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Lord Newby: My Lords, I find this to be one of the most vexing issues raised by the Bill, because one starts out with a large degree of common ground, as the noble Lord, Lord Saatchi, has outlined. First, it is clear that any overlap between the panel and the FSA in relation to market abuse should be minimised. Secondly, it is common ground that the panel does extremely valuable work, and does it extremely well, and that nothing in the Bill should undermine that work in that the FSA should not seek to duplicate the work of the panel. Thirdly, it is common ground that if the panel system fails, the FSA's powers may well be needed. But at that point the common ground breaks down.
The amendments seek to deal with the problem by, first, extending the safe harbour provision in Clause 18 to behaviour conforming with the City code and, secondly, seeking to introduce a gatekeeper provision, so that where a person has not followed the City code the FSA cannot exercise its powers under the market abuse regime, except following a request by the panel.
Both amendments seek to avoid confusion, and both would, I suspect, largely achieve that objective. Unfortunately, I am not sure that both would produce the correct result. Of the two amendments, I am sympathetic to the first. It is difficult to see an argument for pursuing someone who has complied with the City code in the circumstance in which safe harbour provisions already exist in relation to the market code that is to be introduced under Clause 16. If there is a safe harbour for the market code, the argument for having a safe harbour for the City code is extremely strong.
The second amendment causes us more difficulty. We have had significant and long discussions with both the FSA and the Takeover Panel on the issue. The Takeover Panel's view in a nutshell is that without the amendment there would be delay and a loss of effectiveness of the regulation of market abuse. The FSA's view is that if the amendment is agreed to there will be delay and a loss of effectiveness in the regulation of market abuse. Faced with those two strongly held views, our principal concern is that if the amendment were to be carried it would debar the FSA from taking action in any case where it believed there
I am slightly concerned also about the way in which the Takeover Panel envisages the amendment operating. The first line of Amendment No. 157ZA contains the dread word "may". The amendment states that the authority "may adopt a policy". My understanding of the way in which the panel sees the amendment operating, were it to be carried, is that, before it came into effect and before the "may" became "shall" or "have to", there would need to be agreement on a policy statement as to how the two bodies would work together, a statement would need to be inserted into the market code, and operating arrangements would need to be agreed between the two bodies. Furthermore, if such a provision came into force, the FSA would have the right at some point to withdraw its agreement to the operation of the amendment. That is my understanding of how the panel sees the proposal working.
This seems to be a model. The best approach, as the noble Lord, Lord Saatchi, has said, would be for the FSA, the panel and the Treasury to produce a code of practice covering all these issues and in particular the circumstances in which the FSA might seek to intervene, and equally the circumstances in which the panel would take the lead and the FSA would not seek to intervene. In some senses that seems to be the approach that has been successfully followed by the Treasury, the Bank and the FSA in dealing with systemic risk: a policy document rather than a statement on the face of the Bill dealing with how the three bodies, all of which have a role to play in respect of systemic risk, will deal with circumstances which, in the area of mergers and takeovers, can require action to be taken very quickly. Were such an agreement to be drawn up, it would greatly reduce the likelihood and scope for judicial review, which is understandably a concern as matters stand.
Talks have been under way for some time to achieve such an agreement but they have yet to reach a positive outcome. My preference would be for the Treasury, in time-honoured fashion, to get a grip on all these matters and seek to achieve a quick agreement which would allay the fears of the panel without completely preventing the FSA from having any powers of initiative. The talks have been continuing, but, given what I have heard from the participants, without any great sense of urgency. It is the fact that there is no agreement in this area, when there has been agreement in such areas as systemic risk, which causes the problems with which we are now grappling. It would have been far preferable had such an agreement been reached by now, or if it could be reached by Third Reading. I suspect that that is wishing for the moon. However, I should welcome an assurance from the Minister that efforts to achieve an agreement will be intensified, with the Treasury taking a more proactive stance on this most vexatious matter.
Lord Forsyth of Drumlean: My Lords, I should remind the House that I have an interest in this area as a practitioner in mergers and acquisitions and as someone authorised by the FSA. All noble Lords will have seen the material circulated by the Takeover Panel. The panel is clearly concerned about these matters. I support my noble friend Lord Saatchi in these amendments because I believe that they deal with a serious issue.
I once saw a cartoon showing two Treasury officials standing outside their department in Whitehall--I hasten to add that it was while we were in government, but I am sure nothing has changed--and one was saying to the other, "Well, that's all very well in practice. What's wrong with it in theory?" I have the impression that one of those officials was responsible for drafting parts of the Bill. I give way to the Minister who I am sure is about to show his knowledge of philosophy.
The key element is that the proposed market abuse regime would undoubtedly undermine the Takeover Panel. What has driven this proposal is the idea of having to achieve consistency. Perhaps the Minister can say who came up with the other cliche that if it is not broken we should not try to fix it. The system as it operates at present is certainly not broken; it works extremely well, and in circumstances that are often complex and require action very quickly and sometimes in the early hours of the morning, such are the extraordinary ways in which takeovers and mergers are carried out.
If the Takeover Panel had got into difficulties or had failed, one could understand the reason for this move to destroy an effective system of self-regulation. The truth is that the panel is well-established--over 30 years--and is well respected. It has the experience, ability and technical knowledge to react quickly and decisively, and also the ability to apply its rules to accommodate changing market circumstances.
Although I declared an interest, I see that at the end of the day if there is any confusion in this area it is advisers, lawyers and others who will make substantial sums of money from the fees that will be generated in order to deal with the chaos that has been caused.
The real beneficiaries of an effective takeover panel and system of regulation are shareholders. The job of the Takeover Panel is to ensure that shareholders' interests are looked after, that they are treated equally and that there is an overall framework for the conduct of takeovers. It is extraordinary that in undermining the Takeover Panel and compromising the system of takeover regulation the proposed market abuse regime
In his opening remarks my noble friend referred to the opportunity for tactical manoeuvre if there is uncertainty in the regulatory regime. There are all kinds of very clever people in the City who earn substantial sums by exploiting precisely that opportunity. To create a statutory regime of this kind alongside the Takeover Panel will afford opportunities for judicial review and tactical delay, none of which will be in the interests of shareholders.
If the Minister is not now in a position to accept this amendment perhaps he will look at it again. In the context of takeovers it is essential to create a clear and legally secure boundary between the jurisdiction of the Takeover Panel and that of the FSA. I believe that that is in the interests not only of shareholders but the credibility of this Bill and the FSA itself. As my noble friend observed, the standing and reputation of the FSA, which are essential for the purpose of this Bill, will not be enhanced if it is drawn into controversial and protracted disputes involving complex takeover situations.
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