Clause 116: Financial promotion rules

201.     This clause confers a power on the Authority to make rules applying to authorised persons in relation to the regulation of financial promotion under Part II of the Bill.

202.     Subsection (3) enables the Treasury to restrict this power.

Clause 117: Money laundering rules

203.     The Authority may make rules applying to authorised persons concerning the prevention and detection of money laundering in connection with the carrying on of regulated activities. These will enable the Authority to make compliance with the Money Laundering Regulations a regulatory obligation. The Authority will also be able to make rules supplementing the Money Laundering Regulations.

Clause 118: Modification or waiver of rules

204.     This clause concerns the power of the Authority to waive or modify certain kinds of rules, as set out in subsection (1), at the request of an authorised person or with their consent. Subsection (2) specifies the circumstances in which the Authority may waive or modify these rules.

205.     Waivers or modifications of rules can have indefinite effect or can be revoked by the Authority. Breaches of conditions attached to a waiver or modification are equivalent to a breach of rules.

206.     Subsections (5) to (7) concern the obligation on the Authority to publish waivers. They provide that the Authority must publish waivers or modifications in such a way as to bring them to the attention of the people who are likely to be affected, unless the Authority believes that publication would unreasonably prejudice the authorised person's commercial interests or contravene an international obligations of the UK or that the tests in subsection (7) are met. Persons affected by the modification or waiver will include clients of the authorised person and other authorised persons, who might wish to benefit from a similar waiver.

207.     In deciding whether the conditions for withholding publication are met, subsection (8) requires the Authority to take into account the factors outlined. The fact that breach of a rule is actionable at the suit of a person suffering loss should tend to indicate that waivers or modifications will need to be published The Authority should also publish a waiver or modification of a rule if it is able to do so without disclosing the identity of the person named in the direction.

Clause 119: Evidential provisions

208.     This clause enables the Authority to make rules which, if breached, will not lead to any disciplinary or other sanction provided for under the Bill. Rules made under this clause must state that they will not give rise to sanctions under the Bill, but they must also indicate that their contravention can be relied on as indicating that another rule has been contravened, or that compliance with the rule can be relied on as indicating that another rule has been complied with. In particular, this power will enable the Authority to elaborate on rules, including principles, which are framed at a higher level of generality. The power can be used to promulgate codes, such as a code of practice under clause 61, whereby rules comprising the code carry evidential status as to whether a higher level principle, which is underpinned by the code, has been breached.

Clause 120: Actions for damages

209.     This clause sets out the circumstances in which persons who suffer loss as a result of a rule breach by an authorised person have a right of action for damages for resulting losses. This clause does not remove any common law cause of action which a person might otherwise have. It allows a class of people to be able to recover losses just by showing that there has been a breach of a rule as a result of which they have suffered loss rather then having to rely on that breach as evidence of negligence.

210.     The clause creates a presumption that private persons (as defined by the Treasury) who suffer loss as a result of a rule breach have a right of action for damages. The right does not extend to breaches of financial resources rules or other rules which may be specified by the Authority. Customers would only generally suffer loss as a result of a breach of financial resources rules if the authorised person concerned became insolvent. In those circumstances, the relevant person's rights in the insolvency would not be altered by a separate right of action. Additionally, it might not be appropriate to attach a right of action to certain other rules, such as those drawn at a high level of generality.

211.     There is a presumption that persons other than private persons do not have a right of action for damages, although the Authority is able to specify that breaches of certain rules are actionable by non-private persons.

Clause 121: Limits on effect of contravening rules

212.     Breach of the Authority's rules does not make a person guilty of an offence, nor does it make a transaction unenforceable or void.

Clauses 122: Notification of rules to Treasury

213.     This clause places a requirement on the Authority to give the Treasury written notice when the Authority makes or amends a rule.

Clause 123: Rule-making instruments

214.     This clause require the Authority to publish written copies of its rules. As a result of subsection (3), if rules do not specify the power under which they are made, they will not have effect.

Clause 124: Verification of rules

215.     This clause concerns the procedure whereby the Authority can be required to verify its rules for the purposes of legal proceedings.

Clause 125: Consultation

216.     This clause imposes consultation requirements on the Authority when it proposes to exercise its rule-making powers. Draft rules issued for consultation must, as a result of subsection (2), be accompanied by a cost benefit analysis of the proposals, an explanation of the purpose of the proposed rules and a statement that representations about the Authority's proposals may be made to the Authority within a specified time. They must also be accompanied by a statement of the Authority's reasons for believing that the proposed rules are compatible with the Authority's objectives.

217.     Subsection (4) provides that the Authority must have regard to those representations, and by subsection (5), if the rules which are introduced differ significantly from those which the Authority consulted on, the Authority must generally publish a statement of that fact, together with a cost benefit analysis concerning the new provisions.

218.     Where the Authority proposes to exercise its powers to charge fees, the requirement to produce a cost-benefit analysis does not apply but the Authority is required to consult on the proposed expenditure which would result from the fee raising exercise. Part III of Schedule 1 contains further provisions regarding the Authority's fee raising powers.

219.     Consultation requirements will not apply if the Authority considers that any delay resulting from the consultation would harm consumers. Also, the does not have to consult on a cost-benefit analysis when it considers that its proposals will not result in a material increase in costs. It would, however, still need to consult on the content of the proposed rules.

Clause 126: General supplementary powers

220.     This clause confirms that the Authority's rules may make different provision for different cases and that the rules may make incidental, supplemental, consequential and transitional provisions.

Chapter II: Guidance

221.     Chapter II concerns the Authority's power to issue and charge for guidance on its rules, the legislation and other matters relating to its functions, including its regulatory objectives.

Clause 127: Guidance

222.     This clause enables the Authority to issue and charge for guidance on all the matters listed in subsection (1).

223.     Subsection (2) confirms that the Authority can use its financial resources or its other resources to support the giving of information and advice by third parties where the Authority considers it could have given the advice or information under this clause.

224.     Subsection (3) clarifies that the Authority can charge for its guidance, whether it is offered generally or in response to a specific request.

Chapter III: Competition Scrutiny

225.     Chapter III provides for competition scrutiny of the Authority's rules, guidance, policy and practice statements, codes and practices. It places a duty on the DGFT to keep these under review, and to report to the Treasury about any which may have a significantly anti-competitive effect. On receipt of a report under this Chapter, the Treasury may require changes to be made to the relevant rules, guidance, statements, codes or practices, if it is satisfied that the anti-competitive effect is greater than is necessary.

Clause 130: Reports by the Director General of Fair Trading

226.     Subsection (1) requires the Authority to send the DGFT a copy of any new or modified rule, guidance, statement of policy or principle, or code, immediately it is made. These rules, guidance, statements and codes are referred to collectively as "regulating provisions". Subsection (2) makes clear that the Authority must include with this notification a statement whether, in its opinion, the regulating provision in question will have an effect on competition.

227.     Subsections (4) and (5) require the DGFT to keep the Authority's regulating provisions and practices under continuing review. If, subsequent to receipt of a notification from the Authority, or at any other time, he forms the view that an individual regulating provision or practice has a significant anti-competitive effect, or that this is the combined effect of a number of regulating provisions or practices, then he must report this to the Treasury, giving details.

228.     Subsection (3) provides that if the DGFT concludes that a regulating provision notified to him will not have a significant anti-competitive effect, then he has discretion whether or not to report this to the Treasury. Subsection (6) gives the DGFT discretion whether or not to publish a report made under subsection (3).

229.     Subsection (7) requires the Treasury to publish any report which it receives under subsections (4) and (5) - ie any report finding a significant anti-competitive effect. Subsection (8) requires that, if a report is published by the DGFT, under subsection (6), or by the Treasury, under subsection (7), any confidential information relating to a particular person must be, so far as practicable, removed from the report prior to publication.

Clause 131: Power of the Director to request information

230.     This clause provides that, in carrying out his functions under clause 130, the DGFT has powers to request relevant documents from any person, and to request relevant information from any business. (Subsection (4) makes clear that these powers do not, however, require anyone to disclose a legally privileged communication.)

231.     Subsections (5) and (6) provide that if a person fails to produce a required document, or piece of information, then the DGFT may report the matter to the court, and if the court is satisfied that there was no reasonable excuse for this failure, that person may be punished as if he had been guilty of contempt of court.

Clause 132: Powers and duties of the Treasury

232.     Subsection (1), provides that when the Treasury receive a report identifying regulating provisions or practices which the DGFT believes cause a significant anti-competitive effect, they must decide whether they agree with the DGFT's conclusions. If the Treasury do so, then they must take a further decision as to whether these provisions or practices are nevertheless justifiable. They may decide that they are justifiable if, in their opinion, the anti-competitive effect they have is no greater than is necessary to achieve one of the "permitted purposes" listed in subsection (2). If this is the case, then the Treasury need take no further action.

233.     If, however, the Treasury decide that the regulating provisions or practices concerned are not justifiable, subsection (3) provides that they may either tell the Authority what changes it must make to rectify this, or, in the case of rules only, the Treasury may make changes. Subsection (4) provides that if the Treasury are considering taking action under subsection (3), they must first invite the Authority, and any other interested parties, to make representations, both on the contents of the DGFT's report, and on what steps, if any, the Treasury might take in response. The Treasury must have regard to any representations they receives.

Clause 133: The Fair Trading Act 1973

234.     This clause provides that in carrying out investigations of possible monopoly situations, the Competition Commission shall not take into account the effects of any regulating provisions or practices of the Authority, nor of any actions which other persons may have taken in compliance with these.

Clause 134: The Competition Act 1998

235.     This clause makes clear that neither the prohibition in Chapter I (of agreements preventing, restricting or distorting competition within the United Kingdom) or the prohibition in Chapter II (of abuse of a dominant position in a market which may effect trade in the United Kingdom) of the Competition Act 1998 shall apply to any action taken by a person in order to comply with the Authority's regulating provisions or practices.

PART X: INFORMATION GATHERING & INVESTIGATIONS

236.     This Part sets out the powers of the Authority to require the production of information and documents, to require reports to be compiled, to conduct investigations and to obtain access to premises. Many of these powers are also held concurrently by the Secretary of State in recognition of his wider responsibilities in relation to company law.

237.     The powers provided for in this Part are in addition to the specific powers conferred on the Authority by other provisions of the Bill to request information from unauthorised persons in particular circumstances, such as in connection with an application for authorisation or recognition. They enable the Authority to require information on an ad hoc basis and therefore supplement the Authority's ability to make rules requiring authorised persons to provide it with information on a routine basis under its general rule-making power (clause 110).

238.     Failure to comply with any requirement imposed using any of the powers in this Part is a criminal offence under clause 147 (see below).

Clause 135: Authority's power to require information

239.     This clause gives the Authority a general power to require information or documents (see note on clause 146 below) which may reasonably be required in connection with the discharge of its functions under the Act. The information or documents may be required from any person, including a legal person, who is any of the following:

• an authorised person,

• a formerly authorised person,

• a person connected with an authorised person, as defined in subsection (11),

• a recognised investment exchange,

• a recognised clearing house.

240.     Either the Authority can write to the person asking for the production of the information or documents within a reasonable timescale, or it can send an officer to whom it has given written authorisation. The person is required to provide the information or documents without delay, and they may also be required to take any reasonable steps the Authority may specify to verify the information provided.

Clause 136: Reports by skilled persons

241.     This gives the Authority the power to require an authorised person or a formerly authorised person to commission and provide the Authority with a report into any relevant matter the Authority may specify. This must be a matter about which the Authority could require information under the preceding clause, i.e. the report must reasonably be required in connection with the discharge of the Authority's functions.

242.     The power also enables the Authority to require such reports from other persons carrying on a business who are, or were, and connected to the authorised or formerly authorised person in the ways specified in subsection (2). Essentially these are members of the same group of companies, or companies closely linked through a common shareholder, or any partnership of which the authorised or formerly authorised person is or was a member. This is a more limited set of persons than under the preceding clause and Schedule 11.

243.     The person making the report must be nominated by the Authority, or their appointment must be approved by it. The Authority has to be satisfied that they have the relevant skills to report on the matter concerned. In many cases this person may be an accountant, or they may be a person with some other suitable professional qualification, such as a lawyer or an actuary, or they may be a person with particular commercial or professional experience, such as a banker. The Authority may also specify the form of the report.

244.     Subsection (4) imposes an obligation on any in-house expert working for the authorised or connected person to cooperate with the person appointed to produce the report. Thus, if the report is to be produced by an actuary then the in-house actuary who works for the firm is obliged by subsection (5) to cooperate in the production of the report. This duty is enforceable by the Authority through an injunction, or a comparable order in Scotland.

Clause 137: Appointment of persons to carry out general investigations

245.     Under this clause either the Authority or the Secretary of State (the "investigating authority") may, where there are good reasons for doing so, appoint competent people to conduct an investigation on their behalf into the business of an authorised person or appointed representative, or into the ownership or control of an authorised person. An "appointed representative" is a person who is exempt from the general prohibition in relation to particular regulated activities by virtue of a contract with an authorised person as described under clause 35 - see above. An appointed representative and the authorised person who is their principal as a result of the contract may be investigated at the same time. An investigation may also be made into a formerly authorised person or a former appointed representative, although the scope of such investigations is limited by subsection (4) to the business they conducted while they were authorised or appointed or the control or ownership of the former authorised person at that time. Written notice must be given to the person under investigation under clause 140(2).

246.     The people appointed to conduct the investigation may be employees of the investigating authority (under clause 140(5)), or other people engaged specifically for the purpose. If they judge it necessary for the purposes of the investigation, they may also inquire into the business of other connected companies or partnerships, including those which were connected at some relevant time in the past (this extends to the same classes of connected company or partnership as under the preceding clause). The investigator(s) must give written notice to any other company or partnership whose business they intend to inquire into in this way.

Clause 138: Appointment of persons to carry out investigations in particular cases

247.     In addition to the general power under the preceding clause to investigate the business of authorised persons and appointed representatives where there is "good reason" to do so, this clause gives the Authority or the Secretary of State the power to appoint competent people (as before these can be employees of the investigating authority) to conduct investigations where they have reasonable grounds for suspecting that some specific contravention or offences may have taken place. The more specific grounds for the exercise of the powers under this clause are reflected in the wider powers of the investigators appointed (see notes on clauses 141 to 143 below).

248.     Among the contraventions that may be investigated by either the Authority or the Secretary of State under this clause are a breach by an unauthorised person of the general prohibition under section 16, the offence of misleading the Authority under section 342, market abuse under clause 95, or insider dealing under Part V of the Criminal Justice Act 1993. The Authority, but not the Secretary of State, may also launch an investigation under this clause where a person is suspected of having committed a "related offence" which the Authority has power to prosecute under the Act, but has no other power to investigate. This covers breach of the Money Laundering Regulations 1993 which the Authority has power to prosecute by virtue of clause 345.

249.     The Authority may also appoint investigators under this clause to look into suspected contraventions of rules or regulations made under the Bill, failures to comply with statements of principle made under clause 61, or to investigate the fitness and properness of approved persons under Part V of the Bill. The fitness and properness of authorised persons may be investigated under the preceding clause.

Clause 139: Investigations etc in support of overseas regulator

250.     This clause gives the Authority new powers comparable to those held concurrently by the Treasury and the Secretary of State under section 82 of the Companies Act 1989 to investigate matters on behalf of an overseas regulator. In deciding whether it is appropriate to exercise this power to require information or to appoint investigators on behalf of an overseas authority, the Authority is directed to take account of the factors listed in subsection (4), which include the seriousness of the case and the wider public interest in providing the assistance. When the request comes from another competent authority under any of the single market directives (see the notes on Schedule 3 for a brief explanation), the Authority is also required to consider whether the assistance must be given in order to fulfil the obligations to cooperate imposed by those directives. If it decides that it is, the other factors fall away.

251.     The Authority may make the exercise of the power conditional on the overseas authority making an appropriate contribution towards the cost of doing so, except where it considers that exercise is necessary in order to fulfil the obligations to cooperate under the directives.

252.     Under subsection (6), the Authority may decide to permit representatives to attend and participate in any interview to be conducted by the investigators it has appointed. But in order to permit this, the Authority is required to be satisfied that the information thus obtained by the overseas regulator will be subject to equivalent safeguards on its subsequent use and disclosure as are contained in Part XXI of the Bill. The Authority must also prepare a statement of its policy on the exercise of this discretion, which must be approved by the Treasury and, if approved, published. The discretion may not be exercised until this statement has been approved and published.

Clause 140: Investigations: general

253.     Where the Authority or the Secretary of State, whichever is the investigating authority, has launched an investigation into a person under clause 137 or clause 138 they must notify that person that the investigator has been appointed. They must also inform the person under investigation of the reason for the appointment, and the particular provisions of the Bill under which the appointment has been made. However no notification is needed for investigations under clause 138 into possible insider dealing, market abuse or misleading statements and practices, since in those cases the investigator is likely to be looking into market circumstances at the outset of the investigation rather than investigating a particular person.

254.     Subsection (5) allows employees of the investigating authority to act as investigators under this Part of the Bill.

255.     Subsections (6) to (8) allow the investigating authority to control the scope, timetable and form of the investigation by issuing directions to the investigator(s). Any directions must be notified to the person under investigation except for those types of investigation where initial notice is not required (that is insider dealing, market abuse or misleading statements and practices).

Clause 141: Powers of persons appointed under section 137

256.     This clause establishes the powers of investigators appointed under the general investigations power to require people to attend before them and answer questions, and to provide information or documents. The investigators may only impose these requirements where they reasonably consider that questions, information or documents in question are relevant to the investigation. And they may only impose them on the person under investigation, or any other "connected person" as defined in subsection (4). These limitations reflect the broad grounds on which the general investigatory power is exercisable.

Clause 142: Additional power of persons appointed under section 138 to investigate persons

257.     This clause establishes wider powers for investigators appointed under clause 138, the particular cases power. This clause only applies where a person has been notified under clause 140 as the subject of the investigation, and so does not apply to an investigation into possible insider dealing, market abuse or misleading statements and practices. Because the grounds required under clause 138 are more specific, the powers available to the investigator are wider in terms of who may be required to give information. A person who is not the person under investigation or connected to that person may only be asked questions so long as the investigator is satisfied that it is necessary or expedient to do so. Connected attracts the same meaning as under the previous clause.