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Sir Nicholas Lyell: If a professional, who is regulated by his professional body and is entitled to act for a restricted line of clients, should find that he is acting for someone who is not sufficiently within that client line, he will be considered to be transgressing and therefore guilty of illegality. That person may have received money on the basis that he would pass it on to another professional, in the way described by my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton). That money may have been placed in a bona fide investment deal that fails. If the person is asked to return the money because it was taken for a deposit, he will be obliged--because he is properly regulated--to return it.

Such spin-offs worried me with regard to unlicensed deposit takers, which we debated earlier. I can see the same problem arising in this connection, and I should be grateful if the Minister would describe how she sees matters working out. Is not the risk faced by people such as have been described equivalent to that faced by careless drivers who, instead of being fined £40 for a parking offence, get fined £1 million?

Mr. Flight: I have one question for the Economic Secretary: who will define what is incidental--and therefore exempt--and what is not? Will it be the Treasury, which has to specify what is a regulated activity under clause 20?

Miss Melanie Johnson: Some of the questions that have been asked overlap. The right hon. Member for Wells (Mr. Heathcoat-Amory) asked about consultation and the professional bodies. Representatives from all the professional bodies were present when I announced the broad proposals on 13 October. They have been involved in discussions about how the proposals should be taken forward, and I believe that they are broadly content with the Government's proposals.

Several other hon. Gentlemen have asked about the distinction between what is part of a person's normal tasks and what is incidental. The first point to be made is that, in the investment services directive, "incidental" is used to mean ancillary, perhaps subordinate. That is the sense in which we are using it, and it is a fairly common use of the word in any event. Examples of an incidental activity might be advice on investments given by an accountant for tax planning purposes, or advice on investment as part of a wider portfolio of assets given by a solicitor to a couple who are negotiating a divorce settlement. I cited other examples in Committee, such as advice given in the course of probate.

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The tests are to make sure that these are genuinely not mainstream activities carried out by the professionals concerned. The other tests make sure that such activities meet the criteria for being dealt with as we propose. The advantage of this method is that 2,000 firms will fall within the scope of regulation, while some 13,000 will fall outside the scope of regulation. We are intent on regulating only when it is absolutely necessary.

That brings me to a further point raised by a number of Conservative Members regarding the checking of rules by the FSA. Of course, it is important that the professional body's rules are checked by the FSA. The hon. Member for East Worthing and Shoreham (Mr. Loughton) suggested that, if the FSA did not have oversight of its rules, there was the danger that this might be a more benign course of action for people to follow than to come under the FSA for regulation. We have foreseen that difficulty, which is why we have made sure that the FSA is involved in oversight of the professional body's rules.

The right hon. and learned Member for North-East Bedfordshire (Sir N. Lyell) followed up the points that he raised in an earlier debate about unenforceability. Although I was not convinced by his argument when we debated the issue earlier, he raised some interesting questions. If he writes to me, I shall be happy to look in more detail at the points that he raised.

Let me turn to how the line is to be drawn.

Mr. Flight: The issue that my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) raised will arise under new clause 2, so it is exactly the same territory.

Miss Johnson: I am grateful to the hon. Gentleman for that comment. As for his point about where the line is to be drawn, the intention is that it will be set out in the professional body rules, subject to FSA approval. That relates to subsections (4) and (5) of new clause 42 and will allow more fine tuning than would be possible if we simply relied on the Bill and Treasury secondary legislation.

Finally, the hon. Member for East Worthing and Shoreham made a point about people taking advantage of the loophole. We need to ensure that there are sufficient safeguards. The rules must define activities that are not merely incidental, but are supplementary to a service provided to a client and must be approved by the FSA. That belt-and-braces approach will ensure that the problem described by the hon. Gentleman will not arise.

Sir Nicholas Lyell: I am grateful to the Minister for her invitation that I write to her, although I do not have quite the same civil service support that she does. She noted that it might be quite complicated to find out whether a matter was incidental. If it was not incidental, it might fall under the general prohibition and thus become illegal, with drastic and disproportionate consequences. Will the hon. Lady reflect on the fact that such consequences--which, as I have explained in some detail, worry me--are contrary to the Bill's aims, one of which is proportionality?

Miss Johnson: I am happy to reflect further on those points. We certainly want a proportioned measure. One of the strengths of our approach is that our proposals offer a

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proportionate response that builds on existing mechanisms to ensure that they are used to protect the consumer and that we regulate in an appropriate, but proportionate, manner. I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 36

Designation of professional bodies

".--(1) The Treasury may by order designate bodies for the purposes of this Part.
(2) A body designated under subsection (1) is referred to in this Part as a designated professional body.
(3) The Treasury may designate a body under subsection (1) only if they are satisfied that--
(a) the basic condition, and
(b) one or more of the additional conditions,
are met in relation to it.
(4) The basic condition is that the body has rules applicable to the carrying on by members of the profession in relation to which it is established of regulated activities which, if the body were to be designated, would be exempt regulated activities.
(5) The additional conditions are that--
(a) the body has power under any enactment to regulate the practice of the profession;
(b) being a member of the profession is a requirement under any enactment for the exercise of particular functions or the holding of a particular office;
(c) the body has been recognised for the purpose of any enactment other than this Act and the recognition has not been withdrawn;
(d) the body is established in an EEA State other than the United Kingdom and in that State--
(i) the body has power corresponding to that mentioned in paragraph (a);
(ii) there is a requirement in relation to the body corresponding to that mentioned in paragraph (b); or
(iii) the body is recognised in a manner corresponding to that mentioned in paragraph (c).
(6) 'Enactment' includes an Act of the Scottish Parliament, Northern Ireland legislation and subordinate legislation (whether made under an Act, an Act of the Scottish Parliament or Northern Ireland legislation).
(7) 'Recognised' means recognised by--
(a) a Minister of the Crown;
(b) the Scottish Ministers;
(c) a Northern Ireland Minister;
(d) a Northern Ireland department or its head.".--[Miss Melanie Johnson.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 37

Exemption from the general prohibition

".--(1) The general prohibition does not apply to the carrying on of a regulated activity by a person ('P') if--
(a) the conditions set out in subsections (2) to (7) are satisfied; and
(b) there is not in force--
(i) a direction under section (Directions in relation to the general prohibition), or
(ii) an order under section (Orders in relation to the general prohibition),

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which prevents this subsection from applying to the carrying on of that activity by him.
(2) P must be--
(a) a member of a profession; or
(b) controlled or managed by one or more such members.
(3) P must not receive from a person other than his client any pecuniary reward or other advantage, for which he does not account to his client, arising out of his carrying on of any of the activities.
(4) The manner of the provision by P of any service in the course of carrying on the activities must be incidental to the provision by him of professional services.
(5) P must not carry on, or hold himself out as carrying on, a regulated activity other than one which rules made as a result of section (Rules in relation to persons to whom the general prohibition does not apply)(3) allow him to carry on.
(6) The activities must not be of a description, or relate to an investment of a description, specified in an order made by the Treasury for the purposes of this subsection.
(7) The activities must be the only regulated activities carried on by P.
(8) 'Professional services' means services--
(a) which do not constitute carrying on a regulated activity, and
(b) the provision of which is supervised and regulated by a designated professional body.".--[Miss Melanie Johnson.]

Brought up, read the First and Second time, and added to the Bill.

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