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Lord Eatwell: I speak to my Amendments Nos. 209, 210, 211 and 213 which are grouped with the amendments that we are discussing. But, first, I wish to comment on the amendments in this group tabled by the Opposition Front Bench. At Second Reading I expressed concern that, as currently drafted, Clause 109 weakened the current protection against market abuse by authorised persons.
The Opposition amendments would severely weaken the protection of the market and, indeed, of the consumer. Not only does the noble Lord, Lord Kingsland, wish in Amendment No. 212B to degrade the standards of regulation to, "generally accepted market practice", but he also wishes to riddle the
clause with the canker of intent--the noble Lord made this quite clear--knowing full well that the need to prove intent is extremely difficult. Hence their amendments would strip the regulator of most of the effective powers that he has against market abuse.I do not think that reference to American practice in this case is relevant since the noble Lord has not argued that he wants to construct the whole highly litigious apparatus of regulation associated with the Securities and Exchange Commission and cherry pick arguments from American practice without confronting the whole structure of American practice. I feel that that does not do justice to the discussions which we have had and to the Bill as drafted. I am sure that this wrecking of the regulatory process is, let us say, unintended, but these amendments serve the interests of those who would abuse the market.
I now turn to my amendments. I shall deal first with Amendment No. 209. At Second Reading I pointed out that the regular user test proposed in Clause 109 would reduce market standards to a kind of median common denominator. Moreover, in two examples close to real cases I pointed out that the regular user test would have provided unwarranted protection for those who have been successfully prosecuted under the current regime.
Finally, the Committee may remember that, using the analogy of Association Football, I noted that the regular-user test would legitimise the orgy of shirt-pulling which disfigures soccer today because it is behaviour expected of regular professional footballers.
Amendment No. 209 deals with these problems by maintaining the role of the regular user, but adding the requirement of an expectation of "reasonable and ethical" standards. It should be noted that that is not wildly optimistic. It does not ask for high ethical standards, only those which might be expected by a reasonable person. I think of this as the "Stanley Matthews memorial amendment". It seeks to raise standards by focusing the sights of the regular user on the standards displayed by ethical participants in the market. Applied to soccer, it would eliminate rampant shirt-pulling; applied to financial markets it provides the foundation for raising standards and rescues Clause 109 from its present endorsement of low regulatory standards. Amendment No. 209 makes sense of the regular-user test.
I turn now to Amendments Nos. 210 and 211. Their purpose is to make Clause 109(2)(c) consistent with paragraphs (a) and (b) with which it is currently inconsistent. Paragraphs (a) and (b) are objective tests: of information available, in paragraph (a); and, in paragraph (b), of giving a false and misleading impression. But paragraph (c) is inconsistent because it introduces a subjective test; namely, the view of the regular user. My amendment corrects that mistake and transforms paragraph (c) into an objective test; the behaviour that would be, or would be likely to, distort the market in investments. It is not what the regular user believes would distort the market, but what would
distort it. Amendments Nos. 210 and 211 make paragraphs (a), (b) and (c) consistent with one another.I shall not speak to Amendment No. 213 as I concur with my noble friend's Amendment No. 212, which makes my amendment irrelevant. However, his replacement Amendment No. 218 contains a worrying flaw. That amendment replaces a provision which has been eliminated by my noble friend's amendment. Amendment No. 218 proposes that the authority may not impose a penalty for market abuse if,
- "there are reasonable grounds for it to be satisfied",
Lord Stewartby: Being surrounded by many who are experienced in the legal aspects of this group of amendments, I hesitate to do more than make one observation and ask a question. The observation refers to the regular user. I do not see how that can be objectively implemented. Some of what the noble Lord, Lord Eatwell, said was sensible.
As chairman of a public company, I had recent conversation with a very experienced investment manager. At the end of the discussion I was rather taken aback because he said, "Have you made me an insider?" Being a cautious chap, I did not answer the question in the way that he had put it. But it led me to ask myself questions as to how reliable the regular-user test could ever be if some of those most professionally involved with these processes may frequently come across situations which they cannot determine with certainty. After all, if one cannot determine where one stands with certainty on this kind of issue, inevitably one is undergoing a risk in the light of the provisions in the Bill. Therefore, I believe that the regular-user test needs further consideration both as regards its workability and the hazards which it puts in the way of those who operate in the market.
The noble Lord, Lord Eatwell, said that he thought this was a weakening in the defences against market abuse. Seen from the other side it could be regarded as a strengthening, but that again illustrates his point about the balance of reasonableness. It is an area where the Bill, even with the amendments which have been put forward, has not necessarily reached a lasting and satisfactory form.
I was encouraged by reading Amendment No. 218 in the name of the noble Lord, Lord McIntosh. It seemed to me that it went a long way towards dealing with the question of mens rea. I shall await his comments on that.
I am sure that the Minister is aware of the fact that the takeover panel has been concerned whether the provisions of this part of the Bill could up-end its ability to make binding decisions in the course of a takeover bid in the market. If these provisions allow the authority to decide that market abuse could arise as a result of a breach of the takeover code, that could easily lead to the threat of litigation within the course of a takeover bid. That would invalidate the non-statutory but binding activities of the takeover panel. I am sure that the Minister will have considered this issue, but I hope that during the course of his responses and contribution to this course of amendments he will be able to comment on that question.
6.45 p.m.
Lord Lipsey: I rise briefly to speak in support of the amendments put forward by my noble friend Lord Eatwell to which I have appended my name. I repeat the general background; namely, the concern that the market abuse regime, as it stands now in this Bill--it has been considerably watered down in the process of discussion--is not strong enough. It is probably accurate to report the view of the FSA as lying in that direction and in saying that the market abuse regime under this Bill is really not a lot stronger than what exists now. As the purpose of the Bill was to crack down on market abuse, that is something of a worry.
I am wary of football analogies because I am a racing man. However, the Bill, as drafted, might be regarded as the "Maradonna Bill"; I am sure that his behaviour in scoring a goal by unconventional means at a crucial moment in an international match would have been regarded as absolutely reasonable by participants in the Argentine football team of the time. That is not an adequate justification for that being the standard set. Our amendment is designed to toughen it up in a moderate way.
Perhaps I may illustrate what I have in mind. Let us take an imaginary market, although I could put some real names to some markets. Let us imagine the "dodgy bonds futures market". As Members of the Committee will know, that market is infested with sharks, to use the phrase which my noble friend Lord Grabiner used yesterday. The average behaviour in that market is extremely poor. Insider dealing is par for the course. That would be caught by the criminal law, but as we know, criminal cases are extremely hard to conduct in this particular area.
If wrong behaviour is rife in a given market--perhaps in a new market where standards have not been improved to the normal high levels which apply in all London markets--our concern is that this clause would not catch that behaviour because it is common in the market. The effect of this amendment is that the standards set will not be acceptable to a bunch of crooks.
If the Minister cannot accept these amendments tonight, I hope that he will reflect on these points between now and Report stage--I do not think it should be a matter of tremendous controversy within
the House--and then accept our amendments, in particular the one which states that the standards should be those of a reasonable and ethical person and not those prevalent in the market.
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