Memorandum from Lord Lester of Herne Hill
1. I am grateful to the Chairman of the Joint
Committee on Financial Services and Markets for the opportunity
to give the Committee my views on HM Treasury's Memorandum, confining
myself to the concerns about the compatibility of the draft Bill
with Article 6 of the European Convention on Human Rights.
2. The Treasury's Memorandum contains several
welcome developments in the Government's thinking, in the light
of the Joint Committee's First Report. These developments make
it more likely that the eventual legislation will stand up to
legal challenge on human rights grounds.
3. However, there remain important respects
in which the draft Bill, read with the Treasury's memorandum,
remains vulnerable to successful legal challenge for breaches
of Convention rights, with continuing and avoidable legal uncertainty.
4. I agree with the general summary of the requirements
of Articles 6 and 7 of the Convention, contained in paragraphs
5 to 9 of the Treasury's memorandum.
5. The Government's decision (paragraph 13)
to treat the market abuse fining power as criminal in nature,
for the purposes of the safeguards in Article 6 of the Convention,
and to introduce additional Convention protections in the Bill
is welcome. So too is the decision (paragraph 16) to make compliance
with express provisions in the code an absolute defence against
proceedings for breach of the market abuse provisions, and to
clarify in the Bill that the market abuse regime will only apply
to market participants.
6. If the Government decides (paragraph 16)
to introduce explicit protections for people who take reasonable
steps to make sure that they do not breach the primary provisions,
this will further reduce the risk of a successful legal challenge.
7. According to a report in the Financial
Times, on 15-16 May, the Government also proposes to exclude
the use of compelled evidence from civil proceedings that could
lead to a fine. This is not mentioned in the Treasury's memorandum,
but, if it is correct, it will again serve to reduce any mismatch
between the Convention and the legislation, giving effect to the
Joint Committee's recommendation (Report, paragraph 205).
8. Unfortunately, the Government remains of
the view (paragraph 10) that the entire disciplinary regime applying
to authorised firms under Part XII of the draft Bill, and the
similar disciplinary powers in respect of approved persons under
Part V, would be classified by the Courts as involving the determination
of civil rights and obligations, and not of criminal charges,
for the purposes of Article 6 of the Convention.
9. In my view, this is too sweeping an approach,
and leaves scope for considerable legal uncertainty and a real
risk of a successful legal challenge in a particular case.
10. It is true, as the Memorandum points out,
that the scope of the disciplinary regime is limited to a defined
set of persons who are part of a regulated community; that is,
authorised persons and certain of their employees. I also accept
that the requirement for those who choose to undertake financial
services business to become part of the regulated group is necessary
for the protection of the public, and that the conduct covered
by the regulatory regime is analogous to that which would be covered
by regulation of a profession. And I accept that most aspects
of the regime would properly be regarded as essentially protective
rather than punitive.
11. However, these factors are not conclusive.
I would respectfully refer the Joint Committee to the analysis
in paragraphs 10 to 19 of the Joint Note of Advice of 7 April,
given by me and my colleague, Monica Carss-Frisk (Joint Committee's
First Report, at pp. 96-98),
which has not, in my view, been dealt with satisfactorily in the
12. The nub of the problem is that, while many
disciplinary offences are likely to be classified as civil in
nature, some serious disciplinary offences are likely to be classified
by the courts as criminal, whether because they effectively cover
misconduct which is criminal (e.g., market abuse offences) or
because of the risk of the infliction of drastic fines with a
dominantly punitive, rather than compensatory or restitutionary
13. The risk of successful legal challenge is
illustrated by the recent decisions of the French courts applying
Article 6 safeguards to proceedings for the imposition of administrative
fines in the context of financial regulation. The Commission des
Operations de Bourse ("COB") is an administrative authority
established to ensure the protection of investors' savings, disclosure
to investors, and the proper functioning of the financial markets.
The COB is empowered to impose administrative sanctions in respect
of breaches of its regulations. The French Cour d'Appel and Cour
de Cassation have treated
the sanctions as criminal in nature (and hence protected by the
presumption of innocence) because of their high level and the
publicity attached to them, and the fact that the sanctions are
aimed, as in criminal cases, at punishing those who breach the
general standards laid down in the COB's regulations, and to deter
others from similar misconduct.
14. I am not clear as to how the Government
regard this case law and its potential bearing upon the interpretation
of the draft Bill.
15. In my view, a careful distinction needs
to be made in the Bill between those disciplinary offences which
ought properly to be regarded as civil and those which ought properly
to be regarded as criminal, so as to ensure that, where appropriate,
the FSA respects the presumption of innocence in disciplinary
proceedings which it decides to bring.
16. The Treasury's Memorandum has not yet responded
to the Joint Committee's recommendation (Report, paragraph 141)
that the Government should publish its response on my concern
that the proposed immunity for the FSA from suit for damages for
acts done in good faith in discharge of its functions may breach
the right of access to courts guaranteed by Article 6. In the
light of the recent case law of the European Court of Human Rights
in several cases against the United Kingdom, I continue to remain
concerned about this.
18 May 1999
1 As regards our reference (paragraph 19) to Dame Shirley
Porter's case, in decision of the Court of Appeal of 30 April,
they effectively treated "wilful misconduct", within
the meaning of section 20 of the Local Government Finance Act
1982, as criminal in substance, while rejecting submissions that
the presumption of innocence (guaranteed by Article 6(2)) had
been breached in her case. Back
See e.g., the Oury decisions. Back