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Lord McIntosh of Haringey: Then the noble Lord is criticising the Opposition amendments, not the Bill--which is clear that either profits have accrued or someone has suffered loss. One or the other, not both. If the word "and" were used, it would have to be both--and that would be restrictive. It has nothing to do with restitution, which is to make up a loss. A loss could either be a real loss or a diversion of profits from one person to another. I do not see the difficulty.

Lord Borrie: The noble Lord, Lord Elton, is right to refer to the word "or". There are situations in which no individual can establish and prove, as a matter of cause and effect, that he has suffered loss as the result of a market abuse. However, there are situations where someone guilty of market abuse has obtained profits as a result and ought to be required to disgorge them--even though no individual can establish a precise loss. The general body of market users relevant to the situation would enjoy the benefit under the later subsection. That seems a perfectly good provision.

Lord Elton: I find the noble Lord more persuasive than the Minister. I do not say that in any pejorative sense because I do not wish to annoy either of them. I am content with the Minister's remarks in regard to my difficulty.

Lord Kingsland: In the circumstances, I shall read the Minister's comments carefully in Hansard. Intent is a big problem for us in this Bill, not only in relation to this issue but to market abuse. We shall return to it on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 370 agreed to.

Clause 371 [Power of Authority to require restitution]:

[Amendment No. 274B not moved.]

Lord McIntosh of Haringey moved Amendment No. 275:

("( ) In the application of subsection (5) to Scotland, in paragraph (b) for "in relation to which this Act confers power to prosecute on the Authority" substitute "mentioned in paragraph (a) or (b) of section 384(1)".")

On Question, amendment agreed to.

Clause 371, as amended, agreed to.

Clause 372 [Warning notices]:

Lord Bach moved Amendment No. 275RA:

    Page 195, line 31, leave out subsection (3).

The noble Lord said: This group contains a number of further amendments to clarify the warning notice and decision notice procedure and provide a more consistent approach to the rights of third parties. Dealing shortly (I hope) with each amendment,

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Amendment No. 275TA in Clause 375 responds to points raised by members of the Opposition in another place and requires a warning notice to state the action which the authority proposes to take. We believe that that is already implicit in the Bill but agree that it is better to put the matter beyond doubt.

Amendment No. 275XA in Clause 375 enables the authority to extend the period for making representations. This will allow the authority to respond to any legitimate difficulties that the person concerned may have in making his representations within the period specified. The existing provision is too restrictive in this respect.

Amendment No. 275YA deletes the words "carry out its proposal" in subsection (4) of Clause 375. Those words give the impression that the authority can give effect to its proposal at the end of the warning notice stage. That is not the Government's intention. We propose to substitute the words,

    "give the person concerned a decision notice",

to make clear that the next stage is for the authority to issue a decision notice. Alternatively, the authority may decide to issue a notice of discontinuance.

Amendment No. 275D in Clause 376 is a highly significant amendment. Its effect is to restrict the action that the authority may then go on to include in a decision notice. It must be action that is taken under the same part of the Bill. Thus, a proposed financial penalty under Part XIV may be reduced or replaced with a public statement, but the authority cannot move from, say, a warning notice that proposes disciplinary action under Part XIV for a breach of rules to a decision notice which raises allegations of market abuse under Part VII. The authority needs some flexibility, but the person concerned is entitled to the protection of the proper notice procedures being followed: a set of proceedings begun for one purpose should not be the subject of a complete change of character half-way through.

Amendment No. 275G in Clause 376 makes clear that, having issued a decision notice, the authority can agree with the person concerned to substitute a different decision notice. This will enable the person to settle a case without pursuing a reference to the tribunal, although he will not lose the right to refer the matter just because he has agreed a different action with the authority. This ensures that there is the necessary flexibility in the procedure to achieve sensible outcomes to cases without requiring the person or the authority to incur unnecessary costs. It also enables the authority to state clearly if, for example, the grounds put forward in support of a reference to the tribunal cause it to believe that a lower penalty than originally proposed is appropriate. In such a case the person concerned can agree to the serving of a further decision notice while continuing to contest even the reduced penalty, which means further clarity for everyone.

This is not a device to enable back room deals to take place. We are conscious of the need for transparency, on which the Joint Committee had very clear views. Even if a deal is struck on the steps of the

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courthouse, the final stage in the process will still be the issuing of either a final notice or a notice of discontinuance. If it is a final notice, the authority will be under the same obligation as under the existing provisions of the Bill to publish appropriate information about the decision reached. If the end result is a notice of discontinuance, publication may take place only with the consent of the person concerned.

The new clause on third party rights, Amendment No. 275L, rationalises the existing provisions dealing with the rights of third parties identified in warning or decision notices in a way that is prejudicial to them. These provisions were designed to deal with cases where there is some wrong-doing alleged on the part of a third party who is not himself the subject of action by the FSA. For instance, in disciplinary cases under Part XIV, it was felt that action might be taken against a firm for reasons which implied that there had been some failing by one of its directors or employees; or in market abuse cases, where other parties might well have been involved in the transactions giving rise to the allegation that market abuse has been engaged in.

The provisions give third parties, who are identified in prejudicial terms in the reasons for a warning or decision notice, the right to receive a copy of the notice, and to make representations or refer the matter to the tribunal in the same way as the person who is the subject of the FSA's proposed action. We took the view that although these rights create an administrative burden for the FSA, they are necessary to give the third party the right to defend himself against any implied blame arising from the reasons given for the action. Thus the new clause on third party rights will apply to a wide range of disciplinary-type cases. This is the effect of the other new clause which sets out the application of the clause on third party rights. This applies the third party rights to a large number of cases.

We also propose to apply these rights where it is proposed to cancel an authorised person's permission under Part IV. We shall table a further amendment to this effect when we table our amendments to that part on Report. However, we do not consider it appropriate to impose these requirements for the more routine types of regulatory decision, where the matter at issue is not some wrong-doing, but whether conditions are met, or consumers' interests are at risk. Thus they do not apply to refusals of applications, variations of permission, or approval or imposition of requirements on such permission or approval, whether under Part IV or some other part of the Bill.

As a consequence a number of provisions in other parts of the Bill, such as Clauses 372(3) and 373(3) in respect of restitution under Part XXV, can be omitted. That is the effect of the consequential amendments, Amendments Nos. 275RA and 275SA. Some other similar provisions earlier in the Bill will also need to be removed in due course Amendments Nos. 275VA, 275WA and 275E are further consequential amendments to Clauses 375 and 376 which reflect the new clause on third party rights. I beg to move.

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10.30 p.m.

Lord Kingsland: We have no amendments in this group. However, I have some views on the government amendment, if I may be allowed to express them.

Clauses 375 and 376 set out the procedural requirements relating to warning notices and decision notices. These include giving the firm or approved person subject to the notices access to the evidence on which the FSA relied. However, in our submission, these parties should also have access to any helpful evidence even though the authority may not want to surrender it. Under English law, this is required in criminal cases, but--so the Government tell us--not in civil cases.

However, two recent European Court of Justice cases held that the specific protections in Article 6.3 are only examples of the "fair hearing" requirement in Article 6.1 and that these included the right to see all the evidence unless, in a public interest immunity case, the court itself saw it first. Those cases are respectively, Rowe and Davis v. the United Kingdom, Jasper v. the United Kingdom, and Fitt v. the United Kingdom, the judgments in all those cases being delivered on 16th February 2000.

As regards Amendment No. 275G, the Government propose to add three new subsections, (8), (9) and (10), on page 198, line 6. The purpose of the amendment is, to us, unclear. It appears to give the authority the ability to issue, with the consent of the firm or the individual concerned, a second "further" decision notice modifying the effect of the first decision notice.

If the purpose of that is to allow the FSA and the recipient scope to renegotiate the terms of the disciplinary action after the issuance of the first decision notice, we would have no difficulty with it in principle. However, we would be concerned if the procedure were to be used to exert pressure on firms or individuals to rescind their decision to refer the matter to the tribunal. Can the Minister confirm that these amendments do not have the effect of diluting the existing safeguards provided under Clauses 375 and 376?

As regards Amendment No. 275J, the Government have introduced a new clause about decision notices. As I understand it, they are setting out the provision which we want; which is, that the authority cannot issue a notice for payment until the time for referral to the tribunal has passed without a reference, or, if there is a reference, until it has been finally disposed of.

However, there seems to be no provision to the effect that the existing notice for payment provisions do not apply; in particular, the provision of a notice for payment of a market abuse penalty (I refer to Clause 118) and the notice for payment of restitution (I refer to Clause 374). The new clause provides only that the FSA must issue a final notice in all decision notice cases. However, it seems that there is nothing to stop the authority acting on a decision notice given under earlier clauses such as those I have mentioned. Clause 202 is now deleted, but it related only to notices for

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payment of a penalty imposed under Clause 199--and the fact that it has been deleted does, indeed, imply that the new clause has not ousted the existing clauses.

As regards Amendment No. 275K, I do not understand why the person who has received a warning or a decision notice cannot publish it. Surely at the very least he should be allowed to publish it to his legal advisers or accountants. That ought to be an easy matter for the Government to deal with.

Amendment No. 275L has the effect that the defendant's right to see evidence is excluded in relation to both Clauses 51 and 52. I can see no reason why in such cases the firm should not be entitled to have access to the authority's evidence. In addition, it may as a consequence be intended that the authority should not be required to keep the investigation separate from the enforcement function. Again, I can see no reason why that should be the case. It is those two consequences of being supervisory-type decisions which should not be allowed to apply in relation to Clauses 51 and 52.

The Government have indicated in their note to amendments that they want to have a short form authority enforcement procedure in what they call "supervisory-type decisions". These are decisions where they believe that a more flexible procedure is required, which in particular allow the authority's decision to take effect on a specified date, including the date on which the notice is served. The fact that the notice is referred to the tribunal does not appear to affect that. Why are the Government including among the supervisory-type decisions the authority's decisions to vary permissions and impose requirements under Part IV in relation to Clauses 51 and 52? I can well see why an immediate decision is needed in the case of Clause 53, which gives the authority power to exercise its own-initiative power to cancel or amend a permission (or to impose a requirement or prohibition, which again acts as a limitation on the permission) on its own initiative without having to comply with its due process.

In that case, there will be, ex hypothesi, a danger to consumers. However, there is no such emergency in the two other cases where the authority makes decisions in this context. The first is in Clause 51, where the firm has approached the authority and the authority wants to refuse the application. Here, clearly, there can be no question of any need to exercise the power "with immediate effect". In addition, the authority is given the right to exercise its own-initiative power to cancel or change a firm's permission where the emergency situation in Clause 53 does not apply.

The exercise of the own-initiative power may be very prejudicial to the firm, as it will stop it carrying on a particular type of business which it currently carries on, or impose on it what may be substantial limitations on the way that it can carry on its business. As there is no threat requiring the authority to exercise its own-initiative power "with immediate effect", it seems to me, at any rate, that there is time to go through the proper procedures.

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I believe that Amendment No. 275N is in the next group. Therefore, I shall pause for appropriate reflection.

On Question, amendment agreed to.

Clause 372, as amended, agreed to.

Clause 373 [Decision notices]:

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