§ Mr. Hanleyasked the Secretary of State for Trade and Industry what representations he has received about possible changes to the provisions of the Financial Services Bill relating to self-regulating organisations, or to rules made by a designated agency; and if he will make a statement.
§ Mr. ChannonI have received a large number of representations, in particular about these provisions of the 205W Financial Services Bill. In response to these representations it is the Government's intention to bring forward at Report stage amendments to give effect to the following changes.
The first change concerns the liability of self-regulating organisations to suit for damages. I have sympathy with a number of the concerns expressed. The organisations might be reluctant to take the necessary disciplinary action against their members if there was a prospect of facing a number of large claims for damages which would be costly and time-consuming to defend. Similar problems could arise when applicants for membership were rejected. I am equally concerned that individuals might be reluctant to serve on the governing bodies of self-regulating organisations or to be employed by them if they too could be sued.
The Government have therefore decided to provide immmunity from actions for damages for self-regulating organisations recognised under the Financial Services Bill. This would be modelled broadly on the immunity which the Bill already confers on the designated agency and on the stock exchange in its capacity as competent authority for listing.
The immunity would apply to recognised self-regulating organisations, to the members of their governing bodies and to their officers and servants. They would not be liable for damages for anything done or omitted in the discharge of the functions of the recognised self-regulating organisation, unless they could be shown to have acted in bad faith.
However, this does not remove all legal remedies, but only the right to claim damages. The right to sue for a declaration setting out the position on any legal issue in dispute or for an injunction restraining an illegal act or requiring the self-regulating organisation to act lawfully will remain.
Although these provisions will limit the right of action through the courts, other remedies will be available. An investor who has suffered loss as a result of a business breaching the rules will be able to sue the business, or claim on the compensation arrangements required to be set up by the Financial Services Bill. A business which claims to have been dealt with unfairly by the self-regulating organisation will be able to invoke its appeal procedure, and if deprived of members it will also be able to apply for direct authorisation from the designated agency.
The second change would give the Secretary of State a power, which he could transfer to a designated agency, to alter the rules of a recognised self-regulating organisation. The power would allow the designated agency to act swiftly, but allow its decision to be challenged by the self-regulating organisation concerned in a way which other decisions under the Bill cannot be. The designated agency would be able to exercise its powers if at any time it believes that an organisation's rules
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If a rule change were imposed, it would then be open to the organisation concerned to challenge the agency's actions in the courts. It could do so either on the basis that the organisation's original rules did in fact provide the requisite level of investor protection; or on the basis that, while some change was agreed to be necessary, the requisite level of investor protection would have been achieved by an alternative rule proposed by the organisation. If the court were satisfied on either ground it could set aside the agency's alteration and substitute any alteration proposed by the organisation. The agency's rule, however, would continue to apply while this appeal process was being pursued. I believe that this proposal adequately meets the concerns which have been expressed on all sides.
The third change concerns the agency's own rules, against which the rules of the self-regulating organisations will be measured. The Securities and Investmens Board is already engaged in widespread consultation on draft rules, and its eventual proposals will be submitted to me. If I then transfer powers to the board, but it subsequently wishes to alter those proposals, it will now be required by the Financial Services Bill to undertake consultation. In this way the self-regulating organisations and other people affected will be able to comment on the agency's rules as they develop to meet changing circumstances.