House of Commons Hansard Debates for 13 May 1991

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Madam Deputy Speaker walked through the door and he did not know what to do with himself. Sport is destroyed when pits are closed. I want the Government to refrain from what they are trying to prove tonight. I want a real restructuring and proper money invested. Let us save the remaining mining industry so that money is made available to do the job properly and those who have jobs do not have to be laid off, as they have been since 1979 when the Government came into office and created real problems in the mining communities. If the Minister comes to my constituency he will see the problems that the Government have created there, and he will see them if he visits Sherwood. They are particularly noticeable at Blidworth, where work has been destroyed because the pit has gone. The hon. Member for Sherwood agreed with that happening and did nothing about it. His constituents will remember that when the Prime Minister calls an election and will do something about it. I want the Government to leave the money from RECHAR to help the mining communities, as it is meant to do.

10.57 pm

Mr. Kevin Barron (Rother Valley) : With the leave of the House, I should like to take up the comments of my hon. Friend the Member for Ashfield (Mr. Haynes) on RECHAR. I know that it is not entirely a Department of Energy responsibility, but will the Minister say exactly what will happen about redundancies?

The hon. Member for Sherwood (Mr. Stewart) must explain his attack on the Labour party. We have said nothing more than what the Flowers Commission said when it looked into coal and the environment and what many other organisations have been saying for many years. It said that opencast coal should be limited. If the hon. Gentleman is in favour of it, he should be addressing the question not just to hon. Members who are present, but to his hon. Friend the Member for Amber Valley (Mr. Oppenheim) and many more, including his hon. Friends the Members for Leicester, North-West (Mr. Ashby) and for Cannock and Burntwood (Mr. Howarth) and those in the north- west of the country, including his hon. Friends the Members for Bury, South (Mr. Sumberg), and for Chorley (Mr. Dover), and the Minister for the Environment and Countryside, in whose area there are major plans.

The Coal Industry Act 1990, which the hon. Member for Sherwood supported last year, extends into the private sector the right for people to go out, look for and mine opencast coal. It will be a major problem in future years if it is not curbed. It is something about which the Government have done nothing.

I do not know where the hon. Member for Sherwood got his information, but I do not accept his argument about having to keep 15 pits open. Anybody who has studied the subject for many years will know that that is not so. That argument is used by the opencast mining executive of British Coal and people involved with private opencast coal mining, but that is an entirely different issue from whether deep-mine pits are being kept open.

I should like to place on record exactly what is happening at Monktonhall colliery. The hon. Member for Gordon (Mr. Bruce) mentioned the Select Committee on Energy. When it sits to take evidence, any hon. Member can go and listen in the public gallery. I was there last

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Wednesday, when the chairman of British Coal was giving evidence on the future of the coal industry and coal markets. He went into some detail about the position at Monktonhall as seen by British Coal. The reason why the pit is in its present state is not that given by the hon. Member for Sherwood. Direct questions were asked about Monktonhall. Dr. Ken Moses, a senior member of the board who was present, told the Committee of the current state of Monktonhall. He said that the shafts had sunk and there were pit bottom roadways and nothing else. He said that it would take anything up to 2,000 yd of driveages to get a long wall face. The hon. Member of Gordon shakes his head, but I shall explain what is happening in Monktonhall and why organisations such as the Labour party and the Scottish National Union of Mineworkers are arguing that it should be opened by British Coal.

Some 1,000 to 2,000 yd of roadway must be sunk, which costs about £1,000 a metre. Capital investment must be obtained for face machinery that costs anything from £5 million to £7 million, depending on the type of equipment used. Dr. Moses estimated that opening and working one coal face at Monktonhall would cost about £10 million and £20 million--I wrote the figure down, although I do not have it with me.

I think that Monktonhall should be opened. The only reason why it has been mothballed is the state of the Scottish electricity industry and the stream of pressurised water reactors, which has created an over-production of electricity in Scotland. The electricity cannot be removed from the country, because the interconnectors are not strong enough to get it to England. Monktonhall is a national asset that we should hold on to. I wish that all the 500 miners could go back to Monktonhall next week, but to have to put in £2,000 each to open up the colliery is not right.

Another important factor, given that coal is to be produced there, is how it will be sold. Inevitably, it is likely to have to be sold through British Coal, which undertakes the major marketing for the private sector in this country. British Coal concludes the marketing agreements. It costs the private sector money for British Coal to sell the coal.

The best way of opening Monktonhall is through the public sector. I, like the hon. Member for Sherwood, would like to hear something from the Minister tonight to show that the Government are committed. If the colliery is not opened in that way, the project will fall flat, as have collieries in Kent and south Wales, where consortiums and international companies have taken them over. We have heard only hype and seen only failure. However, everyone should argue next month that British Coal should reopen Monktonhall. That is the way to secure its future.

Mr. Malcolm Bruce : I shall not pursue the argument at length, because the consortium will make its own case. It has established markets, and it believes that the operation can be successful. Whether it achieves success is a matter of opinion. However, if British Coal decides that it will not reopen at the end of June--that would be a sign that it sees no future for Monktonhall, as that decision would be based on a judgment that it could not get a return on its investment--would the hon. Gentleman support the consortium? Would he take the view that, in those

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circumstances, the consortium should be given a chance on the basis that the alternative is complete closure and the abandonment of the pit?

Mr. Barron : In those circumstances, my answer would be yes. As I said earlier, however, under the law it is not possible to have more than 150 employees at any one time in this context. The hon. Gentleman should know that, because he was a member of the Committee that considered the relevant legislation last year. As I said, the public sector offers the only chance, perhaps, of keeping the mine open.

Mr. Allen McKay (Barnsley, West and Penistone) : Blidworth colliery made a clear profit of £2 million. The question that managers ask is where the £10 million came from for investment at the coal face.

Mr. Barron : My hon. Friend puts the issue in a nutshell. As I said, British Coal gave evidence last week before the Select Committee on Energy. It said that the pit would be offered to a consortium, but within the terms of current marketing restraints. I do not hold out much hope, but I do not wish to be accused of pouring cold water on hopes for the future. I am in favour of keeping the mine open. That would be good for Scotland and good for the nation generally. There is the problem of overproduction of electricity in Scotland, but that will not be with us for ever. The solution of that problem may open the door for Scottish coal.

Mr. Jack Thompson : The hon. Member for Gordon (Mr. Bruce) talked about thin seams. If he is right, it will be costly or uneconomic to install equipment to extract coal. Will my hon. Friend elaborate on that?

Mr. Barron : I am not sure about thickness, but the coal is mineable. I think that we should leave it at that. If the coal were not mineable, British Coal would not have spent about £500,000 a year to keep the pit ventilated and open after the work force left. I hope that the Minister will respond to my call that coal-mining areas that are losing jobs should be offered help, including retraining. I hope that British Coal Enterprise Ltd. will support new jobs in coal-mining areas that are losing out.

11.8 pm

The Parliamentary Under-Secretary of State for Energy (Mr. Colin Moynihan) : First, I congratulate my hon. Friend the Member for Sherwood (Mr. Stewart) on his excellent contribution to the debate. He is the miners' friend. No hon. Member makes more representations to my Department or more assiduously lobbies my ministerial colleagues in the Department than my hon. Friend, the miners' friend. I congratulate him again on making a forceful and powerful contribution to our proceedings.

We have concentrated on the RECHAR debate this evening. I am grateful to the hon. Member for Ashfield (Mr. Haynes) for explaining that responsibility for local government finance rests with the Department of the Environment and the Treasury. There have been recent discussions between the Department of Trade and Industry, the Department of the Environment and Commissioner Millan about the United Kingdom's policy on additionality. As Opposition Members said, the Commissioner pressed for fundamental changes in the way

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that EC grants are treated and to the British public expenditure system. Ministers have agreed to consider the implications of what he has said.

Opposition Members have been critical of British Coal Enterprise and have questioned whether the finance made available to BCE from the Government and the RECHAR scheme is adequate.

First, it is extraordinary that the hon. Member for Rother Valley (Mr. Barron) should criticise BCE. The management of BCE have achieved remarkable successes since the start-up in 1984--successes recognised by some Opposition Members. The hon. Member for Wentworth (Mr. Hardy), for instance, recognised them in a sedentary intervention earlier. The management have assisted in the creation of about 70,000 job opportunities in mining areas. In the job and career change scheme, singled out for criticism by the hon. Member for Rother Valley, on average 85 per cent. of those seeking another job have found alternative employment. Under the soft loan scheme, BCE has approved more than 3,000 loans to new or expanding businesses, including about 40,000 new job opportunities. Under the managed workshop scheme, BCE is supporting about 90 workshop sites on which about 10,000 people are employed. They provide a sheltered environment in which young businesses can grow until they are ready to move into a normal market environment.

Secondly, the hon. Member for Rother Valley seems to be under the misapprehension that RECHAR finance is already available for BCE. The United Kingdom has applied, as he knows, for RECHAR funds in respect of BCE. Those funds should be received within the next year or so. They have not yet been received, however, and I am grateful to the hon. Member for Ashfield for correcting his original remarks to the effect that they have already arrived.

Thirdly, the level of assistance to BCE, including a £60 million credit facility and annual restructuring grant assistance of about £5 million a year has been quite enough to fund all BCE management's proposals for job creation. The source of BCE funding--so far, it has been Government money--has not in any way limited BCE's activities. We shall welcome the RECHAR finance when it is received, but I make the important additional point that BCE is increasingly recycling repayments from successful business schemes backed over the past few years. In many ways, that is the true measure of its success. The hon. Member for Rother Valley rightly mentioned expected redundancies. As the order, which allows the payment of restructuring grant for 1991-92, is linked to expected redundancies, it is only right in the current financial year that I should discuss the redundancies in a little more detail.

Hon. Members will know that it is for British Coal to decide what manpower it requires in the light of the tonnage that it can profitably produce and sell in competition with other fuels. The Government need, however, to make some estimate of the number of redundancies in the year in order to seek the necessary estimate provision for restructuring grant. This cannot be an exact science, given the uncertainties involved in the process of consultation and review with the unions and work force that British Coal goes through before any closure is finally confirmed.

This year, the total provision for restructuring grant, being sought is £300 million. That figure is estimated to be

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sufficient to meet the costs of about 6,500 industrial redundancies, after allowing for grant expenditure in respect of some 2,000 workers who left towards the end of the last financial year but who did not attract restructuring grant payments until the current year. The Government will continue to meet the costs arising from past restructuring through other grants. In particular, weekly payments to beneficiaries under the redundant mineworkers payment scheme, which closed to new applicants in March 1987, are not affected by this order.

The order must been seen in the context of the continuing changes occurring in British Coal's commercial environment and of the Government's continuing support for the corporation's firm and businesslike response to those changes. Although British Coal's latest results are still being audited, the corporation expects to have made a modest bottom-line profit in the past financial year. The corporation also managed to live within the external financing limit of £905 million set by my right hon. Friend the Secretary of State at the beginning of last year, with an expected outturn of about £889 million, representing a saving of about £16 million.

The average colliery output per man shift was 4.7 tonnes overall, an increase of about 8.8 per cent. on 1989-90. I am sure that Opposition Members will join us in congratulating British coal's work force on their achievements and in expressing our hope of more to come.

The debate on Monktonhall has been interesting and important. The complexity of the issue was shown by the exchanges between Opposition Members whose knowledge of Monktonhall is far greater than mine. I understand that meetings are under way and I was surprised to hear what the hon. Member for Gordon (Mr. Bruce) said. I shall look further into the issue and shall consider what he said carefully. I shall ask my hon. Friend the Parliamentary Under-Secretary of State with responsibility for coal to respond. I give an undertaking to the House that that will be done, not least because the hon. Gentleman made some strongly worded and deeply felt comments about the lack of a response from the Department. I listened carefully to what he said and I am sure that others outside the House-- especially British Coal--have also listened carefully or will read carefully what he said and that that will lead to action.

On one point, the hon. Gentleman drew my attention to my responsibilities in other sectors of energy, especially oil and gas. There is a clear statement of reserves in the report and accounts of the British Coal Corporation. In detail on page 8, under "Reserves"--I shall not quote it all--it says :

"The Corporation's estimate of coal in place in the United Kingdom (that is in seams over 60 cms thick and less than 1,200 metres deep, minus coal which has already been worked) is 190 billion tonnes." It goes on to detail technically recoverable reserves. It is valuable, not least because it parallels much of the important information available in the Brown Book on the oil and gas sector. I have not covered every point in detail. If there are any specific points that I have not covered, I shall study Hansard and take them up.

I commend the order to the House.

Question put and agreed to.

Resolved,

That the draft Coal Industry (Restructuring Grants) Order 1991, which was laid before this House on 15th April, be approved.

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STATUTORY INSTRUMENTS, &c.

Mr. Deputy Speaker (Mr. Harold Walker) : With permission, I will put together the next two motions on the Order Paper.

Motion made, and Question put forthwith pursuant to Standing Order No. 101 (Standing Committee on Statutory Instruments, &c.).

Representation of the People

That the draft European Parliamentary Elections (Amendment) Regulations 1991, which were laid before this House on 16th April, be approved.

That the draft Representation of the People (Amendment) Regulations 1991, which were laid before this House on 16th April, be approved.-- [Mr. Kirkhope.]

Question agreed to.

Motion made, and Question put forthwith pursuant to Standing Order No. 101 (Standing Committee on Statutory Instruments, &c.).

Representation of the People (Scotland)

That the draft Representation of the People (Scotland) Amendment Regulations 1991, which were laid before this House on 18th April, be approved.-- [Mr. Kirkhope.]

Question agreed to.

Mr. Deputy Speaker With permission, I will put together the next two motions on the Order Paper.

Motion made, and Question put forthwith pursuant to Standing Order No. 101 (Standing Committee on Statutory Instruments, &c.).

Estate Agents

That the Estate Agents (Undesirable Practices) (No. 2) Order 1991 (S.I., 1991, No. 1032), dated 19th April 1991, a copy of which was laid before this House on 19th April, be approved.

That the Estate Agents (Specified Offences) (No. 2) Order 1991 (S.I., 1991, No. 1091), dated 29th April 1991, a copy of which was laid before this House on 29th April, be approved.-- [Mr. Kirkhope.] Question agreed to.

Motion made, and Question put forthwith pursuant to Standing Order No. 101 (Standing Committee on Statutory Instruments, &c.).

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Veterinary Surgeons

That the draft Veterinary Surgeons Qualifications (EEC Recognition) (German Democratic Republic Qualifications) Order 1991, which was laid before this House on 25th April, be approved.-- [Mr. Kirkhope.] Question agreed to.

ENVIRONMENTAL PROTECTION

Ordered,

That this House takes note of European Community Document No. 4084/91 relating to action to protect the environment in the coastal areas and coastal waters of the Irish Sea, North Sea, Baltic Sea and North East Atlantic Ocean (NORSPA) and 4548/91 relating to establishment of a financial instrument for the environment ; endorses the Government's intention to take an active part in the NORSPA scheme and promote United Kingdom interest in this area of environmental importance ; and supports the Government's aim to ensure that any new Community financial instrument for the environment contains clear and specific objectives, and respects the principle of subsidiarity.-- [Mr. Kirkhope.]

SITTINGS OF THE HOUSE

Resolved,

That

(1) this House do meet on Thursday 23rd May at half-past Nine o'clock ;

(2) notwithstanding the provisions of Standing Order No. 17 (Time for taking questions), no Questions shall be taken, provided that at Eleven o'clock Mr. Speaker may interrupt the proceedings in order to permit questions to be asked which are in his opinion of an urgent character and relate either to matters of public importance or to the arrangement of business, statements to be made by Ministers, or personal explanation to be made by Members ; and

(3) at Three o'clock Mr. Speaker do adjourn the House without putting any Question, provided that this House shall not adjourn until Mr. Speaker shall have reported the Royal Assent to any Acts agreed upon by both Houses.-- [Mr. Kirkhope.]

NORTHERN IRELAND COMMITTEE

Resolved,

That, notwithstanding the provisions of Standing Order No. 88 (Meetings of Standing Committees), the Chairman of the Northern Ireland Committee shall, not later than two and a half hours after the commencement of proceedings on the Matter of the proposal for a draft Fair Employment (Amendment) (Northern Ireland) Order 1991, put the Question, That the Committee has considered the said Matter.-- [Mr. Kirkhope.]

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Insurance Industry

Motion made, and Question proposed, That this House do now adjourn.-- [Mr. Kirkhope]

11.17 pm

Mr. Andrew Hunter (Basingstoke) : I doubt that I shall compete with the drama and passion that we have witnessed during the past hour or so, but I nevertheless welcome the opportunity to introduce a short debate on the Financial Services Act 1986 and the insurance industry--subjects in which I have a strong constituency interest. Earlier today, I gave my hon. Friend the Minister a draft of what I proposed to say.

A primary purpose of the Financial Services Act is to give the public adequate protection when buying investment products and services. However, there is broad agreement that, as far as retail financial services are concerned, the Act is in some respects not working well. That has arisen partly because the practical effects of some of the regulations run counter to the original intentions, and partly because the market for financial services has evolved so quickly in recent years that some of the fundamental regulations require updating and amendment.

Consequently, the Securities and Investment Board plc is currently conducting a wide-ranging review and has recently received a consultative paper on the subject. I welcome the review and look forward to an amended regime which will, to quote Mr. David Walker, the chairman of the SIB, be "robust and enduring." The SIB regards the review as urgent, but because the issues are complex and require extensive consultation, speedy changes cannot be expected. There seems no question of a new regime being introduced this year. Although the SIB may disagree, past form gives no great confidence that changes will become effective much before 1993. Meanwhile, there is an important issue of consumer protection which requires immediate action. That is the issue to which I wish primarily to draw attention.

An important principle of the Financial Services Act 1986 is that every seller of retail financial services should be authorised and supervised directly by the SIB, or indirectly by recognised self-regulatory organisations or recognised professional bodies. That is intended to ensure that all selling practices conform to the principles of the Act and that the public should have a clear line of recourse in the event of a breach.

The self-regulatory organisations have their own rule books which must at least match up to SIB standards. One such organisation is the Financial Intermediaries, Managers and Brokers Regulatory Association, which has responsibility for independent financial advisers. Such advisers are agents for the customer and are required to fulfil quite stringent conditions to secure and maintain authorisation. The second regulatory organisation is the Life Assurance and Unit Trust Regulatory Organisation, which authorises the suppliers of financial services, such as the life assurance companies. It makes them responsible for the compliance of their tied intermediaries who may be employed salesmen of the supplying company, or an individual or firm that has contracted to sell its products. The tied intermediaries are agents of the supplier and not of the customer, and they are restricted to selling only the investment products issued by the supplier. Thus, the

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structure is complete. The independent adviser is authorised and monitored directly by FIMBRA and the tied intermediary is policed by the supplying company, which is itself directly authorised and monitored by LAUTRO.

For the most part, the structure works well. However, one area in which major difficulties arise is that of the tied intermediary who is not an employee of the supplying company. Such an individual is formally known as an appointed representative and is bound to the supplier by an agency contract under section 44 of the Financial Services Act 1986.

Appointed representatives in practice come in two colours. Some are organised as a formal sales force, although they retain their self-employed status, but many others act as independent businesses, whether trading as a limited company, as a partnership or as a sole proprietor. They come in all shapes and sizes, from one-man operations to large financial institutions. The number of firms that act in that way has been growing substantially in the past year or two. Their principal operations need have little or no connection with financial services. Such firms may be an estate agency, a bank, a building society, a travel tour operator or even a football club. With the best will in the world, it is not possible for the supplying company to exercise the same standard of supervision and direction with independent businesses as the standard that it can give its own employees. Experience has shown that adequate compliance with the regulations requires close and frequent examination both of the business practices and of the detailed sales documentation of the appointed representative. LAUTRO has had to crack the whip more than once in the hope of improving standards, but without evident success.

My many contacts in the industry who are close to the situation simply do not believe that the necessary standards will ever be achieved in practice through the current regime. It has been put to me that the appointed representative, being an independent business, tends to resent and resist the very close supervision of affairs which is required. However, sometimes being unable or unwilling to meet the stringent requirements imposed by the regulations on independent financial advisers, the appointed representative has settled reluctantly for a contractual tie to one supplier. It will often be financed through loans from the supplier for commission, yet to be earned or for what is often described as "business development". Firms will often look around for the supplier willing to give the best deal and some will think nothing of changing suppliers if they get a larger loan or better terms elsewhere. The supplying company is sometimes reluctant to be too harsh in its supervision for fear of losing a valuable sales outlet, which will often owe it a substantial debt, which may prove hard to recover. There is a strong conflict of interest between its duty to supervise an appointed representative and its desire to retain a profitable business relationship with it.

Yet that, although important, is only part of the problem. The Financial Services Act regulates only the sales of what it defines as investment business. In this context, that would primarily be life insurance, pensions and unit trusts. The supplying company is required to monitor and take responsibility for only those types of business. The appointed representative, however, may on his own account be offering financial services to his

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customers that are not subject to the Act, such as mortgage broking, the taking of deposits or the holding of customers' money for purposes unrelated to the Act.

It is often too much to expect the general public to distinguish between financial transactions that are regulated under the Act and those that are not. Often, what to the customer is one

transaction--for example, buying a house--will involve investment business covered by the Act, financial transactions not covered by it and, frequently, elements that are not financial at all. Customers are likely to suppose that they have protection under the Act for transactions when in fact no such protection exists. Moreover, they may well believe that the supplier to whom the appointed representative is contracted--perhaps a respectable and

long-established life assurance company--will stand behind all the transactions. The supplier, however, has no such obligation in relation to any transaction not covered by the Act.

Supplying companies have often chosen to stand behind such transactions for the sake of their good names ; but that is a shaky foundation on which to build consumer protection, and one quite inconsistent with the purposes of the Act, which were to buttress protection in financial matters with the force of law. It would, moreover, be wholly unreasonable to expect the life company to stand behind a transaction carried out by the appointed representative on behalf of another supplier, such as a building society, whose deposit-taking business was outside the scope of the Financial Services Act. Yet the customer is likely to think that the protection of the Act, and the obligations of the life company, will protect his interests against, say, the fraud or negligence of the appointed representative.

Having debated the matter extensively with members of the industry, and after long thought, I conclude that appointed representatives can be adequately supervised only by being directly authorised, and not by authorisation at second hand through the supplying company. Only thus is it possible to escape the conflict of interests that I have described, and to ensure the proper monitoring of the appointed representative's investment business. That authorisation could be given and supervised by one of the existing regulatory organisations.

Such authorisation would make it much easier to clarify for the customer which financial products came within the scope of the Act, and the opportunity could be taken to ensure the financial adequacy of the appointed representative at a level appropriate to his financial liabilities, together with the provision of suitable professional indemnity insurance. The buying public need the assurance that all intermediaries are adequately capitalised and responsible.

I do not propose any change for the employed member of a supplier's sales force. Because he is employed, the supplier can give its employee the close supervision that is required ; can direct which classes of business that employee may undertake ; and must, in any event--quite apart from the Financial Services Act--stand behind the employee's actions. Thus, the public are already protected, in the full spirit of the legislation.

I am aware that LAUTRO is advocating some proposals that are directly aimed at the problems of the

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appointed representative. In themselves the new proposals are good, but they suffer from a fundamental flaw ; they still depend on regulation by the supplying company, not on direct authorisation. Without direct authorisation, no additional proposals will be effective in practice. Can we afford to wait while LAUTRO's proposals are finalised, implemented and observed in action, when all experience tells us that they will be nothing more than a palliative? Is that a risk that we want the buying public to run for a day longer than necessary?

I do not expect all existing appointed representatives to welcome such proposals, particularly those who are experiencing an unfair advantage under the present regime. But those--I am glad to say that there are many-- who are scrupulous in their professional conduct will welcome the clarification in status that only direct authorisation will give.

There will certainly be greater expense, much of which will fall on the shoulders of the appointed representatives. We should remind those who jib at this that they have chosen to operate as self-employed individuals or as independent firms rather than subject themselves to the direction of an employer. There are great advantages in acting as an independent contractor, but business independence has its price, and those who practise it should be willing to pay that price.

To return to the broad revisions currently being investigated by the Securities and Investments Board, I notice that a novel proposition is being informally canvassed. It concerns the possibility of an additional class of intermediary which would act as agent for a limited number of companies--that is to say, a class lying somewhere between an independent financial adviser and an appointed representative. Direct authorisation would certainly be necessary for such a hybrid intermediary if total confusion about who is answerable to whom is to be avoided. Consequently, the argument for the direct authorisation of appointed representatives is quite consistent with the steps that the SIB is exploring.

In summary, I suggest that the current method of controlling appointed representatives through the actions of their supplying company bring about a conflict of interest and in many instances cannot be practically carried out to the standards envisaged by the Financial Services Act. I have further argued that the public are frequently misled, perhaps quite innocently, into believing that they have the protection of the Act and the strength of the supplying company behind them when this will often not be the case. It is important to rectify that, and the direct authorisation of appointed representatives is a clear way forward.

11.30 pm

The Minister for Corporate Affairs (Mr. John Redwood) : I am grateful to my hon. Friend the Member for Basingstoke (Mr. Hunter) for raising on the Adjournment this most important issue, which is of great interest to the insurance industry.

Independent financial advisers, including those advising on life insurance and unit trusts, are authorised by the Securities and Investments Board or by one of the self-regulatory bodies or by a recognised professional body. My hon. Friend's worry relates to tied agents and appointed representatives regulated under section 44 of the Act. They are exempted from authorisation if they are

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employed under a contract for services setting out the type of investment business and the clients the agent is allowed to approach. The insurance company has to accept in writing responsibility for the investment activities of his agent.

These requirements rest not just upon the rules of Lautro but also upon the provisions of the Financial Services Act approved by Parliament. Many companies using appointed representations ensure a good quality service to clients and customers. Like my hon. Friend, I am worried when things go wrong and consumers lose money. We all have an interest in seeking, where possible, to avoid such future problems. I am sure that my hon. Friend will agree that, with the best will in the world, it will not be possible to stop all fraud. However, we can and should make it as difficult as possible, and concentrate the right resources on its detection to act as a deterrent.

As my hon. Friend said, day-to-day regulation by the SIB and LAUTRO is being improved in several ways. The SIB's new core rules lay down the basic principles for controlling appointed representatives. LAUTRO is working on new rules which will require that a representative's work for the insurance company must be carried out separately from any other financial business that he has. This may require different premises and different stationery. The appointed representative must also make clear on his stationery the nature and scope of his authorisation. My hon. Friend fears that that of itself will not be sufficient. I will ensure that the content of the debate and the report of his excellent speech is passed to the SIB and the SROs when they consider these matters further.

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An appointed representative or an independent financial adviser registered under the Financial Services Act may sometimes carry out unregulated business as well. Therefore, insisting on separate authorisation would not entirely prevent the problem. None the less, it should be looked at. The Securities and Investments Board is currently doing that, because it is investigating the whole question in its thorough review of retail regulation.

I understand my hon. Friend's wish for speed in these matters, but proper consultation should be undertaken, because it is most important to the industry and to customers that the SIB should get the answer right. The regulatory system must be cost-effective and should not place unduly onerous burdens on financial service providers. That would merely serve to limit choice by making some business more difficulty, and would also mean passing higher prices to consumers.

LAUTRO estimates that there are about 90,000 self-employed individuals and a further number of incorporated appointed representatives in the marketplace. If each one of them had to be separately authorised, the cost could become very large, and many thousands of individuals at present self- employed might decide to give up business altogether or to become employees. Such a development would be opposed by many interests--just as much as it is favoured by my hon. Friend and others.

I shall ensure that my hon. Friend's worries about the quality and style of regulation are passed on to the SIB and to LAUTRO. I shall ensure that they are taken into account in the wide-ranging review of regulation undertaken by those bodies.

Question put and agreed to.

Adjourned accordingly at twenty-six minutes to Twelve o'clock.

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