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Mr. David Ruffley (Bury St. Edmunds): I support the amendments because I have spoken to a few people in the City of London with whom I worked in a previous career. They are solicitors and have some concern. I acknowledge, however, the sensible changes that Ministers made in Committee. Anyone who has read those debates in the Official Report cannot fail to have anything but a great deal of affection for them--they did their very best to listen when they tried to recast clause 95 and the related clauses on market abuse.
As my hon. Friend the Member for Arundel and South Downs (Mr. Flight) made clear, they are exceedingly important clauses. They are important because they send a strong message to those who wish to trade in this country, to operate in the City of London or to consume financial services provided by the square mile. Those who engage in the market want to see fairness and transparency. If the clauses cannot provide that, our international competitiveness will suffer and business will move elsewhere.
The amendments and the clauses show the clear importance for professional bodies of the definition of "intent" and whether the provisions on the intent to commit abusive behaviour are sufficiently tightly drawn. These powerful amendments would entrench more clearly in the Bill the requirement that intent must be shown before an offence of abusive behaviour is committed. They do not relate just to the intent of market participants but deal also with the question of whether the clauses protect non-market participants. The power of the FSA to impose market abuse penalties other than on participants in the market should be limited to cases in which abusive behaviour was not reckless but intended.
I wish to refer to a powerful comment that was made by Lord Hobhouse who, in an evidence-giving session, expressed concern about these clauses and the provisions on market abuse. He said:
With amendment No. 457, we need to flush out how precisely the Economic Secretary believes that clause 95(1)(c) will catch off-market transactions. For example, will she tell us whether a commodity producer who trades not on the UK markets but on his home market could be caught by a provision for a worldwide squeeze on abuse? Could he be caught by the clause? If he could, what legal advice have Ministers received about the enforcement of the clause under private international law and on the conflict of laws?
The second example of a UK-based person is someone who has never traded on any of the markets specified in the Treasury order, but who indulges in one or more off-exchange transactions. Will he be caught by the clause? I understand from the Minister's remarks in Committee, as recorded in Hansard, that there is an intention that such off-market participants should be caught. I have cited two examples, but there are many others. Will the Minister give an undertaking that the code of market conduct will set out in detail categories of off-market participants who will or will not be caught by clause 95(1)(c)?
Amendment No. 458 is important because it concerns the definition of abusive behaviour and the link between actions that would constitute abusive behaviour, which seem remarkably weak and woolly. The words "based on" are too wide and introduce too much uncertainty; we therefore suggest replacing them with "significantly influenced by". The chain of causation would then be better defined and the ambit of the clause would not be too wide.
On amendment No. 460, I can only endorse the remarks of my Front-Bench colleague, my hon. Friend the Member for Arundel and South Downs. The provisions dealing with safe harbours are very important. Ministers think that clause 95(3) provides a safe harbour, and they are apprised of the need for a clear safe harbour defence. Failure to include that defence will, for the reasons that I gave earlier, greatly damage the City and market participants.
The difficulty in defining abusive behaviour arises with the phrase "regard must be had" because it gives the FSA wide discretion subjectively to decide what constitutes abusive behaviour. The language should be tightened, and amendment No. 465 would make the clause read:
The amendment is important because it would require the FSA to consider the conditions in subsection 3(a) and (b); only those conditions should be considered in defining abusive behaviour. The amendment should not be objectionable to Ministers, because it pins down a precise definition.
I turn now to amendments No. 472 and 473. Why have Ministers included a reference to "reckless" behaviour in clause 99? Amendment No. 472 seeks to address that point, but I am not entirely clear why the term "reckless" has been introduced in that clause. It jars, and amendment No. 473, which would introduce the idea of proportionality, is particularly important.
My hon. Friend drew attention to the importance of amendment No. 475, which would ensure that if fines were imposed by a court, they would not be disregarded by the FSA when it was calculating levels of damages in exercising its jurisdiction.
For those reasons, I wholeheartedly support all the amendments in the names of my colleagues. I do so for only one reason: to ensure more certainty for market participants and the professionals in the City who do so much to make the square mile the top international financial services centre in the world.
Miss Melanie Johnson:
I shall try to run through the amendments in a sensible order and at appropriate points deal with the remarks that hon. Members have made. However, they have jumped around the order of the amendments slightly, so my comments may not exactly reflect the pattern of their speeches.
I shall deal first with amendment No. 474. Clause 99 requires the FSA to prepare a policy statement with respect to the penalties that it may impose for market abuse. The amendment would require the statement also to cover circumstances in which the FSA might ask the court, under the provisions of clause 104, to impose a penalty for market abuse on a particular individual. The amendment is unnecessary. We expect the FSA to be transparent about its policies and to consult. Indeed, clause 7 requires it to maintain effective arrangements for consulting on the extent to which its general policies and practices are consistent with its general duties.
There are some areas where, in addition, the Bill expressly requires the FSA to produce a policy statement. One of those areas is the FSA's own powers to impose penalties for market abuse. Legitimate concerns have been expressed about how the FSA will exercise its powers to impose the penalties, and the consultation draft of the Bill required the publication of a policy statement. The clause has subsequently been improved in line with the suggestions of the Burns committee to specify key factors to which the FSA should have regard.
Such concerns do not arise on the FSA's policy on what to bring before the courts. Although that will, of course, be informed by its policy on the imposition of penalties under its own powers, clearly we must draw the line on policy statements somewhere. More important will be the court's determination of the penalties imposed which, by definition, will not be a matter of FSA policy.
Amendment No. 475 would amend clause 99 to provide that the FSA's policy statement must take into account the extent to which penalties already imposed by the court should be considered in determining any subsequent penalty that it might impose in relation to the same market abuse. Clearly, the FSA must take that issue into account when it arises, not least because, as the hon. Member for Bury St. Edmunds (Mr. Ruffley) acknowledged, it would be unjust to impose two penalties relating to the same set of circumstances. However, I do not see how the FSA can set out in advance the "extent" to which it would take account of any penalties previously imposed, as that would always depend on the circumstances of individual cases, including the amount of the penalty imposed.
It is important to remember that the tribunal would have something to say if the FSA imposed penalties that were disproportionate in themselves or when considered together with penalties imposed by others. I therefore do not see what the amendment adds to the Bill. Although I understand the intention behind the amendment, I ask that it be withdrawn.
Amendment No. 473 would require the FSA to adhere to the principle of proportionality in its policy on the amount of penalties that it will impose for market abuse. I have no quarrel with the sentiment--indeed, I agree with it--but the amendment is unnecessary.
The FSA is already required to take account of the principle of proportionality. Clause 2 includes such a principle, and makes it clear that that applies to the discharge of the FSA's general functions. It goes on to provide that those functions include determining the policy and principles by reference to which it performs particular functions, which will of course include its policy in relation to penalties for market abuse. I hope that the hon. Gentleman will agree to withdraw the amendment.
Clause 99 provides that the FSA's policy in respect of the amount of any penalty that it may impose for market abuse must take account of the extent to which the behaviour being penalised was deliberate or reckless. Amendment No. 472 would omit the requirement to take account of recklessness.
Hon. Members will recall that clause 95, which defines market abuse, contains no reference to the intention of the person concerned. That was mentioned by the hon. Member for Bury St. Edmunds and others this evening. The reason is straightforward: unintentional abuse can be just as damaging to markets or third parties as abuse that is deliberate or reckless, so the onus is placed on those who choose to participate in markets to make sure that they do not cross the boundary from acceptable behaviour to market abuse.
"All those things when one adds them together add up to a scheme for punishing people who may be abroad, who may not be taking any active part in any market in this country, who have not done anything illegal, whose conduct is innocent, who are under no duty to act where they are accused of failing to act, and nevertheless punishing them for such conduct."
The amendments seek, in a modest way, to address some of those fears.
"The behaviour by a particular person or persons is not to be taken to amount to market abuse where"
that person or those persons--the clause gives examples--
"took care to avoid engaging in market abuse; or . . . believed that the behaviour in question would not amount to market abuse."
That would clearly give comfort to innocent market participants. My hon. Friend gave the example of a vicar's wife in Somerset.
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