Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Kingsland: My Lords, that is an argument for improving my amendments, not for rejecting them. I shall leave the noble Lord to reflect on what he said. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 47B not moved.]

Clause 19 [Restrictions on financial promotion]:

Lord Kingsland moved Amendment No. 48:

The noble Lord said: My Lords, Clause 19 of the Bill sets out the fundamental financial promotion prohibition. As your Lordships are well aware, it applies to invitations or inducements to engage in investment activity. That expression is defined in subsection (8) in two different ways. Subsection (8)(a) provides that entering or offering to enter into agreements will be,

    "Engaging in investment activity",

if the making or performance of the agreement,

    "constitutes a controlled activity".

Subsection (8)(b) provides that exercising rights conferred by an investment is,

    "Engaging in investment activity",

if the rights are to,

    "acquire, dispose of, underwrite or convert an investment".

Subsection (9) provides that an activity is a "controlled activity" for the purposes of subsection (8)(a), and so is subject to the financial promotion regime, if it is an activity specified by the Treasury and relates to an investment specified by the Treasury. However, subsection (8)(b), which is supposed to cover the same ground, does not limit investments to those specified by the Treasury. Accordingly, the fundamental financial promotion prohibition in subsection (1) is currently much wider than intended.

Although subsection (8)(a), which spells out the main meaning of engaging in investment activity, is limited to investments specified by the Treasury--because subsection (9) applies to it--there is no such limitation on the second meaning of engaging in investment activity; namely,

18 Apr 2000 : Column 566

    "exercising any rights conferred by an investment to acquire, dispose of, underwrite or convert an investment".

These amendments are intended to limit the regime in relation to the exercise of investment rights. The new subsection (9A) requires the Treasury to specify again the same investments or classes of investment it has specified under subsection (9). Surely it is much simpler just to say that an investment is a controlled investment if it falls within subsection (9)(b). It will be far too complicated for the Treasury to specify different investments for the purposes of subsection (9) and for the purposes of new subsection (9A).

The amendment to "investment" in line 10 is probably misdirected. I refer to Amendment No. 51. Surely the financial promotion regime ought to extend to cover rights to acquire, dispose of, and so on, any investment and not just an investment which is itself subject to the financial promotion regime. Restricting the regime to where the investment which can be acquired, disposed of, and so on, is a controlled investment is therefore too limiting.

The other amendments seem to me to be wholly admirable. As the effect of specifying controlled investments is to limit the financial promotion regime, I think--dare I say it?--like the Government, that there is no need for the special parliamentary control provisions in paragraph 26 to apply. I beg to move.

Lord Elton: My Lords, I do not want in any way to cut across discussion of my noble friend's amendment but to leave a thought with the Minister to consider and perhaps discuss before the final stage. I do so because this is the last opportunity to suggest improvements for the final stage of the Bill. We have here a series of definitions and we have a series of definitions scattered throughout the Bill. In view of the great facilitation it would be to users of the Bill when it becomes an Act and is published, would it be possible to have an index in the Bill--there is precedent for this--of terms which are defined in the Bill? That would mean that where there is a different definition of the same term in different parts of the Bill, people using the Bill will not be led into confusion by thinking that the interpretation is the same in both parts.

I do not wish to promote a discussion of the merits of that idea, which I think are self-evident, but merely to leave it with the Minister so that perhaps we can return to it at Third Reading.

3.30 p.m.

Lord McIntosh of Haringey: My Lords, perhaps I may respond first to the helpful point made by the noble Lord, Lord Elton. There is indeed such an index in the Explanatory Notes which takes up several pages and indicates where in the Bill these definitions are to be found. However, that is not much help to the noble Lord as the clause numbers have changed considerably. It may be helpful, and it would not be difficult for us, if between now and Third Reading we

18 Apr 2000 : Column 567

were to circulate an updated list of definitions with reference to their location in the Bill, as amended on Report.

Lord Elton: My Lords, lapsing into the style of a Committee stage, publication in a separate explanatory document would not be the remedy for which I had hoped. What is needed is an index which will travel with the Act itself and should therefore be incorporated in it. Otherwise, the noble Lord got my middle stump!

Lord McIntosh of Haringey: My Lords, the definitions are in the Act. Where it is possible for a definition to apply to the whole Act, that definition is to be found in whichever clause it is that has changed. I do not have the number offhand, but it is there. The only reason why there are sometimes definitions in other places is that they only apply to parts of the Bill. That is the situation in regard to Clause 19. So it cannot be done by means of the index that the noble Lord wants on the face of the Bill. However, I undertake to see to it that when we return to these matters at Third Reading the noble Lord and other noble Lords who have taken part in the debates can have in front of them not merely the definitions as they appear in the Bill but also an index of where to find them. I appreciate the difficulty.

I am grateful to the noble Lord, Lord Kingsland, for his exposition of the government amendments. I was slightly taken aback that the noble Lord did not speak to his Amendment No. 48, as I had intended to be rather sympathetic to it--and probably still shall be. The difference between us on this amendment is narrowing.

Amendment No. 48 to Clause 19 seeks to delete "inducement" from the financial promotion restrictions and replace it with,

    "invitations to engage in investment activity or information which is intended or might reasonably be presumed to be intended to induce any person to do so".

I understand the concern that the Opposition have. It has been expressed at various stages throughout the Bill. I undertook in Committee to look at whether Clause 19(1) needs further clarification. As we have always said, it is implicit in the phrase "invitation or inducement" that only promotional communications will be targeted by Clause 19, and I believe that that is the intention of Amendment No. 48.

As things stand, in my view Clause 19 as drafted is the best way of tackling these issues. The word "inducement" should catch only communications of a promotional nature. However, we should appreciate the opportunity to confirm that that is so, and that that is the Opposition's intention. I issued half an invitation to talk to the noble Lord, Lord Kingsland, before Report stage. I should now like to issue a firmer invitation to meet the noble Lord to discuss the matter before Third Reading. My office will make arrangements for such a meeting if the noble Lord wishes. On that basis, I urge him to withdraw the amendment.

18 Apr 2000 : Column 568

Amendment No. 49 seeks to amend subsection (3) of Clause 19 so that subsection (1), which sets out the basic prohibition,

    "does not apply unless the communication is intended or might reasonably be presumed to be intended to be acted on by a person",

in the United Kingdom. That was also proposed in Committee. The Opposition were concerned that the clause is not sufficiently clear and that communication will be caught only if it is targeted or "directed at" a person in the United Kingdom. We believe that this issue is best dealt with in subordinate legislation and we have proposed something designed to achieve that in the draft order set out in the second consultation document on the subject of financial promotion; namely, cutting back on the "capable of having an effect" test in subsection (3). The reason why we believe it should be in secondary legislation is that we are presently in an intermediate stage between the home state regime and the host state regime and it is difficult to estimate the speed or in which direction it will go. It is not clear what "acted on" means. For example, if a communication is sent from abroad for onward transmission by an agent in the UK, is that a communication which is intended to be "acted on" by a person in the UK? If so, is onward transmission acted on in a sense that should be covered by the Bill?

Another intention behind the amendment may be the need to address the UK's Community obligations. In any event, I should like to say a few words about this for the record. Let me say quite categorically that the United Kingdom takes its obligations seriously. That is in respect both of our treaty obligations in general and any specific legislation such as the proposed e-commerce directive, in particular with regard to territorial jurisdiction and other requirements it might place on the UK's financial promotion regime. The UK is committed to ensuring that the financial promotion regime complies with all Community requirements.

Clause 19 was amended in Committee in order to clarify that the Treasury can adjust the scope of the Bill's financial promotion regime in order to take full account of international and technological developments. Under subsection (6) of Clause 19 as it now stands, an order made under subsection (5) may in particular provide that subsection (1) does not apply in relation to communications originating in specific countries or groups of countries such as EU member states. These provisions will enable us to comply with our obligations to give effect to requirements such as a home state regime for e-commerce transactions. In the meantime, the provisions will enable us to give effect to obligations which arise by virtue of general EU law under the treaty. In applying controls of the kind which will be imposed once the necessary subordinate legislation is in place, which will be before Clause 19 and the Bill as a whole are brought into force, we must ensure that any requirements we impose are not discriminatory, are objectively justifiable, are not disproportionate to the ends to be achieved and do not duplicate controls to which a person is subject in his

18 Apr 2000 : Column 569

home state. Given our intention to modify the scope of the prohibition using secondary legislation, I hope that the noble Lord will not press the amendment.

The amendment to Clause 23, also proposed in Committee, still puzzles us. We are still unclear as to why oral communications not amounting to an invitation to engage in investment activity should be given a special exemption from criminal liability when presumably oral communications which amount to both an invitation and an inducement would remain subject to Clause 23(1).

The Government remain concerned that the impact of this amendment would be to create a two-tier regime with regard to penalties for breach of Clause 19 whereby some communications which breach the prohibition are subject to criminal sanctions while others are exempt. The Government do not favour that. We see no reason to apply a softer touch to all oral communications, which can after all be just as misleading as other forms of communication.

The Government have already proposed that solicited real-time communications (including oral communications) which are not part of a co-ordinated promotional strategy should benefit from an exemption. However, we remain convinced that unsolicited real-time communications should be subject to restrictions.

In any event, it is in the interests of consumers that a uniform approach be taken on the face of the Bill. Debate on the draft Financial Promotions Exemptions Order is the appropriate place to discuss which real-time communications should be classified as exempt from the prohibition.

Perhaps I may say a word about the government amendments in this group. Amendments Nos. 50 to 53 and 54 to 56 are technical, tidying-up amendments to Clause 19. Under Clause 19(8), one meaning that is ascribed to "engaging in investment activity" is,

    "exercising any rights conferred by an investment to acquire, dispose of, underwrite or convert an investment".

Under Clause 19(13) "investment" is defined to include any "asset, right or interest". That represents the only limitation placed on what constitutes an investment. The amendments will serve to narrow the definition. The thrust of many of our amendments which we shall debate today are to limit the scope of the Bill and define it more closely; they are certainly not to extend its scope.

Amendments Nos. 50 and 51 seek to amend subsection (8)(b) so that engaging in investment activity is defined to mean,

    "exercising any rights conferred by a controlled investment to acquire, dispose of, underwrite or convert a controlled investment".

Amendment No. 52 seeks to introduce a new subsection (9A) to define a "controlled investment" as one that is specified in an order made by the Treasury or,

    "one which falls within a specified class of investment".

18 Apr 2000 : Column 570

One appreciates that that is not much of a definition unless one knows what the specification is to be, but this is another aspect of the flexibility which is required as financial markets change. Amendments Nos. 54 to 56 are consequential on those amendments.

Amendments Nos. 224 and 225 make consequential changes to Clause 41 which is concerned with the parliamentary control of statutory instruments. The amendments add to the list of statutory instruments which require an affirmative resolution procedure for the first orders to be made, or contain provisions made under Clause 19(9A), as well orders that add one or more investments to those which are controlled investments for the purposes of Clause 19. Amendment No. 223 also adds to this list orders which vary a previous order made under Clause 19(5) so as to make Clause 19(1) apply in circumstances where it did not apply as a result of a previous order. All these changes to Clause 418 have been approved by the Delegated Powers and Deregulation Committee.

Clause 19(9) provides that an activity is controlled for the purposes of financial promotion if it relates to an activity or investment that is specified in an order by the Treasury. Schedule 2 sets out the boundaries of what may be specified. Clause 19(10) provides that Schedule 2 applies for the purposes of subsection (9) and that references in Schedule 2 to Clause 20 should be read as references to Clause 19(9).

Parliamentary control of the secondary legislation is set out in Clause 418. Paragraph 26 of Schedule 2 also sets out parliamentary control of orders made under Clause 20. Therefore, by virtue of the provisions of Clause 19(10), paragraph 26 of Schedule 2 applies to Clause 19(9). The form of parliamentary control differs. Schedule 2 specifies that an order must be laid before Parliament after being made and that it comes into effect immediately but ceases to have effect if it is not approved by both Houses within 28 days. Clause 418 provides that a draft order is to be laid before Parliament which requires the approval of both Houses before it can come into effect. The reason for the difference is that orders under Clause 20 may need to be made urgently. Amendment No. 53 has the effect of bringing parliamentary control of Clause 19(9) unambiguously into Clause 418 by making it clear that paragraph 26 of Schedule 2 does not apply to Clause 19(9).

I hope that I have set out the reasons for the government amendments in this group. Although we are sympathetic to Amendment No. 48 and should like to discuss it further, we cannot accept the other amendments in the group.

Next Section Back to Table of Contents Lords Hansard Home Page