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The Economic Secretary to the Treasury (Miss Melanie Johnson): I beg to move, That the clause be read a Second time.
Mr. Deputy Speaker: With this it will be convenient to discuss the following: Government new clause 36--Designation of professional bodies.
Government new clause 37--Exemption from the general prohibition.
Government new clause 38--Directions in relation to the general prohibition.
Government new clause 39--Orders in relation to the general prohibition.
Government new clause 42--Rules in relation to persons to whom the general prohibition does not apply.
Government amendment No. 455.
Miss Johnson:
Under this group of new clauses, professionals will require authorisation only when they perform investment business as their mainstream activity. The Government hope that that approach will avoid the need for precautionary authorisation--meeting the concerns of the Burns committee, and of course others--while enabling the professions to provide an all-round service for their clients in appropriate cases.
We therefore propose that the authority will retain the power to ban individuals who are not fit and proper persons to carry out regulated investment activities or to cut the exemption in relation to a class of person more generally.
The authority will also be required to monitor operation of the new arrangements, which will involve monitoring the effectiveness of the complaints and redress arrangements of the designated professional bodies. The authority will also be able to make rules requiring persons who benefit from the exemption to disclose to their clients that they are not authorised persons.
New clause 35 obliges the authority to keep itself informed about the way in which designated professional bodies supervise and regulate the carrying on of exempt regulated activities by their members, and the way in which the members, who benefit from the exemption, carry on regulated activities. It also requires the professional bodies to co-operate with the authority, to enable the authority to fulfil its duty of oversight.
New clause 36 gives the Treasury the power to designate bodies for the purpose of new clause 35. Bodies will be designated only when they actively regulate their members' provision of financial services.
What amounts to a sensitive product is to be specified by the Treasury, and the regulated activities must be provided in accordance with the rules of the relevant professional body which require the activity to be complementary, and effectively subordinate, to the provision of professional services to a particular client. Those rules must be approved by the authority.
Under new clause 38, the authority may direct that the exemption from the general prohibition is not to apply to certain classes of professional. The authority may only exercise this power, however, where it is satisfied that it is desirable to do so in the interests of clients.
New clause 39 enables the authority to make an order which would have the effect of banning specified persons who are not fit and proper to carry on regulated activities, taking them outside the scope of this new part's provisions. This power complements the authority's power to make prohibition orders under clause 53 of the Bill. It will enable the authority to prohibit particular firms from continuing to carry on relevant regulated activities under the proposed new part.
New clause 42 allows the authority to make rules requiring exempt professionals to disclose to their clients that they are not authorised. Subsection (3) also requires the professional bodies to make rules which are designed to ensure that members who benefit from the exemption only carry on regulated activities which arise from or are complementary to providing professional services to a particular client. If a member of a profession breaches those rules, he will be carrying on particular regulated activities in breach of the general prohibition, and therefore committing a criminal offence. Rules made by a professional bodies under subsection (3) must be approved by the authority.
Amendment No. 455 amends clause 374 so that, in all cases, orders have to be dealt with by affirmative resolution. I commend the new clauses to the House, as they are in line with the changes that I indicated in Committee that we would make.
Mr. Heathcoat-Amory:
I am glad that the Government have proposed some provisions for excluding professionals who are regulated through their own bodies. I ought to declare an interest as a chartered accountant, although I do not intend to practise--at least not for a bit. [Laughter.] I hope that I will be the judge of the timing as well.
The Economic Secretary alluded to the fact that we debated this matter in Committee and that there was concern, not least from the Law Society of Scotland, that professionals up there would suddenly find themselves regulated by the FSA and that higher fees would be levied. Of course, there was sensitivity that they would be regulated from London instead of Edinburgh--a curious form of reverse devolution.
I presume, although the Minister did not say so, that the clauses have resulted from consultation with the professional bodies. She might say whether they are broadly happy with the way in which the proposals are set out.
I believe that it could be difficult to qualify for an exemption because the provision has been restrictively phrased. For example, the professional in question must not receive from a partner other than his client
I can imagine a situation in which a solicitor or an accountant provides advice to a business client about taking over the lease on a shop or factory next door. Presumably, that would count as a regulated activity,
and although the professional in question would receive no direct reward from an outside body, he would receive a pecuniary reward or advantage, because he would be paid by his firm for providing that advice. It could be said that he would be caught by new clause 37 and would fall to be regulated by the authority. Will the Economic Secretary clarify what she understands subsection (3) of that new clause to mean? It might be unduly restrictive and catch many people who are giving advice or engaging in regulated activities as part of their normal tasks, especially if they work for firms that provide a wide range of services to clients.
As the Economic Secretary said, the rules of the professional bodies are to be checked and authorised by the FSA. That is understandable, but there is a danger that professionals working for such firms and regulated through their professional bodies will attempt a form of dual authorisation. They will be content to be regulated by the Law Society or the Institute of Chartered Accountants, as appropriate, but--so that they can with impunity break the rules of their professional body on authorised activities--they will also seek to be authorised directly by the FSA. It might not work, but it would be an unhealthy development. If that approach were to become a trend among professional people, it would be unfortunate and counter-productive. I invite the Economic Secretary to say a few words about her discussions with the professional bodies and regulators concerned. Do they also have lingering concerns about the wording of the new clauses?
Mr. Loughton:
We welcome the fact that some 27,000 intermediary firms will not be brought into the clutches of the FSA, but that was breaking news as we discussed the measures in Committee. It is good to have a little more detail now, but I wish to raise a couple of issues. In particular, new clause 37 refers to the fact that regulated activities must be incidental to the provision of professional services. Can the Economic Secretary give us more detail about what "incidental" means? It could be defined in several different ways.
I am concerned about equality of regulation. We would not wish to impose yet more regulation on accountancy and legal firms that deal in financial matters, but we would wish to ensure a level playing field with those who will be fully regulated by the FSA because their very business is dealing in financial products. The dividing line is blurring, with the emergence of financial supermarkets--for want of a better term.
"any pecuniary reward or other advantage"
which he does not account to his client, arising out of his carrying out of the regulated activities.
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