Financial Services (Banking Reform) Bill

Debate between Lord Newby and Lord Mackay of Drumadoon

Tuesday 26th November 2013 Lords Chamber

[Lord Newby]

My Lords, I understand the concern of the noble and learned Lord and that of the Law Society about the position of lawyers under the new regime, and I hope very much to be able to reassure him.

Amendment 27 would amend Clause 15, which inserts new Section 59ZA into FiSMA, which provides the definition of a senior management function. A person becomes a senior manager only if they perform a function which has been designated by a regulator as a senior management function and have been approved to perform that function by the appropriate regulator on the application of the authorised person; that is, the firm concerned. A senior management function is one that will,

“require the person performing it to be responsible for managing one or more aspects of the authorised person’s affairs”,

and that,

“those aspects involve, or might involve, a risk of serious consequences—

(i) for the authorised person, or

(ii) for business or other interests in the United Kingdom”.

It is therefore highly unlikely that the regulators would designate being a legal adviser as a senior management function simply because giving advice does not constitute management as set out in the definition of senior management.

Clause 22 inserts new Section 64A into FiSMA, which allows the regulators to make rules of conduct for approved persons, including senior managers, and for bank employees. This implements the Parliamentary Commission on Banking Standards recommendation regarding the introduction of a “licensing regime”. This broadens the population who can be subject to the regulators’ rules, which could for example now apply to an in-house legal adviser in the capacity of an employee. In addition, the regulators already have a broad power to require firms to provide information, as set out in Section 165 of FiSMA. However, the regulators cannot make rules which would trump the protection of legal privilege. Section 413 of FiSMA provides expressly that no power under the Act can be used to require the disclosure of “protected items”. These are defined in terms which are materially identical to the definition of items subject to legal professional privilege in Section 10 of the Police and Criminal Evidence Act 1984. Consequently, FiSMA already prevents the regulator from obtaining legally privileged material.

The noble and learned Lord’s amendment would also introduce a protection against the disclosure to the regulator of “excluded materials” as defined in Section 11 of the Police and Criminal Evidence Act 1984. This includes personal records generated in the course of business and held in confidence, human tissue and journalistic material held in confidence. Clearly, the regulators would not request some of the categories of material included in this section. However, in relation to confidential information such as that compiled during the course of business, it might be appropriate, and indeed sometimes essential, for the regulators to receive it. However, FiSMA itself provides strong protection for confidential information received by the regulators when carrying out their regulatory functions. Section 348 of FiSMA prevents any such information being disclosed to a third party except for very narrow purposes. Further, where any such information constitutes personal data, it would be subject to the Data Protection Act.

The noble and learned Lord asked whether Section 413 of FiSMA covers communications as well as documents. I can give him that assurance. The section is not limited to documents, so regulators cannot require the disclosure of privileged communications. With those reassurances, I hope that the noble and learned Lord will feel able to withdraw his amendment.

[Lord Mackay of Drumadoon]

My Lords, I am grateful to the Minister for giving a very clear and detailed explanation of the Government’s position in regard to these very complicated statutory provisions. I always think that when you start running out of enough section numbers so that you have to add letters to them, it makes the construction of the contents of those sections much more complicated than it might otherwise be. For these reasons, I beg leave to withdraw the amendment.