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Lord McIntosh of Haringey: I can give the noble Lord the assurance he seeks which will enable him not to move the amendments whose numbers he listed. It is not the case that the Bill provides only that redemption should be at the request of the shareholder. Introducing the requirement that redemption of shares must always be at the request of the shareholder would narrow the definition to an unacceptable degree. A company could be open-ended if the redemption was initiated by the company provided that there was an expectation that this would occur. That is what is provided for in the new clause.

In relation to limited life companies, again I can put the noble Lord's mind at rest. The answer to his point on the fixed life company in the last few months of its life is that the definition we proposed is based on the overall impression that the reasonable investor would get when he is considering investing in it. The investment condition operates in relation to the company itself. It does not concern a particular point in time at the end of the company's life. Focusing on that particular point in time does not give an impression of the nature of the company; it is the nature of the company that counts as far as concerns the definition in the new clause.

I hope that that enables me to speak only to Amendments Nos. 252AD and 252YK, to which the noble Lord referred. As regards Amendment No. 252AD, this point was brought up in the other place. I believe that the concern here is that in the case of collective investment schemes that are neither OEICs nor unit trusts, the term "operator" is not defined. The amendment proposes a definition.

We feel that it is unwise to speculate on the nature of schemes constituted under non-UK law. It is far from clear that the definition proposed would be appropriate in any given case, given that in subsection (4) of the amendment we need to cover all of the possibilities covered by Part V of the Companies Act 1985 in this country, the Companies (Northern Ireland) Order 1986, provisions in another EEA state or provisions in force in a country other than in the EEA which the Treasury has designated for corresponding provisions.

In any event, the operator of a scheme will generally be apparent from the conduct of the scheme and the natural meaning of the word itself. Furthermore, when dealing with unfamiliar arrangements, we believe that this is the best approach with which to address the question rather than a definition which might be defective and, indeed, might not be robust as the international implications of OEICs develop.

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Amendment No. 254YK also came before the Committee in another place. It is difficult to specify precisely the structures under which non-UK, non-EEA schemes will operate. Although generally they will have trustees or depositories, this will not always be the case, and exceptionally a scheme without these may be fit for recognition by the FSA. We wish to retain this flexibility for recognised schemes, but it will in no sense be allowed to diminish the investor protection considerations applied when recognising such schemes.

5.30 p.m.

Lord Stewartby: Perhaps I may ask the Minister whether subsection (5) of the new clause proposed in the government amendment regarding the Treasury's power to amend the definition is only a general precaution against changing patterns in the marketplace. Alternatively, does it presage any specific changes?

Lord McIntosh of Haringey: The subsection has been written in because we intend to move towards a home-state base for all such schemes under EEA law. At the moment, we have a host-state based system in many countries. The firm intention of the EEA is to move to home-state systems. However, the speed at which that is done and the differences between countries that have reached one or other stage of the process means that it might be necessary, on occasion, for the Treasury to make amendments to the definition to reflect the changing position. When we reach that home-state base, then no such changes will be necessary.

Lord Stewartby: Should I take it that the Government do not expect significant changes other than those which the Minister has just mentioned?

Lord McIntosh of Haringey: That is correct.

On Question, amendment agreed to.

The Deputy Chairman of Committees (Lord Strabolgi): I have informed the Committee that, if Amendment No. 252WA is agreed, I shall not be able to call Amendments Nos. 252XA to 252AC inclusive.

Lord McIntosh moved Amendment No. 252WA:

    Page 118, line 6, leave out subsections (2) and (3).

On Question, amendment agreed to.

[Amendments Nos. 252XA to 252AC not moved.]

[Amendment No. 252AD not moved.]

Clause 230, as amended, agreed to.

Clause 231 [Restrictions on promotion]:

Lord Kingsland moved Amendment No. 252B:

    Page 119, line 10, leave out from ("communicate") to end of line 11 and insert ("to a person in the United Kingdom--

(a) an invitation to participate in a collective investment scheme; or

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(b) information which is intended or might reasonably be presumed to be intended to induce any person to do so.").

The noble Lord said: Before I turn to the amendment, perhaps I may say a few words to the Minister with respect to his last intervention concerning Amendment No. 252VA. I thank the Minister very much indeed for his words. His contribution appeared to be most helpful, but I shall need to read the text in Hansard to be sure that all the points I raised were satisfactorily covered.

I beg to move Amendment No. 252B. Clause 231 imposes special restrictions on the marketing of collective investment schemes. As it stands, the prohibition applies to even non-UK branches of an authorised person and even in relation to investors outside the UK. We wish to make the same amendments to the prohibition as we propose for financial promotion generally.

Mrs Melanie Johnson, the Economic Secretary and Member of another place, said in Committee in another place that she had in fact begun to realise that marketing restrictions applicable to authorised persons under Clause 231 do not need to be as wide as those applicable to non-authorised persons under Clause 19. This is why the amendment restricts the prohibition to communications,

    "to a person in the United Kingdom".

This restriction follows the existing rule. In another place, Members of the Official Opposition tried several times to persuade the Minister that it would damage United Kingdom competitiveness if the local regulator allowed the marketing of collective investment schemes to particular categories of investor not allowed by the authority--for example, typically high-networth individuals. Thus, the only firms which could not market the schemes to them were authorised persons.

The prohibition applies to all authorised persons, not only United Kingdom firms. Why should non-United Kingdom firms which establish a branch in the United Kingdom--perhaps using the passport--have to be subject to a worldwide prohibition on marketing investment funds to prohibited categories of investor from the United Kingdom branch? In addition, if the collective investment scheme that they want to market is actually established in the United Kingdom--typically an English limited partnership--the non-United Kingdom firm cannot market it from any branch anywhere in the world. That goes, perhaps, just a shade over the top.

The imposition of the worldwide prohibition is likely to induce United Kingdom or non-United Kingdom authorised persons to use an offshore group company--for example, a special purpose subsidiary--to market the collective investment scheme to prohibited categories of investors outside the UK. It really does not seem to do anyone any good to force this step to be taken and thus to incur perhaps substantial expenses.

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As far as concerns Amendment No. 252C, again this makes a similar amendment to the special restrictions on promoting collective investment schemes as the amendment we proposed to the general prohibition on financial promotion marketing in Clause 19.

Amendment No. 252D relates to Clause 231(5) and the exemption from the prohibition in Clause 231 for promotions otherwise than to the general public. Amendment No. 252D removes the uncertain concept of "the general public" and allows instead promotion to "persons of specified descriptions".

Clause 231(7) elaborates on what is meant by the term,

    "Promotion otherwise than to the general public",

and introduces a further uncertain category of,

    "persons for whom participation would be unsuitable".

This amendment seeks to give the authority greater flexibility in determining which types of unauthorised collective investment scheme can be promoted to identified categories of persons without having to be concerned as to whether those categories of persons may constitute the general public.

5.45 p.m.

Lord McIntosh of Haringey: I am grateful to the noble Lord, Lord Kingsland, for the way in which he has introduced his amendments, which I shall deal with in turn.

Amendment No. 252B would have a number of adverse effects. First, it would remove the prohibition on the communication of "inducements" and replace it with a prohibition on the communication of,

    "information which is intended or might reasonably be presumed to be intended to be acted on by a person".

"Inducement" was introduced into what is now Clause 231 in another place, at the same stage that it was brought into the general financial promotion rules of Clause 19. It is therefore consistent with that. The Government have outlined the policy behind "inducement" on several occasions. The paper Financial Promotion--Second Consultation Document issued last October indicated that the term includes a degree of incitement, and does not apply to purely factual communications which contain no incitement. However, as indicated in the discussions on Clause 19, we would appreciate a further opportunity to review whether the policy here should be clarified. We may also bring amendments in relation to the "inducement" question here at Report stage.

Secondly, the amendment would reduce the territorial scope of the communications to be prohibited to those communicated to a person in the United Kingdom. This is unnecessary as the Government have already announced that they intend to introduce a "directed at" test in secondary legislation, on which we also consulted through the October 1999 Financial Promotion consultation document. Furthermore, it is important that the rules are capable of addressing promotions out of the

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United Kingdom. For example, the Government have important European obligations in relation to the marketing of collective investment schemes, and this amendment would prevent them from being honoured.

We have had representations on the issue of outward promotion, notably from the British Venture Capital Association. It has emphasised the importance of the international competitiveness of the UK collective investment schemes not just for the financial services sector but also in enabling UK business to access overseas funds. The Government understand this, but compliance with our European obligations is essential--not respecting these would invite retaliatory action that would have a substantial economic and political cost.

The amendment that the Government are bringing forward, on the other hand, allows us to balance our obligations with the need for international competitiveness. Although we must currently prohibit certain outward promotions, we must be able to adapt our rules when to do so becomes appropriate, for example, when EU law and home state regulation have changed as we expect they might do. This comes back to the point that was properly raised by the noble Lord, Lord Stewartby. The opposition amendment allows neither of these to happen.

Thirdly, the opposition amendment lacks the flexibility of the Government's preferred approach, a necessary quality of a regime required to deal quickly with international and technological developments. It will be easier to cut back a wide scope, for example, taking account of general moves to home state regulation of collective investment schemes, than to specify a narrow scope in primary legislation.

If we are to deal with new, and increasingly sophisticated, means of communication, we do not see any alternative to pitching the scope of the prohibition so that we can move to meet the requirements of the times by using secondary legislation. In this way we shall be able to take account of any European moves to increase the range of collective investment schemes which benefit from the product passport (and in respect of which we will have to ensure that outward promotions are prohibited). Even if we took the approach of getting the extent of the prohibition just right as matters currently stand, we would set in stone a system of controls that could be out of date even before the Bill comes into force. I hope that the Opposition will withdraw Amendment No. 252B, particularly given my assurances with regard to secondary legislation and the further thought to be given to the question of "inducement".

Amendment No. 252C has a similar effect to the territorial impact of Amendment No. 252B and I hope that it will not be pressed. Amendments Nos. 252D and 253A would allow FSA rules to override the general promotion prohibition in subsection (1) of the clause in the case of promotions to "specified descriptions of persons" rather than promotions,

    "otherwise than to the general public".

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The clause as it stands allows FSA rules to specify persons or groups of persons, so in this sense the amendment adds nothing. Furthermore, it introduces the prospect of exempting promotions that are to the general public. That the prohibition should apply to promotions to the general public--except where the scheme is authorised or recognised--is a cornerstone of government policy on the regulation of collective investment schemes. The current clause achieves this by setting out in subsection (7) precisely what is meant by,

    "promotion otherwise than to the general public".

I turn to government Amendment No. 253. Clause 231 contains the basic promotion prohibition for collective investment schemes by authorised persons, and some exemptions from it. The prohibition does not apply to the promotion of authorised or recognised schemes, nor to promotions originating outside the UK unless they are capable of having an effect in the UK.

The purposes of the Government amendment are to allow UK firms to remain fully competitive in the international collective investment schemes market; and to allow the territorial scope of the prohibition to take full account of future international and technological developments, for example, in the field of electronic commerce. The amendment enables the Treasury to specify further circumstances in which the prohibition does not apply. In particular, it can specify that the prohibition does not apply to specified descriptions of communications; communications originating in a specified country or territory outside the United Kingdom; those originating in a specified group or description of countries or territories (for example, EEA states); or any communication originating outside the United Kingdom. These are not cumulative; clearly, they are alternatives.

The first case could cover, for example, promotions of specified unauthorised schemes, such as certain venture capital funds originating in the United Kingdom which could not be promoted to the UK public but which are allowed by the regulatory authorities in the target country. An order under this amendment could enable such schemes to raise funds abroad and compete with non-UK schemes in those markets. This order-making power will address the concerns expressed to the Government by industry representative groups such as the British Venture Capital Association over UK schemes' international competitiveness and the ability of UK business to raise money abroad.

The general prohibition applies in relation to promotions of collective investment schemes by authorised persons originating outside the United Kingdom if they are capable of having an effect here. The final three cases mentioned allow the prohibition to be lifted if this becomes appropriate. For example, as I have already said, EU legislation could move to a full home state regime for these schemes, in which case an order specifying communications originating in EU states may become necessary. But as I explained when we debated the general financial promotion rules in Clause 19, the EU has not yet made this move and we

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cannot afford to leave anyone unprotected in the mean time. Until a full home state regime exists in Europe and all member states have adequate regulatory regimes for the purpose, we cannot unilaterally lift all prohibitions on outward promotions.

The final line of the amendment enables the Treasury to repeal the condition in Clause 231 that the prohibition applies only to communications originating outside the UK if they are capable of having an effect here. This may be necessary if an order disapplying the prohibition to all communications from outside the UK became appropriate, making the "having an effect in the UK" condition redundant.

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