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.

Clause 143: Powers of persons appointed to investigate as a result of section 138(2)

258.     This clause establishes wider powers for investigators appointed to investigate possible insider dealing, market abuse or misleading statements and practices. Because these are liable to focus, at least initially, on market circumstances rather than the conduct or circumstances of any particular person, there is no requirement to notify a particular person as the subject of the investigation. So the concept of connectedness does not apply. The investigator can require any person to attend and answer questions, or to supply information or documents, so long as the investigator considers that they may be able to give information relevant to the investigation.

Clause 144: Admissibility of statements made to investigators

259.     A statement made by a person in compliance with a requirement imposed by an investigator under this Part is generally admissible in any proceedings. But it may not be adduced against that person, or questions relating to it asked, by the prosecution in criminal proceedings other than for the charges listed in subsection (3), or by the Authority in proceedings before the Tribunal to determine whether a penalty for market abuse should be imposed. It may, however, be adduced, or a question relating to it may be asked, by the person himself, or by those acting on his behalf. It can be used by the prosecution or the Authority in cases against another person, or in cases against that person where the charge is one of those listed in subsection (3). All of these latter charges relate to the provision of false information.

260.     The clause is necessary to take into account the judgment by the European Court of Human Rights in the Saunders case.

Clause 145: Information and documents: supplemental provisions

261.     This clause enables the Authority or an investigator appointed by either the Authority or the Secretary of State under this Part to compel the production of a document by a person who is holding a document on behalf of another person if they would have the power to compel the latter to produce the document if they held it. If any person required to produce a document fails to do so, they may be compelled to state where, to the best of their knowledge, the document is.

262.     A document once obtained may be copied or have extracts taken from it, and the person producing the document, or any other relevant person, may be required to explain it. But the production of a document does not affect any rights a third party may have over it.

263.     None of the powers under this Part may be used to compel a person to produce or disclose a privileged communication, such as advice from their legal adviser, although a lawyer may be compelled to disclose the name and address of their client.

264.     Documents subject to banking confidentiality may also be withheld unless the person holding the information, or the person to whom the duty of confidence is owed, is the person under investigation or a related company, or the person to whom the duty is owed consents to its disclosure, or the requirement disclose has been specifically authorised by the Authority or the Secretary of State.

Clause 146: Entry of premises under warrant

265.     An investigator appointed by the Authority or the Secretary of State may obtain a warrant for entry to any premises from a justice of the peace, or from a sheriff in Scotland, which can then be exercised through a police constable (subsection (5) sets out what the constable may do in the exercise of the warrant).

266.     To issue the warrant the justice of the peace or sheriff must be satisfied that there are reasonable grounds for believing that one of three sets of conditions is satisfied that:

• a request for information under this Part has not been wholly complied with, and that the documents or information may be found on the premises concerned; or

• the premises are the business premises of an authorised person or appointed representative, that information or documents on those premises could be required by the Authority or the investigator, but that a request for that information or those documents would not be complied with, or would result in the information or documents being removed, tampered with or destroyed; or

• a serious offence has or is in the process of being committed, and that there is information or are documents on those premises which are relevant to that offence, which could be required by the Authority or the investigator, but which would not be produced, or which might be removed, tampered with or destroyed.

267.     Subsection (6) provides for documents seized under a warrant to be held for up to 3 months, or for longer if relevant proceedings are instituted during that period.

Clause 147: Offences

268.     Anyone who fails to comply with requirements imposed under this Part without a reasonable excuse is guilty of a criminal offence and liable on summary conviction to a prison term of up to 3 months, or a fine up to level 5 on the standard scale (£5,000), or both. The same penalties are available for someone who intentionally obstructs the exercise of any rights conferred by a warrant under the preceding clause.

269.     A person who knowingly or recklessly provides false or misleading information in response to a requirement under this Part also commits an offence. On summary conviction he would be liable to a prison term of up to 6 months, or a fine up to the statutory maximum (£5,000), or both. On indictment he would be liable to a prison term of up to 2 years, or a fine, or both.

270.     The same penalties would be available against anyone who knows or suspects that an investigation is likely to be conducted and falsifies, conceals, destroys or disposes of any document he knows or suspects to be relevant, or causes such a document to be falsified, concealed, destroyed or disposed of.

PART XI: CONTROL OVER AUTHORISED PERSONS

271.     This Part is concerned with persons who intend to acquire control over UK authorised persons by virtue of their shareholding or voting rights. The Part also deals with increases and decreases in the extent of a person's control. Specifically, a person who proposes either to acquire control or to increase the level of their control must notify the Authority and secure its approval. The Authority may object to a particular acquisition or increase in control or it may attach certain conditions to its approval. A person proposing to decrease their control must merely notify the Authority of their intention. A breach of the obligations imposed by this Part is a criminal offence. The requirements in this Part are necessary to meet certain single market directive obligations. They carry forward similar requirements in existing legislation. For consistency, the requirements have been extended to cover controllers of all authorised persons incorporated in or formed under any part of the UK and not just those persons which are included in the scope of the single market directives. Parts of the existing legislation place similar notification requirements on persons who exercise control over authorised persons by virtue of their position in that firm or in a parent firm, for example as a director or chief executive. These sorts of people may need to be approved by the Authority under Part V of the Bill.

Clause 148: Obligation to notify the Authority

272.     This clause imposes a requirement on persons who propose to acquire control, an additional kind of control or increase their control over a UK authorised person to give the Authority a "notice of control" informing them of their intentions. What constitutes "control"?and a "kind of control" for these purposes is described in clause 149. The circumstances in which a person is taken to "increase" their control are set out in clause 150.

273.     Subsection (2) provides for passive acquirers of control. These are persons who acquire control without themselves taking any action, for example, through inheriting a large number of shares. A passive acquirer may not be able to notify the Authority in advance, but under this subsection, they must do so within fourteen days of first becoming aware that they have acquired the control.

274.     Subsection (3) defines the range of authorised persons the control of whom this Part is concerned with. In line with single market directive requirements this is limited to authorised persons incorporated in or formed under the law of any part of the UK, "UK authorised persons". This is because under the single market directives, the supervision of those who have control is subject to home State regulation. The requirements do however cover all classes of UK authorised persons and not just those included in the scope of the single market directives.

Clause 149: Acquiring control

275.     This clause defines the circumstances in which person acquires control and is therefore subject to the obligation to notify the Authority under clause 148(1)(a) or (b).

276.     A person may acquire control either directly via a shareholding or voting power in the UK authorised person itself, or indirectly via a shareholding or voting power in a parent of the UK authorised person. This is required by the single market directives.

277.     Subsection (3) provides that for the purposes of determining whether a person has control, the percentage shareholding or voting power is aggregated with that of their associates as defined in clause 356. This means, for example, that where a firm has a holding of 5% of the shares in a UK authorised person and one of its subsidiaries has a holding of 7% of the shares in the same UK authorised person, the firm will be required to notify the Authority (provided that neither the parent nor subsidiary already has significant influence).

278.     Subsection (4) sets out what constitutes a "kind" of control. A person who has control of one kind would be required under clause 148 to notify the Authority again were they to acquire control of a different kind either as well as, or instead of, the control they had before.

Clause 150: Increasing control

279.     This clause sets out the circumstances in which an increase in a person's control causes them to be subject to the obligation to notify the Authority under clause 148(1)(c). These are that a person's shareholding or voting power must cross one of the thresholds set out in subsection (2), or they must become a parent of the UK authorised person. These thresholds are determined largely by the single market directives.

Clause 151: Reducing control

280.     This clause sets out the circumstances in which a reduction in a person's control causes them to be subject to the obligation to notify the Authority under clause 159. These are that a person's shareholding or voting power must cross one of the thresholds set out in subsection (2), or they must cease to be a parent of the UK authorised person. The level of these thresholds is as for an increase in control and again are determined largely by the single market directives.

Clause 152: Notification

281.     This clause concerns the procedure to be followed when notifying the Authority. It specifies that the Authority may, by direction, indicate the information that must be supplied in support of a notification.

282.     Subsection (2) confers a power on the Authority to require persons giving a notice of control to provide the Authority with such additional information as the Authority may reasonably require.

Clause 153: Duty of Authority in relation to notice of control

283.     This clause gives the Authority up to three months from the date it receives a completed notice to determine whether to approve the application or issue a warning notice, according to the procedure in clause 338, indicating that it is proposing to object to the acquisition of, or increase in, control.

284.     Subsection (2) imposes a requirement on the Authority to consult home State competent authorities when required to do so by regulation to be made by the Treasury. The contents of this requirement are determined by the single market directives.

285.     As a result of subsection (3), if the Authority requests additional information, the time between the request for information and the Authority's receipt of it does not count towards the three month period referred to in subsection (1).

Clause 154: Approval of acquisition of control

286.     The Authority is obliged by this clause to notify the applicant without delay if it gives its approval.

287.     If the Authority fails to indicate its approval or to issue a warning notice within three months, subsection (2) provides that the applicant is to be treated for the purposes of the Part as having been approved.

288.     As a result of subsection (3), the approval is valid for a year, unless the Authority notifies the person intending to acquire control of a another time period. If the person does not acquire the control in that period, a fresh application is required.

Clause 155: Conditions attached to approval

289.     This clause concerns the ability of the Authority to make its approval subject to the imposition of conditions on the applicant. The Authority is able to impose such conditions as it considers desirable to ensure that the qualifying conditions for authorisation continue to be met in relation to the UK authorised person subject to the control concerned.

290.     If the Authority imposes conditions, subsections (3) and (4) require it to issue the person with a warning notice and a decision notice according to the procedures in clauses 338 and 339. The person has a right to refer the matter to the Tribunal.

291.     Under subsection (5), persons on whom conditions are imposed may apply to the Authority to have the conditions varied or cancelled. The Authority may itself cancel a condition.

292.     The Authority may serve a notice of objection on persons who breach any conditions imposed by this clause. This is provided for in clauses 156 and 157.

Clause 156: Objection to acquisition of control

293.     This clause gives the Authority the power to object to either the acquisition of new or additional control, an increase in control, or to a person who has control who has breached a condition imposed by the Authority or who no longer meets the conditions for approval.

294.     The Authority can object to a person acquiring or increasing their control where it is not satisfied that the conditions for approval in set out in subsection (2) are met.

295.     Subsection (3) confers a duty on the Authority to notify the applicant if it considers that the conditions for approval would be met if the applicant took or refrained from taking a particular step.

296.     Subsection (4) enables the Authority to object to persons who have acquired control in contravention of the obligation in clause 148 to notify the Authority but only if it is satisfied that the grounds for approval are not met.

297.     Subsection (5) enables the Authority to object to a person whose acquisition of control it has previously approved where it is satisfied that either the person has failed to comply with a condition it imposed or where, as a result of matters the Authority has become aware of since first approving the control, the person no longer meets the grounds for approval.

Clause 157: Notices of objection: procedure

298.     This clause sets out the process by which the Authority can object to a person who wishes to acquire or who has acquired control over a UK authorised person. If the Authority wishes to object to an applicant, it is obliged to send them a warning notice.

299.     Subsection (2) has the effect that the Authority must comply with any requirements to consult other persons before serving a warning notice as may be prescribed by the Treasury. The Treasury will exercise this power to ensure that effect is given to requirements imposed by the single market directives to consult home State competent authorities.

300.     As a result of subsection (3), the Authority only has up to three months from becoming aware of the grounds on which it is objecting to the person in question to serve a notice under this clause.

301.     Subsection (5) indicates that, if the Authority requests additional information, the period between the request for information and the Authority's receipt of it does not count towards the three month limit.

Clause 158: Improperly acquired shares

302.     This clause makes provision enabling the Authority to restrict rights deriving from shares in the case of persons who continue to hold shares in breach of a notice of objection. It is a requirement of the single market directives that these powers should be available.

303.     The Authority also has the option of applying to the court for an order directing the sale of shares under subsection (3). If shares are sold in this way, subsection (6) provides that the proceeds (net of the costs of the sale) will be paid, via the court, to persons beneficially interested in them.

304.     Subsection (7) provides that the powers in this clause may only be exercised in relation to shares acquired in breach of a notice of objection or in contravention of a condition imposed by the Authority, and not to any other shares held by the person or his associates.

Clause 159: Notification

305.     This clause concerns notification of reductions in, and cessations of, control.

306.     Under subsection (1) a person who proposes to reduce the control that they have over a UK authorised person, or to cease to have any control, must notify the Authority that that is their intention. The circumstances in which a reduction in control triggers this notification requirement are set out in clause 151. A person required to give a notice to the Authority under this subsection must, under subsection (3), notify the Authority again when the proposed reduction or cessation of control actually occurs.

307.     Subsection (2) requires persons whose control is reduced, or ceases, without themselves taking any action, to notify the Authority within 14 days of becoming aware of the reduction.

308.     Subsection (4) sets out various requirements in relation to the notices given pursuant to this clause.

309.     The Authority has no power to make any objection in these circumstances but it is an offence to fail to give the necessary notification.

Clause 160: Offences under this Part

310.     This clause sets out the offences in relation to this Part of the legislation.

311.     Subsection (1) provides that it is an offence to not to notify the Authority in accordance with the requirements in this Part when acquiring, increasing, reducing or ceasing to have control over a UK authorised person.

312.     Subsections (2) and (3) provide that where proper notification has been given, it is an offence to carry out a proposal before the Authority has given its approval or, where it has issued a warning notice, before it has decided whether to follow the warning notice with a notice of objection.

313.     A person guilty of any of the above offences is liable on summary conviction to a fine not exceeding level 5 on the standard scale, currently £5,000.

314.     It is also an offence, under subsection (4), to acquire control in contravention of a notice of objection. This is a more serious offence and a person guilty of it may be convicted on indictment to imprisonment for a term of up to two years and to a fine. There are lesser fines on summary conviction. The penalties are set out in subsections (6) and (7) including provision for a daily fine if the offence continues.

315.     Subsection (8) provides a defence for those who are prosecuted for failing to notify the Authority of their influence. The defence is available if a person can show that he was unaware of the act or circumstance by virtue of which the duty to notify the Authority arose. In these circumstances, the person must notify the Authority within 14 days subsequently of becoming aware. Failure to do so is a criminal offence, the penalty on summary conviction being a fine not exceeding level 5 on the standard scale, currently £5,000.