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Lord Kingsland: My Lords, I think that everyone would agree that cost benefit analysis has its weaknesses. However, I, for one, cannot understand how cost benefit analysis can be undermined by the publication of the methodology which was used in making that analysis. I can see only that that could enhance its quality. What possible objection can the Minister have for not publishing the methodology used to compile a particular cost benefit analysis? I am forced to the conclusion that the only motive the Minister can have is to disguise the quality of the evidence, whatever that evidence may be.

The Minister must accept that the money used to pay the authority comes from the City. It does not come from the taxpayer. The City is entitled to know whether that money is being used helpfully or otherwise. It is entitled to know whether the burdens it is required to bear as the result of what the authority is doing to it yield useful results. That can be done only if the methodology by which the FSA goes about its rule-making procedure is clearly understood. In my submission the Minister's response to the amendments is totally unacceptable. In those circumstances I wish to test the opinion of the House.

6.25 p.m.

On Question, Whether the said amendment (No. 157RA) shall be agreed to?

Their Lordships divided: Contents, 92; Not-Contents, 149.

Division No. 1


Allenby of Megiddo, V.
Anelay of St. Johns, B.
Astor, V.
Astor of Hever, L.
Attlee, E.
Beaumont of Whitley, L.
Blackwell, L.
Blaker, L.
Blatch, B.
Boardman, L.
Brabazon of Tara, L.
Bridgeman, V.
Burnham, L. [Teller]
Buscombe, B.
Byford, B.
Campbell of Alloway, L.
Campbell of Croy, L.
Carlisle of Bucklow, L.
Carnegy of Lour, B.
Clark of Kempston, L.
Colwyn, L.
Cope of Berkeley, L.
Courtown, E.
Cranborne, V.
Crickhowell, L.
Dean of Harptree, L.
Dixon-Smith, L.
Elton, L.
Flather, B.
Fookes, B.
Forsyth of Drumlean, L.
Fraser of Carmyllie, L.
Freeman, L.
Gardner of Parkes, B.
Geddes, L.
Glenarthur, L.
Glentoran, L.
Goschen, V.
Gray of Contin, L.
Harris of Peckham, L.
Henley, L. [Teller]
Higgins, L.
Home, E.
Howe, E.
Hunt of Wirral, L.
Jopling, L.
Kimball, L.
Kingsland, L.
Lamont of Lerwick, L.
Lane of Horsell, L.
Lucas, L.
McConnell, L.
Mackay of Ardbrecknish, L.
Marlesford, L.
Masham of Ilton, B.
Miller of Hendon, B.
Molyneaux of Killead, L.
Monro of Langholm, L.
Monson, L.
Mowbray and Stourton, L.
Moynihan, L.
Murton of Lindisfarne, L.
Naseby, L.
Northbrook, L.
Northesk, E.
Norton of Louth, L.
O'Cathain, B.
Onslow of Woking, L.
Park of Monmouth, B.
Patten, L.
Pearson of Rannoch, L.
Peel, E.
Pilkington of Oxenford, L.
Prior, L.
Reay, L.
Renton, L.
Rogan, L.
Rotherwick, L.
Saatchi, L.
St. John of Fawsley, L.
Seccombe, B.
Sharples, B.
Skelmersdale, L.
Stewartby, L.
Stodart of Leaston, L.
Strathclyde, L.
Taylor of Warwick, L.
Thomas of Gwydir, L.
Trefgarne, L.
Waddington, L.
Wakeham, L.
Young, B.


Acton, L.
Ahmed, L.
Alli, L.
Alton of Liverpool, L.
Amos, B.
Archer of Sandwell, L.
Ashley of Stoke, L.
Ashton of Upholland, B.
Avebury, L.
Bach, L.
Barnett, L.
Bassam of Brighton, L.
Berkeley, L.
Billingham, B.
Blackstone, B.
Blease, L.
Borrie, L.
Bragg, L.
Brett, L.
Brooke of Alverthorpe, L.
Brooks of Tremorfa, L.
Burlison, L.
Carter, L. [Teller]
Chandos, V.
Christopher, L.
Clarke of Hampstead, L.
Clement-Jones, L.
Cocks of Hartcliffe, L.
Cohen of Pimlico, B.
Colville of Culross, V.
Craig of Radley, L.
Crawley, B.
Currie of Marylebone, L.
Darcy de Knayth, B.
David, B.
Davies of Coity, L.
Dean of Thornton-le-Fylde, B.
Desai, L.
Dholakia, L.
Dormand of Easington, L.
Dubs, L.
Elder, L.
Evans of Parkside, L.
Falkland, V.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Fitt, L.
Gale, B.
Gavron, L.
Gilbert, L.
Gladwin of Clee, L.
Goldsmith, L.
Goodhart, L.
Gordon of Strathblane, L.
Goudie, B.
Gould of Potternewton, B.
Graham of Edmonton, L.
Grenfell, L.
Hardy of Wath, L.
Harris of Greenwich, L.
Harrison, L.
Hayman, B.
Hilton of Eggardon, B.
Hogg of Cumbernauld, L.
Hollick, L.
Hollis of Heigham, B.
Howells of St Davids, B.
Howie of Troon, L.
Hoyle, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L. (Lord Chancellor)
Islwyn, L.
Jay of Paddington, B. (Lord Privy Seal)
Kennedy of The Shaws, B.
Kirkhill, L.
Lea of Crondall, L.
Levy, L.
Lipsey, L.
Lofthouse of Pontefract, L.
Lovell-Davis, L.
Ludford, B.
Macdonald of Tradeston, L.
McIntosh of Haringey, L. [Teller]
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
Mackie of Benshie, L.
Mar and Kellie, E.
Mason of Barnsley, L.
Massey of Darwen, B.
Merlyn-Rees, L.
Molloy, L.
Morris of Castle Morris, L.
Morris of Manchester, L.
Newby, L.
Nicol, B.
Northfield, L.
Oakeshott of Seagrove Bay, L.
Palmer, L.
Patel, L.
Patel of Blackburn, L.
Pitkeathley, B.
Plant of Highfield, L.
Ponsonby of Shulbrede, L.
Prys-Davies, L.
Ramsay of Cartvale, B.
Rea, L.
Rendell of Babergh, B.
Richard, L.
Rodgers of Quarry Bank, L.
Rogers of Riverside, L.
Sainsbury of Turville, L.
Sawyer, L.
Scotland of Asthal, B.
Serota, B.
Sewel, L.
Sharman, L.
Sheppard of Liverpool, L.
Shore of Stepney, L.
Simon, V.
Smith of Clifton, L.
Smith of Gilmorehill, B.
Smith of Leigh, L.
Stoddart of Swindon, L.
Strabolgi, L.
Symons of Vernham Dean, B.
Taylor of Blackburn, L.
Thornton, B.
Tomlinson, L.
Tordoff, L.
Turner of Camden, B.
Uddin, B.
Varley, L.
Walker of Doncaster, L.
Wallace of Saltaire, L.
Walpole, L.
Warner, L.
Warwick of Undercliffe, B.
Watson of Richmond, L.
Wedderburn of Charlton, L.
Whitaker, B.
Whitty, L.
Wilkins, B.
Williams of Crosby, B.
Williams of Elvel, L.
Williams of Mostyn, L.
Woolmer of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.

9 May 2000 : Column 1426

6.35 p.m.

[Amendments Nos. 157SA and 157TA not moved.]

Clause 152 [General Supplementary Powers]:

[Amendment No. 157UA not moved.]

[Amendment No. 157VA not moved.]

Clause 153 [Guidance]:

[Amendments Nos. 157WA and 157XA not moved.]

Lord Saatchi moved Amendment No. 157YA:

    After Clause 154, insert the following new clause--


.--(1) Subject to subsections (2) and (3), the code issued under section 116 may state that behaviour of a person which is in conformity with the City Code does not amount to market abuse.
(2) Subsection (1) does not apply in respect of behaviour which satisfies the condition in section 115(2)(a).

9 May 2000 : Column 1427

(3) A statement made under subsection (1) may include such conditions and limitations as the Authority considers appropriate, including conditions and limitations concerning the categories of behaviour and classes of person covered by the statement.
(4) If a person behaves in a way which fulfils the requirements of any statement included pursuant to subsection (1) in the code issued under section 116, that behaviour of his is to be taken, for the purposes of this Act, as not amounting to market abuse.").

The noble Lord said: My Lords, I hope I will be forgiven if I detain your Lordships' House for a few minutes in order to give the background to this group of amendments. I do that because when we discussed similar amendments on the last day of the Committee stage it was very late at night--I think it was nearly midnight. I think it is fair to say that the amendments evoked some sympathy from noble Lords on all sides of the House. Therefore we want to visit them in a little more detail today. We brought forward two amendments in Committee. We are again bringing forward two amendments, but in a slightly modified form. I shall explain the modifications in a moment.

We said that we believe that the best way to safeguard effective take-over regulation in the City, while also enabling the FSA to administer the market abuse regime across all markets, was to amend the Bill in two ways. First, so that behaviour which complies with the take-over code would not constitute market abuse--that is, it would be what is called a "safe harbour"; and, secondly, in cases of non-compliance with the take-over code, the panel would have the ability to pass serious cases to the FSA. This would be based, we hoped, on criteria and parameters, which we believed could be pre-agreed between the panel and the FSA, in order that the FSA could 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 was the point of our second amendment. In other words, we were trying to say that the panel would be the initiator; it would be, if you like, the gatekeeper.

But at the time the Treasury stated that it did not want to create what it thought would be 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. The position then was that the Treasury stated that it did not want the FSA's powers to intervene in cases of market abuse, as it saw it, to be fettered in any way by the existence of the Takeover Panel. The reason the Treasury gave was that it believed that self-regulation had failed in the regulation of market abuse and needed to be replaced by statutory regulation. That was the point of the Government's objection to our two amendments.

I am pleased to say that since then there have been many discussions among all the parties--the Treasury, the Financial Services Authority and the Takeover Panel--but I am disappointed to report to your Lordships' House that, despite the best efforts of all the parties concerned, they have not been able to reach an agreement. Therefore, we are having to return to these points again. Although the three parties do not appear to have reached agreement on the way forward, apparently some things have been agreed between

9 May 2000 : Column 1428

them. What seems to have been agreed is that the panel system of regulation is acknowledged around the world as successful and effective. The Government's approach to the European 13th company law directive on takeovers--known as the takeover directive--makes clear that they share that view and do not wish to alter the current system.

It also seems to be agreed by the panel, the FSA and the Treasury that there is a significant overlap between the panel's regulation of takeovers and the FSA's responsibility for the new market abuse regime under the Bill. It is also agreed by the three parties that regulatory overlap is undesirable. The panel, the FSA and the Treasury are apparently also in agreement that the panel's regulation of takeovers should not be undermined and that the FSA apparently does not wish to be drawn into takeover regulation in parallel with the panel.

There, I am afraid, the points of agreement end and the points of disagreement begin. We understand that it is the panel's view that the Government's proposals in the Bill as it now stands will,

    "seriously undermine effective takeover regulation as they are likely to lead to delay and will cause damaging uncertainty".

The panel also states that:

    "They are also likely to lead to increased litigation".

With respect to the panel, it is agreed among all the parties that its reputation is excellent. Therefore, it is worth spending a moment looking at what the panel is saying in those quotations because they are serious and worrying charges.

It is certainly in no one's interest for one regulator to be critical of the regime of another regulator in this country if only because, human nature being what it is, the other regulator is likely then to return the compliment. That is surely not the path that we want to go down. Therefore, with the hope of bringing harmony where there is discord, if I may use a famous phrase, our new amendments have now been modified to reflect the debate in Committee and in the hope that they may in this form attract more government support.

First, our provision relating to the need for consultation by the FSA with the panel prior to any exercise of its powers which might impact on a bid has been removed. We have done that because the FSA has now offered to make a public statement which confirms that it will do just that. Secondly, a new subsection has been included in each clause to give the FSA an overriding power to impose limitations and conditions on the practice of the Takeover Panel's City code. We understand that it is desirable to give maximum flexibility to the FSA to carry out its remit. For example, if a bidder were to make a misleading statement which had an impact on the share prices of every company in the same sector as the target, the FSA should be free to take action against the bidder under the market abuse regime without the need for a request from the panel. Our proposal, which is that the FSA will have an ability to impose conditions or limitations on the conduct of the code, would allow the FSA to do that. Under these amendments, the FSA

9 May 2000 : Column 1429

will be able to bypass both provisions--the safe harbour provision and the gatekeeper provision--if it feels that it urgently has to do so. The key point is that in the real world the panel is making dozens of rulings every week on the application of the City code and it constantly gives informal guidance to those who seek advice on its code. Apparently, its decisions sometimes have to be made in a matter of minutes.

The Takeover Panel as presently constituted is able to do that because interpretation of the City code is not a matter of law. The City code is no more than a number of general principles which are expressed in broad terms and are what a "reasonable person" or, if your Lordships prefer, a "regular user" would regard as good standards of commercial behaviour. These are applied by the panel in accordance with their spirit--in other words, to achieve their underlying purpose--and the panel can relax or modify the effect of their precise wording accordingly. The panel looks to see that the spirit is observed as well as the letter and the panel can modify or relax a rule if it considers that in the particular circumstances of the case the rule would operate unduly harshly or in an unnecessarily restrictive or burdensome manner.

That is why we believe that our amendments are consistent with the definition of market abuse in the Bill which we have now settled after lengthy debate. We have agreed that conduct is not market abuse unless it is likely to be regarded by a regular user as a failure on the part of the person concerned to observe the standard of behaviour reasonably expected. That can be applied perfectly well to the current panel procedures which we wish to preserve precisely because it is unlikely that a regular user would regard a person who has complied with his City code responsibilities as having failed to observe this standard of behaviour.

Unless conduct which conforms with the City code has the scope to create a safe harbour, which is the thrust of our first amendment, there will be scope instead for tactical complaints to the FSA during takeover bids, tactical attempts to review the FSA's decision and tactical potential for delaying the bid process. Our amendments remove those possibilities. They also remove the need for the FSA to consider complaints made to it. They also remove the possibility that the FSA may actually and publicly have to disagree with the panel. We should not provide scope for disaffected parties in a bid to make tactical complaints to the FSA regarding the panel's decisions. If they could do that, the FSA would need to give sufficient consideration to those complaints to be able to demonstrate if challenged, as it might be, that it had approached with an open mind the question of whether or not it needed to exercise its powers. In any event, the whole process of the FSA considering these matters is likely to cause delay simply because the involvement of two regulators will inevitably be slower than one. Will the FSA be able to make its decisions in the kind of timescales to which the panel operates?

Perhaps I may give an example. Consider what would happen if we open up in the Bill, as would be the case without our amendments, the possibility for

9 May 2000 : Column 1430

tactical applications for judicial review of the FSA's decisions on the exercise of its enforcement powers in a hard-fought takeover battle. If the FSA does not exercise its powers, it may be reviewed on the basis that it has fettered its discretion. If it does exercise its powers, it may be reviewed on the basis that it has frustrated legitimate expectations. Either way, there is the potential for delay and confusion at a critical moment in the lives of corporations and individuals.

In conclusion, I hope that the Minister will either shortly accept the amendments or, better still, will announce that, as a result of his offices, agreement has been reached on a sensible modus operandi between the Financial Services Authority and the panel. I beg to move.

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