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"Recklessness" is a very elusive word. Without wearying noble Lords with the detail, it has, first, given rise to enormous difficulty in the criminal law. Secondly, in the context of the civil law, it is usually found in discussion about what is meant by fraudulent, reckless or deceitful misrepresentations, as in making reckless statements at the point of a bargain where the provider or seller is anxious to do the deal and goes much too far in making exaggerated claims for the product. That kind of exercise is no doubt interesting, but inevitably it would involve a great deal of litigation and much activity for lawyers.
I believe that the provision would waste valuable court time; it would result in a waste of time for FSA officials; and there would be a corresponding waste of money. Finally, and most importantly of all, it would distract the attention of FSA officials who ought to be concerned with the functions and furtherance of the interests of the FSA in carrying out its statutory responsibilities.
Perhaps I may also say that I am not suggesting for a moment that the proposed amendments are not well motivated because they do have a certain superficial attraction. However, I believe that they are quite unnecessary and that it would be more appropriate for them to be withdrawn.
Lord Fraser of Carmyllie: At this stage, I do not think that it is necessary for me to elaborate on any of the arguments that have been advanced by the noble Lord, Lord Grabiner, the noble and learned Lord, Lord Donaldson, or my noble friend Lord Bagri.
The line I should like to suggest to the Government--here I hope that I am kicking at an open door--is this. As I understand the scheme of the Bill, the "super regulator" should be the Financial Services Authority. In many respects, it wants the responsibilities imposed on it by statute to be discharged by lesser or devolved bodies; that is to say, the recognised investment exchanges. Then, when it comes to matters such as market abuse or whatever it may be, the FSA would expect those bodies to take up the investigation and the approach before the FSA itself took on those tasks. If that is the case and if I have understood it correctly, it seems to me to be entirely right that if a degree of immunity is to be granted to the
I hope that that is a self-evident proposition and that I have understood what the FSA and others have told me. However, if I am wrong about that, it would be helpful if the Deputy Chief Whip could explain the position. While I am not in any way threatening the Government, if he cannot do so, we shall need to explore these matters in much greater depth on Report.
I believe that the short and simple answer to this problem is that there should be an equivalence of treatment in terms of immunity. Whatever degree of immunity is conferred on the FSA, exactly the same degree of immunity should be conferred on those who might be required, under the terms of this statute, to discharge their responsibilities to ensure that the markets are properly regulated.
Lord Burns: I too support the remarks of the noble and learned Lord, Lord Donaldson of Lymington, and the noble Lord, Lord Bagri. During the course of the Joint Committee's investigation I was fully persuaded of the case for statutory immunity on the grounds of the dangers of over-regulation.
Financial supervision requires a lot of difficult judgments and if everything the regulator does is to be subject to threats of legal action, over-regulation and excessive caution will ensue. It is already the case that, if anyone loses money because a bank or security house goes down, the first thing he does is go to the regulator for compensation. That already happens even though statutory immunity exists in relation to banking supervision.
Regulators will become enormously cautious. They will want everything checked. They will want copies and written confirmation of everything that is done. They will regulate and regulate. There is always going to be risk. The only way to avoid risk to a regulator is by pushing up the costs and making life extremely difficult. So, although the idea of statutory immunity is difficult for many of us to live with, the alternative is considerably worse.
Lord Jenkin of Roding: I should like to add a few brief words. I am not sure that I go along with the noble Lord, Lord Grabiner, on the question of recklessness. I find myself nearer to the views expressed by the noble Lord, Lord Phillips of Sudbury. I did not recognise his definition of "recklessness", though it is a long time since I have had to look into a law book. The phrase that comes to my mind is that recklessness is not caring whether something is true or false.
The situation that I fear may arise is where a keen, enthusiastic regulator--a member of the staff of the regulatory body--goes into a firm, be it an insurance broker or an investment manager and his suspicions are aroused that the business is not being run properly. In that suspicious frame of mind he feels he is being obstructed because personal antagonism has arisen between him and the head of the office. He then realises
Events continue on and finally he goes for an Anton Piller order; the bailiffs go in and all the documents have to be frozen. But it all turns out to be a mare's nest. The business was being perfectly properly run and the situation simply fell foul of human relations. That is not bad faith, but it could be recklessness. He could have got himself into the frame of mind whereby he said, "I am going to get him and hang the consequences". Is there to be no remedy for that?
That is the sort of situation which I can envisage and where, without the word "recklessness" appearing in the schedule, the wronged head of the office would only be able to throw himself on the mercy of the ombudsman. That was one of the points Mr. Herrington made when he gave evidence to the Joint Select Committee of the noble Lord, Lord Burns. If the ombudsman finds that there has been malpractice, then he can now order that there shall be compensation paid. As Mr. Herrington reminded us, that is what happened in the Barlow Clowes case. That was the other way round, of course; The regulator should have recognised that he was dealing with a fraud and failed to. A lot of people lost a lot of money as a result, so compensation was ordered and the DTI had to pay.
That would be the only other remedy available. The noble and learned Lord, Lord Donaldson, shakes his head and my noble friend Lord Bagri says no, so perhaps I had better sit down. But I envisage that kind of case, where extreme damage could be done to a firm and to its reputation and there may be no redress at all.
Lord Donaldson of Lymington: At the risk of trespassing on the Committee's time, perhaps I can briefly answer that if the FSA goes to the courts and asks for Anton Piller orders or Mareva injunctions or anything of that sort, it will be liable in costs. Its immunity would not extend to it then. I entirely support the point of the noble and learned Lord, Lord Fraser, in relation to devolution.
Lord Goldsmith: Perhaps I may add a few words on this important topic. I do so not on the question of what this would do for lawyers. Indeed, I entirely agree with the noble and learned Lord, Lord Donaldson, and my noble friend Lord Grabiner. Lawyers will be the greatest losers if this amendment is not passed. Neither my noble friend Lord Grabiner nor I will be able to show our faces in the Temple and Lincoln's Inn for weeks to come.
I do not wish to speak on that point and I do not speak as a lawyer; I speak as someone who, for a period of about three years, was chairman of a regulatory body. I wish to support, and perhaps slightly elaborate, the point made by the noble Lord, Lord Bagri. I refer to the risk of distortion of the regulatory process as a result of imposing on
As a matter of pragmatism and as a matter of theory, that seems to me to be wrong. It is wrong that the FSA should be looking at those who are to be regulated and worrying about what the consequences will be. It is wrong both in practice and in theory. It is wrong in theory because the duty--and this is the substantial point--that the authority ought to be following is not a duty to avoid loss to those who are regulated, it is a duty to support the regulatory objectives under Clause 2; namely, market confidence, public awareness, the protection of consumers and the reduction of financial crime. Anything which takes the eyes of the regulators off those objectives would be wrong. Of course, there must be limits--no bad faith and no breach of fundamental rights, such as those in the Human Rights Act. But, beyond that, those objectives should remain clear and focused. These amendments would distort and paralyse that process.
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