19. As noted above, the Government has announced
a series of changes to Part VI of the Bill, the market abuse regime,
to increase certainty and reduce the chance of successful legal
challenge on ECHR grounds. These changes meet many of the points
made in our First Report. We consider them in turn.
20. First, and most significantly for the FSA as
it seeks to enforce the regime, statements which the FSA compel
a person to make will not be able to be used against him in proceedings.
The Minister observed that this would not render the FSA's powers
to compel evidence useless: they will still be able to use compelled
evidence to suggest new lines of inquiry, to justify an injunction
or an order for restitution or disgorgement, or to proceed against
a person other than the one who gave the evidence.
21. Secondly, "Subsidised legal assistance will¼be
made available in appropriate cases to individuals who do not
have sufficient means".
The Government is considering
how this scheme will work, and whether it will be an extension
of Legal Aid or a free-standing scheme.
22. "The Government...is
considering whether to introduce explicit protections for people
who take reasonable steps to make sure that they do not breach
the primary provisions [of Part VI]".
The Minister explained that the intention is to protect those
who operate with proper precautions, with due care and in good
faith in areas where the Code of Market Conduct is silent. "Of
course we do not want to sanction people for the effects of actions
that are unforeseeable".
23. The London Investment Banking Association (LIBA)
would prefer the offence itself to include a mental element;
and Herbert Smith consider that the FSA should be required to
prove intent to abuse the market, rather than merely being able
to point to an absence of reasonable steps.
However we are satisfied that what the Government now proposes
would broadly meet the recommendation in paragraph 270 of our
24. "The Government proposes to make compliance
with express provisions in the code [of market conduct] an absolute
defence against proceedings for breach of the market abuse provisions."
The Minister confirmed that the proposed safe harbour would extend
only to compliance with express provisions of the Code, not to
actions as to which the Code was silent.
25. This is in line with a view expressed by the
FSA towards the end of the first part of our inquiry;
but it goes further than we recommended in our First Report.
We recommended that "the draft Bill should provide a safe
harbour for behaviour that complies with the FSA Code of Market
Conduct except where the FSA proves that the person responsible
for it intended to engage in market abuse or exhibited recklessness
or possibly negligence about the abusive effect of the behaviour".
The Minister explained that the Government has been advised that,
even if the Bill did so provide, action against someone who had
fully complied with express provisions of the Code would be unlikely
26. In our First Report we considered the case for
extending the safe harbour further, to include conduct in compliance
with the rules of an exchange. We were persuaded that this would
not be appropriate, and this remains our view.
27. "The Government also proposes to clarify
in the Bill that the market abuse regime will only apply to market
This meets a point made to us by Lord Hobhouse of Woodborough,
another of the Law Lords.
The Minister explained
that the definition will include participants in UK markets who
may be physically located overseas, though she acknowledged that
in such cases enforcement presents practical difficulties.
28. In our First Report we considered the proposed
definition of market abuse in Clause 56 of the draft Bill, and
recommended that it should be made more clear.
The Government stands by its original draft.
However most of our witnesses remain of the view that Clause 56
requires clarification, despite the Government's other proposals
to improve certainty. According to Lord Steyn, "there is
a substantial risk that in respect of market abuse the system
will be held not to comply with the Convention principle of certainty".
Lord Hobhouse put it thus: "So long as the draft for Clause
56 remains in its present form, there will be a serious risk that
it will fail in its objective and, far from providing a scheme
which will catch the unscrupulous, will provide them with a means
of escape which a properly drafted provision would foreclose."
LIBA point in particular to "the unclear and subjective tests
in the current drafting of Clauses 56(1)(c) and 58(b) and...the
lack of clarity about the 'in relation to' tests in Clauses 56(4)
We would further observe that the expression "true and fair
market" is opaque.
29. We acknowledge the Government's dilemma. It seeks
a provision sufficiently wide to make evasion difficult, yet sufficiently
clear to stand up in court. We remain concerned that the current
draft of Clause 56 lacks the necessary clarity. Quite apart
from any difficulty which this may cause in court, we are concerned
that it may cause businesses to err on the side of caution, thereby
21 Q 33. Back
p 3, para 16. Back
1, 29. Back
9, para 6. Back
p 3, para 16. Back
1, 26. Back
Report, Appendix 5. Back
see LIBA, Appendix 9, para 6. Back
p 3, para 16. Back
Report, Appendix 60. Back
3, 25. Back
9, para 7. Back
note that in the context of accountancy the expression "true
and fair" has been the subject of considerable elaboration
by the profession. Back