Previous SectionIndexHome Page

Mr. Flight: We were advised of the new territories with which the new clauses deal, but we received details of the new clauses only recently. While we broadly support the intention behind the new clauses, they contain some deficiencies.

Legal assistance is to be given only if the accused person has already gone through the FSA warning notice procedures and made representations. A person who carries out that process is likely to incur major legal expenditure. The Government have, in effect, accepted the probability that market abuse cases will be viewed as criminal under the European convention on human rights, but it strikes us that the scheme does not provide adequate legal aid for the whole process.

4.15 pm

Also at issue is the fairness of the rather convoluted funding arrangements. Market abuse is an offence that can be committed by anyone, even if not an authorised person, and by firms outside the United Kingdom. Therefore, it seems rather unfair that the legal assistance scheme should be funded entirely by authorised persons, and strange that the FSA can require payments to the scheme to be paid only by a particular class of authorised person.

We regard as unfair the FSA being able to make rules that excess receipts paid to it under the scheme should be distributed among only some of the authorised persons on whom the levy was imposed during the period in question. It is also unfair that sums can be applied to reduce amounts that those persons are, or will be, liable to pay to the FSA under the funding requirements "or otherwise". That wording appears to give the FSA the authority to apply excess receipts if a firm is liable to pay a fine--say, for market abuse or a disciplinary offence--but cannot afford to do so. Authorised persons will, in effect, have to pay the fines of defaulters. I doubt that that is what the Government intend.

New clause 11 is fine up to a point. However, an award of costs under costs rules can be deducted in the case of an investment company, but apparently not in the case of insurance companies. What is the reason for that difference? Will similar provisions apply, under normal taxation rules, in the case of all other classes of authorised person? The new clause appears to deal only with the tax position in respect of investment companies.

The big issue is clearly that of not providing legal assistance in respect of other offences. It is strange that the Government have accepted the risk on market abuse, but not on other matters in respect of which substantial fines can be imposed and individuals can lose

27 Jan 2000 : Column 636

their livelihood. Proceedings involving matters other than market abuse will be regarded as criminal proceedings under the European convention on human rights.

The requirement in respect of legal assistance is spelled out expressly as a protection in cases of criminal charges, but it is also an aspect of the convention's requirement for a fair hearing. Therefore, legal assistance should be available, and not only because many cases other than those involving market abuse would be regarded as criminal proceedings under the convention.

As the Government are aware, many eminent lawyers are of that view. Lord Hobhouse, who is a Law Lord, Lord Lester, who is a senior QC, and others in their chambers have made clear their belief that the FSA's disciplinary powers as they stand are in breach of the European convention. Lord Burns stated:

Lord Poole, chief executive of the Lloyds group, Ockham Holdings, has made similar comments.

In our view, the Government are taking a considerable risk. When the Bill is enacted, it might be undermined completely by a case brought under the European convention on human rights. It would be wiser to address the issues up-front.

The other technical defects and issues that I have raised will no doubt be addressed, debated and corrected in the other place. Without sounding petty, it would have been useful if this territory had been addressed in Committee, where amendments could have been tabled before reaching this stage of the Bill's consideration.

Mr. Timms: I thought that the hon. Gentleman might be more welcoming of the changes that we have made, which arose from commitments made in Committee. I do not agree that we are taking a high-risk approach. Indeed, I think that we are taking a precautionary approach by ensuring that legal assistance will be available in instances where conceivably it could turn out to be required.

The hon. Gentleman asked me a number of questions, which I shall attempt to answer. First, he asked why authorised persons should be those who pay the levy and not others. Authorised persons stand to benefit most from the improved functioning of the market that will be brought about by the market abuse regime. They will be the beneficiaries of any penalties that the FSA imposes. We suggest, therefore, that it is right that authorised persons should be the ones who pay for the costs of legal assistance. I do not think that there is any reason for that burden to be shouldered by the general taxpayer, which I suppose would be the alternative.

The hon. Gentleman asked about what happens if there is a surplus. In that situation the Lord Chancellor might either repay the excess to the FSA or reduce the amount that it has to levy the following year. If the excess is repaid to the FSA, it might distribute the money among those on whom the levy was imposed, or it might be offset against future levies or fees that those persons have to pay. I think that that is a sensible way to manage matters.

The hon. Gentleman asked, "Why not go further and extend legal assistance elsewhere?" That was the central issue in his speech and he described it as the most important. I re-emphasise that the additional protections

27 Jan 2000 : Column 637

against market abuse are in place as a precautionary measure. There is not a need to extend the scheme further. We are clear that the disciplinary regime is not a criminal regime for conventional purposes, so a wider scheme of legal assistance is not needed. That issue was addressed fully in the memorandum that went to the Joint Committee on 14 May and in the evidence given on that occasion by the then Economic Secretary, with Sir Sydney Kentridge QC and James Eadie. We have stated our position clearly and unambiguously, and that remains our view today.

Mr. Heathcoat-Amory: I am grateful for the Minister's response to the questions raised by my hon. Friend the Member for Arundel and South Downs (Mr. Flight). However, I am not entirely satisfied because I think the Government are running a big risk in not extending subsidised legal assistance to those accused of serious offences under the disciplinary regime. We welcome the fact that the Government are bringing forward this assistance for market abuse cases, which is important. However, they seem to be relying heavily on their assertion that the disciplinary regime will not be judged to involve matters of a criminal nature, so that the appropriate protection for those accused of criminal offences will not apply in such cases.

In reaching that conclusion, the Government have relied heavily on the fact that, potentially, market abuse offences can cover virtually the entire population. Anyone--even someone not regulated under the Bill--can be judged to be engaging in market abuse. As I understand it, however, disciplinary offences apply only to the regulated community. That gives the regime the character of disciplining a club; that is why a civil regime is appropriate. It is a large club, however. If anyone wants to earn their living in the financial services industry, they must register or, as it were, become a member of the club.

As a layman, I rather doubt whether courts will continue to take the view that all fines, however large, that are levied on the regulated community are of a civil nature. The fines can be extremely large, and I believe would imply a penalty or punishment. If that is the position, I believe that at some stage a court will judge a matter subject to the disciplinary regime to be of a criminal nature. If that is the case, other safeguards must apply under the European convention on human rights. For example, if those accused are unable to pay for professional defence, they must be subsidised. That is natural justice. If someone is to be prosecuted by a professional, he must be defended by a professional. If the individual cannot pay for one himself, there is the legal aid scheme. That is what it is for.

In setting up something akin to the legal aid scheme in the Bill, the Government are most unwise not to make provision to extend it.

Mr. Bercow: I have no means of knowing whether my right hon. Friend is right in his anxieties. Surely the logic of what he is saying, if he is correct, is that the Government lawyers are not giving value for money.

Mr. Heathcoat-Amory: I hesitate to criticise lawyers. We never know when we will need one. My hon. Friend makes a good point in that there is no doubt that the Bill

27 Jan 2000 : Column 638

has evolved under the impact of external legal advice. When the Bill was published in July 1998, it was undoubtedly at variance with the requirements of the European convention. I do not know whether that was because of faulty legal advice in drawing up the Bill. Better-qualified legal advice, or advice provided by more specialised quarters, has persuaded the Government to amend the Bill to bring it more into line with the requirements of the convention. That is why the Government have radically amended the market abuse provisions to provide greater clarity and to provide other safeguards.

The Government have not, however, provided for safeguards in respect of subsidised legal advice and defence to be applied to the disciplinary regime as well. I feel that that leaves the Bill wide open. When the European convention becomes fully applicable in English law, which I think will happen later this year, it will be serious if a challenge succeeds.

There is a mechanism for the Government to bring forward in short order an amendment to change the legislation, but meanwhile any cases that are before the courts, or pending, must fail. It would be a serious matter for the City, and the financial services industry generally, to be without proper legal cover. In that respect, the regulatory system would have failed while the Government brought forward further and better clauses. The Government are running a risk not only with their reputation but with the stability of the market. That is why the matter is serious.

We did not debate the Ways and Means resolution. We allowed it to go through on the nod at the beginning of our proceedings in order to make progress. It is relevant to our discussion because the Government are to introduce a new tax on the regulated community through the resolution and the new clauses in the form of a levy. The money will go into the consolidated fund, and, somehow, come out again, when the Lord Chancellor will pay some of it back to the FSA, which may redistribute it back to the authorised firms and individuals if there is a surplus. That is an amazingly cumbersome system, and the Government have not explained why it is necessary.

Next Section

IndexHome Page