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Lord Kingsland: I was about to suggest that if the noble Lord responds to the amendment before I speak to it, perhaps I shall not need to speak to it!

Lord McIntosh of Haringey: Yes, all right. The Opposition also propose to add to Clause 23 a further

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subsection. Under Clause 23 as amended, subsection (1) setting out the criminal offence of contravention of Clause 19(1) would not apply to,

    "an oral communication which does not constitute an invitation to engage in investment activity",

although contracts made as a result of such promotion would presumably remain unenforceable. I am afraid that we cannot accept this amendment. The impact would be to create a two-tier regime with regard to penalties for breach of Clause 19 whereby some communications which breach the prohibition are subject to criminal sanctions while others are exempt.

It is not just invitations that can lead to people entering into investment agreements but material that does not constitute an invitation but nevertheless contains a promotional element. The impact of the promotion will be the same if there is something less than an invitation but if it nevertheless contains a promotional element. In any event, an exclusion of the kind proposed would lead to arguments as to whether what had actually been said constituted an invitation. That is the kind of uncertainty that we want to avoid.

We have already proposed, in our second consultation paper in October, that solicited real time communications, including oral communications which are not part of a co-ordinated promotional strategy should benefit from an exemption. However, we remain convinced that unsolicited real time communications of a certain character should be subject to controls and restrictions. It is important that we adopt a stronger line on unsolicited calls, given the risks to which they expose consumers.

In any event, it is in the interests of consumers that a uniform approach be taken on the face of the Bill with regard to all communications, oral or otherwise, that amount to an invitation or inducement to engage in investment activity. The debate on the draft financial promotions exemption order which will take place after Royal Assent will be the appropriate point at which to discuss which real time communications should be classified as exempt from the prohibition. In any event, Clause 19 prohibition can have no effect and cannot be brought into force until the necessary subordinate legislation has been made. So in regard to this as opposed to the other amendments, I can only say that we cannot accept the amendment and I hope that the noble Lord will withdraw it.

The noble Lord went on to speak to Amendment No. 95. That is grouped with Amendment No. 94A, which the noble Lord does not intend to move, and my Amendment No. 96. Amendment No. 95 would amend subsection (3) of Clause 19 so that subsection (1), which deals with communications originating outside the United Kingdom, applies only to communications which are intended or might reasonably be presumed to be intended to be acted on by a person in the United Kingdom. That would be similar in effect to Amendment No. 94. It would apply the limitation sought in that amendment, to limit the prohibition to invitations to engage in investment activity or information which is intended or might reasonably be presumed to be intended to be acted on by a person, to subsection (3), which establishes the

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territorial dimension of the financial promotion prohibition. The amendment is certainly worthy of further consideration in the light of the discussion we have been having. I hope that the noble Lord will not move it on the basis that we will reconsider the issues involved.

Perhaps the noble Lord will allow me to refer to my Amendment No. 96, which is grouped with Amendment No. 95. The purpose of the amendment is to clarify that the Treasury can adjust the scope of the Bill's financial promotion regime to take full account of international and technological developments. Clause 19 prohibits financial promotions unless the promoter is authorised by the FSA or the promotion is approved by a person who is authorised. Subsection (5) of Clause 19 allows the Treasury by order to specify circumstances in which this restriction does not apply. The amendment makes it clear that the circumstances that can be specified under subsection (5) extend to the circumstances for which subsection (3) expressly makes provision. Subsection (3) prohibits communications originating outside the United Kingdom if the communication is capable of having an effect in the United Kingdom. In other words, the amendment makes it clear that an exemption can be made for a communication which originates from outside the United Kingdom even if it is capable of having an effect here. Paragraphs (b) to (d) of the amendment deal expressly with the possibility of exemption for communications originating in specific countries, or in specific groups of countries, such as EU member states, and would allow all communications originating overseas to be exempted if that became appropriate.

The exemption for groups of countries would allow the UK to move to a full home state regime if and when EU legislation to that effect comes into force or, in an appropriate case, before any binding obligation. Subsection (5B) provides that the Treasury may at some point in the future repeal subsection (3) of Clause 19.

I know that that sounds complicated but the principle behind the provision is that we have to adopt a host state regime at the present time. It is the intention of the European Union to move towards a home state regime. We do not wish to leave anyone unprotected in the interval. But until a full home state regime exists in which all member states of the European Union have a regulatory system that is satisfactory for the purpose, we will operate, so to speak, a hybrid of host state and home state regimes which will be fail-safe and will protect the users of financial services. I realise that this is not an easy concept but I hope noble Lords will accept that the thinking behind it is reasonable.

Lord Kingsland: I realise that one swallow does not make a summer, but I am rather heartened by most of the noble Lord's observations. I shall reflect on what he said about Amendment No. 104. If the Minister engages in a spot of archaeological reconstruction in respect of the speech with which I introduced these amendments, he will note that I did in fact speak to

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Amendment No. 95 and indeed made some fairly detailed observations on his Amendment No. 96. I hope that he will be able to take those comments into account when he considers these matters later. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 94A and 95 not moved.]

9.45 p.m.

Lord McIntosh of Haringey moved Amendment No. 96:

    Page 8, line 38, at end insert--

("(5A) An order under subsection (5) may, in particular, provide that subsection (1) does not apply in relation to communications--
(a) of a specified description;
(b) originating in a specified country or territory outside the United Kingdom;
(c) originating in a country or territory which falls within a specified description of country or territory outside the United Kingdom; or
(d) originating outside the United Kingdom.
(5B) The Treasury may by order repeal subsection (3).").

On Question, amendment agreed to.

[Amendments Nos. 96A to 96E not moved.]

Clause 19, as amended, agreed to.

Clause 20 [The classes of activity and categories of investment]:

The Deputy Chairman of Committees (Lord Lyell): I must advise the Committee that if Amendment No. 97 is agreed to I cannot call Amendment No. 98.

Lord Sharman moved Amendment No. 97:

    Page 9, line 16, leave out subsection (1) and insert--

("(1) An activity is a regulated activity for the purposes of this Act if it is--
(a) an activity of a specified kind which is carried on by business and--
(i) relates to an investment of a specified kind; or
(ii) in the case of an activity of a kind which is also specified for the purposes of this paragraph, is carried on in relation to property of any kind;
(b) an activity which is carried on by business and relates to loans secured on land or any other property.").

The noble Lord said: In rising to move Amendment No. 97 I should like to speak also to Amendments Nos. 100 to 102. This group of amendments deals with mortgages. As the Committee will be aware, this matter was added at a rather late stage in the passage of the Bill through another place. I am somewhat hopeful that at this stage in the proceedings the recently found flexibility of "Dr No" on the Government Front Bench may indicate some willingness to consider these amendments.

Amendment No. 97 seeks to extend the regulatory regime beyond coverage of the providers of mortgages and products related to them to those who intermediate in those transactions. The Committee will be aware that often a mortgage is the largest single

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transaction ever undertaken by a consumer. It is important that the Bill should cover those who provide advice on mortgages and intermediate in that regard.

Amendment No. 100 seeks to help the Minister to find a better definition of "mortgage". At the moment the Bill defines a mortgage as a loan that is secured on land. Loans, commonly referred to as mortgages, may be secured on many types of physical property; for example, leaseholds, boats, aircraft and even caravans. Currently, mortgage lending leans heavily on what is called churn and involves both second mortgages and the provision of finance for other physical property. Frequently, a mortgage that is secured on a boat may be two or three times the size of that secured on the average house. These definitions, which I hope are well drafted, certainly have merit. I beg to move.

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