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Lord Elton: I am sure that this is welcome in Gibraltar. My only concern is with subsection (3) and the definition of "Gibraltar firm", which means,

That seems to be a term almost without boundary. It could have a partner living in Gibraltar; it could have a branch office in Gibraltar; it could have been, as my noble friend put it, elsewhere constituted or incorporated under the law of Gibraltar. I wonder whether there is anywhere in the Bill, or there is going to be anywhere in the Bill, a more precise definition of what this means.

Lord McIntosh of Haringey: I have attempted, but clearly not successfully, to set this out. The clause enables the Treasury to enable firms from other EEA states which have exercised passport rights to branch or provide services into Gibraltar to then exercise those rights in relation to the United Kingdom proper without going through the full directive notification requirements. The phrase "or otherwise connected with Gibraltar" ensures that this power is broad enough to cover such firms. Without this, we might be in breach of our obligations under the directives.

On Question, amendment agreed to.

Clause 389 agreed to.

Lord Saatchi moved Amendment No. 276E:

    After Clause 389, insert the following new clause--

("City Code

.--(1) Subject to subsection (2), the Authority may adopt a policy that it will not exercise its powers under sections 113, 120, 368 and 370 in respect of conduct which is not in conformity with the City Code except following a request by the Panel that the Authority consider whether to exercise all or any of these powers.
(2) Subsection (1) does not apply in respect of behaviour which satisfies the condition in section 109(2)(a).
(3) The Authority may adopt the following policy in respect of the exercise of its powers under section 368(1) to (3), namely that, in any case where the Authority is of the opinion that--
(a) any application or proposed application by the Authority for any order or interdict under that section, or
(b) the making, confirmation or continuance of any order or interdict made under that section,
may materially affect the timetable or outcome of an offer to which the City Code applies, the Authority shall consult the Panel--

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(i) before making or proceeding further with the application, and
(ii) (in any case where the Authority forms such opinion after an order or interdict has been made) before making any further representations to the court seeking the confirmation or continuance of the order or interdict.
(4) Where the Authority has adopted a policy within subsections (1) or (3), such policy shall be recorded in a statement issued under this section and the provisions of section 114(6) to 114(8) shall apply to a statement issued under this section.
(5) The Authority shall not exercise its powers under sections 113, 120, 368 and 370 in a manner which is not in accordance with any statement of policy issued under this section.
(6) The provisions of this Act which refer to the Panel or to the City Code shall not be construed as imposing any statutory duty on the Panel and no such duty shall be imposed on the Panel by reason of anything done or not done by the Authority or the Panel under or in connection with such provisions.
(7) Neither the Panel nor any person who is, or is acting as, a member, officer, member of staff or agent of the Panel is to be liable in damages for anything done or omitted which is or may be connected in any way with the exercise or purported exercise of any duty, power or function of the Authority under this Act unless the act or omission is shown to have been in bad faith.
(8) In this section--
"conduct which is not in conformity with the City Code" means conduct of a person which, in the opinion of the Panel, does not conform with the responsibilities imposed on that person by the City Code (as applied by the Panel);
"offer" has the meaning given in the City Code, as determined by the Panel.").

The noble Lord said: In moving this amendment, I wish to speak also to Amendment No. 276F. The amendments concern the Panel on Takeovers and Mergers. Amendments Nos. 277A and 277C add consequential definitions of the City code and the panel to the definitions contained in Clause 392. I gather that the Treasury says that it does not want the FSA's powers to intervene in cases of market abuse to be fettered in any way by the takeover panel. The reason given is that it is believed that in the regulation of market abuse, self-regulation has failed and needs to be replaced by statutory regulation. These amendments would avoid the FSA being drawn into takeover regulation, which I am told is an outcome that Treasury officials and the FSA say they desire, and they would eliminate the danger of possible damage by the unintended consequence of regulatory overlap between the two bodies.

I cannot dispute that there have been significant failures in the self-regulation of financial services--famously, in the case of the insurance markets. Meanwhile, the Takeover Panel's non-statutory regulation of takeovers, which at its heart includes the regulation of behaviour which creates a misleading impression or distorts the market, has been effective. That is widely recognised in the City. I also acknowledge the view that the current legal framework under the Criminal Justice Act has been ineffective in deterring or punishing the misuse of unpublished information. But our amendments would not impact in any way on the manner in which the new FSA market abuse regime would address that.

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The Treasury says that it does not want to create the unusual situation of a non-statutory body being responsible for deciding in respect of certain abuses whether and when action could be taken under a statutory regime. It is true that, while the panel does not have statutory functions, it nevertheless has statutory recognition; for example, as a body to which disclosures may be made under Section 180 of the Financial Services Act 1986. It also has statutory underpinnings; for example, through the endorsement of the takeover code under Section 47A of the same Act. The courts have taken the view that the panel performs a public duty. In due course, when the European takeover directive is adopted and implemented in UK law, the panel will, like the FSA today, be a private body with statutory functions.

Therefore, we believe that the best way to safeguard effective takeover regulation while also enabling the FSA to administer the market abuse regime consistently across all markets, is to amend the Bill in two ways: first, behaviour which complies with the takeover code would not constitute market abuse--that is, it would be a safe harbour; secondly, in cases of non-compliance with the takeover code, the panel would have the ability to pass serious cases to the FSA based on criteria and parameters which should be pre-agreed between the panel and the FSA, for the FSA to consider whether market abuse had occurred and whether to take further action. But other than in those circumstances, the FSA would not intervene directly. That is what our Amendments Nos. 276E and 276F achieve. I beg to move.

Lord Borrie: The Government should consider this amendment in a positive way. The Bill as drafted may well adversely affect the effectiveness, credibility or authority of the Takeover Panel and the City take-over system that has operated for some 30 years. The difficulty with the Bill as drafted is that there is an overlap between the market abuse powers of the Financial Services Authority under the Bill and the role of the Takeover Panel under the self-regulatory code which has operated to ensure fair and equal treatment and that best business standards are observed during a takeover. Under the terms of the Bill, many breaches of the code will also amount to market abuse.

The great advantage that many people have seen of the code system over the years is that it is flexible and speedy, and it enables decisions which are made speedily to be both binding and final. The virtues of those factors were, for example, recognised by the Court of Appeal in the well known Datafin case in 1986. I am sorry that the noble and learned Lord, Lord Donaldson, who presided over that court is not in his place. Briefly, the courts then decided that they were not, for good reason, willing to intervene contemporaneously with anything to do with a take-over while the bid was being conducted. They would intervene, in the courts' own words, historically but not contemporaneously, so that the matter could be determined on a rapid basis. That decision, some 14 or 15 years ago, forestalled the very bad possibility of tactical litigation in which a party to a bid might use

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judicial review proceedings simply as a ploy, which was not helpful to anyone concerned. The virtues of self-regulation have been recognised by the present and past Governments in their relationship with and attitude towards intended European Union directives from Brussels.

If the panel's decision is no longer binding and final because somebody could seek--for meritorious or unmeritorious reasons--a different decision from the FSA, the virtues of speed and finality could be lost. If the authority, without any statutory power, were to leave things to the panel and reject claims of market abuse, the FSA could be subject to judicial review on the ground that it has improperly fettered its own discretion. The Bill gives the authority discretion. It does not have a statutory power to exercise a self-denying ordnance. The amendment would add a useful self-denying ordnance.

Even if the Government do not think that the drafting is precisely right, the amendment recognises the principle of trying to avoid a duality of authority and the risks of tactical litigation--which would put the clock back after many years in which governments and the courts have recognised the present system as useful.

11.30 p.m.

Lord Taverne: The letter that I assume we have all received from the Director-General of the Takeover Panel makes a persuasive case. The amendments seem to meet the problems set out in that letter--to which the noble Lord, Lord Borrie, referred. I hope that the Government will take account of them but I trust that the amendments as drafted are not the last word. It took me a long time to understand what was being said, for example, by Amendment No. 276F--which lacks the eloquence that is generally present in the Bill.

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