Clause
177
Duties
of regulated
persons
Simon
Hughes:
I beg to move amendment No. 242, in
clause 177, page 94, line 33, at
end insert—
‘( ) The duty to
comply with regulatory arrangements overrides any obligations which a
person may have, including to shareholders (otherwise than under the
criminal law), if those obligations are inconsistent with the duty to
comply with the regulatory
arrangements.’.
I
was so excited about the new Criminal Justice and Immigration Bill that
I had not caught up with the fact that this amendment would be with us
so quickly. It would add for the purpose of clarity a statement that
would give priority to the duty to comply with regulatory arrangements.
It would be inserted after subsection (1), which sets out the duties of
regulated persons.
We
are now into part 8; we have made great progress, and we are in the
home stretch. This aspect of the Bill is called “Duties of
regulated persons”, as is the clause, which starts by
saying:
“A
person who is a regulated person in relation to an approved regulator
has a duty to comply with the regulatory arrangements of the approved
regulator”.
The amendment
would set out that that statement overrides any other obligations that
that person may have,
“including to shareholders
(otherwise than under the criminal law), if those obligations are
inconsistent with the duty to comply with the regulatory
arrangements.”
The
Members’ explanatory statement, of which some of us are keen
fans, says that the
amendment
“is intended to
put beyond doubt that for all those within the regulated sector, the
duty to comply with regulatory arrangements is
paramount”.
The real
reason for the amendment is that if the Bill is passed as the
Government want it to be, alternative business structures will be set
up, organisations with people from different professions will work
together, and they will not be governed as the legal profession on its
own was governed in the past, simply by its own regulatory
objectives.
This
debate is like the earlier one about the priority of access to justice
and the Legal Services Board. The amendment would ensure that, beyond
peradventure, people understood and were in no doubt about the
priorities. The Minister may say that the drafting is not perfect, that
it is not in the right place or other things. I hope that she will say
that subject to the criminal law, there must be an overriding duty of
compliance, which the Bill should be absolutely express about for the
avoidance of doubt. I await with interest her
reply.
Bridget
Prentice:
Sir Nicholas, I am sure that you are aware that
this issue was debated on several occasions in the other place. We made
it clear then that the duty of lawyers and their practices to comply
with the professional conduct rules and other regulatory arrangements
is absolutely essential, which is why we have placed those obligations
on a statutory footing and written several supporting safeguards into
the Bill. There should be no scope for it to be compromised by other
obligations—to shareholders or otherwise.
The Bill already achieves the
amendment’s objective. If the lawyer or the licensed body were
to breach professional conduct rules, they would be acting
inconsistently with clause 177 and breaking the law. Approved
regulators would be able to take whatever remedial action was necessary
if the breach were serious—for example, allowing client
confidentiality to be compromised in order to deliver a better return
for shareholders. That would be grounds for revoking a licence and for
permanently disqualifying the individual from ever working in an ABS
firm again. There is no way that compliance with other obligations
could ever provide a defence for that. Directors of that licensed body
could not countenance breach of the law in the name of their duties to
shareholders. If that were the case, directors could cause their
companies to breach regulatory obligations all the time and then defend
their actions by saying that they did it in the name of shareholder
obligation. That simply is not how company law works.
Directors cannot take decisions
that cause breaches of statutory obligations in the name of an
obligation to their shareholders. They must abide by their statutory
obligations, and their duties to shareholders do not justify any breach
of those obligations. There is no conflict, so there is no need for an
override provision. We have had detailed discussions on this matter
with the FSA and the DTI, both of which confirmed that directors cannot
use their duties to shareholders to justify the breach of a statutory
obligation. They also confirmed that directors’ duties,
including those to promote the success of the company as set out in the
Companies Act 2006, presume that directors and their companies will be
subject to all kinds of other obligations—statutory, fiduciary
and regulatory. Section 172 of the Act co-exists with those duties; it
does not conflict with them, so there is no need for an override
provision.
I fear that
the introduction of an override provision would cast out the principle
of co-existence and would effectively state that such clauses are
needed to ensure that directors comply with their statutory
obligations, which clearly is not right. Such a provision might create
negative influences for other duties, which could be damaging and could
lead to uncertainty in applying principles that are vital to ensure
consumer protection and to comply with legal obligations.
The importance of that
principle is not unique to legal services, and I certainly do not want
to jeopardise the interests of consumers in other sectors and create
uncertainty about the application of company law by incorporating an
unnecessary provision. I do not think that an override provision is
needed, and accepting it might compromise the position that is set out
clearly in the Companies Act. It is well known that directors cannot
use their obligations to shareholders to override statutory
obligations. I hope that my comments have reassured the hon. Gentleman
enough for him to withdraw the
amendment.
Simon
Hughes:
I am grateful to the Minister for her considered
reply, and I take seriously what she said about having consulted the
DTI and others and that it
is their clear view that such protection is not needed. She was very
clear, and people will be able to look back through the Hansard
records to read what has been said about statutes and statutory
protection in certain appropriate circumstances.
Obviously, we are all clear
that the criminal law reigns supreme, but I want to clarify one thing.
I understand the Minister to have said that obligations that do not of
themselves give rise to criminal breach, but are obligations because
the regulator has imposed guidance or required certain things, are
still overriding obligations as set out in the Bill, and that one
cannot pray in aid of shareholders’ interests and set those
obligations against each other. Criminal law, of course, comes first,
but other obligations are expressly to take precedence over any
shareholder obligations, even if they do not have a criminal sanction.
I think that that is what the Minister was clearly saying, but I would
be grateful if she could clarify it. If that is the case, it might
provide the necessary reassurance. I would not want any amendment to be
accepted that compromises the achievement of that hierarchy of
obligations.
Finally,
we are looking at different sorts of firms, maybe run by non-lawyers,
such as big insurance or investment companies or private equity firms,
which will need to know what the score is. They need to know absolutely
that if they come into this business, and if ABSs take off and that
part gets through—a lot of discussion still needs to take place
between the two Houses—in England and Wales, they must be
governed by the same regulatory regime as that which governs law-only
professions and which has worked well in that context
recently.
7
pm
Bridget
Prentice:
I think that I can give the hon. Gentleman that
reassurance. Statutory obligations are key. He is right to talk about
criminal sanctions at the top of the hierarchy, but any statutory
obligations will override any obligation to shareholders. I hope that
that gives him that reassurance. He is quite right to say that those
who might own some of those firms in the future must be very clear that
that is the case absolutely. Hopefully, this debate will have gone some
way to making that clear to
them.
Simon
Hughes:
I am grateful. I hope that when the Bill is
passed, as I am sure that it will be in some form, and when anyone
applies to set up an ABS, if permitted—some of us are still
unhappy about that, but we will continue that debate
elsewhere—they will get a copy of the “Minister says
‘obey!’” rule which could be sent gratis. On that
basis, I beg to ask leave to withdraw the
amendment.
Amendment,
by leave,
withdrawn.
Clause
177 or
dered to stand part of the
Bill.
Clause
178 ordered to stand part of the Bill.
7.3
pm
Sitting
suspended.
[Continued in column
433]
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