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Lord Myners: The amendments in this group are technical and aim to clarify in the Bill the position of an "authorised person" or a "skilled person" with regard to certain information that would otherwise be subject to a contractual or other requirement to keep in confidence. The current crafting of new Section 139E(6) creates a gateway for other parties to provide confidential information relevant to the preparation of a recovery or resolution plan to an authorised person or a skilled person under specified circumstances. The amendment to new Section 139E makes clear that an authorised person may, for example, include such information in its recovery or resolution plan and submit it to the FSA without having to seek the consent of a third party.

The amendment to Schedule 2 addresses the same point, but relates to a skilled person appointed under Section 139E(2). A skilled person under the new provision is to be treated under Section 348 of the FSMA in the same way as a skilled person appointed to make a report under Section 166, and would accordingly be subject to restrictions on disclosure. A corresponding amendment will need to be made to the table in Part 1 of Schedule 1 to the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001 to provide the necessary gateway for the skilled person to disclose information to the FSA. I beg to move.

Baroness Noakes: My Lords, we shall not oppose the Minister's amendments, although we are always wary about statutes overriding the need to keep information confidential. That will have to be a debate for another day. We shall also not oppose Clause 12 standing part of the Bill because we agree with the principle that banks ought to prepare living wills. However, I should place on record our concerns about Clause 12, because we shall not have the opportunity to debate the several amendments that we had tabled.

We had been advised that this clause was not actually necessary to enable the work currently being undertaken under the auspices of the FSA's requirements for resolution and recovery plans. The sheer breadth of the new powers and the fact that they can be used by the FSA to go way beyond the large banks at which the clause is clearly aimed in the first instance has concerned other parts of the financial services industry. We are less than clear about the role of the Treasury in these new powers and we do not understand why the use of the powers is mandatory for all time. The Government normally pray in aid flexibility by using "may" for drafting requirements, but they have drafted these new powers in the "must" form.

The sunset clause proposed by the noble Baroness, Lady Valentine, in Amendment 336 applied also to Clause 12 and I regret that we shall not have the opportunity to include that in this Bill. This underlines the importance of the Government of the day, whoever they are, keeping the impact of this sweeping clause under review. What is right for today may not be right in a few years' time.

Lord Oakeshott of Seagrove Bay: My Lords, we on these Benches have no objections to the clause. However, following the remarks of the noble Baroness, Lady Noakes, perhaps I could ask the Minister, although

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the main provision here is for dealing with banks, what other institutions it is intended that the provisions should cover.

Lord Myners: My Lords, I am grateful to the noble Baroness, Lady Noakes, and to the noble Lord, Lord Oakeshott, for their comments. The noble Baroness questioned whether Clause 12 was necessary. I agree with the noble Baroness that the clause is drafted widely and should be used with care. It is the sort of clause that should be kept under review when it comes to implementation. However, there can be no doubt that the experiences and the pain of the past two years have shown us that we must ensure that financial institutions are structured in a manner that means that they can never again place such extraordinarily large calls on the taxpayer and society.

In answer to the noble Lord, Lord Oakeshott, there is no intention that these powers should be used more broadly than to regulate banks. However, in the early stages of the financial crisis, in late 2008 and early 2009, our concerns were not limited to banks. Other major financial institutions were beginning to excite concern and were the subject of regular meetings between myself, my officials and representatives of the FSA. That experience taught me that the powers proposed here would be a valuable addition to the regulatory responses available in order to protect the interests of savers, those with insurance policies and those with other forms of investment. It is with that in mind that the clause has been drafted.

Amendment 155 agreed.

Clause 12, as amended, agreed.

Clause 13 : Power of FSA to prohibit, or require disclosure of, short selling

Amendment 167A

Moved by Lord Myners

167A: Clause 13, page 14, line 25, at end insert-

"( ) The Authority must, when making short selling rules, have regard to any international agreement as to measures to be taken in respect of short selling."

Lord Myners: Amendment 167A will require the Financial Services Authority to have regard to any internationally agreed measure on short selling when making its own rules. Amendment 179A ensures that the supplementary powers in relation to the production of information and documents that are currently set out in Section 175 also apply where the FSA is seeking information under Section 131E. Amendment 180A is a consequential change extending the FSA's enforcement power. Amendment 181 proposes a limitation period of three rather than four years. I beg to move.

Baroness Noakes: My Lords, we welcome Amendment 167A, which deals with the need to have regard to international conformity. We had raised the issue in an amendment that we have now withdrawn.

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We have no problems with the other amendments in the group. I shall say no more today on the subject of short selling. However, many people will be watching carefully to see whether the FSA uses the powers in Clause 13 wisely and reasonably.

Amendment 167A agreed.

6.15 pm

Amendment 179A

Moved by Lord Myners

179A: Clause 13, page 16, line 32, at end insert-

"131EA Power to require information: supplementary

(1) If the Authority has power under section 131E to require a person to produce a document but it appears that the document is in the possession of a third person, that power may be exercised in relation to the third person.

(2) If a document is produced in response to a requirement imposed under section 131E, the Authority may-

(a) take copies of or extracts from the document; or

(b) require the person producing the document, or any relevant person, to provide an explanation of the document.

(3) In subsection (2)(b) "relevant person", in relation to a person who is required to produce a document, means a person who-

(a) has been or is or is proposed to be a director or controller of that person;

(b) has been or is an auditor of that person;

(c) has been or is an actuary, accountant or lawyer appointed or instructed by that person; or

(d) has been or is an employee of that person.

(4) If a person who is required under section 131E to produce a document fails to do so, the Authority may require the person to state, to the best of the person's knowledge and belief, where the document is.

(5) A lawyer may be required under section 131E to provide the name and address of the lawyer's client.

(6) A person ("P") may not be required under section 131E to disclose information or produce a document in respect of which P owes an obligation of confidence by virtue of carrying on the business of banking unless-

(a) P is the person under investigation or a member of that person's group;

(b) the person to whom the obligation of confidence is owed is the person under investigation or a member of that person's group; or

(c) the person to whom the obligation of confidence is owed consents to the disclosure or production.

(7) If a person claims a lien on a document, its production under section 131E does not affect the lien."

Amendment 179A agreed.

Amendment 180 had been withdrawn from the Marshalled List.

Amendments 180A and 181

Moved by Lord Myners

180A: Clause 13, page 16, line 38, at end insert "or 131EA"

181: Clause 13, page 17, line 6, leave out "four" and insert "three"



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Amendments 180A and 181 agreed.

Clause 13, as amended, agreed.

Clauses 14 and 15 agreed.

Clause 16 : Performance of controlled function without approval

Amendment 184A

Moved by Lord Myners

184A: Clause 16, page 20, line 5, after "that" insert "(a)"

Lord Myners: Clause 16 enables the regulator to impose a penalty on a person who is performing a controlled function without the necessary FSA approval. Amendments 184A, 184B and 186A change that drafting so that the FSA will be able to impose a penalty only where it is satisfied that the person concerned knew or could reasonably be expected to have known that they were performing a controlled function without approval. The noble Baroness, Lady Noakes, tabled similar amendments, for which I express my appreciation.

A limitation period applies to the FSA's enforcement action. Currently, the FSA must begin proceedings against an individual within two years. The Bill increases this limit to four years because the current two-year limit does not give the FSA enough time to investigate the most complex cases. In addition, cases against individuals are usually hard-fought, and the FSA suspects that individuals are often deliberately unco-operative as a delaying tactic to frustrate enforcement action. Individuals can therefore deliberately obstruct an investigation in order to run down the clock and evade disciplinary action. This is clearly wrong. However, I am also mindful of the concerns expressed in another place and by the noble Baroness, Lady Noakes, who tabled amendments to this part of the Bill. Amendments 194 and 204 reduce the proposed increase in the limitation period from four to three years. I believe that this strikes the right balance between providing the FSA with enough time to conduct a proper investigation and addressing the concerns of the Opposition Front Benches here and in the other place.

Amendments 200, 201 and 202 ensure that the FSA must have regard to a number of factors when determining both the level of a fine and whether it should be imposed in the first place on an individual who has performed a controlled function without approval. The Bill states that the FSA's policy on penalties must require it to have regard to the conduct of the individual and the length of time during which they performed a controlled function without approval. Amendments 200, 201 and 202 would ensure that the FSA's policy would have regard to two additional factors when determining whether to impose a fine, and the level of that fine: first, the extent to which the individual could reasonably have been expected to know that they were performing a controlled function without approval; and secondly, whether it is appropriate to take enforcement action against the individual as opposed to, or in addition to, the firm. The amendments also require the FSA to set out the sorts of circumstances in which it would reasonably expect an individual to know that they were performing a controlled function. This provides a comprehensive set of safeguards. I beg to move.



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Baroness Noakes: My Lords, Clause 16 is not without difficulty. I regret the fact that the wash-up process has prevented us from debating the need for additional disciplinary powers in Clauses 14 to 17. That aside, we welcome Amendments 184A and 184B, which deal with the burden of proof in the use of the unusual new power in Clause 16 to go after people who perform controlled functions without approval. The Minister referred to the amendments that we tabled, but I believe that his amendments are somewhat better. We similarly welcome Amendments 201 and 202 as providing further protection to people caught up unwittingly in Clause 16.

Amendment 194, as the Minister explained, reduces the limitation period from four years to three years. We regard this as a move in the right direction, but of course it does not go as far as our own amendment. That would have reduced the period to two years, which we continue to believe is more reasonable. We have a similar view on Amendment 204 in relation to Section 66, but this is half-loaf time and so these amendments get a half-welcome.

Lastly, we welcome Amendment 205, which enables the publication of details of decision notices. It does not go as far as the amendment that we had tabled; none the less, it is welcome on consumer protection grounds.

Lord Oakeshott of Seagrove Bay: I can give the amendments a warmer welcome than that and say that they seem sensible to us. The idea of committing a crime without realising that you are being a criminal is obviously very difficult. It is sensible that that is recognised in these amendments and we support them.

Baroness Valentine: I speak to Amendment 186. As I set out in respect of Amendment 336, I believe that a time limit on this clause would be beneficial, given the unique environment in which this legislation is being drafted.

Lord Hodgson of Astley Abbotts: I seek information from the Minister. One issue that has concerned some people in the City is where a statement of case is made against someone but is not then proceeded with particularly quickly by the FSA, which sometimes quotes a shortage of resources in relation to carrying out the investigation. Although I understand and appreciate that trying to run down the clock, as the Minister put it, to evade the consequences of justice is wrong, there is also, on the grounds of equality of arms, a requirement for the FSA to proceed reasonably and ensure that the case is heard quickly. The person under investigation is in a state of suspended animation, with his or her career being damaged. Does the Bill provide a requirement for the FSA to proceed with due haste?

Lord Myners: My Lords, first, I thank the noble Baroness. Even a half-welcome is warmly appreciated from these Benches. I express with sincerity our appreciation to the noble Baroness and her colleagues for their help in drafting and developing our thinking in respect of these clauses.



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I note the contribution from the noble Baroness, Lady Valentine, to which I think I spoke earlier regarding our belief that these powers are not just for the moment but are there always to help us to address the need to avoid future risk. I appreciate the supportive comments of the noble Lord, Lord Oakeshott.

The question of how long is required is interesting. I have no difficulty at all in expressing my personal agreement with the views aired by the noble Lord, Lord Hodgson, on the damage that can be done by unnecessarily delaying the process. Having discussed this matter with the FSA, I can say that it has an interest in moving as expeditiously as possible, as the quality of evidence can sometimes deteriorate with time and the ability to call witnesses and so on can be affected by delay. Therefore, I think that there is a symmetry of interest here between the wish of the FSA to promote an action as expeditiously as possible and the need to avoid someone being exposed to unnecessary, and possibly in due course unjustified, anxiety as a result of FSA action. On that basis, I hope that noble Lords will join me in supporting these amendments.

Amendment 184A agreed.

Amendment 184B

Moved by Lord Myners

184B: Clause 16, page 20, line 6, after "approval," insert "and

(b) at that time P knew, or could reasonably be expected to have known, that P was performing a controlled function without approval,"

Amendment 184B agreed.

Amendment 185 had been withdrawn from the Marshalled List.

Amendment 186 not moved.

Amendment 186A

Moved by Lord Myners

186A: Clause 16, page 20, leave out lines 8 to 14

Amendment 186A agreed.

Amendments 187 to 193 had been withdrawn from the Marshalled List.

Amendment 194

Moved by Lord Myners

194: Clause 16, page 20, line 25, leave out "four" and insert "three"

Amendment 194 agreed.

Amendments 195 to 199 had been withdrawn from the Marshalled List.



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Amendments 200 to 202

Moved by Lord Myners

200: Clause 16, page 21, line 6, after "determining" insert "whether a penalty should be imposed and"

201: Clause 16, page 21, line 9, at end insert-

"(ab) the extent to which the person could reasonably be expected to have known that a controlled function was performed without approval;"

202: Clause 16, page 21, line 13, at end insert-

"(2A) The Authority's policy in determining whether a penalty should be imposed on a person must also include having regard to the appropriateness of taking action against the person instead of, or in addition to, taking action against an authorised person.

(2B) A statement issued under this section must include an indication of the circumstances in which the Authority would expect to be satisfied that a person could reasonably be expected to have known that the person was performing a controlled function without approval."

Amendments 200 to 202 agreed.

Clause 16, as amended, agreed.

Clause 17 : Approved persons guilty of misconduct

Amendment 203 had been withdrawn from the Marshalled List.

Amendment 204

Moved by Lord Myners

204: Clause 17, page 22, line 31, leave out ""four" and insert ""three"

Amendment 204 agreed.

Clause 17, as amended, agreed.

Amendment 205

Moved by Lord Myners

205: After Clause 17, insert the following new Clause-

"Publication of decision notices

(1) Section 391 of the Financial Services and Markets Act 2000 (publication) is amended as follows.

(2) In subsection (1) (which prevents the FSA and the person to whom a warning or decision notice is given or copied from publishing the notice or any details concerning it), omit "or decision notice".

(3) After that subsection insert-

"(1A) A person to whom a decision notice is given or copied may not publish the notice or any details concerning it unless the Authority has published the notice or those details."

(4) In subsection (4) (duty of FSA to publish information about a final notice), before "final notice" insert "decision notice or"."

Amendment 205 agreed.

Amendments 206 to 284 had been withdrawn from the Marshalled List.


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