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Baroness Gardner of Parkes: My Lords, is the Minister aware that in the Adelaide Hills of South Australia a somewhat unusual professor, who wears a hat made from a cat and says that the only good cat is a dead one, has fenced off an area of 25 acres in order to keep out feral predators such as cats and foxes? The scheme has been so successful that platypuses and other animals which had found it almost impossible to breed are multiplying in the enclosed, safe area. Is she further aware that feral cats are a danger not only to birds but to mammals? Scores of Australian mammals have been wiped out this century, almost more than in any other country in the world.

Baroness Scotland of Asthal: My Lords, your Lordships will be surprised to know that I was not so aware, but, as always, I am most grateful to the noble Baroness for drawing it to my attention. Regrettably, it is not possible to erect fencing in the Ascension Islands. There are more than 1,200 cats, only 300 of which are domestic, and 900 people. Therefore, regrettably, fencing is not promoted.

Baroness Fookes: My Lords, may I make a plea that the unfortunate cats are dealt with humanely? If the Government are calling on the RSPB, perhaps they can also call on the RSPCA or a similar organisation for advice on the matter.

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Baroness Scotland of Asthal: My Lords, I am pleased to be able to tell the noble Baroness that such advice has been sought. In the plan, we are assured that the most humane method of disposing of the cats will be undertaken. However, I should tell your Lordships that we need to sweep away the cats in order to protect the sooty terns.

Terrorism Bill

Brought from the Commons, read a first time, and to be printed.

Consolidated Fund (No. 2) Bill

Lord McIntosh of Haringey: My Lords, I beg to move that the Bill be now read a second time.

Moved, That the Bill be now read a second time.--(Lord McIntosh of Haringey.)

On Question, Bill read a second time; Committee negatived.

Then, Standing Order No. 46 having been suspended (pursuant to Resolution of 17th March), Bill read a third time, and passed.

Financial Services and Markets Bill

3 p.m.

Lord McIntosh of Haringey: My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.--(Lord McIntosh of Haringey.)

On Question, Motion agreed to.

House in Committee accordingly.


Clause 2 [The Authority's general duties]:

Lord Kingsland moved Amendment No. 47:

    Page 2, line 2, at end insert ("and market abuse").

The noble Lord said: In moving Amendment No. 47, I wish to speak also to Amendments Nos. 63 to 69. As Members of the Committee are well aware, the intention of Amendment No. 47 is to add to the objective contained in Clause 2(2)(d), which reads,

    "the reduction of financial crime",

the expression "and market abuse". It seems to us extraordinary that in a Bill whose main innovation is the concept of market abuse, reducing market abuse does not appear as one of the Bill's four objectives.

That would be more understandable if the Government had been prepared to designate market abuse as a criminal offence. As the noble Lord is well aware, setting market abuse in the context of the European Convention on Human Rights, it is the Opposition's view that market abuse is indeed a criminal offence. However, as the Government do not accept that approach, I simply cannot understand why

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the objective clause contains the reduction of financial crime but not the reduction of market abuse. That is the reason for Amendment No. 47.

The remaining amendments--Amendments Nos. 63 to 69--to which I shall now speak, have a more technical objective. Most of those amendments simply add the expression "market abuse" to "financial crime" in order to be consistent with the amendment of the objectives. However, I shall say something in a little more detail about Amendments No. 66 and 68.

As the Minister is aware, Clause 6 relates to the Financial Services Authority's reduction of financial crime objective. Members of the Committee are aware that in considering that objective, the Financial Services Authority must have regard, among other things, to the desirability of regulated persons taking appropriate measures to prevent financial crime. Amendment No. 66 seeks to delete the word "prevent" and insert the expression "reduce the risk of their businesses being used for". The reason for the amendment is that regulated persons cannot be expected to prevent financial crime, but they can reasonably take measures to reduce the risk of their businesses being used for financial crime.

Finally, I turn to Amendment No. 68. The focus of Clause 6 and the Financial Services Authority's reduction of financial crime objective relates to reducing the extent to which it is possible for a business, which is carried on by a regulated person in contravention of the general prohibition, to be used for a purpose connected with financial crime. Therefore, there is no express obligation on the Financial Services Authority to identify financial crime or to alert consumers and other users in the market place to persons who are suspected of engaging in financial crime. This amendment is intended, at least partially, to redress that situation by requiring the authority, so far as is practical, to alert regulated persons to the activities and identities of those engaged either in financial crime or market abuse. I beg to move.

The Earl of Caithness: This may be an opportune moment to say a few words about Amendment No. 69, which is in this grouping. It is opportune that this amendment is before your Lordships on the same day as the report on banking has been received by the Government. I have not yet had the opportunity of seeing that report. However, from what I have heard on the radio, the report contains a reference to the appalling delay that we in this country all suffer from the way that the banks hang on to our cheques before clearing them. It seems that the banks have slowed down in clearing cheques through accounts in a ratio converse to the advance of technology and the benefits of speed which that has brought about. I hope that the Minister will be able to say something on that particular point this afternoon.

Lord McIntosh of Haringey: I am grateful to both the noble Lord and the noble Earl. These amendments fall naturally into two groups. The effect of the first group would be to convert the present objective on the

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reduction of financial crime into an objective concerned with the reduction of financial crime and of market abuse; in other words, to associate market abuse with that objective in particular. Although I acknowledge that there is overlap between market abuse and financial crime in some areas, the insertion of "market abuse" into this objective is not necessary and, I believe, could cause confusion and send the wrong messages.

The purpose of the market abuse regime is to protect the UK financial markets from the damage that can be caused to them by abuse. In order to operate effectively and efficiently, the markets rely on market users to observe expected standards of conduct, as we shall discuss when we reach that part of the Bill. If people do not do that, and if they abuse the trust of the markets, then confidence will be damaged. The markets will work less well as people seek to protect themselves from the risks of abuse by entering into transactions at higher prices or by entering into fewer transactions.

Therefore, the ground is covered by the objective on maintaining confidence in the financial system. That, of course, includes maintaining confidence in financial markets and exchanges. That is what the market abuse regime is all about. That is not to say that there is no overlap with the territory covered by the financial crime objective. However, the objectives all overlap to a certain extent; for example, market abuse will often also adversely affect consumers. For example, if people buy shares on the back of misleading information, they lose money.

It is true that some forms of more serious market abuse, such as insider dealing, criminal fraud, which is a matter for the common law, or money laundering, will also be criminal offences under this Bill or under other enactments. However, that will not always be the case. Behaviour which comes within the offences of insider dealing and market manipulation, for example, will, broadly speaking, be subsets of behaviour which can come within the market abuse regime. To that extent, the financial crime objective already covers some forms of market abuse. The matters which the FSA will have to consider as regards systems and controls in Clause 6(2) will also be relevant to market abuse. In any event, we should expect the FSA to have an interest in systems and controls designed to detect and prevent market abuse as a result of the market confidence objective.

However, I believe that there is a danger of confusion if we insert a reference to "market abuse" in that objective, which is concerned only with regulated business or business which should be regulated. Doing so would appear to restrict the FSA's objectives in the area of market abuse. The new regime extends to the unregulated as well as to the regulated.

I believe that market abuse is adequately and properly covered by the objective on market confidence. Maintaining market confidence is at the heart of what the market abuse regime is intended to achieve. I prefer to keep that clear, as I believe it is clear under the Bill as drafted.

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The second group of amendments deals with the scope of the financial crime objective. I understand the thought underlying the first of those amendments, which would replace the reference in subsection (2)(b) to regulated persons taking measures to "prevent" crime with a requirement that those measures "reduce the risk of crime". I can see that the amendment is intended to reduce the burden on business. But I still do not believe that it is necessary.

The provisions of this clause do not impose obligations on anyone other than the FSA. The clause does not impose a responsibility on regulated persons. It is all about the responsibilities of the FSA. In deciding what to do in pursuit of the objective, among other matters, the FSA must have regard to the principle in Clause 2(3) that a burden should be proportionate to the benefits.

Clearly, the regulated community has a key role to play in reduction of financial crime, but of course we appreciate that business should not be asked to take on tasks that it cannot reasonably be expected to carry out. "Taking appropriate measures to prevent crime" does not steer the FSA into requiring that firms spend vast sums on taking the possibility of financial crimes down to zero.

We have already made changes to respond to concerns on that score. Following consultation on the draft Bill, the Government replaced the reference to "adequate" measures in the objectives to "appropriate" measures. I do not believe that the suggested amendment would have any further effect beyond that.

While I understand the aim of Amendment No. 68, I think it would be unhelpful to place a requirement on the FSA to alert regulated persons to the activities and identities of those engaged in financial crime or market abuse.

There is a whole range of functions which the FSA will be able to exercise in relation to the reduction of financial crime; for example, giving guidance, mounting prosecutions, co-operating with other agencies and putting out information. The general approach in the Bill is not, however, to tie the particular aspects of the FSA's statutory duties to particular functions. That would reduce flexibility.

If a person is convicted of an offence involving financial crime or is found to have engaged in market abuse, then it will be possible to publicise that fact. In many circumstances that will be the right thing to do. It will be right for the regulator to alert people to the activities of criminals or those engaged in market abuse. If it is appropriate, the FSA will do that.

Amendment No. 69 has been referred to by the noble Earl, Lord Caithness, particularly in the context of the Cruickshank report which was published this morning. I am sure that he will appreciate that that is a 350-page report to which the Government have made no formal response, although it is entirely possible that in his Budget tomorrow, the Chancellor may wish to pay some attention to the recommendations of Mr Cruickshank. But in advance

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of any formal government response, which may take some time, it may be inappropriate for me to make any further comment on that point.

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