| Draft Financial Services and Markets Act 2000 (Financial Promotion) Order 2001
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Mr. Crispin Blunt (Reigate): I thank my hon. Friend for making the order clearer to us. I apologise for having arrived two minutes late; I was hoping to catch the Speaker's eye to be called to put a question to the Prime Minister about his statement following the Stockholm summit. The Minister's introductory remarks about the order left me none the wiser, and I have a serious point to raise about its availability. When I was appointed to serve on the Committee, my secretary attempted to find a copy of the order, as is her standard practice, but was unable to do so by this morning. I received notification of my appointment to the Committee as late as last Friday, and my office could not obtain the order until I began work in the Chamber this afternoon, at Question Time. I am not an expert in the matters under discussion. I direct members of the Committee to article 8 of the order, which states:
When we are dealing with matters of such complexity, it is important that those of us who, unlike my hon. Friend, are not experts, should receive more notice and have an opportunity to examine not only the order but the Act. I say to the Clerk who is servicing the Committee that it is not good that the Act relevant to the order is unavailable in the Room for members of the Committee. I draw attention to article 9, which states:
The Chairman: I am a little puzzled that the hon. Gentleman has not been able to obtain a copy of the order. It was delayed because the previous draft contained an error that had to be amended, and that is why consideration of it was postponed until this week, whereas the two orders with which it was originally linked were considered last week. My understanding is that it was available in the Vote Office from Thursday; certainly, I received my copy on Thursday night through the internal mail. I am a little puzzled, but I shall ask the Clerk to investigate why the hon. Gentleman was unable to obtain a copy.
5.2 pmMiss Melanie Johnson: Like you, Mr. Butterfill, I regret that the hon. Member for Reigate (Mr. Blunt) has been unable to consider the order at greater length. However, I defer to the decision that that matter be dealt with by the House authorities, as it is not in my hands. Mr. Blunt: Will the Minister tell us how long she thinks it would take a Member of Parliament who is not an expert in the matters contained in the order, given all the other demands on his time, to familiarise himself with the order and with the Act that preceded it, so that the Committee could scrutinise it properly? Miss Johnson: That entirely depends on the Member of Parliament, does it not, Mr. Butterfill? The revised order was laid on 16 March, some days ago. That is all I can say to help the hon. Gentleman. The hon. Member for Arundel and South Downs (Mr. Flight) raised several points. First, he talked about ``unsolicited real time communications''—otherwise known as cold calling. It is right, in general, to consider whether a different regime is needed for unsolicited real-time communications—in common parlance, cold calling. The current legislation distinguishes between that and other sorts of communication. Unsolicited real-time communications made to a recipient who is not in the UK by a promoter who does no UK business are exempt, even if the promotion is capable of having an effect in the UK—it may relate to a UK investment. However, when a promotion is made from outside the UK—even if it is not directed at the UK, but the promoter does business in the UK—issues of consumer protection arise. A complete exemption would allow UK firms, and firms that operate in the UK, to avoid UK regulation simply by promoting UK products from a branch in another country. That is not acceptable. Mr. Flight: The main security houses are self-evidently international. For example, the US firm of Goldman Sachs—the Chancellor's favourite—has a major office in London. It seems impractical that those managing money in its London office cannot have normal commercial dialogue with the those working in its New York office. I understand the motivation for that difference, but in practice it may cause distortions in the market. Miss Johnson: The hon. Gentleman accepts that we have reasons for doing this, and those reasons still stand, notwithstanding what he says in response. The hon. Gentleman asked about the exemption for outward promotion being combined with two other exemptions. It is important to distinguish between promotions made to another person—for example, by letter or telephone—and promotions directed at the world in general, such as on a website or in a newspaper advertisement. A letter sent to a person overseas will be exempt even if an identical letter containing the same promotion is also sent to people who benefit from any of the other exemptions in the order, because each letter is considered as a separate communication and the exemptions are applied to each letter in turn. It does not make sense to say that an advertisement in a newspaper or on a website is directed at only people outside the UK if people in the UK could benefit from the exemption. Combining that exemption with others, in connection with general advertisements, would undermine the purpose of the exemption. Nevertheless, we have allowed a clawback from that restriction for promotions to investment professionals and to companies with a high net worth; they are readily definable groups, and promotions to them will not undermine the underlying thrust of the outward promotion exemption. The hon. Member for Arundel and South Downs also asked about article 13 and corporate venturing. That provision is not intended to cover corporate venturing. That is made clear by the fact that article 13 is limited to one person only; it does not apply to groups. It is meant to cover application forms. The hon. Gentleman also asked about article 15, and why is applies only in real time. Non-real time communications almost certainly fall within the one-off exemption. That is the thinking that lies behind the provision. As for the conduct of business rules, it is important that the territorial provisions in the FSA rules should be in line with those in the order. Section 145 of the Financial Services and Markets Act 2000 makes it clear that rules made by the FSA can apply only to communications. Section 145(3) states:
(a) if made by a person other than an authorised person, without the approval of an authorised person, would contravene section 21(1)''.
As for the points about the ``mere conduit'' exemption in article 18, those who pass on promotions should exercise due diligence in ensuring either that the promotion is exempt or that it has been approved by an authorised person. Organisations such as the Post Office or Freeserve cannot be expected to exercise such due diligence with regard to the information that they transmit. However, that does not apply to companies that, while not exercising control over much of the data that they transmit, are not merely passive transmitters of it. It is appropriate to require such companies to exercise a degree of due diligence, or to restrict their promotions to those that fall within one or other of the exemptions. It is also important that only communicators with no control over the content of the communication should benefit from the ``mere conduit'' exemption. We agree that where a matter of law is involved, a communicator can modify the content. However, in the context of issues such as breach of confidence, a communicator with the ability to modify content to the relevant extent stops being a mere conduit. A clear distinction arises in this context between organisations such as the Post Office and other providers of data, such as Reuters. The hon. Gentleman asked about journalism. In connection with the changes to the order, the Government gave a clear commitment to consult further on the disclosure requirement. Following consultation with the Press Complaints Commission, we are satisfied that the new guidance on its code of practice—which was published on 19 March—adequately protects consumers from being misled. It was therefore considered appropriate to amend the order so that the disclosure requirement would not apply to publications subject to the code of practice. That had nothing to do with issues arising from the Human Rights Act 1998, which do not apply in the present context as some people have suggested. I tried to make it clear in my opening remarks that the disclosure exemptions were media-neutral, so all media, including broadcasters, were covered. Our commitment to further consultation on the disclosure requirement applies as much to bodies that regulate publications and broadcasts in other media as to the PCC. Discussions are already scheduled on that subject between Treasury officials and some of the other regulatory bodies. Issues were raised concerning financial promotion to high net worth individuals. We hope that the exemption will play a valuable role in helping with raising capital. However, only those who have chosen to be certified—not all high net worth investors—should receive the promotions. Therefore, we propose to retain the requirement that a third party should certify, and that such third parties should not be able to direct promotion at those to whom they have certified. Certification should be a prior condition for receiving a promotion. We do not intend that a person should be able to receive a promotion before obtaining a certificate, which I think was the subject of the hon. Gentleman's query. It is not appropriate to institute a ``reasonable belief'' test concerning the possession of a certificate. The benefit is that the would-be promoter does not have to look behind the certificate to check the assets or income of the person concerned, but can rely on the certificate that is produced. I do not accept that individuals would be reluctant to produce the certificate without knowing the nature of the investment. As for the point about journalists and stockbroker communications, the exemption has to relate to someone acting in the capacity of a journalist, writing in a publication whose principal purpose is not, broadly, trading in financial products. It may not be applicable to stockbroker communications. That depends on the context, and it is impossible to generalise. Finally, with respect to overseas communicators, which are dealt with in articles 30 and 31, there is a danger of regulation avoidance if people who are doing business here can be exempted simply by making the call or sending the communication from outside the UK. I hope that that answers the hon. Gentleman's queries, and I hope that the Committee will support the order.
5.14 pm
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| ©Parliamentary copyright 2001 | Prepared 26 March 2001 |
