Schedule
11
Licensing
rules
Mr.
Djanogly:
I beg to move amendment No. 211, in
schedule 11, page 183, line 8, at
end insert—
‘( ) Licensing
rules may provide for fees to cover the whole cost to the licensing
authority of dealing with the application, whether the application is
granted or
not.’.
The
amendment was suggested by the Law Society. It is required to make it
clear that licensing rules can put the whole cost of dealing with an
application on the individual applicant, rather than leaving part to be
borne by the licensing authority itself and thereby by other firms
regulated by that authority.
10
am
It
is an important general principle of the bill that the costs of
regulation should, as far as possible, be borne by those whose
activities give rise to the cost, rather than by the regulated sector
as a whole. That is particularly important in respect of ABSs, where
some applications could give rise to complex issues. It would be quite
unsatisfactory for there to be a single flat fee applied to all
applications, whether from a comparatively small applicant filling a
gap in legal services or from a megastore supermarket seeking to set up
the sort of service that might give rise to particular concerns about
the possible impact on access to justice. We have just debated
that.
If a single fee
were set to meet all the costs of dealing with ABS applications, the
result could be grossly unfair to the small applicant. However, a
single fee at the level appropriate for the small applicant would
involve an unacceptable cross-subsidy from the rest of the regulated
sector—in this case, non-ABS firms—towards the cost of
ABS regulation. The solution is to enable different fees to be fixed
for different categories of applicants. That is dealt with to some
extent in the provisions concerning not-for-profit bodies in clause
106, but it is also important to be able to vary fees, even among
commercial applicants for ABS licences. There is no reason why an
applicant whose application gives rise to no significant concerns about
access to justice should pay the same fee as one that
does.
If
licensing authorities were unable to match the fee to the cost of
dealing with the application, they might be inhibited from
investigating applications as thoroughly as they should, particularly
where access to justice considerations arise. The amendment is designed
to stop that problem and ensure that the costs of dealing with
applications can be placed on the applicants
concerned.
Simon
Hughes:
We have subscribed to the amendment, which is
entirely reasonable, and if agreed to it would not mean a mandatory
requirement. It does not say, “licensing rules must
provide”, it says “may”. It does not oblige the
outcome advanced by the hon. Member for Huntingdon but gives the clear
indication that people should pay for the application that they are
making, which must be the right process. If people are making a much
bigger application, the processing and consideration will take longer,
more time will be needed and the fees will be bigger. The amendment
does all the things that one would expect. I hope that the consumerists
on the other side of the room will join those on this side, thinking
that this is a reasonable way
forward.
Bridget
Prentice:
It is a very tempting thought that consumerists
across the divide should get together. I do not know whether this is
meant to be just a probing amendment, but I am rather surprised by it,
because this matter was fully dealt with in the other place. I thought
that the position was understood and that it had been accepted that the
Bill—particularly schedule 11—gives the flexibility that
the amendment is designed to achieve.
It
is reasonable to expect a licensing authority to charge for the full
cost of processing applications, whether or not the application is
successful. As the hon. Member for North Southwark and Bermondsey said,
some applications will generate a great deal more work than
others, and that will depend on the nature of the body making the
application. The megastore mentioned by the hon. Member for Huntingdon
that wants to operate in various locations will clearly need more
consideration than a single firm operating in one
place. The amendment
also mentions the fee being payable whether or not the application
succeeds. It is important that the fee is payable regardless of the
success of the application, otherwise there may be a temptation on the
authority to grant an application where it really ought not do so.
Non-refundable application fees are pretty common in many walks of life
and I see no reason why it should be any different
here.
If the full
costs were not charged in each case, one firm could end up subsidising
another. That could create some problems. For example, it might make
the authority unattractive to firms if their fees were
disproportionately high, and in that event they might seek licences
from another authority. There is nothing particularly wrong with that
in principle—the reforms are in part about regulatory
choice—but it might well have a knock-on effect on the authority
itself if there were fewer applicants, each of whom would effectively
be paying a discounted rate. The licensing authority could lose money
as a result, and I am not sure that that is what we
want.
The Bill already
addresses the issues that the hon. Gentlemen have raised. It gives
flexibility to the licensing authorities in how fees are set. The fee
levels and their effects on legal services mark-up will obviously be
monitored by the board. Fee levels form part of the licensing rules,
which for example could set individual fees based on the amount of work
that individual applications were estimated to need. All those would
have to be acceptable to the board before it would put forward a
regulator for designation as a licensing authority. If the board is
concerned about the effects on smaller firms or on competition, it can
require changes or decline to recommend designation.
Given that what he is seeking
is already achieved by schedule 11 paragraph (1) and by a number of
other safeguards and flexible provisions in the Bill, I ask the hon.
Member for Huntingdon to withdraw the
amendment.
Mr.
Djanogly:
The Minister seems to have created a new battle
cry for international socialism: “Consumerists of the world,
unite!” However, I appreciate her thoughtful response and I
shall go away and think about it. On that basis, I beg to ask leave to
withdraw the amendment.
Amendment, by leave,
withdrawn.
The
Chairman:
I ask Committee members to bear with me at this
stage, because I have quite a lot of work to do in putting a number of
matters to the Committee. With the Committee’s leave, I propose
putting the questions on Government amendments Nos. 134 to 137
together.
Mr.
Djanogly:
So we are not including amendment No.
138.
The
Chairman:
I was hoping that hon. Members on both sides
would be listening carefully to what I said. I
propose, with the Committee’s leave, to put the questions on
Government amendments Nos. 134 to 137
together.
Amendments
made: No. 134, in schedule 11, page
189, line 43, leave
out
‘an interest in
shares in the body’
and
insert
‘a shareholding
in the licensed body, or a parent undertaking of the licensed
body,’.
No.
135, in
schedule 11, page 189, line 44, at
end insert—
‘( ) if the
relevant licensing rules make the provision mentioned in paragraph
38(1)(aa) of that Schedule, a non-authorised person has under those
rules an entitlement to exercise, or control the exercise of, voting
rights in the licensed body or a parent undertaking of the licensed
body which exceeds the voting
limit,’.
No.
136, in
schedule 11, page 190, line 1, leave
out
‘in which
non-authorised persons have an
interest’
and
insert
‘or a parent
undertaking of the licensed body held by non-authorised
persons’.
No.
137, in
schedule 11, page 190, line 2, at
end insert—
‘( ) if the
relevant licensing rules make the provision mentioned in paragraph
38(1)(c) of that Schedule, the total proportion of voting rights in the
licensed body or a parent undertaking of the licensed body which
non-authorised persons are entitled to exercise, or control the
exercise of, exceeds the limit specified in the
rules.’.—[Bridget
Prentice.]
Schedule
11, as amended, agreed
to.
Clause 84
ordered to stand part of the
Bill.
Schedule
12
Entitlement
to make an application for a licence to the
Board
The
Chairman:
I propose to put the questions on Government
amendments Nos. 138 to 143
together.
Mr.
Djanogly:
I request that amendment No. 138 be taken
alone.
Amendment
proposed: No. 138, in schedule 12,
page 191, line 24, leave out
‘a’ and insert ‘an
independent’.—[Bridget
Prentice.]
The
Committee divided: Ayes 9, Noes
4.
Division
No.
20
]
Foster,
Mr. Michael
(Worcester)
Question
accordingly agreed to.
Amendments made: No. 139,
in schedule 12, page 193, line 24, leave out ‘in
shares’.
No.
140, in
schedule 12, page 193, line 26, leave
out ‘in
shares’.
No.
141, in
schedule 12, page 193, line 29, leave
out ‘in
shares’.
No.
142, in
schedule 12, page 193, line 31, leave
out ‘in
shares’.
No.
143, in
schedule 12, page 193, line 32, at
end insert—
‘( ) the kinds
of non-authorised persons who have an indirect interest in the
licensable body.’.—[Bridget
Prentice.]
Schedule
12, as amended, agreed to.
Clause
85
Terms
of
licence
Amendment
made: No. 113, in clause 85, page 49, line 39, leave out
‘persons having an interest in shares,’ and
insert
‘non-authorised
persons having an interest or an indirect
interest,’.—[Bridget
Prentice.]
Clause
85, as amended, ordered to stand part of the
Bill.
Clauses
86 to 89 ordered to stand part of the
Bill.
Schedule
13
Ownership
of licensed
bodies
Amendments
made: No. 144, in schedule 13, page
194, line 25, leave out ‘has an interest in’ and insert
‘holds’.
No.
145, in
schedule 13, page 194, line 27, leave
out ‘interest in shares’ and insert
‘shareholding’.
No.
146, in
schedule 13, page 194, line 28, leave
out ‘has an interest in’ and insert
‘holds’.
No.
147, in
schedule 13, page 194, line 31, leave
out ‘interest in shares’ and insert
‘shareholding’.
No.
148, in
schedule 13, page 194, line 32, leave
out paragraph (e) and
insert—
‘( ) is entitled to
exercise, or control the exercise of, voting power in B which, if it
consists of voting rights, constitutes at least 10% of the voting
rights in
B,’.
No.
149, in
schedule 13, page 194, line 35, leave
out ‘voting power in B’ and insert
‘entitlement to exercise, or
control the exercise of, voting rights in
B’.
No. 150, in
schedule 13, page 194, line 36, leave
out paragraph (g) and
insert—
‘( ) is entitled to
exercise, or control the exercise of, voting power in P which, if it
consists of voting rights, constitutes at least 10% of the voting
rights in
P,’.
No.
151, in
schedule 13, page 194, line 39, leave
out ‘voting power in P’ and insert
‘entitlement to exercise, or
control the exercise of, voting rights in
P’.
No. 152, in
schedule 13, page 195, line 15, leave
out ‘has an interest in’ and insert
‘holds’.
No.
153, in
schedule 13, page 195, line 16, leave
out ‘has an interest in’ and insert
‘holds’.
No. 154, in
schedule 13, page 195, line 19, leave
out ‘power’ and insert
‘rights’.
No.
155, in
schedule 13, page 195, line 21, leave
out ‘power’ and insert
‘rights’.
No.
156, in
schedule 13, page 196, line 1, leave
out ‘an interest in the shares of’ and insert ‘a
shareholding
in’.
No. 157,
in
schedule 13, page 196, line 20, after
‘V’, insert
‘(whether or not they are
interests within the meaning of section
72(2A))’.—[Bridget
Prentice.]
Mr.
Djanogly:
I beg to move amendment No. 212, in
schedule 13, page 197, line 11, at
end insert
‘Licensing rules must
provide that, in determining whether the requirements of sub-paragraph
1 are met, the burden of proof rests on the person who wishes to hold
the restricted
interest.’.
The
amendment is designed to make it clear that the onus of demonstrating
fitness to own rests on the applicant, rather than it being for the
licensing authority to demonstrate that a person was not fit and proper
before it could withhold approval. The effectiveness of fitness-to-own
provisions is a crucial element of the public protections that need to
be in place before external ownership of ABS firms can safely be
permitted. It is essential to avoid the spectre of law firms being
owned by criminal elements.
10.15
am
The Bill
already allows licensing authorities specifically to consider whether
or not those who hold more than a small interest in a prospective ABS
firm are fit and proper persons. The intention appears to be that it
should be for the applicant to demonstrate fitness to own, rather than
the applicant being entitled to be approved unless the licensing
authority can demonstrate that they are not fit to own. The intention
of the provision in paragraph 14 under which licensing authorities may
require non-authorised persons to provide it with such documents and
information as it may require appears to be designed to achieve
that.
However, it is
important that there should be no doubt about the matter. Merely
demonstrating an absence of criminal convictions might not be
sufficient to entitle an applicant to become an approved person. For
example, the possession of unexplained wealth could give rise to
reasonable suspicions about the integrity of an applicant. It is
important that the licensing authority should be able to refuse
approval in those circumstances unless it received a convincing
explanation of the source of the wealth. The onus should not be on the
licensing authority to prove that the unexplained wealth was ill-gotten
before it could refuse to approve the applicant. The amendment is
intended to put beyond doubt the fact that the onus of proof should
rest with the
applicant.
Simon
Hughes:
I strongly support the amendment, which is
why I have put my name to it. I give as my reason an example from a
slightly different context. When Labour came to office, the London
borough of Southwark was still run by the Labour party. At that stage,
the education service was not fit for purpose. The Labour Government
intervened and directed the borough to contract out its education
service. The borough
contracted it out to an engineering firm called WS Atkins, although, to
my knowledge, the firm had no previous experience of running anything
to do with education. The Government said that that would be better for
the borough. Arguably, the service could not have become any worse,
but, in fact, it turned out to be no better, if not worse, because WS
Atkins did not have the competence to run the service.
When my colleagues won a large
number of seats on the council five years ago, they formed the first
ever non-Labour administration. In four years the authority did so well
on education that even the Government had to concede that it was fit to
run the service again. The service was handed back to it and WS Atkins
was shown the door. The services in the borough are now run by the
borough, as they should
be.
I hope that the
parallel is obvious. An application was made to do a job, but no one
assessed whether the applicant was fit for purpose. The amendment would
require that someone who was seeking the ability to be licensed to own
a business in the context of these business structures should have to
give reasons why they were fit to do that job. It should not be
sufficient for the authority to have to look around for reasons why a
person was not fit. Such a person should argue why they have a credible
reputation and financial probity and why they are suitable, and outline
their experience of that part of the country and the likely issues that
will come up.
It is
absolutely right that the burden should shift. There would be a huge
work load on the licensing authority if it had to go through the
process of monitoring all the checks and balances and ensuring that it
won the argument. The amendment is right for both practical reasons and
reasons of principle. I hope that the Minister will be persuaded to
encourage her colleagues to support
it.
Bridget
Prentice:
In all respects, I agree absolutely with the
principle behind the amendment. The hon. Gentlemen are absolutely right
about the operation of the approval requirements for investors. A key
touchstone of part 5 of the Bill is the principle that non-lawyers
should be permitted to invest in law firms only if they can demonstrate
that they meet the standards set by schedule 13 and licensing
authorities. The alternative would be to require licensing authorities
to assume that all prospective investors were fit and proper unless
they found evidence to indicate otherwise. I do not think that that is
satisfactory and I get the impression that members of the Committee
agree with me because that is not a reliable enough safeguard. However,
we differ about whether further provision is needed to achieve
that. The proposal as drafted ensures that that is already in
the Bill.
The test for
approval means that when an investor wishes to acquire a restricted
interest of whatever kind, the licensing authority must be satisfied
that the proposed acquisition will not compromise the regulatory
objectives or the ability of ABS firms and the individuals in them to
comply with the regulatory arrangements. That is the first
test.
In addition, the
licensing authority must be satisfied that the individual or firm in
question is fit and proper to hold that interest by having regard,
among other
things, to that person’s associates, his or her probity and
financial position, and any record of previous disqualification from an
ABS firm. All that must be taken into account. If those requirements
are not fulfilled, the authority may refuse to approve the proposed
interest, or attach conditions to it. If it is in any doubt about
whether a person meets the approval requirements, it can require
further information from that
person. It is for the
applicant to prove to the licensing authority that all those standards
are met. If the authority is not certain that that is the case, it is
under no obligation whatever to approve the interest. Indeed, I would
go so far as to say that the authority would not be fulfilling its
statutory duty if it granted its approval in a case where a
person’s fitness was in doubt.
Mr.
Burrowes:
In response to the Joint Committee, the Minister
indicated that the Government could deal with concerns about putting
provisions on fitness to own in the Bill by way of secondary
legislation, or by leaving it to the Legal Services Board. Is it
possible that this could be addressed through secondary
legislation?
Bridget
Prentice:
I am certainly happy to look at whether that
should be an aspect of the secondary legislation. Paragraph 6 of the
schedule probably covers everything that Opposition Members are rightly
concerned about. On that basis, I ask the hon. Member for Huntingdon to
withdraw the amendment, but I will take on board what hon. Members have
said.
Simon
Hughes:
The Minister said very assertively that it was
absolutely clear that the burden was on the applicant. She
cited in general terms paragraph 6 of the schedule. However, my copy of
paragraph 6 of the schedule does not appear to be nearly as clear as
the Minister implies. Seriously, can she point to the
measure—either in the clauses or the schedule—that says
what she is claiming? I have read the paragraph again, and I do not see
that it makes clear the point that we are trying to
clarify.
Bridget
Prentice:
Paragraph 6(3) of the schedule
says:
“In
determining whether it is satisfied of the matters mentioned in
sub-paragraph (1)(a) to (c), the licensing authority must in particular
have regard to”
the
issues that have been raised. That makes it clear that those issues
have to be taken into account and that licensing authorities would be
breaking their statutory duty if they did not deal with the matter
properly.
Simon
Hughes:
I accept that, but the measure does not say
who has the job of providing the information and making the case. I am
sure that the Minister follows me. Paragraph 6(3) says simply that an
authority has to look at those issues, but does not say that the burden
is unequivocally on the applicant to satisfy the authority about those
issues. That is my concern, which the hon. Member for Huntingdon might
wish to pick
up.
Bridget
Prentice:
I accept what the hon. Gentleman is saying. I
will hang on to that issue and come back to him on
it.
Mr.
Djanogly:
I am pleased that we have had this debate. We
would certainly like to emphasise that the matter is important, as the
Minister accepts. The position is that the existing Bill caters
adequately—
It being twenty-five minutes
past Ten o’clock,
The Chairman
adjourned the Committee without Question put, pursuant to the
Standing
Order.
Adjourned
till this day at One
o’clock.
| 
