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Baroness Turner of Camden moved Amendment No. 228:

("( ) The Authority may make rules under this section to require authorised persons to advise and inform persons referred to in subsection (1) about matters arising during the course of their use of the services referred to in that subsection.").

The noble Baroness said: In moving this amendment, I assure Members of the Committee that it is not a technical amendment. The focus of the Personal Investment Authority with regard to consumer protection was on the selling of products and on ensuring that sellers knew their customers' needs and gave the best advice to meet those needs.

However, consumers' needs change. They may need advice and information at any time during the life of a product. Changes in consumers' needs may arise from changes in their circumstances. Consumers often need to cash in endowment policies early because they cannot afford to continue paying the premiums. There are several options for consumers, such as trading the policies, borrowing on the security of their value, or making them fully paid up. Those are often much more advantageous than simply cashing in the policies.

Consumers need to be informed about those options when they approach their life companies. Of course, some companies make a practice of advising clients in this regard. I am aware of that from my own experience some years ago when I sought to cash in a policy with my company (which was a mutual company). It advised me that I would probably be better off if I traded the policy. Not every company does that. If the client does not know, he may well lose out.

Some changes are caused by outside factors. Changes to assumptions about yields have meant that some endowment policies are not sufficient to pay off an interest-only mortgage; ISA mortgages are set up with the assumption that the investment will pay off the mortgage. If it is clear at some point that the investment will not be sufficient, consumers will need to be told early that that may be the case and what their options are. Sometimes changes in taxation will have an effect on products, and consumers will need to know about that.

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The FSA should be able to make rules to require information and advice to be given in similar circumstances. Leaving it to the companies concerned may mean that consumers do not receive the information that they need at the right time.

I understand that the FSA believes that the Bill already allows it to make rules covering that, but that does not seem to me to be absolutely clear in the Bill. Therefore, I believe it necessary to have a provision on the face of the Bill which makes that absolutely clear. This may be extremely important to people at quite difficult times in their lives, when they need to have advice about the best options available. Therefore, I hope that the Government will be prepared to accept the amendment. I beg to move.

5 p.m.

Lord Kingsland: Our reaction to the noble Baroness's amendment is similar to the kind of reaction which the Minister has given to us on numerous occasions: we agree with it but we do not think it is necessary.

We think that because not only is the protection of consumers an objective contained in Clause 2(2)(c), but also in the way the objective is further elaborated in Clause 5(2)(c); almost the express terms of the noble Baroness's amendment are contained in the expression,

    "the needs that consumers may have for advice and accurate information".

Moreover, under Clause 29, there does not seem to be any constraint on the scope of rules which can be made within the objectives of the Bill.

I do not wish the noble Baroness to be in any doubt about our commitment to the principles which underlie her amendment; but for all those reasons, we believe that it is otiose.

Lord McIntosh of Haringey: I do not believe that I have used the word "otiose" once throughout the whole proceedings in Committee. It is a lovely word; that is quite true.

My noble friend's amendment to Clause 129 proposes that the FSA should have power to make rules requiring authorised persons to advise and inform consumers about matters arising during the course of their use of the authorised person's services. She gave a very good example, which was also given in another place, of a requirement on an insurer to notify a surrendering endowment policyholder of the existence of the second-hand traded endowment market.

Stephen Timms, the Financial Secretary to the Treasury, explained then that the FSA would be able to make rules using its general rule-making power, although it was for the FSA to determine whether and how to use its powers, having regard to its general duties.

I am happy to confirm that it is still the Government's understanding that the FSA would be able to make rules to deal with this problem on the basis that they would apply to authorised persons with

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respect to the carrying out of a regulated activity and would be for the purpose of protecting the interests of consumers. My noble friend cast doubt on that, but I really do believe that to be the case.

It is worth noting that such a rule could not have been made under the Financial Services Act 1986. Paragraph 4 of Schedule 10 of that Act prevented conduct of business rules applying to a regulated insurance company, except in relation to the selling and advice of long-term policies or to the management of pension fund assets. That restriction has not been continued under this Bill and I hope that my noble friend will recognise that, in effect, we have brought her amendment into the scope of the Bill for the first time and that, therefore, she will not feel it necessary to press the amendment.

Baroness Turner of Camden: I thank my noble friend for his explanation in opposition to the amendment. It is obviously not my intention to seek to divide the Committee on it. I should like to think about what he said and to have a word with the people who have been advising me in this connection because it was our impression that without some wording of this kind on the face of the Bill, the FSA may very well conclude that it did not have authority to give advice in the circumstances which I have been suggesting.

However, in view of what the Minister said, I shall withdraw the amendment and consider what he said between now and Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McIntosh of Haringey moved Amendment No. 228A:

    Page 60, line 24, leave out from ("rules") to ("may") in line 25.

The noble Lord said: In moving this amendment, I shall speak also to government Amendment No. 230ZA and speak in a friendly tone to opposition Amendment No. 230A because I believe that our thinking on these matters is very much at one.

Subsection (1) of Clause 131 allows the authority to make requirements relating to the financial resources of particular authorised persons. Subsection (2) allows it to direct a particular person to hold a specified amount of capital.

Amendment 230ZA deletes those subsections. The substantive change we are making here relates to the removal of Clause 131(2). Under that provision, the FSA would have been able to notify individual authorised persons as to the level of financial resources that they must maintain. Subsection (1) of Clause 131 was included only in order to provide the basis for the proposition in subsection (2). Subsection (2) needed to be stated expressly because the sort of individual notification for which it provides is not the type of provision one usually finds in rules--the general idea being that rules are legislative acts which apply to all authorised persons or specified classes of such persons.

We now intend that individual financial resources requirements for particular authorised persons will be made using the power to impose requirements in Clause 41 (in Part IV).

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General provisions about financial resources will continue to be able to be made using the rule-making provisions of Clause 129. This will cover general rules about the nature of resources that a person must have. It will also allow general rules to be made which apply to all authorised persons, or specified groups of such persons, which set out formulae and so on in accordance with which the level of resources a person must have can be calculated. The power to make the rules will of course be subject to the requirements of Clause 129(1); namely, that they are necessary or expedient to protect the interests of consumers of regulated activities, a mantra which I have repeated far too many times.

We no longer think that there is any need to deal with these matters expressly in Clause 131 if subsection (2) is removed. As indicated, Clause 131(1) is there only so that subsection (2) could hang on it.

The important change that we are making here impacts directly on the rights of individual authorised persons. As indicated, individual financial resources requirements will be imposed under Part IV. Under that part, the authorised person will be able to refer to the tribunal any requirement that has been imposed on him which he thinks is unfair or disproportionate. Depending on the circumstances, he may be able to refer the matter to the tribunal before the requirement takes effect or after it has done so. It may be necessary in some cases for a requirement to take effect straight away, but in either case the authorised person may challenge the authority's decision. The FSA will also have to go through a number of procedural steps in accordance with Part IV when imposing requirements in relation to particular authorised persons.

That is a significant change from the existing provisions. Under the Bill as it stands at the moment a person has a right to challenge the FSA's decision as to the appropriate amount of financial resources only if he disobeys the requirement and the authority takes enforcement action against him. Under the proposed procedures in Part IV a person may comply with the requirement so as not to jeopardise his standing as an authorised person while at the same time questioning the appropriateness of the particular level of resources.

Amendment No. 228A follows changes already made to Schedule 6 which allow for consolidated supervision of groups. Considering the overall structure of a group is important in terms of ensuring proper supervision of members of the group who are authorised persons. The change that we propose simply recognises that in the rules which relate to authorised persons it may be necessary to impose requirements on the authorised person which are not artificially limited to the financial resources of the group. The bottom line is that it will be possible to make only rules which apply to authorised persons and only if they are necessary or expedient to protect the interests of consumers of regulated activities.

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Opposition Amendment No. 230A would also have the effect of making financial resources rules subject to the procedures of Part IV. In the light of our Amendment No. 230ZA, I hope that the noble Lord will not press his amendment. I beg to move.

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