Joint Committee on Financial Services and Markets Second Report


Memorandum from Herbert Smith


  1. Herbert Smith are pleased that both the Joint Committee and the Treasury recognise the importance of addressing the European Convention on Human Rights ("the Convention") issues relating to the Bill. As we have previously indicated, it is essential that this is done. It would be very damaging to the FSA and to the London Markets were there to be a successful Convention challenge to the main aspects of the new legislation.


  2. We are pleased that the Treasury agrees that the market abuse regime is criminal rather than civil for Convention purposes. We therefore agree that Clause 104(5) of the draft Bill should be amended to cover market abuse proceedings as well as criminal ones.

  3. We do not consider that the provisions in the Bill defining market abuse fully meet the Article 7 requirement for certainty and consider that a clearer statutory definition should be given. This is also the view of the Joint Committee, see paragraph 263 of the Joint Committee's First Report.

  4. In Paragraph 16 the Treasury states that 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. The concept of taking reasonable steps not to breach something which is not clearly defined but which is worded very generally is a very difficult one. We look forward to receiving further clarification on what is meant. In the meantime, our view remains that the relevant test should involve showing an intent to abuse.

  Paragraph 16 goes on to say that the Government proposes to clarify the Bill in that the market abuse regime will only apply to market participants. In our view it is right to exclude from the regime manufacturers, suppliers and physical users of commodities and there may be other classes who should be excluded. We look forward to clarification on this and, in particular, how "market participants" is defined.


  5. There are genuine concerns that the proposed disciplinary regime would be categorised as criminal for Convention purposes. We note that the Government may be proposing to exclude the use of compelled evidence from civil proceedings that could lead to a fine, see paragraph 7 of the Memorandum from Lord Lester of Herne Hill. It is not yet clear whether what is being proposed would involve bringing disciplinary proceedings within Clause 104(5) of the Bill. No doubt this will be clarified.


  6. In our evidence to the Joint Committee we expressed the view that granting statutory immunity to the FSA would be in beach of the Convention, see Osman-v-UK [1998]. We share the concerns expressed by Lord Lester in his Memorandum at paragraph 16 and hope that this will be addressed by the Government.

21 May 1999

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