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Mr. Tyrie: To be perfectly honest, I have not got a clue what the Minister is on about. I may be alone in that, but for my benefit at least, will she summarise in plain English what she is trying to say?
Miss Johnson: I shall endeavour to do so. There are two types of investment companies--open-ended and closed-ended--and both need to be clearly defined. Schemes can move between one arrangement and the
other, depending on how quickly they can be realised. That point was made by the hon. Member for Arundel and South Downs (Mr. Flight). We want a definition that is flexible but not unduly ambiguous, and we are concerned that the Opposition amendment would introduce ambiguity that is absent from our present definition.
Mr. Flight: Our particular concern is that under the present arrangements a scheme can be open-ended and closed-ended at the same time, depending on when an investor invests.
Miss Johnson: I am not sure whether the hon. Gentleman's point relates to liquidation, with which I am about to deal. I am puzzled by his remark, which does not square with what I understood to be the effect of the Opposition amendment. It is clear that under the hon. Gentleman's proposal the test would exclude a company that was about to go into liquidation. We are talking about a reasonable investor. Someone who invests in a company knowing that it is about to be liquidated--and, for all he knows, it may be an insolvent liquidation--is not a reasonable investor. That is a question of common sense. The same goes for the other exclusions: a reasonable investor would not invest in the expectation that the company was going to default.
Mr. Flight: Many closed-ended investment companies provide that their life will end by liquidation at a certain date. If an investor, who may or may not be fully aware of that provision, invests within six months of that date, his investment will have a life of only six months and will then be liquidated, so he could be judgeable as investing in an open-ended company. That situation particularly applies to closed-ended non-UK funds. That has tax consequences because his investment, which he thought was to be in a closed-ended fund, becomes open-ended and does not have distributing status. The investor thus ends up with an income tax bill on the total return rather than capital gains tax as he expected, so the matter is one of liquidation in the context of closed-ended funds that end their life in the liquidation of assets.
10.30 pm
Miss Johnson: The answer to that point is that we emphasised when we introduced the definition that its aim and effect is to cover companies that look, to a reasonable investor, like open-ended collective investment schemes. I appreciate that the hon. Gentleman is alleging that a closed-ended scheme looks like an open-ended one if it is approaching liquidation, but that is not our understanding of the way in which it would be regarded.
The investor's expectations could involve consideration of when he would be able to invest in the company and when, having done so, he would be able to realise his investment. A reasonable investor's overall expectations of potential investment in a company when its status with respect to the definition is being judged will determine whether it meets the definition. The matter is therefore definitional rather than one of proximity to liquidation.
Amendment (b) specifies what is meant by "realise his investment". The effect would be to limit realisation to the repurchase or redemption of the shares or their sale on an investment exchange arranged by the company.
That would be an unacceptable limitation on the means by which an investor can realise his investment. It would prevent the development of OEICs allowing realisation by other means in certain circumstances and thus restrict the types of OIECs that the Government, the FSA and industry may in future want to be made available.In another place, the Opposition expressed interest in the definition allowing
- scope for a wider range of authorised funds which are intended for domestic consumption--[Official Report, House of Lords, 30 March 2000; Vol. 611, c. 943.]
Similar companies established outside the UK must be capable of coming within the definition. For example, companies may have a mixture of shares--some redeemable, some not. Those partly open-ended, partly closed-ended companies enable investors to realise their investments without having their shares redeemed, repurchased or sold, perhaps by raising loan funds to pass on to investors who want to realise their investments.
In such a case, the hypothetical reasonable investor should look at the company as a whole. He will think to himself, "If I invest in this body, would I expect to be able to realise my investment and be satisfied that the value would, on the whole, be calculated in the specified way?" If the answer is yes, the company should fall within the definition. Amendment (b) would preclude that.
However, I reassure Opposition Members that the forms of realisation that they specify are covered by the current definition. With that, and my earlier comments, l hope that they will find it possible to withdraw the amendment.
Mr. Flight: We had not intended to put the issue to the vote; it is highly technical. I believe that the Government's intent is bona fide, but there are still some problems. Perhaps we might discuss the matter, as it is purely an industry one. The broad intent must be clarity for an investor in assessing whether he is investing in an open-ended or closed-ended company. We do not wish to press our amendment to the vote.
Lords amendments Nos. 271 to 442 agreed to.
New Clause
Lords amendment: No. 443, after clause 342, to insert the following new clause--Authority's duty to co-operate with others--
- .--(1) The Authority must take such steps as it considers appropriate to co-operate with other persons (whether in the United Kingdom or elsewhere) who have functions--
(a) similar to those of the Authority; or
(b) in relation to the prevention or detection of financial crime.
(2) Co-operation may include the sharing of information which the Authority is not prevented from disclosing.
(3) "Financial crime" has the same meaning as in section 6.")
Mr. Heathcoat-Amory: I have a question or two about the new clause that the amendment would insert. It would
place on the authority an obligation to co-operate and share information with
- other persons (whether in the United Kingdom or elsewhere).
Will information be provided only on a reciprocal basis? Otherwise, we could disclose information to parties, particularly in other countries, without any reciprocal arrangement--they may have banking secrecy laws, for instance. I believe it wrong for this to be a one-way street. Perhaps the Minister could enlighten us a little about how the new clause will operate.
Mr. John Butterfill (Bournemouth, West): In her response, will the Minister say what the definition of "crime" will be? What may be a crime in this country may not be a crime in some other regulatory regime, and vice versa. What will be the test of what amounts to a financial crime? Will any other jurisdiction that may have a completely different definition of crime be able to request this information from us, even though the act concerned may not be a criminal act in this country?
Miss Melanie Johnson: The right hon. Member for Wells (Mr. Heathcoat-Amory) asked to whom disclosure may be made. I refer to the restrictions contained in part XXIII, which will apply in this case as elsewhere. Financial crime is defined in clause 6(3), and that definition of crime is to be understood in this context.
I hope that that answers the points raised, but if the right hon. Member for Wells or the hon. Member for Bournemouth, West (Mr. Butterfill) have further queries I shall undertake to write to them, as there is no amendment on that subject.
Mr. Heathcoat-Amory: With the leave of the House, Mr. Deputy Speaker. I am grateful to the Minister for her offer to write to us. She clearly does not have the information that we requested. She points me to other provisions in the Bill, but it would have helped if she had answered the questions that my hon. Friend and I asked. I think that we will take up her offer to enlighten us by correspondence.
I am slightly surprised that the Government, having tabled amendments at this very late stage, apparently do not have the answers to our questions at their fingertips. We are trying to be sparing with our questions, given the short time we have in which to debate these important amendments. When we alight on something of more general interest, it would assist if we could have immediate answers.
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