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Lord Kingsland: Your Lordships will, of course, trust the Minister. We look forward to seeing the new set of amendments which the Minister will undoubtedly table at Report stage in relation to these matters.
The distinction between disciplinary and supervisory powers is a seductive one, and one is tempted to think that they are differences of kind rather than simply differences of degree. In my submission, what matters in any of these proceedings under the Bill is the effect that they will have on the individual--that is to say, the nature of the penalty and the extent to which he can adduce evidence in his defence. As matters stand, it is my contention that the difference between an authorised person effectively losing his job as a result of a supervisory proceeding
under the clauses that we are now reviewing and a non-authorised person losing his job as a result of a proceeding under the market abuse provisions of this Bill is, whatever language one uses to describe the procedures, a distinction without a difference under the European convention. That is the issue.However, I accept that we are not in a position to address this issue at Committee stage. If the Minister is considering a substantial rewriting of this part of the Bill, I would request that we be given as much time as possible to reflect upon it before Report stage.
Lord McIntosh of Haringey: I give that assurance to the noble Lord. I do not believe that a substantial rewrite of this part of the Bill is required. While we are dealing here with a specific problem, it would not be described as fundamental.
Lord Kingsland: The noble Lord may find that it is fundamental to the people who are affected by this part of the Bill. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 53 [Exercise of own-initiative power with immediate effect]:
[Amendment No. 158 not moved.]
Clause 55 [Prohibition orders]:
Lord McIntosh of Haringey moved Amendments Nos. 159 to 163:
- Page 24, line 24, leave out ("or an exempt person").
- Page 24, line 31, leave out ("or exempt persons").
- Page 24, line 32, leave out ("or exempt person").
- Page 24, line 36, leave out ("or exempt").
- Page 24, line 41, at end insert--
The noble Lord said: Amendments Nos. 159 to 163 were debated with Amendment No. 144. I beg to move these amendments en bloc.
On Question, amendments agreed to.
Clause 55, as amended, agreed to.
Clause 58 [Approval for particular arrangements]:
Lord McIntosh of Haringey moved Amendment No. 164:
Currently, Clause 58(1) stipulates that an authorised person must ensure that no person performs a controlled function under an arrangement of the kind to which Part V applies, such as a contract of employment or contract for services, without the approval of the FSA. That could mean that the authorised body was in breach of its duty even where it had taken all reasonable care to make sure that it complied with this requirement. For example, a firm could be caught if an unapproved employee, having been quite properly employed on functions which were not controlled functions and did not require approval, went on to perform a controlled function without the consent of the firm but in breach of the firm's internal rules. The breach would unfairly expose the firm to FSA disciplinary action and give rise to a right of action under Clause 71.
The Government believe that that goes too far and leaves authorised persons exposed even when they have done everything they could reasonably be expected to do to guard against this kind of breach. The position is different from that which would apply under Clause 55(5) which deals with the situation where a person is employed in relation to a regulated activity in breach of a prohibition order, or Clause 58(2) which deals with the situation where an unapproved person is employed by a contractor of the authorised person. In those cases the Bill provides the test of "reasonable care".
The approach is a familiar one in legislation of this kind which imposes a duty on someone. The body is required to do what it reasonably can, but leaves it some reassurance where it is unable to foresee or avoid a breach. Amendment No. 164 is, therefore, designed to give authorised persons the same assurance in respect of their own employees or contractors so that, where they have taken reasonable care to avoid a breach of this clause, they will not face disciplinary action under Clause 71.
Amendment No. 164A in the name of the noble Lord, Lord Saatchi, contains slightly different wording which is intended to achieve the same effect. I hope that Amendment No. 164 gives the noble Lord the reassurance that he seeks. Amendment No. 164B would change the prohibition in subsection (7) so that it referred instead to people "handling" the property of customers. One reason that a function may be controlled is that it involves dealing with the property of customers. Subsection (7) relates to those people who deal with the property of customers in connection with the carrying on of a regulated activity. It is right that people such as fund managers should require
The term "dealing with" takes its ordinary meaning: it means receiving, handling, investing and looking after the property of the customer in connection with the regulated activity. To amend the subsection which deals simply with the "handling" part of "dealing with" narrows it too far. These are semantic points rather than matters of very great significance. I am afraid that in this case we cannot accept the amendment. I beg to move Amendment No. 164.
Lord Kingsland: Amendments Nos. 164A and 164B are both concerned with Clause 58. I should have thought that what they sought to achieve was perfectly reasonable. Amendment No. 164A deals with the problem that Clause 58(1) contains an absolute prohibition on an authorised person employing someone who has not been approved by the authority to perform a controlled function. The amendment simply seeks to provide that the authorised person will not be treated as being in contravention merely because that happens. It seems to me to be a perfectly reasonable amendment.
As to Amendment No. 164B, subsections (5) to (7) of Clause 58 set out the controlled functions. Subsection (7) refers to dealing with the property of customers. That is all very well. However, as I understand it the authority has interpreted that as covering those cases where a person acts as an investment manager. I believe that that function is caught only by subsection (6). The amendment seeks to make clear that subsection (7) relates only to the holding of physical assets; for example, keeping them in safe custody.
Lord McIntosh of Haringey: I rather think that in dealing with Amendment No. 164A the noble Lord has much more succinctly and clearly described what I said at inordinate length in relation to Amendment No. 164. We look to the same end: "take reasonable care" is the same as "seek to". I prefer Amendment No. 164, not because it is all that different in effect but because it uses the same wording as appears later in the clause.
On Question, amendment agreed to.
[Amendment Nos. 164A and 164B not moved.]
Clause 58, as amended, agreed to.
Clause 59 [Applications for approval]:
Lord McIntosh of Haringey moved Amendment No. 165:
On Question, amendment agreed to.
Clause 59, as amended, agreed to.
Clause 60 [Determination of applications]:
[Amendment No. 166 had been withdrawn from the Marshalled List.]
("( ) This section applies to the performance of functions in relation to a regulated activity carried on by--
( ) a person who is an exempt person in relation to that activity, and
( ) a person to whom, as a result of Part XX, the general prohibition does not apply in relation to that activity,
as it applies to the performance of functions in relation to a regulated activity carried on by an authorised person.").
Page 25, line 24, after ("must") insert ("take reasonable care to").
The noble Lord said: In moving Amendment No. 164, I should like to speak also to Amendments Nos. 164A and 164B in the name of the noble Lord,
Lord Saatchi. These amendments are related to Clause 58 which requires authorised persons to obtain the approval of the FSA before allowing persons to perform certain important, or controlled, functions. A controlled function would be one that involved a person in dealing with customers or their property in connection with a regulated activity, or one that involved exercising significant influence over the conduct of the authorised person, such as a senior management position.
4.45 p.m.
Page 26, line 33, leave out ("further information") and insert ("such further information as it reasonably considers necessary to enable it to determine the application").
The noble Lord said: Amendment No. 165 was spoken to with Amendment No. 155. I beg to move.
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