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Clause 50

Determination of applications

Lords amendment: No. 59, in page 23, line 3, leave out subsection (4) and insert--
("(4) If the Authority grants an application for, or for variation of, a Part IV permission, it must give the applicant written notice.
(5) The notice must state the date from which the permission, or the variation, has effect.
(6) If the Authority proposes--

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(a) to give a Part IV permission but to exercise its power under section 40(6)(a) or (b) or 41(1), or
(b) to vary a Part IV permission on the application of an authorised person but to exercise its power under any of those provisions (as a result of section 42(5)),
it must give the applicant a warning notice.
(7) If the Authority proposes to refuse an application made under this Part, it must (unless subsection (8) applies) give the applicant a warning notice.
(8) This subsection applies if it appears to the Authority that--
(a) the applicant is an EEA firm; and
(b) the application is made with a view to carrying on a regulated activity in a manner in which the applicant is, or would be, entitled to carry on that activity in the exercise of an EEA right whether through a United Kingdom branch or by providing services in the United Kingdom.
(9) If the Authority decides--
(a) to give a Part IV permission but to exercise its power under section 40(6)(a) or (b) or 41(1),
(b) to vary a Part IV permission on the application of an authorised person but to exercise its power under any of those provisions (as a result of section 42(5)), or
(c) to refuse an application under this Part,
it must give the applicant a decision notice.")

Motion made, and Question proposed, That this House agrees with the Lords in the said amendment.-- [Mr. Timms.]

Mr. Deputy Speaker: With this it will be for the convenience of the House to consider an amendment to Lords amendment No. 59, Lords amendments Nos. 60 to 64, 71, 72, 75 to 77, 84 to 87, 97, 101, 102, 134 to 141, 236, 241 to 249, 252 to 254, 274 to 295, 297 to 303, 305 to 313, 393, 398 to 402, 503 to 525, 526, an amendment to Lords amendment No. 526, and Lords amendments Nos. 527 to 533, 546 and 604.

5.15 pm

Mr. Flight: Several Government amendments tabled in the other place dealt with procedural matters, particularly in relation to warning, decision and final notices. We view most of those amendments as improvements to the Bill and as having picked up many of the matters raised in this place in Committee. However, in the draftsman's haste to table the amendments, an error seems to have been made in Lords amendment No. 59. That is why we have tabled our amendment to that Lords amendment.

Clause 50 was substantially redrafted on Report in the other place. It is concerned with the FSA's obligation to determine applications for permission to conduct a regulated activity. However, as drafted it provides that if the FSA proposes, after receiving an application for permission, to impose limitations under paragraph 40(7)(a) on the description of a regulated activity for which application has been made, or a narrower or a wider description under paragraph 40(7)(b), or a requirement under subsection 41(1), the FSA would have to issue the applicant with a warning notice, then a decision notice, and then a final notice. The provision applies even if the applicant, as part of the consideration of his application, requests the FSA to impose the limitation or to include the stated requirement up front.

Therefore, currently the only alternatives are to go through the warning, decision and final notice procedure--which is surely a waste of everyone's time--or for the applicant to withdraw his application and

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resubmit it in the form acceptable to the FSA. The trouble with the second alternative is that the six-month period for considering applications would start to run in relation to the new application and could put an applicant at considerable disadvantage.

Therefore, our amendment to Lords amendment No. 59 provides that, if the FSA exercises its powers to impose limitations or specify particular descriptions of regulated activities under paragraphs 40(7)(a) or (b), or includes limitations under subsection 41(1) at the request of the applicant, the warning, decision, and final notice requirements would not apply. It is necessary to cover all the different types of notice, because the applicant may make his request at any stage--for example, after the warning notice has been given, but before a decision notice has been given.

Our amendment to Lords amendment No. 59 is very technical. However, the Opposition hope that the Government will readily agree to it, on practical grounds. Our amendment to Lords amendment No. 526--which proposes inserting a new clause after clause 376--is more substantial than our previous amendment and designed to prevent the whole Bill hitting the rails in relation to the European convention on human rights.

The Government have effectively made the European convention, which they clearly support, part of United Kingdom law. The House, too, has broadly indicated its support for the convention. Our amendment is intended to provide for compliance with the convention in relation to the disclosure of evidence to the accused. Other provisions of the Bill are simply not in compliance with the convention, although we have no doubt that the Chancellor of the Exchequer will certify--as required by the Human Rights Act 1998--that the Bill is compatible with the rights granted by the convention.

We are particularly concerned about two specific matters: the right given to the accused not to have used against him evidence that was extracted from him only under compulsion of law; and the right to legal assistance. The Government have quite rightly provided those protections in the case of market abuse, but have refused to grant them in the case of ordinary disciplinary proceedings. Unfortunately, it is not possible to raise the latter issue now, as no appropriate amendments have been tabled on which to hang a debate on it. That is why our amendment to Lords amendment No. 526 relates only to the disclosure of evidence and does not go any wider. We hope that the Bill will comply with the European convention at least on this issue.

We have requested repeatedly that the Financial Services Authority should give an accused person all the evidence available to it, even if it is helpful to the accused by showing that he could not have committed the offence. The Government have finally provided for that in certain cases. That is what our amendment is about. The new clause inserted by amendment No. 526 provides for important exceptions from that general principle. First, evidence does not have to be disclosed if it

has been intercepted in obedience to a warrant issued under any enactment relating to the interception of communications

or if it is subject to legal privilege. More worryingly, the new clause also allows the FSA to refuse the accused access to particular material if allowing him access

would not be in the public interest

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or would not be deemed to be fair in the FSA's eyes because of a potential prejudice to someone else's commercial interests.

In all those cases, the European convention clearly requires the accused to be given access to the material, or at least to other protections in its place. That was the subject of three recent decisions of the European Court of Human Rights in February. All three cases related to the use of public interest immunity certificates by the UK Government. The court held that the withholding of such evidence under those certificates in principle contravened the convention. The court decided that the Government would comply with the convention if it gave the trial judge the withheld evidence, so that he could see its effect and decide for himself whether it should be introduced, or other protections could be provided, in particular giving the accused a summary of what was in the material that was not handed over. That is what we are seeking to achieve with the amendment, which provides that the accused must be told reasons for the refusal--although that is not sufficient.

The Minister may repeat the Government's objection that the provisions should not apply to civil offences, because the decisions in question relate to criminal cases. We do not believe that that view is legally correct. Both decisions were based on article 6(1) of the European convention, which requires a fair hearing. The court's decision was that the hearing would not be fair if helpful evidence was withheld. Article 6(1) applies to civil as well as criminal offences, although perhaps the fair hearing requirement can be tailored differently in each case. We have received clear legal advice that the requirement in article 6(1) applies to disciplinary proceedings, even when they are treated as civil matters.

The Minister will be aware that Lord Lester, who is one of the leading authorities on the subject, has written an opinion that was submitted to the Treasury and the Joint Committee. He said that disciplinary proceedings would be treated as proceedings on criminal offences for the purposes of the European convention. If they are not, they are at least quasi-criminal in our view, because the accused could be subject to unlimited fines and perhaps thrown out of the industry. The European Court of Human Rights is more likely to treat the proceedings as if they were criminal, rather than merely civil issues in this context. Quite apart from the European convention, it is a matter of English law that the prosecutor--as the FSA describes itself in the new regime--should give the accused access to all the evidence that it has, even if, or perhaps especially when, it is helpful to the accused.

There are two key principles. One is the principle of natural justice. The second is the need for the legislation not to be bowled out quickly if it is to be operative. We believe that that will happen unless the Bill addresses the point raised by the amendment.

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