"). Page 161, line 32, leave out ("had").

On Question, amendments agreed to.

Clause 306 [Monopoly situations etc.]:

Lord McIntosh of Haringey

moved Amendment No. 170M: Leave out Clause 306. The noble Lord said: My Lords, in moving Amendment No. 170M I should like to speak also to Amendments Nos. 170Q and 170T.

These amendments complete the changes needed to align the competition provisions in Part XVIII with those in Chapter III of Part X: we indicated at earlier stages that we would do this. Amendment No. 170M deletes Clause 306 and removes a bar on the Competition Commission looking at a recognised body's regulatory provisions and practices when investigating whether a monopoly situation exists under the Fair Trading Act 1973. We removed a similar bar in the regime in Part X in response to Don Cruickshank's interim report on banking services in the United Kingdom.

Amendments Nos. 170Q and 170T narrow the exclusion from the Competition Act 1998 in the same way as we have in Part X. Again this was in response to the Cruickshank recommendations. I beg to move.

On Question, amendment agreed to.

Clause 307 [The Chapter I prohibition]:

Lord McIntosh of Haringey

moved Amendments Nos. 170N to 170R: Page 162, line 42, leave out paragraph (b). Page 163, line 1, leave out paragraph (b). Page 163, line 7, leave out ("contemplated") and insert ("encouraged"). Page 163, line 8, leave out from first ("practices") to end of line 9. On Question, amendments agreed to.

Clause 308 [The Chapter II prohibition]:

Lord McIntosh of Haringey

moved Amendments Nos 170S and 170T: Page 163, line 21, leave out paragraph (b). Page 163, line 25, leave out ("contemplated") and insert ("encouraged"). On Question, amendments agreed to.

Clause 309 [Interpretation of Part XVIII]:

Lord McIntosh of Haringey

moved Amendments Nos. 170U and 170V: Page 164, leave out lines 8 and 9. Page 164, line 12, leave out ("300(3);") and insert ("(Directions by the Treasury)(8);"). On Question, amendments agreed to.

Clause 313 [The core provisions]:

Lord McIntosh of Haringey

moved Amendment No 170W: Page 166, line 23, leave out ("381") and insert ("380"). The noble Lord said: My Lords, in moving Amendment No. 170W, perhaps I may say that there are two Opposition amendments in the group. If I may, I shall comment on them after they have been spoken to by noble Lords opposite.

Amendment No. 170W is a minor consequential amendment that I hope will not detain us. It removes the reference to Clause 381 from Clause 313(1), which lists the core provisions which may be applied to members of Lloyd's by an insurance market direction under Clause 312. The reason for the amendment is that Clause 381 has been deleted as part of the package of decision-making amendments. I beg to move.

Lord Kingsland

My Lords, in this group the Opposition have Amendments Nos. 170X and 170Y, to which I can speak briefly. They concern Lloyd's and matters of consultation.

In our view a proposed exercise of powers under Clause 315 to make a direction should be accompanied by an explanation. If the direction needs to be made urgently and therefore without consultation it should still be accompanied by a cost benefit analysis and a statement of reason.

Lord McIntosh of Haringey

My Lords, I am grateful for that terse or, indeed, telegraphic introduction to the two amendments.

Amendment No. 170X would require the authority, when consulting on a direction under Clauses 312, 314 or rules under Clause 318, to specify the purpose of the direction or the rules. This amendment points to one of the few discrepancies between the consultation requirements under Clause 151 that relate to general rules and the other consultation requirements in the Bill.

The Government brought very extensive amendments at the Report stage in another place to align the consultation procedures across the Bill in so far as it was appropriate to align them. Clause 151 includes a requirement for rules to be accompanied by an explanation of their purpose. That requirement does not feature in the other equivalent provisions.

The reason is simple. We believe that the purpose of the proposed rules, codes, directions, policy statements (or however they are described) will be fairly clear and so there is no need for this provision. If it ever turned out that the purpose was unclear, I find it difficult to imagine that the FSA would not add suitable words to clarify the point.

By contrast, I believe that clarity may be lacking quite regularly when the authority exercises its general rule-making powers under Part X of the Bill. It is for that reason that the additional requirement features in Part X but not elsewhere. It is therefore unnecessary and simply destroys the symmetry we have now managed to achieve across the Bill.

Amendment No. 170Y is similar to Amendment No. 157UA which we debated earlier today on the consultation on rules made under Part. X. It seeks to apply certain procedural requirements where powers are exercised in cases of urgency. Specifically, it would require the FSA to publish the information required for consultation—that is, a cost-benefit analysis and an explanation of the purpose of the proposed rule or direction—when giving the direction or making the rule.

The cost-benefit analysis and other material are to help inform the public about the proposed rule as background to the consultation. It seems unnecessarily bureaucratic to ask the FSA to provide supporting material for a consultation process which the amendment acknowledges has had to be avoided for legitimate and defensible reasons. I have to say that in cases of genuine urgency, I doubt that it would be possible to prepare a meaningful and robust cost-benefit analysis without inflicting the very delays we are seeking to avoid under this special procedure.

As I said in the case of Amendment No. 157UA, we would not favour imposing a requirement on the FSA to provide supporting material after the event, although clearly anything it is able to do—either formally or informally—will be welcome. It is worth remembering that in the case of Lloyd's the target of such rules or directions will be a much narrower class. Before the rules or directions were given, in most cases, even in cases of urgency, there would have been technical discussions between the society and the FSA during which the scale of burdens imposed and the purpose were adequately discussed.

I also believe it unlikely that the FSA would exercise powers under the urgent procedure in anything but exceptional and therefore rare circumstances. I hope that that will encourage the noble Lord not to press his amendments. I commend Amendment No. 170W to the House.

On Question, amendment agreed to.

Clause 315 [Consultation]:

[Amendments Nos. 170X and 170 Y not moved.]

Clause 317 [Requirements imposed under section 316]:

Lord McIntosh of Haringey

moved Amendments Nos. 171 and 172: Page 169, line 23, after ("If") insert ("the Authority decides to refuse"). Page 169, line 23, leave out ("is refused"). On Question, amendments agreed to.

Clause 320 [Authority's general duty]:

Lord McIntosh of Haringey

moved Amendment No. 172A: Page 170, line 18, after ("may") insert (", as a result of this Part,"). On Question, amendment agreed to.

Clause 322 [Exemption from the general prohibition]:

[Amendments Nos. 173 to 174 not moved.]

Lord McIntosh of Haringey

moved Amendment No. 174A: Page 171, line 44, at end insert ("; or ( ) one in relation to which he is an exempt person."). On Question, amendment agreed to.

[Amendment No. 175 not moved.]

Lord McIntosh of Haringey

moved Amendment No. 175A: Page 172, line 4, at end insert ("(other than regulated activities in relation to which he is an exempt person)"). On Question, amendment agreed to.

Clause 327 [Rules in relation to persons to whom the general prohibition does not apply]:

Lord McIntosh of Haringey

moved Amendment No. 175B: Page 175, line 18, leave out ("of regulated activities by those members") and insert ("by those members of regulated activities (other than regulated activities in relation to which they are exempt persons)"). On Question, amendment agreed to.

[Amendment No. 175C not moved.]

Clause 329 [The Friendly Societies Commission]:

Lord McIntosh of Haringey

moved Amendment No. 176: Page 176, line 14, at end insert— ("(4) Part IA of Schedule 18—

1. (a) removes certain restrictions on the ability of incorporated friendly societies to form subsidiaries and control corporate bodies; and
2. (b) makes connected amendments.").

The noble Lord said: My Lords, in moving Amendment No. 176 I wish to speak also to Amendments Nos. 177, 227 and 228. These amendments will amend the Friendly Societies Act 1992 to confer greater freedoms on incorporated friendly societies to form and own subsidiaries and jointly controlled bodies. The amendments have been brought forward in line with a commitment given by the Economic Secretary to the Treasury at Report stage in another place. The commitment was given in response to an amendment tabled by the Liberal Democrats. I gather that the proposals had all-party support, and I hope that the amendments will be welcomed as warmly by your Lordships as was the policy announcement in another place. I beg to move.

On Question, amendment agreed to.

Schedule 18 [Mutuals]:

Lord McIntosh of Haringey moved Amendment No. 177: Page 277, line 39, at end insert—

("PART IA

FRIENDLY SOCIETIES: SUBSIDIARIES AND

CONTROLLED BODIES

Interpretation

In this Part of this Schedule— the 1992 Act" means the Friendly Societies Act 1992; and section 13" means section 13 of that Act.

Qualifying bodies

.—(1) Subsections (2) to (5) of section 13 (incorporated friendly societies allowed to form or acquire control or joint control only of qualifying bodies) cease to have effect. (2) As a result, omit—

1. (a) subsections (8) and (11 ) of that section, and
2. (b) Schedule 7 to the 1992 Act (activities which may be carried on by a subsidiary of, or body jointly controlled by, an incorporated friendly society).

Bodies controlled by societies

In section 13(9) (defined terms), after paragraph (a) insert— (aa) an incorporated friendly society also has control of a body corporate if the body corporate is itself a body controlled in one of the ways mentioned in paragraph (a)(i), (ii) or (iii) by a body corporate of which the society has control;".

Joint control by societies

In section 13(9), after paragraph (c) insert— (cc) an incorporated friendly society also has joint control of a body corporate if—

1. (i) a subsidiary of the society has joint control of the body corporate in a way mentioned in paragraph (c)(i), (ii) or (iii);
2. (ii) a body corporate of which the society has joint control has joint control of the body corporate in such a way; or
3. (iii) the body corporate is controlled in a way mentioned in paragraph (a)(i), (ii) or (iii) by a body corporate of which the society has joint control;",

Acquisition of joint control

In section 13(9), in the words following paragraph (d), after "paragraph (c)" insert "or (cc)".

Amendment of Schedule 8 to the 1992 Act

.—(1) Schedule 8 to the 1992 Act (provisions supplementing section 13) is amended as follows.

1. (2) Omit paragraph 3(2).
2. (3) After paragraph 3 insert—

"3A.—(1 ) A body is to be treated for the purposes of section 13)9) as having the right to appoint to a directorship if—

1. (a) a person's appointment to the directorship follows necessarily from his appointment as an officer of that body; or
2. (b) the directorship is held by the body itself.

(2) A body ("B") and some other person ("P") together are to be treated, for the purposes of section 13(9), as having the right to appoint to a directorship if—

1. (a) P is a body corporate which has directors and a person's appointment to the directorship follows necessarily from his appointment both as an officer of B and a director of P;
2. (b) P is a body corporate which does not have directors and a person's appointment to the directorship follows necessarily from his appointment both as an officer of B and as a member of P's managing body; or
3. (c) the directorship is held jointly by B and P.

(3) For the purposes of section 13(9), a right to appoint (or remove) which is exercisable only with the consent or agreement of another person must be left out of account unless no other person has a right to appoint (or remove) in relation to that directorship. (4) Nothing in this paragraph is to be read as restricting the effect of section 13(9). (4) In paragraph 9 (exercise of certain rights under instruction by, or in the interests of, incorporated friendly society) insert at the end "or in the interests of any body over which the society has joint control".

Consequential amendments

.—(1) Section 52 of the 1992 Act is amended as follows.

1. (2) In subsection (2), omit paragraph (d).
2. (3) In subsection (3), for "(4) below" substitute "(2)".
3. (4) For subsection (4) substitute—

"(4) A court may not make an order under subsection (5) unless it is satisfied that one or more of the conditions mentioned in subsection (2) are satisfied.

(5) In subsection (5), omit the words from "or, where" to the end.

References in other enactments

. References in any provision of, or made under, any enactment to subsidiaries of, or bodies jointly controlled by, an incorporated friendly society are to be read as including references to bodies which are such subsidiaries or bodies as a result of any provision of this Part of this Schedule.").

On Question, amendment agreed to.

Clause 342 [The record of authorised persons etc.]:

Lord Bach

moved Amendment No. 177A: Page 181, line 37, after ("relates;") insert— ("( ) approved person;"). The noble Lord said: My Lords, on the fifth day in Committee the noble Lord, Lord Saatchi—I am sorry not to see him in his place; I believe that he will also be sorry not to be in his place—moved an amendment that required the authority to maintain a public record of certain details about approved persons under Part V. That amendment was defeated.

At the time I spoke against the amendment. Our main concern was that from the outset the authority might have difficulty in establishing the relevant part of the public record. The particular difficulty arises because of the grandfathering arrangements that are proposed for employees of authorised firms. Our intention is that, for the purposes of Part V of the Bill, people should automatically be treated, as having been approved for any controlled functions that they were performing when that part of the Bill is brought into force. The process will be automatic and we cannot be sure that the authority will have all the, information in time for the public record to go live on day one.

However, we agree that it would be desirable to remove uncertainty on the question of the coverage of the register, and we have now brought forward amendments which require certain information to be included. That is the minimum that must be included. The authority may add to that such other information as it sees fit. The authority proposes also to include information about the controlled functions for which the person has approval. We have not made that a requirement as we do not yet know how approvals will be classified by the authority. Therefore, we cannot express what they would insert in the register.

By bringing forward the amendments in this group and by paying the necessary compliment to the noble Lord, Lord Saatchi, I hope that it will be clear that the Government have taken careful note of the points made by the noble Lord in Committee. We shall endeavour, working with the authority, to bring the arrangements into force at the earliest moment. It shows that the Government listen. I beg to move.

Lord Kingsland

My Lords, this is indeed a rare moment to savour. The Government have thought again in the most constructive way. I should like to draw to the attention of the noble Lord, Lord Bach, that, if my memory serves me correctly, the noble Earl, Lord Home, also spoke most eloquently to that amendment and, indeed, I see that he is in his place. I believe that the House owes a great deal to his persuasive argument which led to the Government's change of mind.

12.15 a.m.

Lord Bach

My Lords, I am grateful to the noble Lord for reminding me of the noble Earl's contribution. I should pay him the same tribute as I paid to the noble Lord, Lord Saatchi.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendments Nos. 177B and 177C: Page 182, line 23, at end insert— ("(g) in the case of a person who is an approved person—

1. (i) his name;
2. (ii) the name of the relevant authorised person;
3. (iii) if the approved person is performing a controlled function under an arrangement with a contractor of the relevant authorised person, the name of the contractor.").

Page 183, line 3, at end insert— ("(8) "Approved person" means a person in relation to whom the Authority has given its approval under section 58 and "controlled function" and "arrangement" have the same meaning as in that section. (9) "Relevant authorised person" has the meaning given in section 65."). On Question, amendments agreed to.

Clause 343 [Restrictions on disclosure of confidential information by Authority etc]:

Lord McIntosh of Haringey

moved Amendment No. 178: Page 183, line 16, leave out from beginning to ("and") and insert ("any provision made by or under this Act;"). The noble Lord said: My Lords, in moving this amendment I should like to speak also to Amendments Nos. 179 to 183. These amendments are intended to address concerns about the width of the power in Clause 344 which the Delegated Powers and Deregulation Committee raised in its report on the Bill. The committee recommended that the Bill be amended to restrict that power in a way which clearly limits it to information needed for regulatory and other public functions. These amendments achieve that.

Amendments Nos. 178, 182 and 183 make technical drafting amendments to Clauses 343 and 344. I beg to move.

On Question, amendment agreed to.

Clause 344 [Exceptions from section 343]:

Lord McIntosh of Haringey

moved Amendments Nos. 179 to 183: Page 184, line 6, after ("is") insert ("— (a) made for the purpose of facilitating the carrying out of a public function; and (b)") Page 184, line 13, after ("prescribed") insert ("public"). Page 184, line 17, after ("prescribed") insert ("public"). Page 184, line 23, leave out sub-paragraphs (ii) and (iii). Page 184, line 35, at end insert— ("(5) "Public functions" includes—

1. (a) functions conferred by or in accordance with any provision contained in any enactment or subordinate legislation;
2. (b) functions conferred by or in accordance with any provision contained in the Community Treaties or any Community instrument;
3. (c) similar functions conferred on persons by or under provisions having effect as part of the law of a country or territory outside the United Kingdom;
4. (d) functions exercisable in relation to prescribed disciplinary proceedings.

(6) "Enactment" includes—

1. (a) an Act of the Scottish Parliament;
2. (b) Northern Ireland legislation.

(7) "Subordinate legislation" has the meaning given in the Interpretation Act 1978 and also includes an instrument made under an Act of the Scottish Parliament or under Northern Ireland legislation."). On Question, amendments agreed to.

Lord McIntosh of Haringey

moved Amendment No. 183VA: After Clause 345, insert the following new clause—

COMPETITION INFORMATION

(".—(1) A person is guilty of an offence if he has competition information (whether or not it was obtained by him) and improperly discloses it—

1. (a) if it relates to the affairs of an individual, during that individual's lifetime;
2. (b) if it relates to any particular business of a body, while that business continues to be carried on.

(2) For the purposes of subsection (1) a disclosure is improper unless it is made—

1. (a) with the consent of the person from whom it was obtained and, if different—
1. (i) the individual to whose affairs the information relates, or
2. (ii) the person for the time being carrying on the business to which the information relates;
2. (b) to facilitate the performance by a person mentioned in the first column of the table set out in Part I of Schedule (Competition Information) of a function mentioned in the second column of that table;
3. (c) in pursuance of a Community obligation;
4. (d) for the purpose of criminal proceedings in any part of the United Kingdom;
5. (e) in connection with the investigation of any criminal offence triable in the United Kingdom or any part of the United Kingdom;
1529
6. (f) with a view to the institution of, or otherwise for the purposes of, civil proceedings brought under or in connection with—

1. (i) a competition provision; or
2. (ii) a specified enactment.

(3) A person guilty of an offence under this section is liable—

1. (a) on summary conviction, to a fine not exceeding the statutory maximum;
2. (b) on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine or to both.

(4) Section 343 does not apply to competition information. (5) "Competition information" means information which—

1. (a) relates to the affairs of a particular individual or body;
2. (b) is not otherwise in the public domain; and
3. (c) was obtained under or by virtue of a competition provision.

(6) "Competition provision" means any provision of—

1. (a) an order made under section (Competition scrutiny);
2. (b) Chapter III of Part X; or
3. (c) Chapter II of Part XVIII.

(7) "Specified enactment" means an enactment specified in Part II of Schedule (Competition Information).").

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendment No. 226YA. These amendments are concerned with competition gateways. They form a new clause and a new schedule and they are the final chapter in the improvements we have made to the competition scrutiny regimes in the Bill. They address a concern raised in Committee in another place. They provide protection for confidential information obtained by the Director General of Fair Trading and the Competition Commission in carrying out their competition scrutiny responsibilities under the Bill.

They make it clear that such information must be kept confidential unless the persons concerned are content that it should be revealed or because it is necessary for the performance of one of a number of specific public purposes. Those purposes are set out in subsection (2) of the new clause and (.he new schedule. They are in line with the Competition Act 1998. I beg to move.

On Question, amendment agreed to.

Clause 377 [Restitution orders in cases of market abuse]:

Lord McIntosh of Haringey

moved Amendment No. 183WA: Page 200, line 39, leave out from ("person"1 to end of line 40 and insert ("("the person concerned")—

1. (a) has engaged in market abuse, or
2. (b) by taking or refraining from taking any action has required or encouraged another person or persons to engage in behaviour which, if engaged in by the person concerned, would amount to market abuse,

and the condition mentioned in subsection (1A) is fulfilled, (1A) The condition is—"). The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 183XA, 183YA, 183ZA, 183A, 183AA, 183AB, 183AC, 183AD, 183AE, 183AF, 183AG, 183AH, 183AJ, 183C and 183D. I shall respond to Opposition Amendments Nos. 183WAA and 183ADA when they have been spoken to by them.

When we come to our amendments, the substantive change made by this group is to allow the FSA and the courts to order a person who requires or encourages another person to engage in market abuse to pay restitution. Clause 119(1)(b) already allows the FSA to impose a penalty or make a statement when someone does that. Of course, the FSA can impose a penalty only where it would have been market abuse if the person concerned had engaged in the behaviour themselves, rather than requiring or encouraging another to do so.

Amendments Nos. 183WA and 183AD ensure that restitution can be made in that situation. I do not believe that anyone can dispute the need for that.

The protections for reasonable belief and due diligence will also apply in that circumstance. The FSA and the courts will not be able to order restitution where the persons who required or encouraged behaviour had reasonable grounds for believing that their behaviour was not of that type, or exercised all due diligence and took all reasonable precautions to avoid behaving in that way.

Noble Lords opposite have tabled Amendments Nos. 183WAA and 18ADA which amend our amendments. We had sight of those only this morning. I would prefer that they speak to those amendments before I respond to them. I beg to move.

The Chairman of Committees

My Lords, Amendment No. 183WAA is on the supplementary sheet and it is an amendment to Amendment No. 183WA.

Lord Kingsland

moved, as an amendment to Amendment No. 183WA, Amendment No. 183WAA: Line 4, in paragraph (b), after ("has") insert ("knowingly"). The noble Lord said: My Lords, Amendments Nos. 183WA to 183ZA give the court power, on an application by the authority, to award compensation—restitution—against someone who instigates market abuse: he "requires or encourages" the abuser.

The danger is that the court may treat the authorised person as encouraging the abuse because, without knowing about the abuse, it agrees to "approve" a client's communication for the purposes of Clause 19 without being able to discover whether it contains untrue or misleading statements.

The government amendment on restitution does not change the scope of the offence, but regrettably makes it more likely that the authority will want to hit the investment bank or stockbroker that unwittingly takes part in the market abuse. Typically, that will be where it approves, for the purposes of Section 57 of the Financial Services Act, a press release or takeover document at the request of the client. The firm is already required by FSA rules to ensure that the document is not misleading. That will be continued by the authority under the new regime. Neither the FSA nor the authority would bring an action against a firm if it had tried to find out the true position.

However, if the authority can now get restitution in those circumstances, so that innocent investors receive some compensation, I believe that the authority would try to do so. That is the background to our amendments. The authorised person has to know what he is doing in encouraging the commission of market abuse.

Your Lordships are well aware that the Financial Services and Markets Bill already empowers the authority to impose unlimited fines on innocent third parties who require or encourage another person to engage in market abuse. Typically, where a corporate finance firm approves for issue a takeover circular containing statements that it did not know were misleading, that phraseology is less draconian than the Government wanted initially and is a concession that the Government made at the urging of our shadow Treasury team. The authority is unlikely to impose a large fine on an innocent third party, but is much more likely to seek restitution in the circumstances of actual loss.

It is fair to say that the Opposition have so far failed to bring an intent element into the liability to require restitution. None the less, the Government have provided that the innocent third party should not have to pay compensation if he exercised all due diligence to avoid encouraging the abuse. However, he may not do enough for the defence to apply. Nevertheless, it would be unfair to require him to pay compensation if he did not know that what he had agreed to did in fact constitute market abuse.

The problem would disappear if, as we have urged, some element of intent was required before the market abuse of misleading the market was committed. Currently, the market abuser is guilty even if he did not know that he could be misinterpreted. The amendment proposes therefore that the accused should be guilty of committing or encouraging market abuse if intent can be presumed from the facts, which are then proved.

I believe that I am right in saying that Amendment No. 183 is—I hesitate to use the word "otiose" and will therefore use the expression "no longer necessary". Government Amendment No. 183YA brings in safe harbours for reasonable belief and due diligence. That is an initiative that we had requested. I can now withdraw the amendment and I thank the Government for their conduct. I beg to move.

Lord McIntosh of Haringey

My Lords, I am grateful to the noble Lord for introducing these two pairs of amendments. It may be better to consider them in that way. The first pair comprises Amendments Nos. 183A and 183B and the second pair is the two amendments to our amendments, Amendments Nos. 183WAA and 183ADA.

The noble Lord, Lord Kingsland, was quite right to observe that we have gone further than his Amendments Nos. 183A and 183B. His amendments would require the FSA and the courts, when deciding how much restitution a person who had engaged in market abuse should pay, to have regard to whether he had reasonable grounds for believing that his behaviour was not market abuse or whether he had taken all reasonable precautions and exercised due diligence. Having considered the issue carefully, we feel that the better approach is to provide that restitution cannot be ordered against a person in this position rather than just that "regard" should be had to these factors. Our amendments not only cover the points raised in Amendment No. 183A, but indeed go further than that. I am grateful for the noble Lord's recognition of that fact.

I cannot be so friendly about Amendments Nos. 183WAA or 183ADA which would only allow the FSA or the courts to order restitution where someone had "knowingly" required or encouraged another to engage in behaviour which would be construed as market abuse if he had done it himself. I do not know whether these amendments, which were tabled very late, were put down in response to the wholly inaccurate press comments on these matters over the weekend. I regret that the amendments raise the familiar issue of intent. If the noble Lord thinks that I shall accept them because the Opposition Treasury Front Bench in another place is moving backwards, I am afraid that I shall have to disabuse him.

"Knowingly" clearly adds little to "required" since the circumstances in which one person requires another to do something without being aware of what he is doing are likely to be rare. Nevertheless, it is conceivable that a person may negligently require another to engage in abusive behaviour in the same way as a person may negligently engage in abusive behaviour himself. The simple answer is to take care. That is why we have introduced protections for those who do so.

Knowledge is also, to a certain extent, often implicit in "encouraging". However, again in this case we do not want it to be a requirement of the regime for the FSA to have to prove someone's mental state. We have debated this matter again and again. I can do no better than to recall the example of my noble friend Lord Grabiner's much slandered six year-old son and the possibility of his arguing that he did not know that he was going to break the window at which he aimed a stone, or, in the case of "encouraging", that his giving the stone to another boy and pointing at the window did not amount to "knowingly encouraging".

"Encouraging" is not a new concept. What constitutes encouragement in a specific situation will ultimately be a matter for the courts. But it is something which those who advise the industry, when change was made to the regime in another place, signalled that they were content with. It was a change welcomed by the Opposition in another place, and indeed a change that went further than that suggested by the Opposition. Noble Lords also did not comment on this point when analogous provisions in Part VIII were debated.

Of course, the FSA will be able to provide guidance on the market abuse regime in the code. Indeed, it is obliged to do so. And it is obliged to consult the public. If any further clarity is needed as to the situations in which someone may have action taken against them for encouraging market abuse, then this is the place for it.

We seem again to have "over-lawyering" creeping in, I am sorry to say. It is worth my reiterating that this regime is not designed to catch people out. We made that clear on many occasions. It is designed to protect markets and market users from abuse. What constitutes abuse depends on the expected standards of the market and in certain circumstances may include negligent behaviour; for example, not putting out information to the market which should be put out. That will depend on the market in question. We put in safeguards to protect those who have a reasonable belief or who take due diligence. The regime now strikes the right balance. Et is effective and fair. I commend the changes to the House and urge the noble Lord, Lord Kingsland, not to press his amendment to my amendment.

Lord Kingsland

My Lords, I shall read carefully in Hansard what the Minister said and will let him know now that I shall return to this matter at Third Reading. Meanwhile, I beg leave to withdraw the amendment.

Amendment No. 183WAA, as art amendment to Amendment No. 183WA, by leave, withdrawn.

On Question, Amendment No. 183WA agreed to.

12.30 a.m.

Lord McIntosh of Haringey

moved Amendments Nos. 183XA to 183ZA: Page 200, line 41, leave out ("him") and insert ("the person concerned"). Page 200, line 43, at end insert— ("( ) But the court may not make an order under subsection (2) if it is satisfied that—

1. (a) the person concerned believed, on reasonable grounds, that his behaviour did not fall within paragraph (a) or (b) of subsection (1); or
2. (b) he took all reasonable precautions and exercised all due diligence to avoid behaving in a way which fell within paragraph (a) or (b) of subsection (1).").

Page 200, line 46, leave out ("(1)") and insert ("(1A)"). The noble Lord said: My Lords, with the leave of the House I shall move Amendments Nos. 183XA to 183ZA en bloc. I beg to move.

On Question, amendments agreed to.

[Amendment No. 183A not moved.]

Lord McIntosh of Haringey

moved Amendments Nos. 183AA to 183AC: Page 201, line 13, leave out ("paragraph (a) of that subsection") and insert ("subsection (1A)(a)"). Page 201, line 15, leave out ("paragraph (b) of that subsection") and insert ("subsection (1A)(b)"). Page 201, line 28, leave out ("(1)") and insert ("(1A)"). The noble Lord said: My Lords, with the leave of the House I shall move Amendments Nos. 183AA to 183AC en bloc. I beg to move.

On Question, amendments agreed to.

Clause 378 [Power of Authority to require restitution]:

Lord McIntosh of Haringey

moved Amendment No. 183AD: Page 201, line 41, leave out ("and") and insert (", or (b) by taking or refraining from taking any action has required or encouraged another person or persons to engage in behaviour which, if engaged in by the person concerned, would amount to market abuse. and the condition mentioned in subsection (2A) is fulfilled, (2A) The condition is—"). The noble Lord said: My Lords, I beg to move.

[Amendment No. 183 ADA, as an amendment to Amendment No. 183AD, not moved.]

On Question, Amendment No. 183AD agreed to.

Lord McIntosh of Haringey

moved Amendments Nos. 183AE to 183AJ: Page 201, line 42, leave out ("him") and insert ("the person concerned"). Page 201, line 44, at end insert— ("( ) But the Authority may not exercise that power as a result of subsection (2) if, having considered any representations made to it in response to a warning notice, there are reasonable grounds for it to be satisfied that—

1. (a) the person concerned believed, on reasonable grounds, that his behaviour did not fall within paragraph (a) or (b) of that subsection: or
2. (b) he took all reasonable precautions and exercised all due diligence to avoid behaving in a way which fell within paragraph (a) or (b) of that subsection.").

Page 202, line 6, leave out ("(2)") and insert ("(2A)"). Page 202, line 8. leave out ("(2)") and insert ("(2A)"). Page 202, line 10, leave out ("(2)") and insert ("(2A)"). The noble Lord said: My Lords, with the leave of the House I shall move Amendments Nos. 183AE to 183AJ en bloc. I beg to move.

On Question, amendments agreed to.

[Amendment No. 183B not moved.]

Lord McIntosh of Haringey

moved Amendments Nos. 183C and 183D: Page 202, line 16, leave out ("(2)") and insert ("(2A)"). Page 202, line 18, leave out ("(2)") and insert ("(2A)"). The noble Lord said: My Lords, with the leave Of the House I shall move Amendments Nos. 183C and I 83D en bloc. I beg to move.

On Question, amendments agreed to.

Clause 381 [Notice for payment]:

Lord McIntosh of Haringey

moved Amendment No. 184: Leave out Clause 381. On Question, amendment agreed to.

Clause 383 [Decision notices]:

Lord Bach

moved Amendment No. 185: Page 203, line 35, leave out paragraph (b). The noble Lord said: My Lords, these amendments represent 12 government amendments; namely, Amendments Nos. 185, 186, 187, 188, 195, 196, 197, 198, 199, 200, 201, and 212A. There are four opposition amendments; namely, Amendments Nos. 188A, 199A, 199B and 199C. I am happy to say that as regards the last amendment the Government accept it and they are grateful to the Opposition for having spotted the point.

Perhaps I may move the government amendments briefly and then invite the Opposition to speak to theirs. The Government's amendments in this group complete the rationalisation of the authority's decision-making procedures under the Bill. They are not very substantial, making a number of necessary further adjustments to Part XXVI mainly to reflect the other amendments we have considered at Report stage.

Clause 383 deals with decision notices. Amendment No. 185 deletes subsection 1(b) which is the requirement for a decision notice to specify the date on which the decision takes effect following the rationalisation. That is otiose because only supervisory notices will be capable of specifying a date on which the decision takes effect. Amendment No. 186 deletes subsection (3) for the same reason.

Clause 384 requires a notice of discontinuance to be issued when the FSA decides not to proceed with action proposed in a warning notice or for which a decision notice has been issued. Amendments Nos. 187 and 188 make minor drafting improvements to Clause 384 to make clear that that also applies where the refusal of an application which has been dropped was not a complete refusal of the original application. The previous text appeared only to apply to a complete refusal.

Clause 387 determines which decisions attract the third party's rights under Clause 388 to receive copies of warning and decision notices, to make representations, refer matters to the tribunal and the rights of access to material under Clause 389. These are the kinds of decisions which we have loosely described as disciplinary-type decisions. As we made clear in Committee, we propose to apply these provisions to certain types of supervisory-type decisions; namely, those which involve the final cancellation of authorisation, approval or recognition.

Amendments Nos. 195 and 197, therefore, add to references to warning and decision notices issued under the second new clause after Clause 51, which deal with the cancellation of a Part 1V permission. Similarly, Amendments Nos. 196 and 198 add references to warning and decision notices issued under Clause 66, which concern the exercise of the FSA's disciplinary powers under Part V of the Bill or the power of the competent authority for listing under Clause 87 to cancel a person's approval to act as sponsor for listing. Again, the Government consider it appropriate to apply Clauses 388 and 389 to these decisions.

Amendment No. 199 is a minor drafting change correcting a punctuation omission. Amendment No. 200 adds various references to clauses which involve supervisory notices to Clause 390. Amendment No. 201 alters some of the existing paragraph references in order to refer quickly to those places where the term "supervisory notice" applies. Amendment No. 212A is a consequential amendment. Clause 400 deals with the consequences of a Treasury direction made under Clause 398 in order to implement a third country decision. That is a decision taken by the European Council or the European Commission to restrict market access to persons from certain non-EEA countries on the grounds that reciprocal market access to persons from the EEA is not available in those countries.

Subsection (1) of Clause 400 disapplies the normal warning and decision notice procedure where refusal of an application for permission is given in accordance with such direction. The amendment simply updates the references to the procedural provision in line with Amendments Nos. 107 to 112.

If it is convenient to the House I invite the Opposition to speak to their amendments.

Lord Kingsland

My Lords, the Opposition has four amendments in this group but, as the Minister has kindly said, our Amendment No. 199C has been accepted by the Government for which we are duly grateful.

I shall deal with Amendments Nos. 199A and 199B and then go on to deal with Amendment No. 188A. That may seem numerically illogical but politically my contribution will accordingly rise to a crescendo.

As far as concerns Amendments Nos. 199A and 199B, a major preoccupation for firms that are at present subject to disciplinary proceedings is that the regulator is at a considerable advantage, first, because it possesses a full file of evidence relating to the firm's alleged offence which the firm may not have; and, secondly, because the regulator also possesses full information about its other disciplinary cases which enables it to make a comparison between the seriousness of the offence of the firm in question and other firms' offences. As disciplinary cases are nearly always held in private, this information is never made generally available.

Those two disadvantages are magnified in the case of disciplinary action being taken against an individual, who will not necessarily have access to his own firm's information relating to the circumstances of the alleged offence. Clause 389 gives a statutory right of access to material upon which the authority has relied; and what is now defined as "secondary material", which is other material that the authority has considered and which might undermine that decision.

However, there are significant carve-outs in subsections (2) to (7). One of those exclusions is of particular concern; namely, where the material was taken into account by the authority for the purpose of comparison with other cases. The present regulators are under a duty to exercise their disciplinary powers in a consistent fashion. It is virtually impossible for a firm to prove whether or not it is observing this requirement if it does not have access to other comparable material. Therefore, it is essential that this kind of information is revealed. There is no requirement for full case papers or the names of other firms to be revealed. All that is necessary is for the authority to produce a schedule of the other cases and their key characteristics.

Before I turn to Amendment No. 188A, I should like to make two short observations on Clause 390. I hesitate to continue because I am not certain whether these have been covered completely by Amendment No 199C. Perhaps the Minister could assist me in this respect.

Lord Bach

My Lords, as I understand it, the amendments that touch on Clause 390 are one Opposition amendment, Amendment No. 199C, which we have accepted, and two government amendments, namely Amendments Nos. 200 and 201. I dealt with the latter shortly, but I did deal with them. Amendment No. 200 adds various references to clauses which involve supervisory notices under Clause 390. It is a consequential amendment on the addition of the new clause after Clauses 51 and 77. Amendment No. 201 alters some of the existing paragraph references in order to refer correctly to those places where the term "supervisory notice" applies. Those are the only amendments which relate to Clause 390.

Lord Kingsland

My Lords, I am much obliged to the Minister. I think this follows logically from what he said, but perhaps the noble Lord could just confirm that the tribunal's ability to take into account a failure by the authority to follow its procedure under Clause 390(12) applies when a supervisory notice is given, as well as when a warning or decision notice is issued. I think it follows, from what the Minister said, that he agrees with that approach. If he confirms that, I need not say anything more about Amendment No. 199C. I see that he confirms that. I am much obliged.

I turn to Amendment No. 188A. The Minister will be well aware of what lies behind Amendment No. 188A. It is the firm belief of the Opposition that the procedure followed in the underlying clause breaches the European Convention on Human Rights. I expect that the Minister is, at least in part, familiar with the argument that I am about to deploy. However, just in case he is not, I draw his attention again to the case of Fayed v. the United Kingdom. The Minister will recall that one of the issues in this case was whether the DTI inspectors, who were looking into the takeover of Harrods, had to comply with the ECHR.

The Fayeds argued that the making, and subsequent publication of, the inspectors' report damaged their reputation and, thereby, their civil rights to honour and reputation. The European Commission of Human Rights was, however, of the opinion that Article 6(1) of the convention was not applicable to the proceedings conducted by the inspectors because those proceedings did not determine any civil right or obligation. The same view was subsequently adopted by the court, which stated that it was, satisfied that the functions performed by the Inspectors were in practice as well as in theory essentially investigative … The Inspectors did not adjudicate, either in form or in substance [and] did not make a legal determination as to criminal or civil liability … The purpose of their enquiry was to ascertain and record facts which might subsequently be used as a basis for action by other competent authorities. In Fayed v. the United Kingdom, the role of the inspectors was indeed limited to investigating the facts. But the role of the authority under the Bill in relation to this clause is completely different. The authority does not only investigate the facts, but also imposes a fine—albeit subject to a later independent tribunal hearing. It is quite clear that the authority reaches a view as to whether the accused is or is not guilty; and the accused obviously would argue that he is not. If the accused does not make the effort to appeal to the tribunal and incur the costs of an appeal, there will be an adjudication on a dispute by the prosecutor rather than by an "independent and impartial tribunal". This is, in our view, impermissible under the convention. A prosecuting authority can prosecute but cannot impose a penalty.

I make it clear, of course, that we are not suggesting that the authority cannot reach a settlement with an accused. If the accused is willing to settle, there is no need for a determination of his civil rights and obligations. The informal procedure which the authority wants to bring in, that already exists in the SROs, can therefore continue, but not the other set of circumstances which we believe is incompatible with the convention. I hope that the Minister, on due and mature reflection, will come to the same conclusion.

12.45 p.m.

Lord Bach

My Lords, I shall speak to the Opposition amendments in the order in which the noble Lord, Lord Kingsland, spoke to them. Amendments Nos. 199A and 199B concern access to authority material. They both concern material to which the authority is not required to give access. Subsections (2) and (3) of Clause 389 enable the authority to withhold material in a number of circumstances, including where the material is subject to legal privilege; where it is only being considered by the authority with a view to maintaining consistency of approach between different cases; where providing access would not be in the public interest; and, lastly, where access would be unfair given the likely significance of the materials of the current case weighed against the potential prejudice to the commercial interest of another person.

Amendment No. 199B would require the authority to provide a written summary of any such evidence and to allow access to the material for the tribunal. We believe that this goes too far.

Subsections (4) and (5) require notice to be given of the fact that material is being withheld on grounds that it is subject to privilege, or because the authority has taken the view that access would be unfair or against the public interest. Where such a view has been reached, subsection (5) also requires these reasons to be included in the notice. This will enable the person who is subject to the notice to consider whether he should refer the matter to the tribunal.

In this respect, may I make it clear to the noble Lord that Clause 389 deals only with the material to which the authority is or is not required to provide access at the warning notice/decision notice stages. Nothing in Clause 389 constrains the rights of the tribunal to consider relevant evidence. Our amendments to Part IX of the Bill have been drafted to put this beyond all doubt. If the matter is referred, it will be for the independent tribunal to consider whether the material should be disclosed. That will be covered by the tribunal's procedural rules.

Turning to Amendment No. 199A, subsection (2) of Clause 389 ensures that the authority is able to consider how similar or comparable cases have been dealt with in order to ensure proper consistency in its proposed actions and penalties, without thus opening up sensitive commercial details about other businesses to scrutiny by the subject of the action currently proposed. As my noble friend Lord McIntosh said in Committee: If action is being taken against a person X, it is no business of X's whether or not similar action was previously taken against another person, Y".—[Official Report, 30/3/00; col. 1032.] Indeed, disclosure might well be unfair, particularly if the action in the earlier case had not been pursued.

Nor were we attracted to the idea of requiring the authority to provide summaries with the identities of the persons in the comparative cases removed. This is administratively burdensome and might not always be effective in protecting the legitimate commercial interests of the persons involved in those cases.

I appreciate that Amendment No. 199A does not seek to impose a requirement on the FSA but simply says that subsection (2) of Clause 389 does not prevent the FSA from providing a summary of the principal characteristics of those cases. Let me assure the noble Lord, if I can—as my noble friend attempted to do in Committee —that, as currently drafted, subsection (2) does not prevent this.

Let me repeat another assurance given in Committee: there will be considerable material in the public domain to assist our character X, the subject of a notice, in assessing whether the action proposed is in line with general authority policy and practice. Apart from the statement of the policy on financial penalties, which we have discussed already, there will be considerable detail on already determined cases.

I have already said how grateful we are to the noble Lord for tabling Amendment No. 199C. When it comes to the vote on that amendment, we shall vote with him to accept it.

I turn now to Amendment No. 188A, which the noble Lord considered to be the high point of his speech. The amendment requires that if the person concerned does not opt to refer the matter to the tribunal the authority would be obliged to do so or to drop the action proposed. Effectively, it would require all decisions to be referred to the tribunal. This is entirely unacceptable. We have explained on a number of occasions that we do not think it is necessary or desirable to involve the tribunal in all decisions as a matter of course. That would be burdensome not only for the authorised community but also for the authority.

We have deliberately structured the procedures to make reference to the tribunal a right, to be exercised at the discretion of person against whom the authority is taking action or in respect of whom the authority is taking a decision. Importantly, this approach has been considered and endorsed by the Joint Committee chaired by the noble Lord, Lord Burns, and, we believe, was also recognised by the industry as being in its own interests. Requiring all decisions to be considered by the tribunal would be too costly for all concerned—the FSA, the industry and the taxpayer, who, of course, funds the tribunal.

I understand from the noble Lord's remarks that his concern is that providing for a decision to take effect without adjudication by the independent and impartial tribunal if the matter is not referred might conflict with the requirements of the ECHR. There has been correspondence on this matter following the noble Lord's remarks in Committee concerning the Fayed judgment. The Government have never sought to argue that disciplinary action under the Bill does not potentially involved a determination of a person's civil rights and obligations. However, it is not a necessary consequence of that that disciplinary action can be taken only if the case has been argued in front of a tribunal. Article 6.1 of the convention—we shall soon all know it by heart—says: In the determination of his civil rights and obligations of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law". There can be no question that the Bill confers the necessary entitlement to such a hearing. It allows all those against whom the FSA proposes to take disciplinary action to refer the matter to the independent tribunal to be established under the Bill. Where there has been a breach of rules, the authority simply comes to a decision as to what disciplinary action it believes should be taken in all the circumstances of the particular case. In reaching that conclusion, the authority does not determine anyone's civil rights or obligations through the process. It takes an administrative, not a judicial, decision. Once that conclusion has been reached, the person is entitled to refer the matter to the tribunal. The FSA's decision has no effect—I underline that—where a person chooses to exercise his right to have the matter referred to the tribunal. Where the person concerned does exercise his right, then it is the tribunal which determines the person's civil rights and obligations. If a person chooses not to refer the matter to the tribunal, the FSA can proceed to take a final decision. Of course, in such a case the person affected by that decision will have chosen freely not to exercise the entitlement which the convention requires should be afforded to him.

In sum, therefore, we believe that the Bill does provide the appropriate convention safeguards. It is not necessary to provide for all decisions to be taken by the tribunal; nor, for the reasons which I have attempted to give, is it desirable to provide for that. Therefore, in spite of the eloquent way in which the noble Lord put his case, we do not believe that the provision goes against the ECHR. I invite the noble Lord to consider what has been said. I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendment No. 186: Page 204, line 8, leave out subsection (3). On Question, amendment agreed to.

Clause 384 [Notice of discontinuance]:

Lord McIntosh of Haringey

moved Amendments Nos. 187 and 188: Page 204, line 26, leave out from ("if") to ("of") in line 27 and insert ("the discontinuance of the proceedings concerned results in the granting"). Page 204, line 27, at end insert ("warning or decision"). On Question, amendments agreed to.

Clause 385 [Final notice]:

Lord Kingsland

had given notice of his intention to move Amendment No. 188A: Page 204, line 33, leave out from ("130(1)") to end of line 35 and insert ("by the person concerned, the Authority must either itself refer the matter or give the person concerned a notice of discontinuance in relation to it."). The noble Lord said: My Lords, I am most grateful to the Minister for giving such a full reply in response to Amendment No. 188A. I shall read very carefully what he said before deciding whether to pursue this matter at Third Reading. The weak point of his argument concerns a situation in which an individual chooses not to pursue his rights in the tribunal. In these circumstances, he will suffer a penalty which has been determined by the authority. I entirely understand that the noble Lord's answer will be, "Ah, but that situation was chosen by the individual's free will". It is in relation to whether he is right about the effect of that that any future argument on the matter will take place.

I shall not move the amendment.

[Amendment No. 188A not moved.]

The Chairman of Committees

My Lords, in putting the following amendments, I should point out to your Lordships that there is a mistake in the Marshalled List as printed. In line 3 of Amendment No. 191, the word "section" should be "subsection".

1 a.m.

Lord McIntosh of Haringey

moved Amendments Nos. 189 to 191: Page 205, line 11, at end insert— ("(5A) A final notice about a requirement to make a payment or distribution in accordance with section 378(3) must state—

1. (a) the persons to whom,
2. (b) the manner in which, and
1542
3. (c) the period within which.

it must be made."). Page 205, line 15, after ("(5)(b)") insert ("or (5A )(c)"). Page 205, line 19, at end insert— ("( ) If all or any of a required payment or distribution has not been made at the end of a period stated in a final notice under section (5A)(c), the obligation to make the payment is enforceable, on the application of the Authority, by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988."). On Question, amendments agreed to.

Clause 386 [Publication]:

Lord McIntosh of Haringey

moved Amendments Nos. 192 to 194: Page 205, line 33, at end insert․ ("( ) When a supervisory notice takes effect, the Authority must publish such information about the matter to which the notice relates as it considers appropriate."). Page 205, line 38, at end insert— ("(6A) For the purposes of determining when a supervisory notice takes effect, a matter to which the notice relates is open to review if—

1. (a) the period during which any person may refer the matter to the Tribunal is still running;
2. (b) the matter has been referred to the Tribunal but has not been dealt with:
3. (c) the matter has been referred to the Tribunal and dealt with but the period during which an appeal may be brought against the Tribunal's decision is still running; or
4. (d) such an appeal has been brought but has not been determined.").

Page 205, line 39, at end insert— ("( ) "Supervisory notice" has the same meaning as in sect ion 390."). On Question, amendments agreed to.

Clause 387 [Application of sections 388 and 389]:

Lord McIntosh of Haringey

moved Amendments Nos. 195 to 198: Page 206, line 3, after ("section") insert ("(Cancellation of Part IV permission: procedure)(1)."). Page 206, line 4, after ("66(1),") insert ("87(4)(b),"). Page 206, line 7, after ("section") insert ("(Cancellation of Part IV permission: procedure)(2),"). Page 206, line 8, after ("66(4),") insert ("87(6)(b),"). On Question, amendments agreed to.

Clause 388 [Third party rights]:

Lord McIntosh of Haringey

moved Amendment No. 199: Page 206, line 38, at end insert ("or"). On Question, amendment agreed to.

Clause 389 [Access to Authority material]:

[Amendments Nos. 199A and 199B not moved.]

Clause 390 [The Authority's procedures]:

Lord Kingsland

moved Amendment No. 199C: Page 209, line 5, after ("giving") insert ("a supervisory notice or"). The noble Lord said: I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendments Nos. 200 and 201: Page 209, line 15, at end insert— ("() (Exercise of own-initiative power to vary Part IV permission: procedure)(4), (7) or (8)(b); () (Discontinuance or suspension: procedure)(2) or (5); () 193(3), (6) or (7)(b);"). Page 209, line 17, leave out paragraphs (b) and (c) and insert— ("() 264(3), (7)(a) or (9)(a) (as a result of subsection (8)(b)); () 278(3), (6) or (7)(b);"). On Question, amendments agreed to.

Clause 392 [Misleading statements and practices]:

Lord McIntosh of Haringey

moved Amendment No. 202: Page 210, line 27, at end insert— ("( ) In proceedings for an offence under subsection (2) brought against a person to whom subsection (1) applies as a result of paragraph (a) of that subsection, it is a defence for him to show that the statement was made in conformity with price stabilising rules or control of information rules."). The noble Lord said: My Lords, in moving this amendment, I should like to speak also to Amendments Nos. 203 to 206. The first two amendments in the group, Amendments Nos. 202 and 203, arise from the introduction of the new clause concerning control of information rules and fulfil a commitment to provide a defence from the offence of misleading statements and practices for behaviour in conformity with such rules. Such a defence currently exists in the Financial Services Act 1986. The amendments also ensure that there is a defence for behaviour in conformity with price stabilisation rules for both the offences in Clause 392.

The other amendments in the group make drafting changes, correcting the way in which Clause 392 relates to Schedule 2 dealing with regulated activities. I beg to move.

Lord Kingsland

My Lords, I do not seek to question the objective of the amendment, which relates to the market manipulation offence and the intention of which is entirely helpful. Perhaps I may make a point about the drafting.

A misleading statement, promise or forecast is exempted from the offence if it is made in conformity with control of information rules; but that would seem to apply only where the person making it is aware of the information and is allowed or required not to mention it.

With respect, I do not think it proper to provide an exemption for this, because it involves—does it not?—a deliberate lie. It would be much better if the individual concerned did not say anything. But what is perhaps more likely in practice is that the person who makes the statement, promise or forecast is the company acting through an individual who is not aware of the true position because he is on the wrong side of the Chinese wall. That ought to be covered as well, or perhaps instead. In this case, an exemption should apply where the person makes the statement, promise or forecast without knowing that it is misleading, false or deceptive because the relevant information is withheld from him in compliance with the control of information rules. In addition, the company should not be treated as knowingly or recklessly making such a statement if the individual who makes the statement, promise or forecast is not aware of the relevant information and is not told to make it by somebody who is. I am aware that I have not canvassed this matter with the Minister. He may well wish to reflect on what I have said and return to it at Third Reading.

Lord McIntosh of Haringey

My Lords, I shall seek to avoid that. The control of information rules are, as I believe the noble Lord, Lord Kingsland, is aware, the Chinese wall rules. Subsections (1) and (2) of Clause 392 make it an offence knowingly or recklessly to make misleading statements in order to induce someone to enter into an investment agreement, or if the person is reckless as to whether it will induce someone to do it. Subsection (3) goes on to provide that it is an offence for a person to act in a way which creates a false or misleading impression if it is done for the purpose of creating that impression and thereby induces someone to enter into an investment agreement.

Subsection (4) provides certain defences. Amendments Nos. 202 and 203 are intended to fill a number of gaps in the coverage of these defences. At the moment subsection (4) provides that a person is not guilty of an offence under subsection (3) if he takes action in conformity with price stabilisation rules made by the FSA under Clause 141. That is repeated in Amendment No. 202. However, that amendment extends the provision to cover not only actions but also statements and thus also provides a defence to the offence created by subsections (1) and (2).

Amendment No. 202 also creates a new defence to the offence created by subsections (1) and (2). This follows the introduction of an amendment which enables the FSA to make control of information rules; in other words, Chinese wall rules. Accordingly, it will be a defence for a person to show that he acted in conformity with the control of information rules; that is to say, that he operated so-called "Chinese wall" rules. It would be a defence for him to say that he was on the wrong side of the Chinese wall and could not, therefore, be expected to act in the way that he would have done had he been on the other side of it.

Lord Kingsland

My Lords, I am most grateful to the Minister for that helpful explanation.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendments Nos. 203 to 206: Page 210, line 35, at end insert ("; or (c) that he acted or engaged in the conduct in conformity with control of information rules"). Page 211, line 14, after ("2") insert ("(except paragraphs 25 and 26)"). Page 211, line 14, leave out ("subsection (9)") and insert ("subsections (8) and (9)"). Page 211, line 15, leave out ("that subsection") and insert ("each of those subsections"). Page 211, line 17, after ("subsection") insert ("(8) or"). On Question, amendments agreed to.

Clause 395 [Offences by bodies corporate etc.]:

Lord McIntosh of Haringey

moved Amendment No. 207: Page 212, line 5, leave out subsection (3). The noble Lord said: My Lords, in moving Amendment No. 207, I should like to speak also to Amendments Nos. 208 to 211. When we debated this clause in Committee, the noble Lord, Lord Kingsland, drew attention to a possible ambiguity in the wording. As he pointed out, it was not clear whether in referring to offences committed by partnerships in England or Scotland what was being referred to was the jurisdiction in which the offence was committed or the jurisdiction in which the partnership was formed. I said that the Government were aware of that and would address it in due course. We have managed to do so as part of an improvement to the clause to achieve fairness.

The purpose of the clause is to enable persons in positions of managerial responsibility within businesses to be prosecuted alongside the business itself if that business has committed an offence which they have connived at or consented to, or which is the result of the neglect of their duties. That must be right. At the moment, company directors and officers, and members of partnerships constituted under the law of Scotland, are treated differently from members of partnerships constituted under the law of England and Wales or the law of Northern Ireland. While directors and Scottish partners commit an offence only if they are actively involved in the wrongdoing, or let it arise through their own neglect, English, Welsh and Northern Irish partners are effectively deemed to have been involved in any offence under the Bill committed by their partnership, unless they cart show that they did not know it was being committed or that they took reasonable steps to prevent it.

We have reviewed the matter and believe that the position is unfair. Amendments Nos. 207 and 208 make it clear that all partners are to be treated in the same way as company directors and officers. In doing this, the amendments remove any need to refer in the clause to the nationality of individual partners because all partnerships are now covered by the provisions of subsection (4). They also, coincidentally, rectify the ambiguity identified by the noble Lord, Lord Kingsland, earlier.

Amendments Nos. 209, 210 and 211 are intended to ensure that this clause covers not only corporate bodies and partnerships but also unincorporated associations, and they substantially reproduce the equivalent provisions in the Financial Services Act 1986. I beg to move.

Lord Kingsland

My Lords, I am most grateful to the noble Lord the Minister for at least reflecting on one of the things we said in relation to this clause.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendments Nos. 208 to 210 inclusive: Page 212, line 10, leave out ("in Scotland"). Page 212, line 23, at end insert— ("() If an offence under this Act committed by an unincorporated association (other than a partnership) is shown—

1. (a) to have been committed with the consent or connivance of an officer of the association or a member of its governing body, or
2. (b) to be attributable to any neglect on the part of such an officer or member,

that officer or member as well as the association is guilty of the offence and liable to be proceeded against and punished accordingly."). Page 212, line 26, after ("unincorporated") insert ("association"). The noble Lord said: My Lords, I beg to move these amendments en bloc.

On Question, amendments agreed to.

Lord McIntosh of Haringey

moved Amendment No. 211: After Clause 397, insert the following new clause—

JURISDICTION AND PROCEDURE IN RESPECT OF

OFFENCES

(" .—(1) A fine imposed on an unincorporated association on its conviction of an offence is to be paid out of the funds of the association. (2) Proceedings for an offence alleged to have been committed by an unincorporated association must be brought in the mime of the association (and not in that of any of its members). (3) Rules of court relating to the service of documents are to have effect as if the association were a body corporate. (4) In proceedings for an offence brought against an unincorporated association—

1. (a) section 33 of the Criminal Justice Act 1925 and Schedule 3 to the Magistrates' Courts Act 1980 (procedure) apply as they do in relation to a body corporate:
2. (b) section 70 of the Criminal Procedure (Scotland) Act 1995 (procedure) applies as if the association were a body corporate;
3. (c) section 18 of the Criminal Justice (Northern Ireland) Act 1945 and Schedule 4 to the Magistrates' Courts Northern Ireland) Order 1981 (procedure) apply as they do in relation to a body corporate.

(5) Summary proceedings for an offence may be taken—

1. (a) against a body corporate or unincorporated association at any place at which it has a place of business;
2. (b) against an individual at any place where he is for the time being.

(6) Subsection (5) does not affect any jurisdiction exercisable apart from this section. (7) "Offence" means an offence under this Act.").

The noble Lord said: My Lords, I beg to move this amendment formally.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendment No. 212: Before Clause 398, insert the following new clause—

SCHEMES FOR REVIEWING PAST BUSINESS

(" .—(1) Subsection (2) applies if the Treasury are satisfied that there is evidence suggesting—

1. (a) that there has been a widespread or regular failure on the part of authorised persons to comply with rules relating to a particular kind of activity; and
2. (b) that, as a result, private persons have suffered (or will suffer) loss in respect of which authorised persons are (or will be) liable to make payments ("compensation payments").

(2) The Treasury may by order ("a scheme order") authorise the Authority to establish and operate a scheme for—

1. (a) determining the nature and extent of the failure;
2. (b) establishing the liability of authorised persons to make compensation payments; and
3. (c) determining the amounts payable by way of compensation payments.

(3) An authorised scheme must be made so as to comply with specified requirements. (4) A scheme order may be made only if—

1. (a) the Authority has given the Treasury a report about the alleged failure and asked them to make a scheme order;
2. (b) the report contains details of the scheme which the Authority propose to make; and
3. (c) the Treasury are satisfied that the proposed scheme is an appropriate way of dealing with the failure.

(5) A scheme order may provide for specified provisions of or made under this Act to apply in relation to any provision of, or determination made under, the resulting authorised scheme subject to such modifications (if any) as may be specified. (6) For the purposes of this Act, failure on the part of an authorised person to comply with any provision of an authorised scheme is to be treated (subject to any provision made by the scheme order concerned) as a failure on his part to comply with rules. (7) This section applies whenever the failure in question occurred. (8) "Authorised scheme" means a scheme authorised by a scheme order. (9) "Private person" has such meaning as may be prescribed. (10) "Specified" means specified in a scheme order.").

The noble Lord said: My Lords, I referred to this amendment and to Amendment No. 222, which is grouped with it, much earlier in our debates on this Bill. Amendment 212 allows the Treasury, by order, to authorise the FSA to establish and operate a scheme requiring firms to review their past business and, where appropriate, make restitution where retail customers have suffered loss.

This is an important power, as illustrated by the cases of mis-selling which have come to light in recent years, particularly cases of personal pensions, under which the value of redress offered and accepted already amounts to over £3 billion. In this sort of case experience has shown that it is expedient to require all firms which have conducted a certain class of business to check their past business, even though the regulator cannot know that every one of those firms will turn out to have failed to comply with the rules. However, this is not a power we envisage being used regularly.

The amendment reflects a commitment given in Committee by the Economic Secretary to the Treasury. It also, I believe, meets the concerns raised by my noble friend Lady Turner when tabling her Amendment No. 167 in Committee. At that time I promised my noble friend a Government amendment to Part X but we have looked at it again and it does not really fit in there. It does not sit comfortably with the Part XXV restitution powers. The nature of the exercise carried out in the unusual circumstances in which a review will be required is such that it involves a combination of mapping out the matters that fall to be dealt with under the scheme, detailed provisions to determine how the scheme will operate and the making of payments in an appropriate case.

So we have created a specific power for the creation of schemes under secondary legislation. The Treasury will, by order under the Bill, authorise the FSA to establish and operate the scheme: it will be set up under the order. The Delegated Powers and Deregulation Committee have considered our approach and raised no concern.

Amendment No. 222 specifies that the Treasury orders under this clause must be made by affirmative resolution of both Houses of Parliament. This will ensure that any such arrangements must be subject to debate. This will be informed by the report and other details that must be provided before the Treasury can make an order under the power. I beg to move.

On Question, amendment agreed to.

Clause 400 [Consequences of a direction under section 398]:

Lord McIntosh of Haringey

moved Amendment No. 212A: Page 214, line 22, leave out ("section 51 does") and insert ("subsections (7) to (9) of section 50 do"). On Question, amendment agreed to.

Clause 405 [Gaming contracts]:

Lord McIntosh of Haringey

moved Amendment No. 213: Page 218, line 9, leave out ("any contract") and insert ("a contract if"). The noble Lord said: My Lords, with Amendment No. 213, I should like to speak also to Amendments Nos. 214 and 215. These amendments make changes to Clause 405 in line with a commitment that we made in Committee in another place to look again at the clause and ensure that it is capable of giving the same protection for the enforceability of certain contracts, which might otherwise be subject to the statutory and common law rules relating to gaming provided for under the existing legislation.

These regulations are important—at least they are for some people—although they are technical amendments. The clause as it stands is too narrow, because under subsection (2)(b) it expressly applies only to regulated activities. Therefore, it would not apply to a contract entered into in the course of any activity benefiting from the exclusion of the scope of regulated activities under the Bill. This contrasts with the Financial Services Act 1986 which states that contracts entered into in the course of an activity which benefits from an exclusion set out in Part III or IV of Schedule 1 to that Act do benefit from the exemption set out in the Act.

At the same time subsection (2) of Clause 405 does not work in its current form. It refers to regulated activities falling within paragraph 2 of Schedule 2, whereas in fact no activities as such fall within Schedule 2, given that Schedule 2 simply provides an indicative list of the sort of things about which orders under Clause 20 may be made rather than sets out which activities will be regulated under the Bill.

Amendments Nos. 213 to 215 introduce a new Treasury order-making power which will be used to specify which contract-based activities will be covered by the statutory exemption from unenforceability replacing the reference to regulated activities in subsection (2)(b). I beg to move.

On Question, amendment agreed to.

1.15 a.m.

Lord McIntosh of Haringey

moved Amendments Nos. 214 and 215: Page 218, line 10, at beginning insert ("it is"). Page 218, line 11, leave out paragraph (b) and insert— ("(b) the entering into or performance of it by either party constitutes an activity of a specified kind or one which falls within a specified class of activity; and (c) it relates to an investment of a specified kind or one which falls within a specified class of investment. (3) Part II of Schedule 2 applies for the purposes of subsection (2)(c), with the references to section 20 being read as references to that subsection. (4) Nothing in Part II of Schedule 2, as applied by subsection (3), limits the power conferred by subsection (2)(c). (5) "Investment" includes any asset, right or interest. (6) "Specified" means specified in an order made by the Treasury."). On Question, amendments agreed to.

Lord McIntosh of Haringey

moved Amendment No. 216: After Clause 406, insert the following new clause—

("Service of notices

SERVICE OF NOTICES

.—(1) The Treasury may by regulations make provision with respect to the procedure to be followed, or rules to be applied, when a provision of or made under this Act requires a notice or other document to be given. (2) The regulations may, in particular, make provision—

1. (a) as to the manner in which a document must be given;
2. (b) as to the address to which a document must be sent;
3. (c) requiring, or allowing, a document to be sent electronically;
4. (d) for treating a document as having been given, or as having been received, on a date or at a time determined in accordance with the regulations;
5. (e) as to what must, or may, be done if the person to whom a document is required to be given is not an individual;
6. (f) as to what must, or may, be done if the intended recipient of a document is outside the United Kingdom.

(3) Subsection (1) applies however the obligation to gibe a document is expressed (and so, in particular, includes a provision which requires a document to be served or sent). (4) Section 7 of the Interpretation Act 1978 (service of notice by post) has effect in relation to provisions made by or under this Act subject to any provision made by regulations under t his section.").

The noble Lord said: My Lords, this new clause enables the Treasury, by order, to specify the way in which notices given to or by the authority (or other relevant persons) are to be taken to have been given. On the face of it, it may appear a minor point but precision would be important if, for example, a person had a specified number of days in which to do something from the date on which the notice was deemed to have been given or there was a question as to whether the notice was served on an appropriate person.

Such matters could be extremely important if the possibility of referring a matter to the tribunal depended on when the notice was deemed to have been given. Clearly it is also important that a notice should be given to an appropriate person in the firm, often the company secretary but certainly not the cleaner.

Section 204 of the Financial Services Act makes specific provision about service of notices. The Government considered making similar provision in the Bill. However, the Section 204 provision would not adequately deal with the range of matters that would need to be covered given the much wider scope of the Bill.

A further concern is that the provisions of Section 204 of the 1986 Act envisage service of notice in hard copy. Since that provision came into force, the use of the fax machine has become commonplace and acceptable for many types of formal communication but is not provided for under the 1986 Act. Clearly the development of new forms of transrnission—mobile short messaging, electronic mail and other Internet-based communications systems—means that the extended use of electronic communications is inevitable. The Government would not wish to prevent the financial services industry from benefiting from the use of those technologies in its dealings with the regulator. For example, to keep regulatory burdens low, the authority is currently exploring an Internet-based system to enable firms to apply for approvals under Clause 58 of the Bill for their prospective employees.

This new clause is a routine procedural measure which forms an important part of the overall package of measures to ensure that the authority acts appropriately when it carries out its regulatory functions. I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendment No. 216A: After Clause 406, insert the following new clause—

("Jurisdiction

JURISDICTION IN CIVIL PROCEEDINGS

.—(1) Proceedings arising out of any act or omission (or proposed act or omission) of—

1. (a) the Authority,
2. (b) the competent authority for the purposes of Part VI,
3. (c) the scheme manager, or
4. (d) the scheme operator,

in the discharge or purported discharge of any of its functions under this Act may be brought before the High Court or the Court of Session. (2) The jurisdiction conferred by subsection (1) is in addition to any other jurisdiction exercisable by those courts.").

The noble Lord said: My Lords, with Amendment No. 216A I should like to speak also to Amendment No. 226ZA. These amendments effectively transpose the arrangements under Section 188 of the Financial Services Act 1986 so as to enable a person to seek judicial review of the authority, the competent authority under Part VI, the compensation scheme manager or the ombudsman scheme manager before an appropriate court in any part of the United Kingdom.

This is necessary because under the Civil Jurisdiction and Judgements Act 1982 a case against a company registered under the Companies Acts would normally need to be brought in the jurisdiction in which the company has its registered office. The companies to which these provisions relate are all registered in England and Wales. So without this provision a person would not otherwise be able to bring a case for judicial review before the Court of Session or the High Court in Northern Ireland. I beg to move.

On Question, amendment agreed to.

Clause 407 [Definitions]:

Lord McIntosh of Haringey

moved Amendments Nos. 217 and 218: Page 219, line 16, at end insert ("(except in provisions relating to the Competition Commission)"). Page 219, line 17, at end insert— (""control of information rules" has the meaning given in section (Control of information)(1):"). On Question, amendments agreed to.

[Amendment No. 218A not moved.]:

Lord McIntosh of Haringey

moved Amendment No. 219: Page 220, line 3, leave out ("233(2)") and insert ("232"). On Question, amendment agreed to.

Clause 412 [Controller]:

[Amendments Nos. 219A to 219F not moved.]

[Amendment No. 220 had been withdrawn from the Marshalled List.]

Lord Bach

moved Amendment No. 220A: After Clause 416, insert the following new clause—

TRANSITIONAL PROVISIONS

(".—(1) Subsections (2) and (3) apply to an order under section 416 which makes transitional provisions or savings. (2) The order may, in particular—

1. (a) if it makes provision about the authorisation and permission of persons who before commencement were entitled to carry on any activities, also include provision for such persons not to be treated as having any authorisation or permission (whether on an application to the Authority or otherwise);
2. (b) make provision enabling the Authority to require persons of such descriptions as it may direct to reapply for permissions having effect by virtue of the order:
3. (c) make provision for the continuation as rules of such provisions (including primary and subordinate legislation) as may be designated in accordance with the order by the Authority, including provision for the modification by the Authority of provisions designated;
4. (d) make provision about the effect of requirements imposed, liabilities incurred and any other things done before commencement, including provision for and about investigations, penalties and the taking or continuing of any other action in respect of contraventions;
5. (e) make provision for the continuation of disciplinary and other proceedings begun before commencement, including provision about the decisions available to bodies before which such proceedings take place and the effect of their decisions;
6. (f) make provision as regards the Authority's obligation to maintain a record under section 342 as respects persons in relation to whom provision is made by the order.

(3) The order may—

1. (a) confer functions on the Treasury, the Secretary of State, the Authority, the scheme manager, the scheme operator, members of the panel established under paragraph 4 of Schedule 17, the Competition Commission or the Director General of Fair Trading:
2. (b) confer jurisdiction on the Tribunal;
3. (c) provide for fees to be charged in connection with the carrying out of functions conferred under the order;
4. (d) modify, exclude or apply (with or without modifications) any primary or subordinate legislation (including any provision of or made under, this Act).

(4) In subsection (2) "commencement" means the commencement of such provisions of this Act as may be specified by the order.").

The noble Lord said: My Lords, Amendments Nos. 220A and 226 deal with transitional arrangements for bringing the Bill into force. It is of course our intention to ensure that the transition to the new regime is as smooth as possible and causes the minimum disruption to firms and, indeed, to the regulators who we do not wish to be distracted from doing their core work.

We believe that it is sensible to make transitional provisions in an order as provided for under the new clause. Part of the reason is that we are moving from nine existing regulators—not counting the recognised professional bodies or Lloyd's—each with their own regulatory frameworks under six principal Acts of Parliament.

While our approach is very simple in policy terms, the precise arrangements will be very complex and very detailed. It would add substantially to the length of the Bill to include these provisions. More importantly, we wish to be able to publish the secondary legislation in draft before it is made so that those affected by it, and especially the industry, will be able to consider the arrangements and comment if they see any difficulty with the detail of the proposals. I believe that there has been widespread support for the Government's approach.

I turn to Amendment No. 226. In Committee, the Government moved amendments which introduced arrangements to enable the FSA to work with the self-regulating organisations under the Financial Services Act 1986 to bring about their demise. I can remind your Lordships that the amendments have the effect of removing the risk of challenge as the independence of the SROs diminishes in the months to come.

Amendment No. 226 is consequential to those changes. It ensures that those transitional arrangements for the SROs come into force on the passing of the Act rather than on a day to be appointed. The current statutory framework under the 1986 Act has caused some problems for the FSA as it has sought to restructure the various regulators that are merging together. Understandably, the FSA now wishes to press on with its preparations. I beg to move.

On Question, amendment agreed to.

Clause 417 [Regulations and orders]:

Lord Bach

moved Amendment No. 220B: Page 225, line 35, leave out from ("make") to ("is") in line 36 and insert ("an order which is conferred on the Treasury by this Act and any power to make regulations which is conferred by this Act"). The noble Lord said: My Lords, I shall first introduce the Government's amendment which simply tidies up a few loose ends. There is an Opposition amendment in the group which will no doubt be spoken to.

The Bill confers a number of powers to make orders. Some refer to administrative functions of the authority. For example the FSA may make a prohibition order under Clause 55 in relation to an individual who it considers unfit to perform certain functions. The court may also make orders for particular purposes. It may, for example, make orders under Clause 194(3) in relation to injunctions against incoming insurance companies from other EEA member states.

While I am sure it will be clear to most people that such orders—as opposed to orders made by the Treasury—are exercisable by statutory instrument, that is not the effect of Clause 417(1) as currently drafted. The Government's amendment makes it clear that those order-making powers conferred on the Treasury are exercisable by statutory instrument. However, court orders will be made in the usual way. FSA orders will be made in accordance with the relevant procedural requirements under the Bill.

The same issue does not arise in the case of regulations as all powers to make regulation under the Bill are to be exercisable by statutory instrument, whether they are exercised by the Treasury or other Ministers of the Crown. I beg to move.

Lord Newby

My Lords, I wish to speak to Amendment No. 221. This amendment is self-explanatory. It requires simply that, where the Treasury plans to introduce regulations or orders, it makes proper provision for those regulations or orders to be considered in draft by all those who might have an interest in them. It also makes provision for representations to be duly considered and for the Treasury to respond to the representations before the regulations or orders are considered by Parliament.

The reason for proposing the amendment is extremely straightforward. Much secondary legislation will come forward under this Bill. As we have seen in this House on a number of occasions during this Session, the role of Parliament in scrutinising secondary legislation is in reality extremely limited. The point at which secondary legislation can be given careful scrutiny is before it is laid before Parliament. This amendment enables that to be required of the Treasury as a matter of course.

When the Minister moved Amendment No. 220A, I was very interested to hear him say that the Government would be issuing draft orders or, perhaps, regulations and looking for comments. This amendment seeks merely to make that a requirement rather than an optional extra.

Lord Saatchi

My Lords, I speak briefly in support of the amendment of which we are co-authors. As the noble Lord, Lord Newby, said, one of the points made at an earlier stage of the Bill was that, despite its enormous length, it is in many ways a skeleton Bill—I believe that that was the phrase used—for the reason that he gave; that is, so much is submerged and yet to come in the form of codes, guidance, manuals, regulations or orders.

We believe that this amendment is important because it would require the Treasury to consult on regulations to be made under the Act. In fact, I believe that the Treasury usually does consult, but there is no obligation to do so. Just as important, there is no obligation to make any public response to consultation.

In relation to consultation on this Bill and on the draft orders that have been published, we gather that some of those involved with the Treasury have described it as a "black hole"; in other words, as an entity which absorbs a tremendous amount of comment and suggestion but where the response is not visible to the naked eye. I am sure that the Minister will say shortly that he does not wish to be too prescriptive about the Treasury's role. However, I hope that he will understand that our concern arises because so many important regulations to be made under the Bill have yet to appear.

Therefore, a proper consultation exercise, as proposed by the noble Lord, Lord Newby, with a requirement for a public response should be made in relation to all these future regulations. We can see no reason in principle why the Treasury should not be obliged to consult. It would be a valuable discipline to do so. It would mean, as the noble Lord, Lord Newby, said, that secondary legislation that comes before Parliament would have the added benefit of being considered by Parliament following a proper public consultation. It would be extraordinary if the Government found it difficult to accept this most reasonable amendment.

Lord Bach

My Lords, I must confess to having feelings of some dismay to see this amendment on the Marshalled List. It concerns a matter that we have debated at least twice. I suppose that there is no harm in debating it a third time. The last time that we did so was in the context of an amendment tabled by the noble and learned Lord, Lord Fraser of Carmyllie, on the second day of Report.

This amendment would require the Treasury to consult on all orders and regulations proposed under the Bill. As I attempted to explain a few minutes ago, it will not always be the Treasury that will make regulations and orders under the Bill. Other departments will have responsibility for making certain regulations. Some powers to do things by order will be exercised by the authority itself or by the court, although, of course, such orders are not orders in the sense of secondary legislation.

But the amendment does not make that distinction, so it is defective in that it requires all such consultations to be conducted by the Treasury. We believe that the Treasury already has a good record. It has regularly consulted on proposals generally in the financial services field in recent years and specifically on Bill-related matters. It has already been consulting on the draft secondary legislation it proposes to make under the Bill.

We have had formal public consultations on a number of draft Statutory Instruments and more informal discussions with industry representatives on some other drafts; for example, amendments to building and friendly societies legislation.

We have also had discussions on the underlying policy in order to inform the drafting process and we consulted on a draft of the Bill, although noble Lords may be forgiven for forgetting that, given the time that has passed since then.

The Treasury proposes to continue to consult where that is helpful. We have even given specific commitments to do so in certain cases. It is, of course, well established Cabinet Office procedure that departments should seek to consult as they consider most appropriate and produce regulatory impact assessments before making any legislation that imposed burdens. The Treasury will always ensure that it complies with relevant guidance of the kind I have just mentioned.

This Bill imposes statutory consultation requirements on the authority. That is right for the authority, given its legal status. But the Treasury is rather different from the authority. The Government are directly accountable to both Houses of Parliament and Parliament rightly scrutinises and questions what the Government do. The Bill does not change that.

So the reality is that if the Treasury should fail to follow the procedures set out in those Cabinet Office guidelines, it will be open to Parliament to question that. It is of course the case that amendments to the best practice promoted by the Cabinet Office will flow through to the exercise of the powers under the Bill. The amendment before us would seem to cast matters in stone.

Finally, we need to look at the amendment in a wider context. There is nothing special about the powers under the Bill for the Treasury or Ministers to make orders and regulations. They are normal arrangements and we have applied the standard procedures.

I remind noble Lords that the Treasury has submitted a number of memoranda to our own Delegated Powers and Deregulation Committee explaining the delegated legislative powers under the Bill. The Government have responded positively to recommendations made by the committee when it considered the consultation draft of the Bill. After the Bill was brought to this House from another place, the Government have accepted every recommendation made by the committee.

I repeat that departments are expected to follow Cabinet Office guidelines, just as they are required to respect parliamentary procedure. There is nothing special about the powers in the Bill. There are a lot of them because it is a big Bill covering a wide subject area and they are also related to matters which are largely technical.

We maintain that this Government have reinforced the procedures for consultation and regulatory appraisal compared with the system that we inherited. If noble Lords opposite believe that those arrangements are still inadequate, that rather begs the question what they must have thought about the rather more lax procedures which the previous government applied. That is perhaps a matter which is best pursued in another context. Indeed, if there are inadequacies in the Cabinet Office guidelines, it would be useful if those issues were raised so that those views could be taken into account when the guidelines are next reviewed.

The logic of the amendment is that all departments should be under a duty to consult on all secondary legislation all the time. We believe that that is unnecessary and, we would argue, positively undesirable. Government departments should consult where it is appropriate for them to do so and it is the responsibility of Parliament to ensure that they do.

I hope that the noble Lord, Lord Newby, will take some comfort from my remarks and will be satisfied to some degree by the assurances that I have given him.

Lord Newby

My Lords, I am not sure that I can take much comfort from what the Minister has said. When he started he made an extremely valid point about certain orders under this Bill not being secondary legislation and that, therefore, there was a defect in the drafting, of which I can see the strength. I thought he would suggest coming forward with an amendment that rectified that defect, given that he started off by being so positive about publishing draft regulations and orders that are secondary legislation.

In relation to the phrase "the Treasury would normally consult", as a general rule departments consult when it is helpful or appropriate to do so. That begs the question: to whom it is helpful and to whom it is appropriate? I am not happy simply to accept that the Treasury, when it believes that it is helpful and appropriate to do so, will publish draft orders. However, I accept that the drafting may be defective. Therefore, I shall look at this and I may return to the matter next week.

On Question, amendment agreed to.

[Amendment No. 221 not moved.]

Clause 418 [Parliamentary control of statutory instruments]:

Lord McIntosh of Haringey

moved Amendments Nos. 222 to 225: Page 226, line 3, after ("232(5)") insert (", (Schemes for reviewing past business)"). Page 226, line 19, at end insert— ("() it varies a previous order made under section 19(5) so as to make section 19(1) apply in circumstances in which it did not, as a result of that previous order, apply;"). Page 226, line 21, after ("19(9)") insert ("or (9A)"). Page 226, line 23, at end insert ("; or () it adds one or more investments to those which are controlled investments for the purposes of section 19"). On Question, amendments agreed to.

Clause 420 [Commencement]:

Lord McIntosh of Haringey

moved Amendments Nos. 226 and 226YA: Page 227, line 1, leave out subsection (1) and insert— ("(1) The following provisions come into force on the passing of this Act—

1. (a) this section;
2. (b) sections 417, 419 and 422;
3. (c) paragraphs 1 and 2 of Schedule 20.").

Before Schedule 19, insert the following new schedule—

("SCHEDULE

COMPETITION INFORMATION

PART I

PERSONS AND FUNCTIONS FOR THE PURPOSES OF

SECTION (Competition information)

1. The Table set out after this paragraph has effect for the purposes of section (Competition information)(3)(b).

TABLE
PERSON	FUNCTION
1. The Commission.	Any function of the Commission under Community law relating to competition.
2. The Comptroller and Auditor General.	Any function of his.
3. A Minister of the Crown.	Any function of his under a specified enactment.
4. Director General of Telecommunications.	Any function of his under a specified enactment.
5. Director General of Gas Supply	Any function of his under a specified enactment
6. The Director General of Gas for Northern Ireland.	Any function of his under a specified enactment.
7. The Director General of Electricity Supply.	Any function of his under a specified enactment.
8. The Director General of Electricity Supply for Northern Ireland.	Any function of his under a specified enactment.
9. The Director General of Water Services.	Any function of his under a specified enactment.

10. The Civil Aviation Authority.	Any function of that authority under a specified enactment.
11. The Rail Regulator.	Any function of his under a specified enactment.
12. The Director General of Fair Trading.	Any function of his under a specified enactment.
13. The Competition Commission.	Any function of the Competition Commission under a specified enactment.
14. The Authority.	Any function of the Authority under a specified enactment.
15. A person of a description specified in an order made by the Treasury.	Any function of his which is specified in the order.

PART II

THE ENACTMENTS

1. 1. The Fair Trading Act 1973
2. 2. The Consumer Credit Act 1974
3. 3. The Estate Agents Act 1979
4. 4. The Competition Act 1980
5. 5. The Telecommunications Act 1984
6. 6. The Airports Act 1986
7. 7. The Gas Act 1986
8. 8. The Control of Misleading Advertisements Regulations 1988
9. 9. The Electricity Act 1989
10. 10. The Broadcasting Act 1990
11. 11. The Water Industry Act 1991
12. 12. The Electricity (Northern Ireland) Order 1992
13. 13. The Railways Act 1993
14. 14. Part IV of the Airports (Northern Ireland) Order 1994
15. 15. The Gas (Northern Ireland) Order 1996
16. 16. The EC Competition (Articles 88 and 89) Enforcement Regulations 1996
17. 17. The Unfair Terms in Consumer Contracts Regulations 1999
18. 18. This Act.
19. 19. An enactment specified for the purposes of this paragraph in an order made by the Treasury.").

On Question, amendments agreed to.

Schedule 19 [Minor—and—Consequential Amendments]:

Lord McIntosh of Haringey

moved Amendment No. 226ZA: Page 279, line 10, at end insert— ("The Civil Jurisdiction and Judgments Act 1982 (c. 27) In paragraph 10 of Schedule 5 to the Civil Jurisdiction and Judgments Act 1982 (proceedings excluded from the operation of Schedule 4 to that Act), for "section 188 of the Financial Services Act 1986" substitute "section (Jurisdiction in civil proceedings) of the Financial Services and Markets Act 2000"."). On Question, amendment agreed to.

Schedule 21 [Repeals]:

Lord Hunt of Wirral

moved Amendment No. 226A: Page 282, line 12, at end insert—

("1923 c. 8.	The Industrial Assurance Act 1923.	The whole Act.
1948 c. 39.	The Industrial Assurance and Friendly Societies Act 1948.")	The whole Act.

The noble Lord said: My Lords, it must be a special privilege to have the honour of opening the final debate on the third day of the Report stage of the Financial Services and Markets Bill at just after 25 minutes to two. I thank the Government most warmly for giving me this opportunity. On several occasions in the other place assurances were given about the repeal of the industrial assurance Acts. I have been carefully watching the Order Paper over the past few weeks, but sadly no government amendments to the necessary effect have yet been tabled.

I do not expect to speak for more than 45 minutes! However, to be clear about this matter, the industrial assurance Acts of 1923 and 1948 once provided consumers with a necessary degree of protection for those buying low premium life assurance policies where premiums are paid in cash to company agents visiting someone's home. Those days are now over and save for one small area that I shall cover, those Acts are now an encumbrance and not a protection. The Acts, for example, forbid the conversion of the collection of premiums by standing order or direct debit and that severely damages the value that policyholders ultimately receive.

However, for existing policyholders the Acts provide certain protection where the assurance contract confers a right to the policyholder that has a monetary value. One example is the written notices that have to be sent to policyholders before a policy can be terminated. I acknowledge that that protection will have to be re-enacted in a suitable form, either in the FSA's rules or in a statutory instrument. In the meantime, I cannot see any reason why those Acts should not be included to be repealed when the Bill becomes an Act. I beg to move.

Lord Bach

My Lords, at this hour I can hardly do anything other than respond positively to the amendment of the noble Lord. It would be churlish to do otherwise. I can respond by assuring him of the Government's continued commitment to the repeal of the industrial assurance Acts. The Acts impose restrictions on the conduct of home services assurance businesses that are necessary, particularly given the nature of the powers to be conferred on the authority more generally by the Bill.

The constraints under the existing statutory framework are driving providers out of the market. That, in turn, means that those who are most likely to benefit from the kinds of services provided by home services are being denied access to valuable products to help them to save and provide for their futures.

In other debates we have explained that the Government are committed to taking practical steps to help disadvantaged consumers and repeal of much of this legislation is one such measure that we shall adopt. The amendment before the House may not be adequate because it will be necessary to make certain savings to the industrial assurance Acts for existing policies. That will be necessary because those Acts confer certain rights on policyholders and must be protected. However, I can tell the noble Lord that the Government will bring forward an amendment at Third Reading that will include provisions to ensure that the Acts cease to have effect while enabling any necessary savings to be made.

Lord Hunt of Wirral

My Lords, even at this late hour, I must say to the Minister how warmly I appreciate his generous words. I fully accept what he has said and I look forward to seeing the amendment when it is brought forward at Third Reading next week. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McIntosh of Haringey

moved Amendments Nos. 227 and 228:

Page 283, line 2, column 3, at beginning insert—

("In section 13, subsections (2) to (5), (8) and (11).")

Page 283, line 2, column 3, at end insert—

	("In section 52, subsection (2)(d) and, in subsection (5), the words from "or where" to the end.
	Schedule 7.
	In Schedule 8, paragraph 3(2).")

The noble Lord said: My Lords, these amendments were spoken to with Amendment No. 176. I beg to move.

On Question, amendments agreed to.

House adjourned at eighteen minutes before two o'clock.