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Lord Howie of Troon: My Lords, that was when I gave in.
Lord Walton of Detchant: In any event, my Lords, I am very grateful for the noble Lord's support and I appreciate the points that he made. He made a number of comments about spiritual healing, which was one of the disciplines about which we had some difficulties and anxieties. The same applied, to some extent, to homoeopathy, although it has been practised in the National Health Service for many years. Some of the scientists who gave us evidence said that they could not understand how a remedy that did not contain a single molecule of active substance could work, yet the noble Lord, Lord Soulsby, and his colleagues were able to produce some evidence that homoeopathic remedies worked in the animal kingdom, where it was difficult to see that the placebo effect could be active.
Those are some of the problems that we faced. Throughout, we were aware of the words of the Bard:
- "There are more things in heaven and earth, Horatio,
Some of what we learned was not easily subject to scientific explanation, but nevertheless required further validation and investigation. We were concerned to find no fewer than 12 UK organisations purporting to support healing and spiritual healing. We had no concrete evidence, although we learned of certain trials that had failed to demonstrate any effect. We wished to give warm support to regulation and further investigation in that area.
We are grateful to the noble Lord, Lord Clement-Jones, for the welcome that he gave on behalf of his colleagues to the report. He is right that there has been a sea change in attitude on the part of the medical profession towards complementary and alternative medicine. The situation now is quite different from what the British Medical Journal published 20 years ago.
The noble Lord, Lord McColl, rightly told us that the evidence base of some conventional medicine--indeed, much of it--is still weak. He gave us a number of important examples. He stressed, as we did, the role of the GP gatekeeper as regards access to complementary and alternative medicine in the NHS. We were certain of the crucial importance of that. As a surgeon, the noble Lord knows that millions of dollars have sometimes been spent on research into various aspects of conventional medicine. He will remember that millions of dollars were spent on trying to discover whether, after a stroke, an intracranial-extracranial bypass made any difference. Many surgeons believed that it did, but after five years of investigation it was shown that that procedure, which is no longer performed, was ineffective. Those lessons from conventional medicine need to be taken on board as the whole field of complementary medicine is studied.
Finally, I am grateful to the noble Lord, Lord Burlison, for pointing out one important aspect of our report that I did not stress before. Herbal medicine needs closer regulation. We recommend that it should become regulated under the Health Act. The Government have confirmed that. The important point is that herbal remedies can never achieve the same standard of safety and regulation as is necessary in standard pharmacology, but under the European directive they require much closer and more effective regulation than exists at present. We are glad that the Government have confirmed that view.
I do not propose to speak any longer except to say that it has been a privilege to have chaired the inquiry and I am grateful for the warm response given by the House and for the kind things that my colleagues have said. We are particularly grateful to the Government for their positive response to our recommendations.
On Question, Motion agreed to.
Financial Services and Markets Act 2000 (Financial Promotion) Order 2001
9.49 p.m.
Lord McIntosh of Haringey rose to move, That the draft order laid before the House on 16th March be approved [11th Report from the Joint Committee].
The noble Lord said: My Lords, I shall explain the purpose of the order, mention some of its key features and draw the attention of the House to some of the key exemptions. In my view, the provisions of the order are compatible with the convention rights within the meaning of the Human Rights Act 1998.
Section 21 of the Financial Services and Markets Act restricts the promotion of financial services unless they are made or approved by an FSA-authorised person. The order defines which financial services are to be subject to that restriction. That is in Schedule 1 to the order.
The order also defines the circumstances in which promotions are exempt from the restriction. There are 60 different exemptions, in some cases applying to the person making the promotion--for example, a passive communicator of data such as the Post Office--and in others to promotions made to certain persons, such as investment professionals. Whether, and to what extent, many of the exemptions apply depends on whether the promotion has been sought by its recipient; in the language of the order, that depends on whether it is solicited or unsolicited. The immediacy of the promotion--again, in the language of the order--depends on whether it is in real time or non-real time.
First, the order consolidates existing restrictions on financial promotion. There is a single restriction on financial promotion under the Act, and a single set of exemptions under the order. Secondly, the order reflects the pace of legislative and technological development. It focuses on the content of a
communication rather than on the medium through which it is made. That means that it will not become outdated as new methods of communication are used to promote financial services. As secondary legislation, the order can be updated relatively easily. However, noble Lords should be clear about the fact that any proposal to extend the financial promotion restriction in circumstances in which it did not previously apply will require a statutory instrument subject to the affirmative resolution procedure. Unlike some of the legislation that it replaces, all the boundaries of the financial promotion restriction will be set by Treasury Ministers, who are accountable to Parliament, rather than by the regulator. Thirdly, the order maintains, broadly speaking, the scope of the existing financial promotion regimes.Let me turn now to two of the key exemptions under the order. The first of these is our proposed exemption for journalists. That has been the subject of much comment. Let me take this opportunity to consider a couple of its aspects. First, it is, as I have just said, an exemption. What we have done is to exempt promotions by journalists precisely because we do not think that it is the role of financial services legislation to regulate responsible financial journalism. As the beneficiaries of an exemption, journalists will not be subject to the financial promotion restriction. That point has often been lost.
Particular attention has been paid to a condition that we have set for the exemption to apply; namely, that, if a journalist promotes a share in which he or she has an interest, that interest is required to be declared. It is a condition for the exemption to apply. It is not in any way a control on what journalists write. Nor will the condition even impinge on a journalist when he merely writes about a company, even if he has shares in that company. The condition will need to be met only if a journalist makes a promotion; that is, an invitation or inducement to engage in investment activity and he or she is likely to--not just "may"--benefit financially.
The Government's objective in introducing the condition for disclosure of interest by journalists was to ensure that consumers were not misled by promotions by a journalist of shares in which the journalist has an interest. That objective remains. We have also made it clear that we will consult further on how that objective can be achieved; there are other ways of achieving it in addition to the disclosure condition that is in the order. In particular, following consultation with the Press Complaints Commission, the Government are satisfied that new guidance on the PCC's code of practice, which was published on 19th March, will adequately protect consumers from being misled. The order now reflects that view. Having spoken to the noble Lord, Lord Wakeham, earlier this evening, I can confirm that that is the PCC's view. It also disapplies the condition for any publication that has systems and procedures in place to prevent promotions without a disclosure of interest. I should make clear that, in light of our commitment to further
consultation, we welcome discussion with other relevant regulatory, or self-regulatory, bodies on that issue. Indeed, discussions have already started.We have made some important exemptions affecting the territorial scope of the financial promotion restriction. We seek a regulatory framework that does not put in place unnecessary or over-burdensome barriers to cross-border financial promotions. In the EU context, that means a "home state" regime, regulation by the UK of promotions from the UK to overseas but no additional restrictions on promotions from other members states to the UK.
The Government have listened to a large number of representations that moving now to a system of home state regulation, in the absence of moves to do so elsewhere, would be over-burdensome in imposing dual regulation on UK firms. We have therefore provided an exemption for most promotions from the UK to overseas. However, I should make it clear that our commitment to a home state regime remains. We will seek this House's approval of legislation to implement a home state regime as and when that is developed. In particular, we will as necessary seek approval to amend this order to implement the forthcoming e-commerce directive before it comes into force next year.
We will also impose a home state regime if it is clear that that is required for reasons of consumer protection. We would if necessary seek approval to amend this order to require all promotions to a certain country or of a certain type to be approved by an authorised person.
As I said at the outset, there are 60 exemptions to the financial promotion restriction. I do not want to try the patience of the House by describing all of them. I have restricted detailed comments to how we have proceeded in respect of journalists and on territorial scope and I hope that is acceptable to the House. I commend the order to the House.
Moved, that the draft order laid before the House on 16th March be approved [11th Report from the Joint Committee.]--(Lord McIntosh of Haringey.)
10 p.m.
Lord Hodgson of Astley Abbotts: My Lords, I thank the Minister for his explanation of what is a complex and far-reaching order. I begin by declaring an interest. I am a director of the Securities and Futures Authority, one of the self-regulatory authorities that is going to be swept up in the new Financial Services Authority. My term of office ends on 31st March--two days from now--but as of this moment I remain a director.
I have a couple of specific points on which I should like the Minister's clarification. However, in view of the volume of statutory instruments, and particularly the length and complexity of this one relating to the Financial Services and Markets Act, perhaps I may seek his view on just one brief general point.
The regulatory objectives of the Act are set out in Section 2(2) as being, inter alia, the establishment of market confidence and the protection of consumers--both worthwhile objectives. But it lays on the authority a number of other requirements, notably in Section 2(3)(d):
- "The desirability of facilitating innovation in connection with regulated activities",
- "the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom".
This statutory instrument alone is 74 pages long and we must constantly think how we are reconciling those sets of objectives. I tabled a Question today to the Minister asking him how many statutory instruments we will need to pass through before N2 comes about in October and how far we are through that process.
The volume of legislation now hitting financial services is very great. By and large, I am not concerned about big firms; they can look after themselves. If necessary, they will just decamp and leave London. But I am concerned about small firms; and for a small firm to try to pick the bones out of this legislation, let alone the many other instruments coming through, is a grave task indeed. Smaller firms have been the City's lifeblood. They are the ones which often provide new approaches and new services and, as such, they nip competitively at the heels of their larger, lumbering brethren.
But for the most part regulators do not like smaller firms; they represent risk. Above all, they represent risk to the regulator's career when things go wrong. It is much easier to deal with fewer and larger firms which can be more easily regulated. The general view of regulators is to put up a high barrier and have a bias to say "no". If that means that small firms are put out of business, are not formed, or do not begin, so much the better.
Against the background of this instrument, which is complicated and difficult to understand, and the volume of others coming through, I take the opportunity to urge the Minister to keep the issue of preserving London's competitive, innovative edge, as required by the Act, at the forefront of his mind as the flood of statutory instruments continues and, where possible, to restrict, reduce and eliminate them. I hope that during the course of the next few months the Minister will not mind if I remind him of that from time to time.
I turn to the specific statutory instrument before us. I want to ask the Minister about the cold-calling provisions. Cold-calling is the uninvited or unsolicited attempt to sell securities to individuals. It is a pernicious practice which can permit the greedy and predatory to prey on the innocent and unsophisticated. I am pleased to see that the statutory instrument contains the concept of the certified high net worth individual. That is a welcome flexibility which allows people who know what they are doing in the securities markets to be approached with plenty of opportunities.
I turn to the non-expert individual and refer to article 6(a), which relates to approaching individuals. The market practice tends to operate in the following way. An individual salesman will call a non-expert and invite that person, not to buy securities or any financial instrument, but merely to meet the salesman for a cup of coffee to discuss his financial affairs. The salesman will take the initiative that the meeting never takes place in the individual's house; he will ensure that the individual is asked to come somewhere, so he has made the effort to travel. It is only then, when the individual has made that move that any transactions are entered into or attempts to sell are engaged in. That practice is not dissimilar to some of the pernicious ways in which timeshares were sold.
It is difficult to understand whether invitation or inducement to engage in investment activity in article 6(a) covers cases of that nature. Would it cover the case where a neutral telephone call is made, as a result of which an individual goes to meet a salesman for a cup of coffee and activities selling financial services follow? If not, there is a potential major hole in the statutory instrument.
I refer the Minister to Article 36(b), which relates to activities conducted in other states within the European Community. This relates to telephone calls into the United Kingdom under the host state regulation, to which the Minister referred in his opening remarks. Some of the worst problems of cold-calling in the UK markets have occurred from boilerhouses established in Amsterdam, in which there are batteries of telephones with salesmen operating on innocent people in the United Kingdom. Those have now largely been closed down. However, they have moved elsewhere. There is evidence of similar operations in Athens. I am not clear whether under the host state regulation we shall be able effectively to protect unsophisticated UK investors from practices of that nature coming from within another member state of the European Union.
Finally, I turn to Article 62 which deals with the operation of a lighter regulatory regime on the sale of a company with a small number of shareholders. Article 62(3)(c) refers to the lighter regulatory regime being available where the shareholders include a group of connected individuals. That is defined in Article 62 (4)(a)(i) as including a director or manager of a body corporate. I want to know of the Minister why that definition does not include the word "employee", too. It would then read,
- "a director, manager or employee of a body corporate".
I am sorry to have spoken at length and in such detail. I understand that the Minister may want to write to me subsequently because I have raised detailed questions. However, they are important matters for the City of London, for the firms which work there, and, last but not least, for the investors and the clients who use those services.
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