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Lord Elton: The great danger in arriving late is that the point one raises may already have been taken in the debate. The amendment of the noble Baroness appears to be much more appropriate to people who buy life assurance than, say, stocks and shares. It is rather

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extraordinary that the same degree of responsibility should be placed on the sellers of both when in one case it is clearly very relevant and in the other it is not.

Lord Kingsland: In approaching the amendment moved by the noble Lord, Lord Borrie, it is important to recognise that Clause 5(2)(d) does not describe the legal position of the provider in relation to a particular transaction. It is one of four considerations to which the authority must have regard in determining the degree of protection which is appropriate to the consumer. The first three characteristics lean very heavily in favour of looking carefully not only at the particular type of instrument involved but also the susceptibility of the consumer. Paragraphs (a), (b) and (c) lean heavily in the direction of the consumer and it is not surprising, therefore, that the Government felt it necessary to reintroduce a balancing expression in paragraph (d) of the kind now before the Committee.

I have not yet heard the Minister. Perhaps he will support the amendment moved by his noble friend Lord Borrie, in which case I shall find myself in disagreement with the Government. However, I support the text of Clause 5(2)(d) of the Bill. I am further reinforced in that view by sharing, with great respect, the approach of the noble and learned Lord, Lord Donaldson, to the construction of the expression itself. As to the amendment in the name of the noble Baroness, Lady Turner of Camden, I believe that everything that she seeks in her new paragraph (e) is already provided for in Clause 5(2)(a) to (c). Therefore, I respectfully suggest to the noble Baroness that her amendment is otiose.

Lord McIntosh of Haringey: I like to hear the arguments before I respond, and I hope that the Committee does not disagree with that. As has been said, it is a matter of balance. I am urged to go a little bit in one direction and then in another; or, as the noble Lord, Lord Kingsland, suggested, to stand firm on the text of the Bill. I start by reminding the Committee of the recommendation of the Joint Committee:

    "We recommend that the principle of caveat emptor should feature in the Bill; but that it should be redrafted in such a way that it could not be used to negate the consumer protection objective and excuse exploitation of sections of the general public".

Our response to that was to amend Clause 5 to require the FSA to take into account the need for consumers to have advice and accurate information. I believe that, as amended, the clause achieves the right balance between what is reasonable for consumers to expect and their own responsibility, to which the noble Lord, Lord Jenkin, referred.

Consumer protection is an important objective, and I am sympathetic to the intentions behind the amendments. We do not wish to place an unreasonable burden on consumers. It is certainly not our intention that firms should be allowed to mis-sell products, but we believe that the amendments are unnecessary. After all, instead of a variety of schemes we have introduced a single compensation scheme, the financial services compensation scheme, and single ombudsmen

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schemes. Clause 2 sets the FSA the regulatory objective to protect consumers. The general rule-making power in Clause 129 is aimed directly at the protection of consumers' interests, and we must look at all of the provisions of Clause 5 against that background.

Amendment No. 59 is designed to qualify the principle that consumers should take responsibility for their actions, but Clause 5 sets out matters to which the FSA should have regard. We must look at the whole of the provision, which includes: the differing degrees of risk involved in different kinds of investment; the differing degrees of expertise and experience that different consumers may have; the needs that consumers may have for advice and accurate information; and the general principle that they should take responsibility for their decisions. The consumer protection objective is already designed to ensure that the FSA must take account of the fact that some consumers should be expected to take more responsibility for their actions than others. The effect of the amendment may be to undermine that balance. The insertion of "reasonable" as proposed could imply that the same test should apply to all consumers, which would run counter to the idea that regard should also be had to the other matters in Clause 5(2).

The noble and learned Lord, Lord Donaldson, is correct in saying that by leaving out "reasonable" we certainly do not mean that consumers should take unreasonable responsibility. I am sure the noble and learned Lord agrees that no court would suggest otherwise. Imagine if we put in "reasonable" elsewhere. The authority would have to have regard to the differing degrees of reasonable risk involved in different kinds of investment; the differing degrees of reasonable experience and expertise; and the needs that consumers may have for reasonable advice and reasonably accurate information. One could go on for ever inserting "reasonable" in clauses of this kind without adding very much. We believe that, taking the clause as a whole, we have achieved the right balance.

The same point applies to Amendment No. 60, which provides that the FSA should take account of the responsibility of the seller for ensuring that a product is suitable for the consumer. Of course we do not want the mis-selling scandals that have occurred in the past. However, the Bill gives the FSA adequate powers to prevent the mis-selling of financial products. The clause explicitly requires the FSA to take account of the experience and expertise of consumers and their need for accurate information. With this amendment, we could end up with the FSA attempting to prevent an experienced consumer, who had made an informed decision on the basis of all the relevant information, from exercising his right to choose how to invest his money. I do not believe that it would be right for the FSA to have such an objective. While we support the thinking behind the amendments, we do not believe that they add positively to the Bill.

Lord Borrie: I am grateful to all Members of the Committee who have taken part in this somewhat lengthy debate--in particular the noble Lord,

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Lord Sharman, the noble Lord, Lord Alexander of Weedon, and my noble friend Lord Faulkner of Worcester--who expressed support.

I was intrigued by the remarks of the noble and learned Lord, Lord Donaldson of Lymington. Most particularly, I listened to see whether the Minister endorsed those statements. If he had done so, the rule of Pepper v. Hart would come into play and I should be extremely happy. The curious factor about Pepper v. Hart is that although the noble and learned Lord the former Master of the Rolls has given a view in this House, it is not that which apparently matters; it is whether the Minister accepts that interpretation.

I shall read the Minister's words with great care to see whether he endorsed to a degree what the noble and learned Lord said. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 60 and 61 not moved.]

Lord McIntosh of Haringey moved Amendment No. 62:

    Page 3, line 16, leave out from ("persons") to end of line 21 and insert ("--

(a) who are consumers for the purposes of section 129; or
(b) who, in relation to regulated activities carried on otherwise than by authorised persons, would be consumers for those purposes if the activities were carried on by authorised persons.").

The noble Lord said: In moving the amendment, I speak also to Amendments Nos. 75, 76, 88, 125, 227, 229, 229A (as an amendment to Amendment No. 229), 240, 241, 261 and 262.

All these amendments are intended to achieve greater consistency in references to "consumer" in the Bill. Amendments Nos. 227 and 229 put the core definition of a consumer in Clause 129; and they ensure that those using the services offered by the appointed representatives of authorised persons and by trustees, and those who "deal" with authorised persons, are within this definition, thereby eliminating potential gaps in coverage. The amendments also give appropriate protection to people using the services of non-authorised persons who are nevertheless carrying on regulated activities--some lawfully, some unlawfully--such as Lloyd's underwriters, recognised exchanges and clearing houses, and persons acting in contravention of the general prohibition. These amendments fulfil a commitment given in another place to review the provisions dealing with consumers.

I am grateful to the noble Lord, Lord Hunt, for tabling Amendment No. 229A which seeks to restrict the core definition of a consumer in Clause 129. If I may anticipate what he will say, his concern is that the definition of "consumer" is too wide and that this will mean the FSA trying to make wide and detailed rules to protect consumers who stand some considerable distance from the use of financial services.

I believe that that concern would be unfounded. I should make clear, first, that government Amendment No. 229 does not introduce the provision

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which he seeks to remove. The provision is already within Clause 129. Its purpose is to ensure that the FSA is not prevented from affording certain types of consumers, such as trust beneficiaries, protection just because of the particular arrangements surrounding the use of financial services on behalf of the trust.

It is misleading to attempt to analyse this one particular provision in isolation. The provisions relating to the interests and protection of consumers need to be viewed within the context of the Bill as a whole. The FSA must exercise its functions in the light of the regulatory principles set out in Clause 2. These include the need to use its resources in the most economic and efficient way, and the desirability of facilitating competition. Both those principles apply important balances to the scope of FSA regulation. However, the key principle in this context--it is also set out in Clause 2--is that regulation must be proportionate to the benefit. Clause 5 makes it clear that the FSA should seek to secure the appropriate degree of protection.

It is clear from the Bill that the FSA must exercise its powers and seek to meet its objectives in a balanced, proportionate and appropriate way. It is therefore unnecessary to amend the Bill as proposed.

Perhaps I may say a word about the individual amendments. The main amendments are Amendments Nos. 227 and 229. Clause 129 gives the FSA its general rule-making power. As amended, the clause will be clear that this power is to be used to protect the interests of "consumers". It will now be clear that this category includes people who use the services of appointed representatives or who "deal" with authorised persons carrying on regulated activities, for example by buying shares from a market dealer. It may seem self evident that people like that are "consumers" of authorised persons, but it is necessary to clear the issue up because it could be argued that they do not use the services of an authorised person which could mean that they were denied protection.

The other amendments are largely designed to bring all the various provisions into line with each other--generally by replacing individual definitions of the term with cross-references to Clause 129. The amendments to Clause 319 (Amendments Nos. 261 and 262) are slightly different in that they deal with a more limited group of people--clients of professional firms--but they bring the definition of a "client" into line with that of a "consumer" where the two overlap.

The amendments to Clauses 5, 9 and 12 refer to those people using the services of non-authorised persons. This brings them into the frame for the purposes of the provisions of the Bill dealing with the FSA's objective of protection for consumers, the setting up of the consumer panel, and the Treasury's ability to initiate independent inquiries into the

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effectiveness of regulation. I hope that it will be agreed that these are an appropriate response to the debate which took place in another place. I beg to move.

5.15 p.m.

Lord Jenkin of Roding: During debate of an earlier government amendment, I asked how many more amendments we could expect on the Marshalled List before we completed the Committee stage of the Bill. I do not think that I received an answer. Perhaps this is another occasion on which I may ask.

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