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Lord Phillips of Sudbury: I should like to speak in favour of Amendment No. 209. Perhaps I may take up one or two of the points made by the noble Lord, Lord Grabiner. I was rather impressed by his six year-old son. I think he might do better on some of these ethical issues than some of the more aggressive traders in certain markets in the City do from time to time. He might have a much clearer idea of the ethics of what he was doing, if not the technical ability of the throw, than some of those whom one unfortunately has cause to meet in the City. I have worked in the City for 35 years. I cannot say that I have been in the thick of it, but I have been in enough parts of it to feel that there is a need for the bracing addition of the words "reasonable" and "ethical". I do not see any danger in those words. They will not render the clause susceptible to subjective interpretation: I disagree with the noble Baroness. Paragraph (c) must be construed objectively, and the addition of these words would continue to require the construction of the clause objectively.
Returning to the noble Lord's vivid metaphor of Stanley Matthews, Stanley Matthews died a long time ago--
Lord Phillips of Sudbury: I beg the Committee's pardon--he stopped playing a long time ago. Unfortunately, if paragraph (c) were to be applied to the professional football scene today, the noble Lord, Lord Grabiner, might have a bit of a task on his hands. To take the example of the captain of the most prestigious team in Britain, Manchester United,
Mr Keane was sent off a month ago for the sixth time in his career. What would the court view as the standards of regular behaviour in the football market these days? It would certainly not be a close observance of the rules.There are aspects of the workings of various City markets that are not clear in terms of the effect of their rules in any event: where there is a degree of latitude and where the question of good dealing and bad dealing is to be looked at in terms of the best standards and the worst standards. In relation to Lloyd's, for example, if we go back to the time when baby syndicates were almost, as some would say, the norm, how would the provision in this clause stand up? There was some extraordinary behaviour in the City in the early days of the futures markets. How would the clause stand without the addition of the words "reasonable" and "ethical"? At best, it would be highly confusing to any judge.
Lord Grabiner: I am grateful to the noble Lord for giving way. I suggest that in the case, for example, of baby syndicates, had the facts had been known at the time, everyone would have appreciated that they represented a grossly improper piece of activity.
Lord Phillips of Sudbury: I am grateful for the noble Lord's intervention; however, I believe that the facts were well known. Throughout the Lloyd's market the existence of baby syndicates was commonplace. That is the problem with which the noble Lord must contend. Amendment No. 209 makes it absolutely clear that, whether or not a practice is standard, whether or not it breaks particular rules, it is not ethical. I do not think that anyone at the time of the flourishing of baby syndicates would have stood up in public and pretended that such a practice was ethical. The amendment would put such a matter beyond doubt. I view it as an innocent amendment at worst and a useful amendment at best. Therefore, I urge the Committee to support it.
Lord Saatchi: Earlier, my noble friend Lord Peyton said that the Opposition Front Bench had shown restraint during the Committee stage today, and I was pleased to hear that.
Lord Peyton of Yeovil: Did I hear my noble friend correctly? Did he say that I wished that the Front Bench had shown restraint? I congratulated my noble friends on the Front Bench on the incredible restraint that they had shown. I just wanted to be quite clear about that.
Lord Saatchi: My noble friend congratulated the Front Bench on showing restraint. I was pleased to hear him say that and I thank him. It is true.
As we said at the beginning of this Committee stage, we do not see a party-political advantage in the Bill and we have tried to operate in that way. But we now come to something that is of fundamental and deep concern to our Benches. My noble friend Lord
Kingsland explained why. I shall try to add to that explanation and to respond to some of the remarks that noble Lords have made.The provision in this Bill which has probably attracted the most concern from practitioners and commentators on the financial system is the one relating to market abuse. Before we jump to the conclusion that the Government have thought this through magnificently, we should remember that this is a brand new provision, not seen in any of the previous systems, and therefore quite capable of being slightly incorrect. Our Benches believe that there are two aspects of the provisions which, as currently drafted, are not quite correct. I shall focus on those two aspects. The first is that of uncertainty of outcome. The second is that of intent.
I shall deal first with uncertainty. In our opinion, "market abuse" is given too wide a definition in Clause 109 and covers a situation in which someone engages in behaviour which, were it publicly known, would damage the confidence of informed market participants that the market is true and fair. The behaviour involved in subsection (2) must, as the noble Lord, Lord Grabiner, said, be based on information which is unavailable to informed participants, but which would be regarded by them as relevant in deciding whether to enter into a transaction involving such an investment, or which would be likely to create a mistaken impression about the market for that type of investment, or which would be likely to distort the market for that type of investment. This wording is too vague and too wide. As was stated by my noble friend Lord Stewartby in relation to the regular-user test, it can attract completely opposite views. This is proof of the difficulty that lies in the present wording.
In our Second Reading debate, the noble Lord, Lord Eatwell, said--he repeated it again today--that the wording as currently drafted is too lax. If I have understood it correctly, his point is that if regular users are abusers, the regular-user test cannot be strict enough, because regular users who are abusers will obviously acquit each other of any abuse and, therefore, the clause is too weak.
On the other hand, other people take the exact opposite view. It is extraordinary that the wording of a clause of such importance can provoke such completely opposite views. The exact opposite view to that of the noble Lord, Lord Eatwell, was put forward by the Justice in Financial Services organisation. It is of the opinion that the vagueness of the clauses will potentially leave too wide a range of workers in financial services vulnerable to a charge of market abuse. The organisation, Justice in Financial Services, as I am sure the Minister is aware, made scathing criticism of this clause of the Bill. It believes that the Bill,
- "will allow the FSA to impose penalties on virtually everyone, as its remit covers any utterance that could have an effect on any investment or any person's perception of any investment".
It is true that the Financial Services Authority has published a code of market conduct which is intended to fill some of the vacuum which we perceive exists in the generalities of this clause. It is also true that the Government have strengthened the status of the code, so that it now acts as a safe harbour. In other words, compliance with the code will mean that a firm will be taken not to have breached the general prohibition covered in the market abuse clauses.
Guy Morton, a partner in the firm of Freshfields, a top City law firm, explained to the Joint Committee that this provision left too much unclear. He is regarded as an authority on the subject, and I shall therefore quote him at some length. He told the Joint Committee:
- "The main point about market abuse is the need for greater certainty in the definition, which does not seem to give us an adequately clear impression of what behaviour is regarded as objectionable.
- If you look at the definition of market abuse, clause [109(1)] in particular, that is not, I submit, a prime example of something which gives people a very clear indication of what conduct is permissible".
- "is asking you to make a hypothetical judgement about the attitude of a some other described group of people to a set of behaviour. I do not think that that would give the great majority of people any clear idea of what they can and cannot do".
- "It is strongly arguable that the very high level of generality of the market abuse offences ... offends against Article 7(1) [of the ECHR] ... Not only are the offences far less clearly defined than their criminal counterparts contained in the Criminal Justice Act and Financial Services Act, but, most strikingly, the FSA's own consultation document on the proposed Code on Market Abuse illustrates the range of open questions as to whether a particular course of action not only will be but should be treated as falling within the market abuse offences".
7.15 p.m.
Lord Eatwell: It may assist the noble Lord to know that when those gentlemen, including the noble Lord, Lord Lester of Herne Hill, gave evidence to the Joint Committee, the regular-user test was not before them. Therefore, they could not possibly have commented on it. It was introduced only at a later stage.
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