Rob
Marris: I welcome being on the Committee with the hon.
Member for Chichester with whom I agree more often than I would wish in
the Chamber, although not on this issue. I take his point about
shredding the reputation of a firm but we have to look at protecting
consumers. We have to look at their level of maturity and at the
details of the information that I think the FSA should
publish. Consumers
are sometimes more mature about such things than one might think at
first glance. I shall give him an analogy from my professional practice
as a solicitor. It goes back many years, as I have not practised in
this area of law for more than 25 years. The Law Society rules then
were that one had to disclose to the client the commissions that one
sometimes got as a solicitor and give them the option of having the
commission for themselves. When I first read that rule as an articled
clerk, I thought that it was absolutely potty. I thought that the rule
might as well be that we should just give the commission to the client.
In practice, when one said, “There is a commission with this
transaction, and you are entitled to all of it if you wish or you may
allow me to keep part of it”, quite a proportion of clients
said, “That’s okay, you keep the commission, I’d
have done the deal anyway.” That was certainly counter-intuitive
to me, as I think it would be to many
people. It
is a question of consumers’ maturity in weighing up information
and making choices. If a firm was being investigated, the consumer
might say, “Well I’ve dealt
with this firm for years, I understand the two little paragraphs about
what the FSA say they are investigating and why there is a restriction
on somebody working here, but it’s all right with me, I’m
going to carry on.” Mr.
Walker: Of course there will be an intermediate stage in
the process. The FSA would have been working with that business or
individual, we hope, for months and would have persuaded that business
or individual to moderate their behaviour before reaching the
enforcement level. If the FSA is so concerned about the business
practice, there must be an opportunity, even during the appeal process,
to advise potential customers about it and to let them know that the
organisation or individual is in a disciplinary
process. 12
noon
Rob
Marris: I agree with the hon. Gentleman; it is not just a
question of the opportunity for the
FSA. I
take issue with the fact that there is nothing in new clause 1 about
encouraging the FSA to disclose its information; the proposal is merely
permissive. I urge the hon. Member for Fareham not to press
amendment 5 to a Division, because it goes against our
system. I urge the Minister not to accept amendment 3 and new
clause 1, but he should seriously consider the issue of
disclosure and consumer information. Not only the FSA, but the
financial institution itself, should be encouraged to disclose
information to
consumers.
Mr.
Breed: I was not going to say much about this interesting
topic, but I will offer an analogy. I have been a member of the General
Medical Council for a considerable number of years, and I sit on
fitness to practice panels. This is not a complete analogy, but there
is a well-worn process when complaints are made against doctors that
are then considered by the GMC. Complaints that are insignificant or
vexatious are weeded out, and the remainder are considered in terms of
their potential seriousness. If complaints are potentially serious,
they are passed to an interim orders panel. I am a member of one such
panel. That part of the process happens before the fitness to practice
panel meets to decide upon any disciplinary
action. It
is felt that the general public should be protected against a doctor
who may have been involved in serious misdemeanours, so, while the
doctor has not been found innocent or guilty during the period between
the meeting of the interim orders panel and the meeting of the fitness
to practice panel, it is decided that an order might be necessary to
protect the public. That can mean a letter of warning, conditions on
his or her registration, or even
suspension. If
such a process takes place, the GMC requires the doctor to advise
certain bodies and personnel, such as the local PCT and the director of
public health, of those conditions. Indeed, if the doctor accepts an
appointment or undertakes any other work, he needs to advise the people
involved of the conditions under which he is working. Those conditions
are published against the doctor’s registration on the GMC
register. Although it is not required for him to put a notice up in his
waiting room—“I am under suspension” or “I
am under conditions”—if somebody interrogated the
register, they would see that, and if they asked their PCT, they
would be told that the doctor was under conditions or suspension,
pending the ultimate fitness to practice decision, which may be six,
nine or 12 months
away. That
offers something of an analogy to the issues under discussion. For
example, while we may not want a mortgage broker to put a notice up in
his waiting room stating, “I am under threat”, we may
require the FSA to hold a register that somebody could interrogate to
see whether there was an action against that broker. It could also be a
requirement to advise the local trading standards department so that,
should someone make an inquiry of it, they would be made aware that
that authorised person was under conditions in respect of a pending
action. The
process might work that way. It works tolerably well in the GMC,
although not everyone agrees with it, particularly those doctors who
are subjected to it. However, the analogy is not unreasonable in how
the process might operate. It would provide some means to the general
public to interrogate and find out whether a particular individual or
firm was under investigation or
conditions.
Ian
Pearson: We have had an interesting debate and I will try
to clarify matters for the Committee. As is nearly always the case, the
hon. Member for Fareham has a point. However, as in many cases, a lot
of my work has been done for me by my hon. Friend the Member for
Wolverhampton, South-West. We have had analogies with criminal cases
and most recently, from the hon. Member for South-East Cornwall, an
analogy with the GMC and fitness to practice.
I do not
think that there are any perfect analogies, but at the risk of
extending the criminal analogy a little further, I would want to draw a
distinction between the disciplinary measures here and the measures to
protect consumers and prevent action from taking place. So, to pursue a
criminal analogy, we are not talking about a person who has been
arrested and charged and taken into preventive custody for a serious
offence. We are talking about clauses that relate to disciplinary
powers. The FSA’s current preventive powers can be used if there
is a risk to the consumer and they can be used under section 45 of
FSMA—the OIVOP provisions that I have already talked
about. A
suspension could be imposed by the FSA under section 45 and could have
immediate effect, thereby enabling preventive action to take place if
the FSA considered that necessary because of the detriment to
consumers. We are talking about a different set of
circumstances—not about preventing action, but about the
punishment that might be appropriate as opposed to a fine. There is the
punishment and the deterrent effect of having a sanction that is all
about suspending permission to carry on regulated
activities.
Mr.
Walker: Will the Minister confirm that the relationship
between the FSA and financial advisers does not necessarily have to be
built on confrontation? It would be perfectly possible for the FSA to
work in partnership with a financial adviser or company and say,
“Look, we have some concerns around this financial instrument.
We would prefer it if you withdrew it for the next two or three months
while we work with you to clear up those concerns.” Is that a
possible outcome?
Ian
Pearson: I agree that that is likely to happen in a lot of
instances. Generally, the first recourse would be the FSA having a word
with the individual or the companies about areas of concern. In many
cases these issues are sorted out in that way. Then, as I indicated
earlier, if the FSA remains concerned that there is potential
misconduct and consumer detriment, or a threat to financial stability
or any of the other objectives, it can act by issuing a warning
notice. It
is important to recognise that the FSA has other powers to protect the
consumer that we are not discussing here, but which are all relevant.
They are used by the FSA and have been used in the recent past, but
they are distinct from the additional power that we are seeking to take
here today, which will enable the FSA to suspend permission to carry
out regulated activities in the
future.
Mr.
Hoban: I am grateful to the Minister for the way he is
explaining this. There is a challenge for the Committee here. I suspect
that none of us took part in consideration in Committee of FSMA, for
which we should perhaps be grateful, with the exception of my hon.
Friend the Member for Chichester, who consequently understands the Act
inside out. One problem is that while we are dealing with disciplinary
powers in isolation as we amend FSMA, we are not looking at preventive
power. I
put this challenge to the Minister: one assumes that a temporary
suspension of activity would be on the activity where the alleged
breach took place. For example, if the problem was with the sale of
mortgages, the firm would be prevented from selling them. This is not a
penalty that exists in isolation; there is a clear connection between
the breach and the penalty. On the other hand, there is no equally
clear link where, for example, there is a breach and then a
fine. That
is where the issue of prevention comes in. If it is said that that
there is a breach so heinous that a suspension should be the sanction,
people will want to know what is going to happen in the middle period
to ensure that the breach does not reoccur before the sanction is
imposed.
Ian
Pearson: I think I understand what the hon. Gentleman is
trying to get at. Again, I want to return to the fact that the FSA, as
a public authority, has to act appropriately and proportionately. For
example, if a problem was identified in the mortgage market, the remedy
would not be to refuse the organisation permission to operate in the
shares or credit default swaps markets. The remedy would, in
common-sense terms, have to relate to the area in which the FSA had
concerns and was talking to the individual or
company. The
hon. Gentleman is right, and I am not sure that any other member of the
Committee served on the Committee considering FSMA, but I would like to
make a few comments in reference to it, as that will help to explain
the
amendments.
Mr.
Hoban: The Minister is right. This is about trying to work
out the proportionality. If the breach is in a particular type of
business—with the FSA believing that the authorised person has
broken a set of rules—and the penalty is that they stop
transacting that type of business, what will happen between the breach
and the final penalty so as to protect consumers? That is outside
the scope of the part of the Bill that we are discussing, as it is about
the disciplinary sanction, but I want to see where the linkage is,
which will protect consumers in the interim before the final sanction
is
imposed.
Ian
Pearson: The point that I was trying to make on preventive
custody will, I hope, address the hon. Gentleman’s point. If the
consumer needs to be protected and the FSA has concerns, the FSA can
use section 45 of FSMA to suspend an individual company from taking a
particular course of action, and the customer will be protected
immediately. The FSA might then want, using the powers we are
discussing, to suspend the company from taking action for a period of
up to 12 months, which it can
determine. The
two powers are different: one is to do with discipline and punishment,
the other with prevention. The section 45 powers prevent actions from
being taken, while the powers under the clause are for punishment and
deterrence.
Mr.
Todd: The amendment is about punishment. Is the Minister
arguing that there is sufficient punishment in the clause and that the
additional sanction of some public information about that punishment
would be unnecessarily draconian? One of my concerns is the slight
haziness over where the threshold will lie when the clause is
implemented. Many informal contacts will take place between the FSA and
a regulated body in which it might ask questions or raise worries about
a particular activity well short of the sanction in the Bill. It is
perfectly reasonable that that should be conducted in private, but
there is an argument for saying that, when we reach the much more
formal process of the use of the law, there should be a wider currency
to that
decision. 12.15
pm
Ian
Pearson: My hon. Friend asks about the important point at
which disclosure to the public takes place. I shall explain the
Government’s position on that in a few
moments. For
the record, let me explain why in the Government’s view the
changes under the amendments and new clause 1 are not
necessary. Paragraphs 18 and 19 of schedule 2 amend sections 207 and
208 of FSMA, which require the FSA to issue warning notices and
decision notices when taking disciplinary measures. The specific
changes will require the FSA to issue warning and decision notices in
relation to suspensions or restrictions of permission under the
proposed new section 206A, which is inserted into FSMA under the
clause. The
amendments under schedule 2 will then lead to section 391 of FSMA being
engaged. Section 391(4) requires the FSA to publish such information as
it considers appropriate about the matter covered by a final notice.
For the information of the Committee, a final notice is the notice
given after the decision notice has been issued and any reference to
the tribunal has been dealt with or the period in which to make a
referral to the tribunal has passed. Therefore, on the assumption that
the consequential amendments schedule is, in due course, accepted as
part of the Bill, the FSA will be
under an obligation to publish appropriate information about the persons
whose permissions are suspended or restricted under the
clause. While
I agree with the intention of amendment 3, in practice it is not
necessary. However, my hon. Friend the Member for South Derbyshire is
right if he is saying that the time in which the information is made
public will be at or after the decision notice, and that addresses the
point of innocent until proven guilty.
Mr.
Todd: Will my hon. Friend clarify one point? He suggests
that there would be an obligation on the FSA to publish such
information, but the wording that he quoted showed a substantial degree
of discretion on the FSA about how it makes such a judgment. Perhaps I
misheard him, but he said broadly that the FSA would judge such
information as appropriate. I am worried about the degree of
obligation. My
other concern was developed by my hon. Friend the Member for
Wolverhampton, South-West, which was that there is no obligation of
anonymity to someone who is under suspicion and charged in the matter.
I cannot quite understand why anonymity needs to be granted after the
serious threshold that has been exercised of establishing a suspension,
pending a possible future
sanction.
Ian
Pearson: On my hon. Friend’s first point, he is
right to refer to my words when I said that the FSA is required to
publish such information as it considers appropriate. I would have
thought that the type of information mentioned under amendment 3 would
generally be appropriate to be published. If, for some reason, the FSA
considers that it would be wrong to publish certain details, it would
not be required to do so. The FSA has a general duty to act in an
appropriate and proportionate manner. The important point to note is
that the publication requirements for all of the FSA’s
enforcement measures, including the new suspension power, will be the
same. I understand that the hon. Member for Fareham has some concerns,
but in practice they are not likely to
eventuate.
| 
