Mr.
Tyrie: On a point of order, Mr. Benton. I am
very sorry to disturb proceedings, but I wanted to point out that in
the back row here the air conditioning seems to
be on as if it were mid-summer. I have noticed that it is 1°
outside and, though more in here, it is certainly not very warm. I
wonder if you could look into this, Mr.
Benton.
The
Chairman: That is hardly a point of order, but the point
is taken, whether a point of order or not. Protestations have been made
to the proper sources already, I can assure you of that. It is cold,
but I do not know what the problem is. We have tried to resolve the
problem this
morning.
Clause
15Removal
of restriction on imposing a penalty and cancelling
authorisation Question
proposed, That the clause stand part of the
Bill. 12.45
pm
Rob
Marris: I have a simple question.
“Cancelling” is used in relation to authorisation in the
clause heading— page 19, line 36—but
“withdrawing” is used in the body of the clause, on line
39. What is the difference between withdrawing and
cancelling?
Mr.
Hoban: I suggest that my hon. Friend the Member for
Chichester move closer to the Front Bench—oh, he has gone. That
would have brought him closer to the hot air that has been generated by
the
debate. I
expect that the Minister will deal with this matter during the stand
part debate. The clause removes part of section 206 of FSMA. Therefore,
if the clause passes into law, when someone loses
authorisation—whether it is cancelled or whatever term is
used—and loses the right to earn a living from the business,
they will also face a financial penalty. That was not the case under
FSMA, so what has changed in the Government’s thinking since the
passing of that Act? If someone is deprived of the right to earn a
living, it is much harder for them to pay a fine, unless they have
accrued profits in the interim. Will the Minister clarify the
Government’s
position?
Ian
Pearson: The clause removes section 206(2) of part XIV of
FSMA, which prevents the FSA from both imposing a fine on a firm and
withdrawing its authorisation in relation to the same misconduct. I am
sure that hon. Members will agree that if a firm gains a financial
advantage from misconduct, the FSA should be able to fine it. The best
answer I have for the hon. Member for Fareham is that when given a
choice between withdrawing a firm’s authorisation, to remove the
firm from the industry, and fining the firm, the FSA often chooses the
former. That is the right choice because consumers need to be
protected. It means, however, that a firm can retain any financial
gains that it has made as a result of misconduct. It is not right that
a firm should not have to suffer a fine when the misconduct warrants
it, and it is therefore right to give the FSA the option to use both
sanctions when it feels it is appropriate to do
so. On
the difference between cancelling and withdrawing, which my hon. Friend
the Member for Wolverhampton, South-West pointed out, I am advised that
cancelling applies to permissions. Once all permissions were
cancelled
—removed—the FSA would have to withdraw the firm’s
authorisation. I hope that that is clear to my hon. Friend, or as clear
to him as it is to
me. Again,
I want to make the basic point that the FSA will use the powers
proportionately. It will seek to take actions only in cases where they
are justified. It is important, however, that the FSA has that power,
so it can use it when appropriate. It simply is not right that a firm
whose authorisation could be withdrawn because it was guilty of
misconduct could be allowed to keep the proceeds of financial gain that
it had wrongly made. The clause will remove that possibility.
Therefore, I urge that it stand part of the
Bill. Question
put and agreed
to. Clause
15 accordingly ordered to stand part of the
Bill.
Clause
16Performance
of controlled function without
approval
Mr.
Hoban: I beg to move amendment 14, in
clause 16, page 20, line 7, leave
out ‘P’ and insert ‘the authorised
person’.
The
Chairman: With this it will be convenient to discuss the
following: amendment 15, in clause 16, page 20,
line 8, leave out ‘P’ and insert
‘the authorised
person’. Amendment
1, in
clause 16, page 20, line 10, leave
out from ‘P’ to end of line 14 and insert
‘either (i) did not know,
and (ii) could not reasonably
be expected to have known, that P was at that time performing a
controlled function without approval,
or (b) was instructed to
undertake these activities by an authorised person or where the
authorised person was a company director or officer, who was an
approved
person.’. Amendment
16, in
clause 16, page 20, line 24, after
‘the’, insert
‘authorised’. Amendment
17, in
clause 16, page 20, line 34, leave
out second ‘a’ and insert ‘an
authorised’. Amendment
18, in
clause 16, page 20, line 37, leave
out second ‘a’ and insert ‘an
authorised’. Amendment
19, in
clause 16, page 20, line 40, leave
out second ‘a’ and insert ‘an
authorised’.
Mr.
Hoban: The best place to start is a setting out of what
happens by virtue of clause 16. Then I shall move on to my amendments,
which would broadly have the same effect, as they flow through this
section of the Bill. FSMA sets the regulatory perimeter for the FSA to
find lots of activities that firms can carry out, but which have to be
regulated by the FSA. It gives the FSA some statutory objectives and
enforcement powers when people within its perimeter transgress its
rules. A
fundamental part of the FSA’s role is authorisation, so there is
talk of authorised persons and approved persons able to undertake
functions within businesses that carry out financial services. That
helps to create the regulatory boundary that we want the FSA to
supervise,
regulate and, where appropriate, enforce. What is interesting about
clause 16 is that it will expand the FSA’s remit beyond people
it has approved, to identify people who are undertaking a function
where perhaps they should have been approved. That is a shift in the
FSA’s regulatory
approach. I
spoke earlier about opening up clause 14 when we discussed the
Association of British Insurers submission, which questioned whether
the powers in clauses 14 to 17 were needed in a generic sense. In the
evidence session on Thursday afternoon last week, we spent a lot of
time talking about these powers with people from the industry and those
with legal expertise. We asked Guy Sears from the IMA about his
understanding of the additional powers being taken by the FSA. As I
said, the ABI questioned whether these additional powers were needed,
while Mr. Sears, from a different perspective,
said: “It
would seem so to me, if we have a system that seeks in its spirit to
ensure that those who carry on important parts and important roles
within regulated activities should be subject to proper standards on
entry and oversight by the FSA. In a sense, if they do not do that, the
FSA has no ability to deal with them—that seems to me a
lacuna.”——[Official Report, Financial
Services Public Bill Committee, 10 December 2009; c. 93,
Q5.] The word
“lacuna” was used rather a lot on Thursday afternoon. The
BBA, which I cited earlier, has been sceptical about increased powers
and said in relation to this
area: “We
support the FSA being given the additional power to
suspend” authorised “persons,
but... this power should be limited to those persons who carry out
a ‘controlled
function’.” That
gets to the heart of the debate. We are seeing a shift in the
FSA’s approach, so it can take action against someone who is not
authorised to perform a controlled function but may in practice be
doing
so. We
need to be cautious because we must ensure that there are adequate
safeguards for people who suddenly find they have fallen within the
remit of the FSA, when they have not been through the approval process
and might not, therefore, be aware of what is happening to them. I
tabled amendments 14, 15, 1, 16, 17, 18 and 19 to clarify what will
happen to people who get caught by clause 16, and to try to introduce a
safeguard for
them. There
is a risk that people will unwittingly undertake a controlled function
as part of their responsibilities in their job. Such people might not
have been through the FSA’s authorisation process and might not
be regulatory experts, but they might end up, for some reason,
undertaking those functions. That is why I probed the Government on
what defence might be available to people who undertake such
functions. I
particularly focused on the protection that there might be for someone
who is doing a job at the direction of somebody else in the business.
What will happen if someone has been instructed to undertake that
function? A board member, director or officer, or an unauthorised
person, might say, “We want you to do this. It is part of your
duty; you must do it.” Such a person might assume, because the
other person is on the board as a director or officer of a business,
that they have to do it. They might also assume that someone has gone
through the process to ensure that they are able to do it. That might
be a legitimate defence in their eyes, to prevent some of the
sanctions being imposed on them. That is why, for example, amendment 1
would insert at the end of line 14 the
words “did
not know... could not reasonably be expected to have known
that... was at that time performing a controlled
function”. What
can people plead in their defence to say that they undertook those
functions but assumed it was okay to do
so? The
amendment would move responsibility from the individual to the firm. It
says that it is the firm’s responsibility to supervise people.
Amendments 14 to 19 would amend the Bill so that the authorised
person—the firm or business undertaking that
activity—would pay the fine, not the individual. My argument is
that the individual is acting at the direction of management.
Therefore, it would be helpful to understand why the Government believe
it should be the person, rather than the authorised person, who pays
the
fine. It
would also be helpful to understand what defence may be made by that
individual to say, “Actually, I am just doing what I have been
told to do. Is it not reasonable for me to follow the orders of a
director and officer who
is the authorised person?” That is the thrust behind the
amendments. I would be grateful for the Minister’s clarification
of how that power will be implemented in
practice. Ian
Pearson: The clause is about credible deterrence. Its
purpose is to strengthen the FSA’s approved persons regime to
ensure that people carrying out key roles in firms are only those who
are fit and proper to do so, and that they perform those roles to the
requisite standard. For that, we need the right balance of
deterrence. I
believe that for deterrence to be credible, it needs to be directed at
the firm and at the individual. It is important that employees in key
decision-making or customer-facing roles are individually accountable
for their actions.
1
pm The
Chairman adjourned the Committee without Question put (Standing
Order No.
88). Adjourned
till this day at Four
o’clock.
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