§ '(1) The Secretary of State shall keep a register of individuals who appear to him to be employed or proposing to become employed in connection with buying, selling or advising on:—
- (a) rights under contracts of insurance falling within paragraph 10 of Schedule 1: and
- (b) units in collective investment schemes.
§ (2) An application for entry on the register shall contain or be accompanied by such information as the Secretary of State may reasonably require for the purposes of determining whether to make a direction in respect of the applicant under section 54 of this Act, and such information shall, if the Secretary of State so requires, be in such form or verified in such manner as he may specify.
§ (3) An entry in respect of a person in the register under this section shall include particulars of any direction made by the Secretary of State in respect of that person under section 54 of this Act and of any consent for that person's employment given by the Secretary of State./
§ (4) The Secretary of State may make regulations requiring authorised persons to give him forthwith notice of such events in relation to individuals employed by them as mentioned in subsection (1) as are specified in the regulations and such information in respect of those events as is so specified.
§ (5) The Secretary of State may make regulations requiring authorised persons to furnish him at such times or in respect of such periods as arc specified in the regulations with such information in relation to individuals employed by them as mentioned in subsection (1) as is so specified.
§ (6) Regulations under this section may require information to be given in a specified form and to be verified in a specified manner.
§ (7) The information contained in the entries included in the register kept under this section shall be open to inspection and the Secretary of State may publish the information contained in those entries in any form he thinks appropriate and may offer copies of any such information for sale.
§ (8) The register kept by the Secretary of State under section 89(1)(e) of this Act need not include entries in respect of persons included in the register kept under this section unless the direction under section 54 (by virtue of which section 89(1) (e) applies) relates to or includes a kind of investment business other than that mentioned in subsection (1).
§ (9)It shall be the duty of an authorised person and an exempt representative to take reasonable care not to employ 531 or continue to employ as mentioned in subsection (1) above any individual in respect of whom there is no entry in the register kept under this section.
§ (10) In this section references to employment include references to employment otherwise than under a contract of service, and references to buying and selling are to be construed in accordance with paragraph 23 of Schedule 1.'. —[Sir William Clark.]
§ Brought up, and read the First time.5.15 pm
§ Sir William Clark (Croydon, South)
I beg to move, That the clause be read a Second time.
This new clause seeks to establish a comprehensive register of all those employed or proposing to become employed in selling or advising on life assurance or collective investment schemes such as unit trusts. If we have a central register and if it became necessary to take from someone the authorisation to do those things, it would he extremely easy. Companies that advise on investment matters, such as insurance companies, building societies and the like, would themselves keep registers of those employees who were allowed to give advice to the general public. It is said that a central register would be exorbitantly costly, but I am not sure that I accept that point. Obviously, there would be no cost to the taxpayer because there would be a registration fee to cover the administrative costs and that fee would be paid by the applicable investment organisation.
Clause 4(9) is the main part of the new clause and its powers parallel clause 54 in the Bill. A person who has given bad advice will be taken to task by his or her employer. The employer may decide that that person is no longer capable or competent to give advice. However, that prohibition would apply only in that company or organisation. If the person left the company and was employed somewhere else, he could start giving advice again. Companies are worried about that, because it may put employers in an impossible position. That is because employers would probably treat similar cases in different ways. One employer may tell his employee not to make the same mistake again. Obviously, an insurance company or building society would take upon itself the responsibility for the bad advice or the misadvice that had been given, whether wittingly or unwittingly.
How many misdemeanours have to be committed before authorisation is removed from an organisation? I am sure my hon. and learned Friend the Minister has addressed his mind to that because it seems ridiculous to penalise a company when it is an individual who is at fault. Somehow, there must be a blacklist. How does one compile a blacklist if there is not some sort of central register?
§ Mr. Paddy Ashdown (Yeovil)
I am listening carefully to the hon. Member's argument. I am not clear whether he is proposing a requirement for entry to the register. Will it be an objective test of competence, or does he propose that entry to the register is purely on the gift of the company or, indeed, of the Secretary of State? I should like the hon. Gentleman to expand on how one is placed on the register and what it means in terms of competence. Will there be an objective standard by which entries will be judged?
§ Sir William Clark
Of course there will be some test of competence. I am sure the hon. Member for Yeovil (Mr. Ashdown) appreciates that Back Benchers do not have the 532 facilities of parliamentary draftsmen, and for that reason it is possible that there is some ambiguity in the new clause. I am speaking about the spirit of the new clause. I realise, and I am sure my hon. and learned Friend the Minister realises, that the Marketing of Investments Board Organising Committee advocated a central register. I also realise that the National Consumer Council is against the new clause, but that council is against it for the wrong reasons. It thinks that a central register would give credence to anybody on that register. However, if there is a test of competence for entrants to the register, there is no difficulty.
The Building Societies Association is against a register. The British Insurance Association agrees with it but has some reservations about the test of competence. I declare an interest because I am a consultant to the Life Insurance Association. It has 12,000 members working on the ground and is avidly in favour of the new clause and some sort of registration so that a blacklist can be identified immediately.
If one can believe the leaks in the press over the past few days I am certain that at the top of the Minister's reply notes there is the word "Resist." If he resists, I should like him to give me the assurance that it is the Government's opinion that the Bill, as drafted, will be sufficient to protect the general public from blacklisted investment advisers and that immediately such persons would not be able to give advice anywhere. If he is certain that the Bill will do that, can he give me the assurance that if in future we find it is essential to have some sort of central register because the Act is not working and there are loopholes in it about non-registration, he will not only keep it under review, but will change the legislation? That would be necessary in order to protect the investments of many people.
§ Mr. Gould
I listened with considerable interest to the hon. Member for Croydon, South (Sir W. Clark) and I had a great deal of sympathy for what he had to say about the new clause. It is worth recalling that the industry set up a consultative group, I think embracing virtually every body known to the industry, long before the Financial Services Bill hove into sight. That consultative group had gone a long way towards the proposal for the establishment of a register or licensing system.
The Government then appointed MIBOC, a practitioner-based body which considered the whole issue and produced an extremely well thought out set of proposals which were duly modified, following extensive consultation with the industry. We then had the situation, which is unfortunate to say the least, in which the Government, having set up a body to obtain the industry's advice, then refused to accept it. Indeed, that has been overridden, so far as one can tell, by the advice of their civil servants, but, perhaps more significantly, by the representations made to it by that familiar combination of banks and building societies and other powerful institutions——
§ Mr. Gould
I shall mention them in a moment. The Minister would do well if he could make the claim, without blushing, that it was the Consumers Association which had weighed with him rather than the banks and the building societies on this issue.
533 It is yet one further regrettable instance of how on so many occasions the major financial institutions, particularly the banks, tend to come along at the last moment and express a view which is then adopted by the Government contrary to the views and evidence of most other people.
§ Mr. Tim Smith (Beaconsfield)
That is an unrealistic assessment of the situation. The hon. Gentleman may be right about the banks and building societies, but he needs to recognise that in relation to MIBOC many other financial institutions had a vested interest in the scheme. Perhaps we should set those two up against each other and look at what the consumer bodies, who are supposed to represent investors, have to say about it.
I am content to accept the hon. Gentleman's endorsement of my point about banks and building societies. On MIBOC, I draw his attention to the fact that the Government set it up to provide them with exactly the advice that they are now rejecting.
So far as one can judge from the Minister's public pronouncements on these matters, the major argument against the MIBOC proposal and against the register seems to be that of cost. Of course, investor protection costs money. If the argument about cost were thought to be overriding, we would not be legislating at all. The Financial Services Bill will cost money. To provide essential protection to the consumers—to investors who buy life insurance policies—will cost money. There is no question about that. However, the sum of money involved can be made to seem extremely large only by multiplying it by 200,000 or 300,000, because that is the number of people involved in selling life insurance. Per head the cost is marginal. As a proportion of the total cost of putting a salesman into the business of selling, the cost of putting him on the register and providing him with a course enabling him to pass a test of competence is so marginal as not to worry anybody. That seems a small price to pay for an essential and entirely desirable element of consumer protection.
Without the register, the Government, the Secretary of State, and eventually the Securities and Investments Board, will have to rely for virtually their only weapon, apart from the general processes of authorisation. on the power provided by clause 54 — the disqualification power. I am encouraged at least to hear from Sir Kenneth Berrill that he intends to exercise that power rigorously. But even he could not conceal his disappointment at the Minister's announcement that registration is not to be proceeded with.
The difficulty with the clause 54 power— this is an analogy drawn to my attention by a spokesman for the industry; I do not claim authorship —is that it is rather like abolishing the concept of the driving licence and saying that we can deal with any problems that arise by prosecuting those who are thought to have committed offences of dangerous driving. The difficulty with that is that people tend to be hurt in traffic accidents, just as they will be hurt if they are buying life assurance and other investments from people who have not been required to establish in some way their competence and probity.
It is not to denigrate the industry unduly to point out that higher standards of competence and probity are desperately needed in this area. It is very much to the 534 industry's credit that it recognises that that is the case. It is most unfortunate that the Government, through a failure of will or for whatever reason, have failed to accept the advice which has been tendered to them.
I conclude by echoing the appeal of the hon. Member for Croydon, South to the Minister. If he does not proceed with this, will he at least undertake to watch this area extremely closely? If he feels, as he may well be forced to conclude after a year or so, that higher standards and some test of competence is required, will he then be prepared to review the situation within a short period?
§ Mr. Robert McCrindle (Brentwood and Ongar)
I have long held the view that true investor protection requires not only authorisation of the principal but also some form of licensing or registration of the individual acting on behalf of his principal. It is not sufficient to assume that the company to be authorised under the Bill will at all times be able to control the activities of its salesmen, yet that is what really matters to the customer.
The ideal system may well contain a basic test of competence, to which my hon. Friend the Member for Croydon, South (Sir W. Clark) and the hon. Member for Yeovil (Mr. Ashdown) referred. It is sometimes thought that a basic test of competence is unnecessary, yet it is within my experience that the ability to differentiate between different types of life assurance policy is not always present among those who purport to advise an individual on what is arguably one of the more important financial transactions of his lifetime.
It is surely also not expecting too much that some knowledge of personal taxation should be available to the customer through the individual who will either be an insurance company representative or an independent intermediary. It is surely not too much to expect that the company representative will have a full knowledge of his company's range of products and that an independent intermediary will have an understanding of what is available on the market. Such a basic test of competence is something to which we should be wholly attracted.
Allied to that there should be, as the new clause suggests, a register and a black list for periodical publication. My fear is that one without the other will present an unbalanced aspect of investor protection. If I have a concern about the new clause as proposed, it is that it seems to propose that the Secretary of State should have a considerable involvement in the creation and the keeping of the register. However, it does not make it clear who, in his ideal situation, would be the provider of a competence test.
Whether or not the new clause is acceptable to the Minister, I suggest that the obvious candidate to apply such a test of competence must surely be either the SIB, into which MIBOC will have been subsumed when the legislation becomes fully operative, or the self-regulating organisation.
Therefore, I submit to my hon. and learned Friend the Minister that if the new clause is not acceptable as it stands because it involves the Secretary of State in collating and publishing information, perhaps the message should go out from the Minister that over a few years SROs will be urged to introduce such a licensing or registration system by themselves as they become more able to run a test of competence on their own account.
If the Minister were prepared to back such a progressive introduction of such a scheme, he would have 535 widespread support, including, perhaps, as the Government understand it a little more, some of the consumer organisations which do not appear to like the idea so far put forward, almost entirely due to the cost. I have some reason to believe that the estimate of the cost of introducing such a system has been considerably exaggerated. Only yesterday, I had a conversation with a prospective member of an SRO, who expressed the opinion that there should be no great difficulty or cost in the progressive introduction of a test of competence allied to a system of registration or licensing.
Those who have so far objected, apart from the consumer interest groups, are the building societies, the direct sales forces and the banks. I do not wish to cast aspersions on the sales forces of the banks or on the direct sales life assurance companies, which have served the public well during the past few years, but I am a little worried to discover that the building societies seem to be so vehement in their opposition to the idea of a test of competence because other legislation still going through Parliament will authorise them to move much more effectively and actively into life assurance and general insurance than has been the case. There are no prizes for guessing that they are already active in recruitment, and I have no doubt that many of the people whom they will recruit will be extremely estimable.
However, without a test of competence, and remembering that building societies cannot be expected to have the experience in insurance that we expect and know them to have in mortgages, they might be guilty of recruiting some people who would he incapable of giving the advice that a consumer has a right to expect. I hope that my hon. and learned Friend the Minister will not be too influenced by institutions such as the building societies—rather, I hope, the reverse. I hope that he will accept my point that, especially in the case of the building societies, there is a strong argument for extending the consumer protection that underlies the legislation.
I remain convinced that the prospect of an individual losing his licence, or losing his right to practice and to sell life assurance, would be a salutary discipline. I also believe that a representative of an authorised company who is not registered or licensed gives less than full investor protection. I appreciate that the legislation allows for the provision of a blacklist. I know that only yesterday Sir Kenneth Berrill. the chairman of the SIB, said that the clause would not be dormant, but would be fully acitivated under his leadership of the SIB. That is all very well, but a blacklist alone without a registration or licensing system — I hope that the Minister will forgive me for so describing it—is a little like closing the door after the deed is done.
The idea suggested by my hon. Friend the Member for Croydon, South in his new clause, which regrettably, if press reports are to be believed, the Minister will he resisting, overlooks the fundamentally important aspect that it is good to have a blacklist. Few of us who have anything to do with insurance would wish to resist it, but a blacklist alone without a reasonable test of competence and a reasonable implication of probity on the part of the individual does not go far enough.
The new clause may be the wrong method of protecting the consumer because it seems to bypass the SROs. I am sure that that could be put right in a way that would be 536 acceptable to my hon. Friend the Member for Croydon, South. The SROs should be charged to introduce a competence test and to create a register progressively over a period of three to five years. I hope that when my hon. and learned Friend the Minister replies he will say whether my suggestion, subject to its being a system under which the cost would be kept to the minimun, strikes a chord of response in him. I sincerely hope that it does. I approve of a blacklist to protect investors, but not one which stands alone. The blacklist should complement what in my judgment is a much more important aspect of investor protection.
§ Mr. Ashdown
Not for the first time, I agreed with almost every point made by the hon. Member for Brentwood and Ongar (Mr. McCrindle) on insurance matters. However, I wish to expand upon some of them.
I am grateful to the hon. Member for Croydon, South (Sir W. Clark), who moved the new clause, for saying that the principle enshrined in it was important, not necessarily its drafting or the words, because it falls significantly short of what I had wished to see, especially in relation to competence. A register that does not include, as an essential part, a test of competence which is objective and industrywide rather than established by the firm could mislead people instead of safeguarding them. I shall return to that matter later.
In Committee, we discussed basic principles at some length. One basic principle in the Bill to which the Minister agreed is now enshrined in an amendment. It is the concept of tapering safeguards so that those who are most competent — who are at the top of the profession — would require fewer safeguards. The rule of caveat emptor would apply more precisely to them than to those at the bottom, most vulnerable end of the sector who have less knowledge and less competence in making judgments.
No one in the entire area where we seek safeguards for investors who have little knowledge of affairs can be more easily misled than the people with whom insurance salesmen frequently deal. As we said in Committee, insurance salesmen conduct business not in offices but frequently in the comfortable and disarming environment of people's homes.
If the Minister is to carry through the basic principle of tapering safeguards, it is essential that we afford those people greater safeguards about the advice that they will receive about competence and honesty than we do to others. The principle of the new clause is an important piece of armoury in that balance of safeguards. In the sale of insurance to private individuals, I have a strong suspicion that more damage is done through incompetence than through venality or dishonesty. I have no doubt that dishonest people exist in the insurance industry as they do in any other especially one which deals in such an environment and has such a large work force. However, I suggest that the number is small. There is not much evidence to suggest that that is the major problem. Incompetence probably does more damage in this area than in any other.
If the Government introduced a blacklist, even if such a thing could exist without a register alongside it — I have practical doubts on that matter — they could at least in some measure deal with the problem of dishonesty, but they could not cope with the problem of incompetence., which in my judgment and that of others does much more damage.
537 Recently, there have been suggestions that one way of getting round this problem and coping with it in terms of establishing a level of competence would be to set up a test of competency after 18 months. That is a sensible suggestion, and I was worried to see that it was dropped from the latest MIBOC draft proposals. As the hon Member for Croydon, South and the hon. Member for Dagenham (Mr. Gould) said, it was dropped because of the cost that might be involved. A cost of £10 per insurance salesman was predicted. That may sound a lot, but, as the hon. Member for Dagenham said, it is as nothing compared with the costinvolved—in a typical case, 20 per cent. of premiums — in administration and commission for every individual during the entire term of the policy. Ten pounds is nothing, not even in relation to a handful of people who take out insurances, let alone in relation to the number of insurances that could be sold by salesmen during one month, let alone a year. That is a small price to pay for what will be a significant and. because the people concerned are most vulnerable, essential safeguard.
I listened with interest to the Minister's reply to the hon. Member for Dagenham about why he had rejected MIBOC's and SIB's proposals. He asked us to believe that he rejected them because of the excellent work and suggestions made to him by the Consumers Association. His rejection had nothing to do with the banks and the other large, powerful organisations which recommended that course to him. At present we shall put aside unreasonable and inelegant suspicions on this matter.
It is a matter of some confusion to us that the Minister has not accepted other recommendations put forward by the Consumer Association. He says with sincerity and with his hand on his heart that the Consumers Association has argued the case against this most powerfully and that he has listened to most of it.
I ask the Minister to re-examine what the consumer associations have said. The National Consumer Council said that it did not want such a register for one reason — it could mislead the public on the matter of competence. The hon. Member for Croydon, South made it clear that he wishes a test of competence to become an essential element of such a register. The NCC's objection must fail if the register shows that the membership has such a level of competence, for the public would not be misled in the way that the NCC feared.
The Consumers Association also told the Minister that it was opposed to a register. I ask the Minister to consider that carefully, because the Consumers Association says that it would be preferable to ban cold calling than to have a register. I agree with that. If the Minister agrees with the second part of the recommendation, does he also agree with the first? I am prepared to give way to the Minister in the hope that he will answer my question. If the Minister will tell the House that he is prepared to introduce a complete ban on cold calling, we may not need such a register. The Consumers Association made its recommendation on that basis.
One is left with the inelegant suspicion that in this, as in so much else, the Minister was moved more by the power of the banks and those who have the most financial clout than by the Consumers Association. I hope that the Minister, will answer the Consumers Association's request for a ban on cold calling.
538 If the Minister, for reasons of drafting or other reasons, will not accept the new clause, I hope that he will look closely at the matter and will make recommendations to solve this problem. If he will not do that, will he make a clear declaration to the House that he will keep this important matter under close review?
§ Mr. Cash
I raised the matter of competence many times in Committee, tabling a series of amendments to the schedules to introduce the concept of competence and of the qualifications of members of SROs. I expect that that matter will continue to be debated on later amendments.
With respect to my hon. Friend the Member for Croydon, South (Sir W. Clark), may I say that the clause appears to have attracted an unusual amount of opposition. The Office of Fair Trading, the Consumers Association, the Linked Life Assurance Group, the Committee of London and Scottish Bankers, which has contacted me on the matter, the Pearl Assurance Group, the Co-operative Insurance Society, the Royal Liver Friendly Society, the Building Societies Association and the National Consumer Council have all appeared to take exception to the provisions. In view of the weight of opinion, and despite my hon. Friend's arguments, I do not believe that the new clause should be accepted.
The chairman of the Chief Executive Officers' Committee of London and Scottish Bankers, Mr. Philip Wilkinson, said:We are in favour of a list of rogue salesmen, but not of a huge index of reputable ones. This extra layer of bureaucracy proposed by the Board would only serve to create unnecessary cost with no discernible benefit … Our member banks are already highly selective in their recruitment and require rigorous standards to be met before allowing staff to advise the public on any financial matter. There are at least 50,000 staff involved, from time to time, in marketing and advising on life assurance and unit trusts, often as an integral part of a wider advisory service."
§ Mr. McCrindle
Can my hon. Friend say whether any of the many objectors to the new clause objected also to my suggestion that the task should be given to the SROs, and that a register and some form of licensing should be introduced progressively? There is no sign that they would object to that.
§ Mr. Cash
I listened with interest to my hon. Friend. He and I are ad idem on the test of competence, and we were together on that point in Committee. From the synopsis that I have of those organisations' views, I do not know whether they said other things too. The Committee of London and Scottish Bankers made its position perfectly clear. It stated:The costs of registering them individually is likely to be over £2 million with an ongoing compliance cost of £1 million annually, a cost which would have to be borne by customers eventually.The banks support high standards of competence and probity——
§ Mr. Ashdown
The hon. Gentleman said that one reason why he opposes the new clause is that the cost would have to be borne by the customer. Surely that is the case with all regulations. Costs are always borne eventually by the investor—the customer. If that is to be the reason for opposing the new clause, it must be a reason for opposing everything else.
§ Mr. Cash
We might also have to pay the cost of having an alliance in due course. Costs occur in all matters; the 539 point made by the Committee of London and Scottish Bankers is fair and reasonable, and I fully support it. The sheer diversity of the methods of selling life assurance and unit trusts is a good reason for not having a universal register.
§ Mr. Howard
I am grateful to my hon. Friend the Member for Stafford (Mr. Cash) for his support. He has correctly anticipated my position in relation to the new clause moved by my hon. Friend the Member for Croydon, South (Sir W. Clark).
The hon. Members for Dagenham (Mr. Gould) and for Yeovil (Mr. Ashdown) have adopted a curious approach to our discussions both yesterday evening and this afternoon. They select what they regard as the basis upon which I reach decisions in these matters, and, on that false premise, mount an argument which diverges ever more rapidly from reality. I could put up with the fact that they credit me with having no independent judgment, but I must object when they select people to whom they say I listen on such matters, and ignore the fact that representations come from other bodies which are less easy for them to attack. In reaching my decisions, I pay careful attention to everything that is said, and, at the end of the day, I make my independent judgment on the basis of those representations.
Bearing in mind, as one does in considering such suggestions, the existing powers in the Bill which will give substantial control over individuals employed by investment businesses, my judgment is that the suggestions put forward in the new clause are unnecessary and expensive. As the hon. Member for Yeovil said—it was not his most original thought—cost must be taken into account and all regulation is expensive. Although that is true, it does not relieve us of the responsibility of assessing the value of every proposal as against its cost. I sought to do that in relation to the proposals and, measured against that criterion, the proposals are found wanting.
As those making representations on the proposals put forward by MIBOC said, there is a danger that the competence test could mislead. It was intended to be a basic test. There was a real danger that salesmen who had acquired that basic qualification could present it as a basis for advising consumers on matters far exceeding the competence to which the certificate testified. It would be rather like referring everyone who wished to travel to Crewe to obtain a ticket to Watford Junction.
Of course it is right, as several hon. Members have pointed out, that clause 54 provides for a blacklist. We have already heard what has been said by Sir Kenneth Berrill about the way in which the powers in clause 54 are to be exercised. Indeed, I welcome his remarks. Clause 54 is intended to provide a real safeguard for the investor, and no doubt it will do so. My hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) mentioned the possibility of a register and a competence test being administered by SROs. There is no reason why they should not, if they think it appropriate, have a register for the businesses that they authorise or have a competence test. But for the reasons advanced, I believe that it is unnecessary to have a statutory central register with a statutory competence test.
I can give the assurance sought by my hon. Friend the Member for Croydon, South. Of course we shall continue to keep the matter under close review. If evidence materialises to show that our judgment needs to be revised, 540 we shall not close our eyes to it. However, on the evidence so far presented, I must invite the House to reject the new clause.
§ Sir William Clark
I am grateful to my hon. and learned Friend the Minister for his remarks. I think that the debate on this important subject has been worth while. However, I hope that my hon. and learned Friend did not think that I in any way implied that any undue pressure had been brought to bear on him. I regret the accusations that have been made to the effect that that might be so. I am delighted that my hon. and learned Friend has accepted that there could or might be evidence to the contrary, and that, if there is, he will keep the matter under close review. He has indicated that if the Bill, as drafted, is found to be inadequate, he will alter it to give the investor the necessary protection. Given that assurance by my hon. and learned Friend, I beg to ask leave to withdraw the motion.
§ Motion and clause, by leave, withdrawn.