Financial Services Act 1986 (repealed)

• (2) An inspector appointed under subsection (1) above to investigate the affairs of, or of the manager, trustee or operator of, any scheme may also, if he thinks it necessary for the purposes of that investigation, investigate the affairs of, or of the manager, trustee or operator of, any other such scheme as is mentioned in that subsection whose manager, trustee or operator is the same person as the manager, trustee or operator of the first' mentioned scheme.

• (3) Sections 434 to 436 of the Companies Act 1985 (production of documents and evidence to inspectors), except section 435(l)(o) and (b) and (2), shall apply in relation to an inspector appointed under this section as they apply to an inspector appointed under section 431 of that Act but with the modifications specified in subsection (4) below.

• (4) In the provisions applied by subsection (3) above for any reference to a company or its affairs there shall be substituted a reference to the scheme under investigation by virtue of this section and the affairs mentioned in subsection (1) or (2) above and any reference to an officer or director of the company shall include a reference to any director of the manager, trustee or operator of the scheme.

• (5) A person shall not under this section be required to disclose any information or produce any document which he would be entitled to refuse to disclose or produce on grounds of legal professional privilege in proceedings in the High Court or on grounds of confidentiality as between client and professional legal adviser in proceedings in the Court of Session except that a lawyer may be required to furnish the name and address of his client.

• (6) Where a person claims a lien on a document its production under this section shall be without prejudice to the lien.

• (7) Nothing in this section shall require a person carrying on the business of banking to disclose any information or produce any document relating to the affairs of a customer unless—

• (a) the customer is a person who the inspector has reason to believe may be able to give information relevant to the investigation; and

• (b) the Secretary of State is satisfied that the disclosure or production is necessary for the purposes of the investigation.

• (8) An inspector appointed under this section may, and if so directed by the Secretary of State shall, make interim reports to the Secretary of State and on the conclusion of his investigation shall make a final report to him.

• (9) Any such report shall be written or printed as the Secretary of State may direct and the Secretary of State may, if he thinks fit—

• (a) furnish a copy, on request and on payment of the prescribed fee, to the manager, trustee or operator or any participant in a scheme under investigation or any other person whose conduct is referred to in the report; and

• (b) cause the report to be published.

Contraventions

95

• (1) A person who contravenes any provision of this Chapter, a manager or trustee of an authorised unit trust scheme who contravenes any regulations made under section 81 above and a person who contravenes any other regulations made under this Chapter shall be treated as having contravened rules made under Chapter V of this Part of this Act or, in the case of a person who is an authorised person by virtue of his membership of a recognised self-regulating organisation or certification by a recognised professional body, the rules of that organisation or body.

• (2) Subsection (1) above applies also to any contravention by the operator of a recognised scheme of a requirement imposed under section 90(2) above.

CHAPTER IX — The Tribunal

The Financial Services Tribunal

96

• (1) For the purposes of this Act there shall be a Tribunal known as the Financial Services Tribunal (in this Act referred to as " the Tribunal ").

• (2) There shall be a panel of not less than ten persons to serve as members of the Tribunal when nominated to do so in accordance with subsection (3) below; and that panel shall consist of—

• (a) persons with legal qualifications appointed by the Lord Chancellor after consultation with the Lord Advocate, including at least one person qualified in Scots law; and

• (b) persons appointed by the Secretary of State who appear to him to be qualified by experience or otherwise to deal with the cases that may be referred to the Tribunal.

• (3) Where a case is withdrawn from the Tribunal under this State shall nominate three persons from the panel to serve as members of the Tribunal in respect of that case and nominate one of them to be chairman.

• (4) The person nominated to be chairman of the Tribunal in respect of any case shall be a person with legal qualifications and, so far as practicable, at least one of the other members shall be a person with recent practical experience in business relevant to the case.

• (5) If while a case is being dealt with by the Tribunal one of the three persons serving as members in respect of that case becomes unable to act the case may, with the consent of the Secretary of State and of the person or persons at whose request the case was referred to the Tribunal, be dealt with by the other two members.

• (6) Schedule 6 to this Act shall have effect as respects the Tribunal and its proceedings.

References to the Tribunal

97

• (1) Any person—

• (a) on whom a notice is served under section 29, 34, 59(4), 60(2) or 70 above ; or

• (b) on whom a copy of a notice under section 29, 34, 60(2) or 70 above is served or on whom the Secretary of State considers that a copy of such a notice would have been served if it had been practicable to do so,

may within twenty-eight days of the date of service of the notice require the Secretary of State to refer the matter to which the notice relates to the Tribunal and, subject to the provisions of this section, the Secretary of State shall refer that matter accordingly.

• (2) The Secretary of State need not refer a matter to the Tribunal at the request of the person on whom a notice was served under section 29, 34, 59(4) or 60(2) above if within the period mentioned in subsection (1) above he—

• (a) decides to grant the application or, as the case may be, decides not to withdraw or suspend the authorisation, give the direction or publish the statement to which the notice relates; and

• (b) gives written notice of his decision to that person.

• (3) The Secretary of State need not refer a matter to the Tribunal at the request of the person on whom a notice is served under section 70 above if—

• (a) that matter is the refusal of an application for the rescission or variation of a prohibition or requirement and within the period mentioned in subsection (1) above he—

• (i) decides to grant the application ; and

• (ii) gives written notice of his decision to that person ; or

• (b) that matter is the imposition or variation of a prohibition or requirement, being a prohibition, requirement or variation which has not yet taken effect, and within the period mentioned in subsection (1) above and before the prohibition, requirement or variation takes effect he—

• (i) decides to rescind the prohibition or requirement or decides not to make the variation ; and

• (ii) gives written notice of his decision to that person.

• (4) Where the notice served on a person under section 29 or 34 above—

• (a) proposed the withdrawal of an authorisation or the giving of a direction under section 33(1)(a) above; or

• (b) proposed the suspension of an authorisation or the giving of a direction under section 33(1)(b) above,

and at any time within the period mentioned in subsection (1) above the Secretary of State serves a new notice on that person in substitution for that previously served, then, if the substituted notice complies with subsection (5) below, subsection (1) above shall have effect in relation to the substituted notice instead of the original notice and as if the period there mentioned were twenty-eight days after the date of service of the original notice or fourteen days after the date of service of the substituted notice, whichever ends later.

• (5) A notice served in substitution for a notice within subsection (4)(a) above complies with this subsection if it proposes—

• (a) the suspension of an authorisation or the giving of a direction under section 33(1)(b) above; or

• (b) the exercise of the power conferred by section 60 above ;

and a notice served in substitution for a notice within subsection (4)(b) above complies with this subsection if it proposes a less severe suspension or direction under section 33(1 MM or the exercise of the power conferred by section 60 above.

• (6) The reference of the imposition or variation of a prohibition or requirement under Chapter VI of this Part of this Act to the Tribunal shall not affect the date on which it comes into effect.

Decisions on references by applicant or authorised person etc.

98

• (1) Where a case is referred to the Tribunal at the request of a person within section 97(l)(a) above the Tribunal shall—

• (a) investigate the case ; and

• (b) make a report to the Secretary of State stating what would in its opinion be the appropriate decision in the matter and the reasons for that opinion ;

and it shall be the duty of the Secretary of State to decide the matter forthwith in accordance with the Tribunal's report.

• (2) Where the matter referred to the Tribunal is the refusal of an application the Tribunal may under this section report that the appropriate decision would be to grant or refuse the application or—

• (a) in the case of an application for the variation of a suspension, direction, consent, prohibition or requirement, to vary it in a specified manner;

• (b) in the case of an application for the rescission of a prohibition or requirement, to vary the prohibition or requirement in a specified manner.

• (3) Where the matter referred to the Tribunal is any action of the Secretary of State other than the refusal of an application the Tribunal may report that the appropriate decision would be—

• (a) to take or not to take the action taken or proposed to be taken by the Secretary of State or to take any other action that he could take under the provision in question ; or

• (b) to take instead or in addition any action that he could take in the case of the person concerned under any one or more of the provisions mentioned in subsection (4) below other than that under which he was acting or proposing to act.

• (4) Those provisions are sections 28, 33 and 60 above and Chapter VI of this Part of this Act; and sections 29, 34, 60(2) and (3) and 70(2) and (4) above shall not apply to any action taken by the Secretary of State in accordance with the Tribunal's report.

• (5) The Tribunal shall send a copy of its report under this section to the person at whose request the case was referred to it; and the Secretary of State shall serve him with a written notice of the decision made by him in accordance with the report.

Decisions on references by third parties

99

Where a case is referred to the Tribunal at the request of a person within section 97(1)(6) above the Tribunal shall report to the Secretary of State whether the reasons stated in the notice in question which relate to that person are substantiated ; and the Tribunal shall send a copy of the report to that person and to the person on whom the notice was served.

Withdrawal of references

100

• (1) A person who has required a case to be referred to the Tribunal may at any time before the conclusion of the proceedings before the Tribunal withdraw the reference.

• (2) The Secretary of State may at any such time withdraw any reference made at the request of a person on whom a notice was served under any of the provisions mentioned in subsection (l)(a) of section 97 above if he—

• (a) decides as mentioned in subsection (2)(a) or (3)(a)(i) or (b)(i) of that section ; and

• (b) gives such a notice as is mentioned in subsection (2)(b) or (3)(a)(ii) or (b)(i) of that section ;

but a reference shall not be withdrawn by virtue of such a decision and notice as are mentioned in paragraph (b) of subsection (3) unless the decision is made and the notice is given before the prohibition, requirement or variation has taken effect.

• (3) Where a case is referred to the Tribunal the Secretary of section the Tribunal shall not further investigate the case or make a report under section 98 or 99 above; but where the reference is withdrawn otherwise than by the Secretary of State he may require the Tribunal to make a report to him on the results of its investigation up to the time when the reference was withdrawn.

• (4) Where two or more persons have required a case to be referred to the Tribunal the withdrawal of the reference by one or more of them shall not affect the functions of the Tribunal as respects the case so far as relating to a person who has not withdrawn the reference.

• (5) Where a person on whom a notice was served under section 29, 34 or 60 above withdraws a case from the Tribunal subsection (5) of each of those sections shall apply to him as if he had not required the case to be referred.

Reports

101

• (1) In preparing its report on any case the Tribunal shall have regard to the need to exclude, so far as practicable, any matter which relates to the affairs of a particular person (not being a person who required or could have required the case to be referred to the Tribunal) where the publication of that matter would or might, in the opinion of the Tribunal, seriously and prejudicially affect the interests of that person.

• (2) The Secretary of State may, in such cases as he thinks fit, publish the report of the Tribunal and offer copies of any such report for sale.

• (3) The Secretary of State may, on request and on payment of the prescribed fee, supply a copy of a report of the Tribunal to any person whose conduct is referred to in the report or whose interests as a client or creditor are affected by the conduct of a person to whom the proceedings before the Tribunal related.

• (4) If the Secretary of State is of opinion that there is good reason for not disclossing any part of a report he may cause that part to be omitted from the report as published under subsection (2) or from the copy of it supplied under subsection (3) above.

• (5) A copy of a report of the Tribunal endorsed with a certificate signed by or on behalf of the Secretary of State stating that it is a true copy shall be admissible as evidence of the opinion of the Tribunal as to any matter referred to in the report; and a certificate purporting to be signed as aforesaid shall be deemed to have been duly signed unless the contrary is shown.

CHAPTER X — Information

Register of authorised persons and recognised organisations etc.

102

• (1) The Secretary of State shall keep a register containing an entry in respect of—

• (a) each person who is an authorised person by virtue of an authorisation granted by the Secretary of State;

• (b) each other person who appears to him to be an authorised person by virtue of any provision of this Part of this Act;

• (c) each recognised self-regulating organisation, recognised professional body, recognised investment exchange and recognised clearing house;

• (d) each authorised unit trust scheme and recognised scheme;

• (e) each person in respect of whom a direction under section 59 above is in force.

• (2) The entry in respect of each authorised person shall consist of—

• (a) a statement of the provision by virtue of which he is an authorised person ;

• (b) in the case of a person who is an authorised person by virtue of membership of a recognised self-regulating organisation or certification by a recognised professional body, the name and address of the organisation or body;

• (c) in the case of a person who is an authorised person by virtue of section 25 or 31 above, information as to the services which that person holds himself out as able to provide;

• (d) in the case of a person who is an authorised person by virtue of section 31 above, the address notified to the Secretary of State under section 32 above ;

• (e) in the case of a person who is an authorised person by virtue of any provision other than section 31 above, the date on which he became an authorised person by virtue of that provision ; and (f) such other information as the Secretary of State may determine.

• (3) The entry in respect of each such organisation, body, exchange or clearing house as is mentioned in subsection (1)(c) above shall consist of its name and address and such other information as the Secretary of State may determine.

• (4) The entry in respect of each such scheme as is mentioned in subsection (1)(d) above shall consist of its name and, in the case of an authorised unit trust scheme, the name and address of the manager and trustee and, in the case of a recognised scheme, the name and address of the operator and of any representative of the operator in the United Kingdom and, in either case, such other information as the Secretary of State may determine.

• (5) The entry in respect of each such person as is mentioned in subsection (l)(e) above shall include particulars of any consent for that person's employment given by the Secretary of State.

• (6) Where it appears to the Secretary of State that any person in respect of whom there is an entry in the register by virtue of subsection (1) (a) or (b) above has ceased to be an authorised person (whether by death, by withdrawal or other cessation of his authorisation, as a result of his ceasing to be a member of a recognised self-regulating organisation or otherwise) the Secretary of State shall make a note to that effect in the entry together with the reason why the person in question is no longer an authorised person.

• (7) Where

• (a) an organisation, body, exchange or clearing house in respect of which there is an entry in the register by virtue of paragraph (c) of subsection (1) above has ceased to be recognised or ceased to exist;

• (b) an authorised unit trust scheme or recognised scheme in respect of which there is an entry in the register by virtue of paragraph (d) of that subsection has ceased to be authorised or recognised ; or

• (c) the direction applying to a person in respect of whom there is an entry in the register by virtue of paragraph (e) of that subsection has ceased to have effect,

the Secretary of State shall make a note to that effect in the entry.

• (8) An entry in respect of which a note is made under subsection (6) or (7) above may be removed from the register at the end of such period as the Secretary of State thinks appropriate.

Inspection of register

103

• (1) The information contained in the entries included in the register otherwise than by virtue of section 102(l)(e) above 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.

• (2) A person shall be entitled to ascertain whether there is an entry in the register by virtue of subsection (l)(e) of section 102 above (not being an entry in respect of which there is a note under subsection (7) of that section) in respect of a particular person specified by him and, if there is such an entry, to inspect it.

• (3) Except as provided by subsection (2) above the information contained in the register by virtue of section 102(l)(e) above shall not be open to inspection by any person unless he satisfies the Secretary of State that he has a good reason for seeking the information.

• (4) A person to whom information is made available by the Secretary of State under subsection (3) above shall not, without the consent of the Secretary of State or of the person to whom the information relates, make use of it except for the purpose for which it was made available.

• (5) Information which by virtue of this section is open to inspection shall be open to inspection free of charge but only at such times and places as the Secretary of State may appoint; and a person entitled to inspect any information may obtain a certified copy of it from the Secretary of State on payment of the prescribed fee.

• (6) The register may be kept by the Secretary of State in such form as he thinks appropriate with a view to facilitating inspection of the information which it contains.

Power to call for information

104

• (1) The Secretary of State may by notice in writing require a person who is authorised to carry on investment business by virtue of section 22, 24, 25 or 31 above to furnish him with such information as he may reasonably require for the exercise of his functions Under this Act.

• (2) The Secretary of State may by notice in writing require a recognised self-regulating organisation, recognised professional body, recognised investment exchange or recognised clearing house to furnish him with such information as he may reasonably require for the exercise of his functions under this Act.

• (3) The Secretary of State may require any information which he requires under this section to be furnished within such reasonable time and verified in such manner as he may specify.

• (4) Sections 60, 61 and 62 above shall have effect in relation to a contravention of a requirement imposed under subsection (1) above as they have effect in relation to a contravention of the provisions to which those sections apply.

Investigation powers

105

• (1) The powers of the Secretary of State under this section shall be exercisable in any case in which it appears to him that there is good reason to do so for the purpose of investigating the affairs, or any aspect of the affairs, of any person so far as relevant to any investment business which he is or was carrying on or appears to the Secretary of State to be or to have been carrying on.

• (2) Those powers shall not be exercisable for the purpose of investigating the affairs of any exempted person unless he is an appointed representative or the investigation is in respect of investment business in respect of which he is not an exempted person and shall not be exercisable for the purpose of investigating the affairs of a member of a recognised self-regulating organisation or a person certified by a recognised professional body in respect of investment business in the carrying on of which he is subject to its rules unless—

• (a) that organisation or body has requested the Secretary of State to investigate those affairs; or

• (b) it appears to him that the organisation or body is unable or unwilling to investigate them in a satisfactory manner.

• (3) The Secretary of State may require the person whose affairs are to be investigated (" the person under investigation ") or any connected person to attend before the Secretary of State at a specified time and place and answer questions or otherwise furnish information with respect to any matter relevant to the investigation.

• (4) The Secretary of State may require the person under investigation or any other person to produce at a specified time and place any specified documents which appear to the Secretary of State to relate to any matter relevant to the investigation ; and—

• (a) if any such documents are produced, the Secretary of State may take copies or extracts from them or require the person producing them or any connected person to provide an explanation of any of them ;

• (b) if any such documents are not produced, the Secretary of State may require the person who was required to produce them to state, to the best of his knowledge and belief, where they are.

• (5) A statement by a person in compliance with a requirement imposed by virtue of this section may be used in evidence against him.

• (6) A person shall not under this section be required to disclose any information or produce any document which he would be entitled to refuse to disclose or produce on grounds of legal professional privilege in proceedings in the High Court or on grounds of confidentiality as between client and professional legal adviser in proceedings in the Court of Session except that a lawyer may be required to furnish the name and address of his client.

• (7) The Secretary of State shall not require a recognised bank or licensed institution within the meaning of the Banking Act 1979 to disclose any information or produce any document relating to the affairs of a customer unless the Secretary of State considers it necessary to do so for the purpose of investigating any investment business carried on, or appearing to the Secretary of State to be carried on or to have been carried on, by the bank, institution or customer or, if the customer is a related company of the person under investigation, by that person.

• (8) Where a person claims a lien on a document its production under this section shall be without prejudice to the lien.

• (9) In this section—

• " connected person", in relation to any other person means— any person who is or was that other person's partner, employee, agent, appointed representative, banker, auditor or solicitor; and where the other person is a body corporate, any person who is or was a director, secretary or controller of that body corporate or of another body corporate of which it is or was a subsidiary ; and where the other person is an unincorporated association, any person who is or was a member of the governing body or an officer or controller of the association; and where the other person is an appointed representative, any person who is or was his principal; and where the other person is the person under investigation (being a body corporate), any related company of that body corporate and any person who is a connected person in relation to that company ;

• " documents " includes information recorded in any form and, in relation to information recorded otherwise man in legible form, references to its production include references to producing a copy of the information in legible form;

• " related company ", in relation to a person under investigation (being a body corporate), means any other body corporate which is or at any material time was— a holding company or subsidiary of the person under investigation; a subsidiary of a holding company of that person; or a holding company of a subsidiary of that person, and whose affairs it is in the Secretary of State's opinion necessary to investigate for the purpose of investigating the affairs of that person.

• (10) Any person who without reasonable excuse fails to comply with a requirement imposed on him under this section shall be guilty of an offence and liable on summary conviction to imprisonment for a term not exceeding six months or to a fine not exceeding the fifth level on the standard scale or to both.

Exercise of investigation powers by officer etc.

106

• (1) The Secretary of State may authorise any officer of his or any other competent person to exercise on his behalf all or any of the powers conferred by section 105 above but no such authority shall be granted except for the purpose of investigating the affairs, or any aspects of the affairs, of a person specified in the authority.

• (2) No person shall be bound to comply with any requirement imposed by a person exercising powers by virtue of an authority granted under this section unless he has, if required to do so, produced evidence of his authority.

• (3) Where the Secretary of State authorises a person other than one of his officers to exercise any powers by virtue of this section that person shall make a report to the Secretary of State in such manner as he may require on the exercise of those powers and the results of exercising them.

CHAPTER XI — Auditors

Appointment of auditors

107

• (1) The Secretary of State may make rules requiring a a person who is authorised to carry on investment business by virtue of section 25 or 31 above and who, apart from the rules, is not required by or under any enactment to appoint an auditor to appoint as an auditor a person satisfying such conditions as to qualifications and otherwise as may be specified in or imposed under the rules.

• (2) Rules under this section may make provision—

• (a) specifying the manner in which and the time within which an auditor is to be appointed ;

• (b) requiring the Secretary of State to be notified of any such appointment and enabling the Secretary of State to make an appointment if no appointment is made or notified as required by the rules ;

• (c) with respect to the remuneration of an auditor appointed under the rules;

• (d) with respect to the term of office, removal and resignation of any such auditor ;

• (e) requiring any such auditor who is removed, resigns or is not reappointed to notify the Secretary of State whether there are any circumstances connected with his ceasing to hold office which he considers should be brought to the Secretary of State's attention.

• (3) An auditor appointed under the rules shall in accordance with the rules examine and report on the accounts of the authorised person in question and shall for that purpose have such duties and powers as are specified in the rules.

Power to require second audit

108

• (1) If in any case it appears to the Secretary of State that there is good reason to do so he may direct any person who is authorised to carry on investment business by virtue of section 25 or 31 above to submit for further examination by a person approved by the Secretary of State—

• (a) any accounts on which that person's auditor has reported or any information given under section 52 or 104 above which has been verified by that auditor; or

• (b) such matters contained in any such accounts or information as are specified in the direction;

and the person making the further examination shall report his conclusions to the Secretary of State.

• (2) Any further examination and report required by a direction under this section shall be at the expense of the authorised person concerned and shall be carried out and made within such time as is specified in the direction or within such further time as the Secretary of State may allow.

• (3) The person carrying out an examination under this section shall have all the powers that were available to the auditor; and it shall be the duty of the auditor to afford him all such assistance as he may require.

• (4) Where a report made under this section relates to accounts which under any enactment are required to be sent to or made available for inspection by any person or to be delivered for registration, the report, or any part of it (or a note that such a report has been made) may be similarly sent, made available or delivered by the Secretary of State.

Communication by auditor with supervisory authorities

109

• (1) No duty to which an auditor of an authorised person may be subject shall be regarded as contravened by reason of his communicating in good faith to the Secretary of State, whether or not in response to a request from him, any information or opinion on a matter of which the auditor has become aware in his capacity as auditor of that person and which is relevant to any functions of the Secretary of State under this Act.

• (2) If it appears to the Secretary of State that any auditor or class of auditor to whom subsection (1) above applies is not subject to satisfactory rules made or guidance issued by a professional body specifying circumstances in which matters are to be communicated to the Secretary of State as mentioned in that subsection the Secretary of State may himself make rules applying to that auditor or that class of auditor and specifying such circumstances; and it shall be the duty of an auditor to whom the rules made by the Secretary of State apply to communicate a matter to the Secretary of State in the circumstances specified by the rules.

• (3) The matters to be communicated to the Secretary of State in accordance with any such rules or guidance may include matters relating to persons other than the authorised person.

• (4) No such rules as are mentioned in subsection (2) above shall be made by the Secretary of State unless a draft of them has been laid before and approved by a resolution of each House of Parliament.

• (5) This section applies to—

• (a) the communication by an auditor to a recognised self-regulating organisation or recognised professional body of matters relevant to its function of determining whether a person is a fit and proper person to carry on investment business; and

• (b) the communication to such an organisation or body or any other authority or person of matters relevant to its or his function of determining whether a person is complying with the rules applicable to his conduct of investment business,

as it applies to the communication to the Secretary of State of matters relevant to his functions under this Act.

Overseas business

110

• (1) A person incorporated or having his head office outside the United Kingdom who is authorised as mentioned in subsection (1) of section 107 above may, whether or not he is required to appoint an auditor apart from the rules made under that subsection, appoint an auditor in accordance with those rules in respect of the investment business carried on by him in the United Kingdom and in that event that person shall be treated for the purposes of this Chapter as the auditor of that person.

• (2) In the case of a person to be appointed as auditor of a person incorporated or having his head office outside the United Kingdom the conditions as to qualifications imposed by or under the rules made under that section may be regarded as satisfied by qualifications obtained outside the United Kingdom which appear to the Secretary of State to be equivalent.

• (3) A person incorporated or having his head office outside the United Kingdom shall not be regarded for the purposes of section 25 above as a fit and proper person to carry on investment business unless—

• (a) he has appointed an auditor in accordance with rules made under section 107 above in respect of the investment business carried on by him in the United Kingdom ; or

• (b) he has an auditor having qualifications, powers and duties appearing to the Secretary of State to be equivalent to those applying to an auditor appointed in accordance with those rules,

and, in either case, the auditor is able and willing to communicate with the Secretary of State and other bodies and persons as mentioned in section 109 above.

Offences and enforcement

111

• (1) Any authorised person and any officer, controller or manager of an authorised person, who knowingly or recklessly furnishes an auditor appointed under the rules made under section 107 or a person carrying out an examination under section 108 above with information which the auditor or that person requires or is entitled to require and which is false or misleading in a material particular shall be guilty of an offence and liable—

• (a) on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine or to both;

• (b) on summary conviction, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum or to both.

• (2) The duty of an auditor under section 108(3) above shall be enforceable by mandamus or, in Scotland, by an order for specific performance under section 91 of the Court of Session Act 1868.

• (3) If it appears to the Secretary of State that an auditor has failed to comply with the duty mentioned in section 109(2) above, the Secretary of State may disqualify him from being the auditor of an authorised person or any class of authorised person ; but the Secretary of State may remove any disqualification imposed under this subsection if satisfied that the person in question will in future comply with that duty.

• (4) An authorised person shall not appoint as auditor a person disqualified under subsection (3) above; and a person who is an authorised person by virtue of membership of a recognised self-regulating organisation or certification by a recognised professional body who contravenes this subsection shall be treated as having contravened the rules of the organisation or body.

CHAPTER XII — Fees

Application fees

112

• (1) An applicant for a recognition order under Chapter III or IV of this Part of this Act shall pay such fees in respect of his application as may be required by a scheme made and published by the Secretary of State; and no application for such an order shall be regarded as duly made unless this subsection is complied with.

• (2) A scheme made for the purposes of subsection (1) above shall specify the time when the fees are to be paid and may—

• (a) provide for the determination of the fees in accordance with a specified scale or other specified factors;

• (b) provide for the return or abatement of any fees where an application is refused or withdrawn ; and

• (c) make different provision for different cases.

• (3) Any scheme made for the purposes of subsection (1) above shall come into operation on such date as is specified in the scheme (not being earlier than the day on which it is first published) and shall apply to applications made on or after the date on which it comes into operation.

• (4) The power to make a scheme for the purposes of subsection (1) above includes power to vary or revoke a previous scheme made under those provisions.

• (5) Every application under section 26, 77 or 88 above shall be accompanied by the prescribed fee and every notice given to the Secretary of State under section 32, 86(2) or 87(3) above shall be accompanied by such fee as may be prescribed ; and no such application or notice shall be regarded as duly made or given unless this subsection is complied with.

Periodical fees

113

• (1) Every recognised self-regulating organisation, recognised professional body, recognised investment exchange and recognised clearing house shall pay such periodical fees to the Secretary of State as may be prescribed.

• (2) So long as a body is authorised under section 22 above to carry on insurance business which is investment business it shall pay to the Secretary of State such periodical fees as may be prescribed.

• (3) So long as a society is authorised under section 23 above to carry on investment business it shall—

• (a) if it is authorised by virtue of subsection (1) of that section, pay to the Chief Registrar of friendly societies such periodical fees as he may by regulations specify; and

• (b) if it is authorised by virtue of subsection (2) of that section, pay to the Registrar of Friendly Societies for Northern Ireland such periodical fees as he may by regulations specify.

• (4) A person who is an authorised person by virtue of section 25 or 31 above shall pay such periodical fees to the Secretary of State as may be prescribed.

• (5) If a person fails to pay any fee which is payable by him under subsection (4) above the Secretary of State may serve on him a written notice requiring him to pay the fee within twenty-eight days of service of the notice; and if the fee is not paid within that period that person's authorisation shall cease to have effect unless the Secretary of State otherwise directs.

• (6) A direction under subsection (5) above may be given so as to have retrospective effect; and the Secretary of State may under that subsection direct that the person in question shall continue to be an authorised person only for such period as is specified in the direction.

• (7) Subsection (5) above is without prejudice to the recovery of any fee as a debt due to the Crown.

• (8) The manager of each authorised unit trust scheme and the operator of each recognised scheme shall pay such periodical fees to the Secretary of State as may be prescribed.

CHAPTER XIII — Transfer of Functions to Designated Agency

Power to transfer functions to designated agency

114

• (1) If it appears to the Secretary of State—

• (a) that a body corporate has been established which is able and willing to discharge all or any of the functions to which this section applies ; and

• (b) that the requirements of Schedule 7 to this Act are satisfied in the case of that body,

he may, subject to the provisions of this section and Chapter XIV of this Part of this Act, make an order transferring all or any of those functions to that body.

• (2) The body to which functions are transferred by the first order made under subsection (1) above shall be the body known as The Securities and Investments Board Limited if it appears to the Secretary of State that it is able and willing to discharge them, that the requirements mentioned in paragraph (b) of that subsection are satisfied in the case of that body and that he is not precluded from making the order by the subsequent provisions of this section or Chapter XIV of this Part of this Act.

• (3) An order under subsection (1) above is in this Act referred to as " a delegation order " and a body to which functions are transferred by a delegation order is in this Act referred to as " a designated agency ".

• (4) Subject to subsections (5) and (6) below, this section applies to any functions of the Secretary of State under Chapters II to XII of this Part of this Act and to his functions under paragraphs 23 and 25(2) of Schedule 1 and paragraphs 4, 5 and 15 of Schedule 15 to this Act.

• (5) This section does not apply to any functions under—

• (a) section 31(4);

• (b) section 46;

• (c) section 48(8);

• (d) section 58(3);

• (e) section 86(1) or 87(1);

• (f) section 96;

• (g) section 109(2) above.

• (6) This section does not apply to the making or revocation of a recognition order in respect of an overseas investment exchange or overseas clearing house or the making of an application to the court under section 12 above in respect of any such exchange or clearing house.

• (7) Any function may be transferred by a delegation order either wholly or in part.

• (8) In the case of a function under section 6 or 72 or a function under section 61 which is exercisable by virtue of subsection (l)(fl)(ii) or (iii) of that section, the transfer may be subject to a reservation that it is to be exercisable by the Secretary of State concurrently with the designated agency and any transfer of a function under section 94, 105 or 106 shall be subject to such a reservation.

• (9) The Secretary of State shall not make a delegation order transferring any function of making rules or regulations to a designated agency unless—

• (a) the agency has furnished him with a copy of the rules and regulations which it proposes to make in the exercise of those functions; and

• (b) he is satisfied that those rules and regulations will afford investors an adequate level of protection and in the case of such rules and regulations as are mentioned in Schedule 8 to this Act, comply with the principles set out in that Schedule.

• (10) The Secretary of State shall also before making a delegation order transferring any functions to a designated agency require it to furnish him with a copy of any guidance intended to have continuing effect which it proposes to issue in writing or other legible form and the Secretary of State may take any such guidance into account in determining whether he is satisfied as mentioned in subsection (9)(b) above.

• (11) No delegation order shall be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament.

• (12) In this Act references to guidance issued by a designated agency are references to guidance issued or any recommendation made by it which is issued or made to persons generally or to any class of persons, being, in either case, persons who are or may be subject to rules or regulations made by it, or who are or may be recognised or authorised by it, in the exercise of its functions under a delegation order.

Resumption of transferred functions

115

• (1) The Secretary of State may at the request or with the consent of a designated agency make an order resuming all or any of the functions transferred to the agency by a delegation order.

• (2) The Secretary of State may, in the circumstances mentioned in subsection (3), (4) or (5) below, make an order resuming—

• (a) all the functions transferred to a designated agency by a delegation order; or

• (b) all, all legislative or all administrative functions transferred to a designated agency by a delegation order so far as relating to investments or investment business of any class.

• (3) An order may be made under subsection (2) above if at any time it appears to the Secretary of State that any of the requirements of Schedule 7 to this Act are not satisfied in the case of the agency.

• (4) An order may be made under subsection (2) above as respects functions relating to any class of investment or investment business if at any time it appears to the Secretary of State that the agency is unable or unwilling to discharge all or any of the transferred functions in respect of all or any investments or investment business falling within that class.

• (5) Where the transferred functions consist of or include any functions of making rules or regulations an order may be made under subsection (2) above if at any time it appears to the Secretary of State that the rules or regulations made by the agency do not satisfy the requirements of section 114(9)(2>) above.

• (6) An order under subsection (1) above shall be subject to annulment in pursuance of a resolution of either House of Parliament; and no other order shall be made under this section unless a draft of it has been laid before and approved by a resolution of each House of Parliament.

• (7) In subsection (2)(b) above—

• (a) " legislative functions" means functions of making rules or regulations;

• (b) " administrative functions " means functions other than legislative functions;

but the resumption of legislative functions shall not deprive a designated agency of any function of prescribing fees to be paid or information to be furnished in connection with administrative functions retained by the agency; and the resumption of administrative functions shall extend to the function of prescribing fees to be paid and information to be furnished in connection with those administrative functions.

Status and exercise of transferred functions

116

Schedule 9 to this Act shall have effect as respects the status of a designated agency and the exercise of the functions transferred to it by a delegation order.

Reports and accounts

117

• (1) A designated agency shall at least once in each year for which the delegation order is in force make a report to the Secretary of State on the discharge of the functions transferred to it by the order and on such other matters as the order may require.

• (2) The Secretary of State shall lay before Parliament copies of each report received by him under this section.

• (3) The Secretary of State may give directions to a designated agency with respect to its accounts and the audit of its accounts; and it shall be the duty of the agency to comply with the directions.

• (4) Subsection (3) above shall not apply to a designated agency which is a company to which section 227 of the Companies Act 1985 applies; but the Secretary of State may require any designated agency (whether or not such a company) to comply with any provisions of that Act which would not otherwise apply to it or direct that any provision of that Act shall apply to the agency with such modifications as are specified in the direction; and it shall be the duty of the agency to comply with any such requirement or direction.

• (5) In subsection (4) above the references to the Companies Act 1985 and section 227 of that Act include references to the corresponding Northern Ireland provisions.

Transitional and supplementary provisions

118

• (1) A delegation order shall not affect anything previously done in the exercise of a function which is transferred by the order; and any order resuming a function shall not affect anything previously done by the designated agency in the exercise of a function which is resumed.

• (2) A delegation order and an order resuming any functions transferred by a delegation order may contain, or the Secretary of State may by a separate order under this section make, such transitional and other supplementary provisions as he thinks necessary or expedient in connection with the delegation order or the order resuming the functions in question.

• (3) The provisions that may be made under subsection (2) above in connection with a delegation order include, in particular, provisions—

• (a) for modifying or excluding any provision of this Act in its application to any function transferred by the order;

• (b) for applying to a designated agency, in connection with any such function, any provision applying to the Secretary of State which is contained in or made under any other enactment;

• (c) for the transfer of any property, rights or liabilities from the Secretary of State to a designated agency;

• (d) for the carrying on and completion by a designated agency of anything in process of being done by the Secretary of State when the order takes effect; and

• (e) for the substitution of a designated agency for the Secretary of State in any instrument, contract or legal proceedings.

• (4) The provisions that may be made under subsection (2) above in connection with an order resuming any functions include, in particular, provisions—

• (a) for the transfer of any property, rights or liabilities from the agency to the Secretary of State;

• (b) for the carrying on and completion by the Secretary of State of anything in process of being done by the agency when the order takes effect;

• (c) for the substitution of the Secretary of State for the agency in any instrument, contract or legal proceedings; and

• (d) in a case where some functions remain with the agency, for modifying or excluding any provision of this Act in its application to any such functions.

• (5) In a case where any function of a designated agency is resumed and is to be immediately transferred by a delegation order to another designated agency, the provisions that may be made under subsection (2) above may include provisions for any of the matters mentioned in paragraphs (a) to (c) of subsection (4) above, taking references to the Secretary of State as references to that other agency.

• (6) Any order under this section shall be subject to annulment in pursuance of a resolution of either House of Parliament.

CHAPTER XIV — Prevention of Restrictive Practices

Examination of rules and practices

Recognised self-regulating organisations, investment exchanges and clearing houses

119

• (1) The Secretary of State shall not make a recognition order in respect of a self-regulating organisation, investment exchange or clearing house unless he is satisfied that—

• (a) the rules and any guidance of which copies are furnished with the application for the order; and

• (b) in the case of an investment exchange, any arrangements of which particulars are furnished with the application,

do not have, and are not intended or likely to have, to any significant extent the effect of restricting, distorting or preventing competition or, if they have or are intended or likely to have that effect to any significant extent, that the effect is not greater than is necessary for the protection of investors.

• (2) The powers conferred by subsection (3) below shall be exercisable by the Secretary of State if at any time it appears to him that—

• (a) any rules made or guidance issued by a recognised self regulating organisation, investment exchange or clearing house or any clearing arrangements made by a recognised clearing house;

• (b) any practices of any such organisation, exchange or clearing house; or

• (c) any practices of persons who are members of, or otherwise subject to the rules made by, any such organisation, exchange or clearing house,

have, or are intended or likely to have, to a significant extent the effect of restricting, distorting or preventing competition and that that effect is greater than is necessary for the protection of investors.

• (3) The powers exercisable under this subsection are—

• (a) to revoke the recognition order of the organisation, exchange or clearing house;

• (b) to direct it to take specified steps for the purpose of securing that the rules, guidance, arrangements or practices in question do not have the effect mentioned in subsection (2) above;

• (c) to make alterations in the rules for that purpose ;

and subsections (2) to (5), (7) and (9) of section 11 above shall have effect in relation to the revocation of a recognition order under this subsection as they have effect in relation to the revocation of such an order under subsection (1) of that section.

• (4) Subsection (3)(c) above does not apply to an overseas investment exchange or overseas clearing house.

• (5) The practices referred to in paragraph (b) of subsection (2) above are practices of the organisation, exchange or clearing house in its capacity as such, being, in the case of a clearing house, practices in respect of its clearing arrangements; and the practices referred to in paragraph (c) of that subsection are practices in relation to business in respect of which the persons in question are subject to the rules of the organisation, exchange or clearing house and which are required or contemplated by its rules or guidance or otherwise attributable to its conduct in its capacity as such.

Modification of s. 119 where recognition function is transferred

120

• (1) This section applies instead of section 119 above where the function of making or revoking a recognition order in respect of a self-regulating organisation, investment exchange or clearing house is exercisable by a designated agency.

• (2) The designated agency—

• (a) shall send to the Secretary of State a copy of the rules and of any guidance or arrangements of which copies or particulars are furnished with any application made to the agency for a recognition order together with any other information supplied with or in connection with the application; and

• (b) shall not make the recognition order without the leave of the Secretary of State ;

and he shall not give leave in any case in which he would (apart from the delegation order) have been precluded by section 119(1) above from making the recognition order.

• (3) A designated agency shall send the Secretary of State a copy of any notice received by it under section 14(6) or 41(5) or (6) above.

• (4) If at any time it appears to the Secretary of State in the case of a recognised self-regulating organisation, recognised investment exchange or recognised clearing house that there are circumstances such that (apart from the delegation order) he would have been able to exercise any of the powers conferred by subsection (3) of section 119 above he may, notwithstanding the delegation order, himself exercise the power conferred by paragraph (a) of that subsection or direct the designated agency to exercise the power conferred by paragraph (b) or (c) of that subsection in such manner as he may specify.

Designated agencies

121

• (1) The Secretary of State shall not make a delegation order transferring any function to a designated agency unless he is satisfied that any rules, regulations and guidance of which copies are furnished to him under section 114(9) or (10) above do not have, and are not intended or likely to have, to any significant extent the effect of restricting, distorting or preventing competition or, if they have or are intended or likely to have that effect to any significant extent, that the effect is not greater than is necessary for the protection of investors.

• (2) The powers conferred by subsection (3) below shall be exercisable by the Secretary of State if at any time it appears to him that—

• (a) any rules or regulations made by a designated agency in the exercise of functions transferred to it by a delegation order or any guidance issued by a designated agency;

• (b) any practices of a designated agency; or

• (c) any practices of persons who are subject to rules or regulations made by it in the exercise of those functions,

have, or are intended or are likely to have, to any significant extent the effect of restricting, distorting or preventing competition and that that effect is greater than is necessary for the protection of investors.

• (3) The powers exercisable under this subsection are—

• (a) to make an order in respect of the agency under section 115(2) above as if the circumstances were such as are there mentioned; or

• (b) to direct the agency to take specified steps for the purpose of securing that the rules, regulations, guidance or practices in question do not have the effect mentioned in subsection (2) above.

• (4) The practices referred to in paragraph (b) of subsection (2) above are practices of the designated agency in its capacity as such; and the practices referred to in paragraph (c) of that subsection are practices in relation to business in respect of which the persons in question are subject to any such rules or regulations as are mentioned in paragraph (a) of that subsection and which are required or contemplated by those rules or regulations or by any such guidance as is there mentioned or are otherwise attributable to the conduct of the agency in its capacity as such.

Consultation with Director General of Fair Trading

Reports by Director General of Fair Trading

122

• (1) The Secretary of State shall before deciding—

• (a) whether to refuse to make, or to refuse leave for the making of, a recognition order in pursuance of section 119(1) or 120(2) above; or

• (b) whether he is precluded by section 121(1) above from making a delegation order,

send to the Director General of Fair Trading (in this Chapter referred to as " the Director ") a copy of the rules and regulations and of any guidance or arrangements which the Secretary of State is required to consider in making that decision together with such other information as the Secretary of State considers will assist the Director in discharging his functions under subsection (2) below.

• (2) The Director shall report to the Secretary of State whether. In his opinion, the rules, regulations, guidance or arrangements of which copies are sent to him under subsection (1) above have, or are intended or likely to have, to any significant extent the effect of restricting, distorting, or preventing competition and, if so, what that effect is likely to be ; and in making any such decision as is mentioned in that subsection the Secretary of State shall have regard to the Director's report.

• (3) The Secretary of State shall send the Director copies of any notice received by him under section 14(6), 41(5) or (6) or 120(3) above or under paragraph 4 of Schedule 9 to this Act together with such other information as the Secretary of State considers will assist the Director in discharging his functions under subsections (4) and (5) below.

• (4) The Director shall keep under review—

• (a) the rules, guidance, arrangements and regulations mentioned in section 119(2) and 121(2) above; and

• (b) the matters specified in the notices of which copies are sent to him under subsection (3) above ;

and if at any time he is of the opinion that any such rules, guidance, arrangements, regulations or matters, or any such rules, guidance, arrangements or regulations taken together with any such matters, have, or are intended or likely to have, to any significant extent the effect mentioned in subsection (2) above, he shall make a report to the Secretary of State stating his opinion and what that effect is or is likely to be.

• (5) The Director may report to the Secretary of State his opinion that any such matter as is mentioned in subsection (4)(b) above does not in his opinion have, and is not intended or likely to have, to any significant extent the effect mentioned in subsection (2) above.

• (6) The Director may from time to time consider whether any such practices as are mentioned in section 119(2) or 121(2) above have, or are intended or likely to have, to any significant extent the effect mentioned in subsection (2) above and, if so, what that effect is or is likely to be; and if he is of that opinion he shall make a report to the Secretary of State stating his opinion and what the effect is or is likely to be.

• (7) The Secretary of State shall not exercise his powers under section 119(3), 120(4) or 121(3) above except after receiving and considering a report from the Director under subsection (4) or (6) above.

• (8) The Director may, if he thinks fit, publish any report made by him under this section but shall exclude from a published report, so far as practicable, any matter which relates to the affairs of a particular person (other than the self-regulating organisation, investment exchange, clearing house or designated agency concerned) the publication of which would or might in his opinion seriously and prejudicially affect the interests of that person.

Investigations by Director General of Fair Trading

123

• (1) For the purpose of investigating any matter with a view to its consideration under section 122 above the Director may by a notice in writing—

• (a) require any person to produce, at a time and place specified in the notice, to the Director or to any person appointed by him for the purpose, any documents which are specified or described in the notice and which are documents in his custody or under his control and relating to any matter relevant to the investigation ; or

• (b) require any person carrying on any business to furnish to the Director such information as may be specified or described in the notice, and specify the time within which, and the manner and form in which, any such information is to be furnished.

• (2) A person shall not under this section be required to produce any document or disclose any information which he would be entitled to refuse to produce or disclose on grounds of legal professional privilege in proceedings in the High Court or on grounds of confidentiality as between client and professional legal adviser in proceedings in the Court of Session.

• (3) Subsections (5) to (8) of section 85 of the Fair Trading Act 1973 (enforcement provisions) shall apply in relation to a notice under this section as they apply in relation to a notice under subsection (1) of that section.

Consequential exemptions from competition law

The Fair Trading Act 1973

124

• (1) For the purpose of determining whether a monopoly situation within the meaning of the Fair Trading Act 1973 exists by reason of the circumstances mentioned in section 7(1 )(c) of that Act, no account shall be taken of—

• (a) the rules made or guidance issued by a recognised self regulating organisation, recognised investment exchange or recognised clearing house or any conduct constituting such a practice as is mentioned in section 119(2) above;

• (b) any clearing arrangements or any conduct required or contemplated by any such arrangements; or

• (c) the rules or regulations made or guidance issued by a designated agency in the exercise of functions transferred to it by a delegation order or any conduct constituting such a practice as is mentioned in section 121(2) above.

• (2) Where a recognition order is revoked there shall be disregarded for the purpose mentioned in subsection (1) above any such conduct as is mentioned in that subsection which occurred while the order was in force.

• (3) Where on a monopoly reference under section 50 or 51 of the said Act of 1973 falling within section 49 of that Act the Monopolies and Mergers Commission find that a monopoly situation within the meaning of that Act exists and—

• (a) that the person (or, if more than one, any of the persons) in whose favour it exists is subject to the rules of a recognised self-regulating organisation, recognised investment exchange or recognised clearing house or to the rules or regulations made by a designated agency in the exercise of functions transferred to it by a delegation order; or

• (b) that any such person's conduct in carrying on any business to which those rules or regulations relate is the subject of guidance issued by such an organisation, exchange, clearing house or agency; or

• (c) that any such person is a party to any clearing arrangements ; or

• (d) that the person (or, if more than one, any of the persons) in whose favour the monopoly situation exists is such an organisation, exchange or clearing house as is mentioned in paragraph (a) above or a designated agency,

the Commission, in making their report on that reference, shall exclude from their consideration the question whether the rules, regulations, guidance or clearing arrangements or any acts or omissions of such an organisation, exchange, clearing house or agency as is mentioned in paragraph (d) above in its capacity as such operate, or may be expected to operate, against the public interest; and section 54(3) of that Act shall have effect subject to the provisions of this subsection.

The Restrictive Trade Practices Act 1976

125

• (1) The Restrictive Trade Practices Act 1976 shall not apply to any agreement for the constitution of a recognised self-regulating organisation, recognised investment exchange or recognised clearing house, including any term deemed to be contained in it by virtue of section 8(2) or 16(3) of that Act.

• (2) The said Act of 1976 shall not apply to any agreement the parties to which consist of or include—

• (a) any such organisation, exchange or clearing house as is mentioned in subsection (1) above ; or

• (b) a person who is subject to the rules of any such organisation, exchange or clearing house or to the rules or regulations made by a designated agency in the exercise of functions transferred to it by a delegation order,

by reason of any term the inclusion of which in the agreement is required or contemplated by the rules, regulations or guidance of that organisation, exchange, clearing house or agency.

• (3) The said Act of 1976 shall not apply to any clearing arrangements or to any agreement between a recognised investment exchange and a recognised clearing house by reason of any term the inclusion of which in the agreement is required or contemplated by any clearing arrangements.

• (4) Where the recognition order in respect of a self-regulating organisation, investment exchange or clearing house is revoked the foregoing provisions shall have effect as if the organisation, exchange or clearing house had continued to be recognised until the end of the period of six months beginning with the day on which the revocation takes effect.

• (5) Where an agreement ceases by virtue of this section to be subject to registration—

• (a) the Director shall remove from the register maintained by him under the said Act of 1976 any particulars which are entered or filed in that register in respect of the agreement; and

• (b) any proceedings in respect of the agreement which are pending before the Restrictive Practices Court shall be discontinued.

• (6) Where an agreement which has been exempt from registration by virtue of this section ceases to be exempt in consequence of the revocation of a recognition order, the time within which particulars of the agreement are to be furnished in accordance with section 24 of and Schedule 2 to the said Act of 1976 shall be the period of one month beginning with the day on which the agreement ceased to be exempt from registration.

• (7) Where in the case of an agreement registered under the said Act of 1976 a term ceases to fall within subsection (2) or (3) above in consequence of the revocation of a recognition order and particulars of that term have not previously been furnished to the Director under section 24 of that Act, those particulars shall be furnished to him within the period of one month beginning with the day on which the term ceased to fall within that subsection.

• (8) The Restrictive Trade Practices (Stock Exchange) Act 1984 shall cease to have effect.

The Competition Act 1980

126

• (1) No course of conduct constituting any such practice as is mentioned in section 119(2) or 121(2) above shall constitute an anti-competitive practice for the purposes of the Competition Act 1980.

• (2) Where a recognition order or delegation order is revoked, there shall not be treated as an anti-competitive practice for the purposes of that Act any such course of conduct as is mentioned in subsection (1) above which occurred while the order was in force.

Recognised professional bodies

Modification of Restrictive Trade Practices Act 1976 in relation to recognised professional bodies

127

• (1) This section applies to—

• (a) any agreement for the constitution of a recognised professional body, including any term deemed to be contained in it by virtue of section 16(3) of the Restrictive Trade Practices Act 1976 ; and

• (b) any other agreement—

• (i) the parties to which consist of or include such a body, a person certified by such a body or a member of such a body; and

• (ii) to which that Act applies by virtue of any term the inclusion of which in the agreement is required or contemplated by rules or guidance of that body relating to the carrying on of investment business by persons certified by it.

• (2) If it appears to the Secretary of State that the restrictions in an agreement to which this section applies—

• (a) do not have, and are not intended or likely to have, to any significant extent the effect of restricting, distorting or preventing competition ; or

• (b) if all or any of them have, or are intended or likely to have, that effect to any significant extent, that the effect is not greater than is necessary for the protection of investors,

he may give a direction to the Director requiring him not to make an application to the Restrictive Practices Court under Part I of the said Act of 1976 in respect of the agreement.

• (3) If it appears to the Secretary of State that one or more (but not all) of the restrictions in an agreement to which this section applies—

• (a) do not have, and are not intended or likely to have, to any significant extent the effect mentioned in subsection (2) above; or

• (b) if they have, or are intended or likely to have, that effect to any significant extent that the effect is not greater than is necessary for the protection of investors,

he may make a declaration to that effect and give notice of it to the Director and the Restrictive Practices Court.

• (4) The Restrictive Practices Court shall not in any proceedings begun by an application made after notice has been given to it of a declaration under this section make any finding or exercise any power under Part I of the said Act of 1976 in relation to a restriction in respect of which the declaration has effect.

• (5) The Director shall not make any application to the Restrictive Practices Court under Part I of the said Act of 1976 in respect of any agreement to which this section applies unless—

• (a) he has notified the Secretary of State of his intention to do so; and

• (b) the Secretary of State has either notified him that he does not intend to give a direction or make a declaration under this section or has given him notice of a declaration in respect of it;

and where the Director proposes to make any such application he shall furnish the Secretary of State with particulars of the agreement and the restrictions by virtue of which the said Act of 1976 applies to it and such other information as he considers will assist the Secretary of State in deciding whether to exercise his powers under this section or as the Secretary of State may request.

• (6) The Secretary of State may—

• (a) revoke a direction or declaration under this section;

• (b) vary any such declaration; or

• (c) give a direction or make a declaration notwithstanding a previous notification to the Director that he did not intend to give a direction or make a declaration,

if he is satisfied that there has been a material change of circumstances such that the grounds for the direction or declaration have ceased to exist, that there are grounds for a different declaration or that there are grounds for giving a direction or making a declaration, as the case may be.

• (7) The Secretary of State shall give notice to the Director of the revocation of a direction and to the Director and the Restrictive Practices Court of the revocation or variation of a declaration ; and no such variation shall have effect so as to restrict the powers of the Court in any proceedings begun by an application already made by the Director.

• (8) A direction or declaration under this section shall cease to have effect if the agreement in question ceases to be one to which this section applies.

• (9) This section applies to information provisions as it applies to restrictions.

Supplemental

Supplementary provisions

128

• (1) Before the Secretary of State exercises a power under section 119(3) (b) or (c) above, his power to refuse leave under section 120(2) above or his power to give a direction under section 120(4) above in respect of a self-regulating organisation, investment exchange or clearing house, or his power under section 121(3)(b) above in respect of a designated agency, he shall—

• (a) give written notice of his intention to do so to the organisation, exchange, clearing house or agency and take such steps (whether by publication or otherwise) as he thinks appropriate for bringing the notice to the attention of any other person who in his opinion is likely to be affected by the exercise of the power ; and

• (b) have regard to any representation made within such time as he considers reasonable by the organisation, exchange, clearing house or agency or by any such other person.

• (2) A notice under subsection (1) above shall give particulars of the manner in which the Secretary of State proposes to exercise the power in question and state the reasons for which he proposes to act; and the statement of reasons may include matters contained in any report received by him under section 122 above.

• (3) Any direction given under this Chapter shall, on the application of the person by whom it was given, be enforceable by mandamus or, in Scotland, by an order for specific performance under section 91 of the Court of Session Act 1868.

• (4) The fact that any rules or regulations made by a recognised self-regulating organisation, investment exchange or clearing house or by a designated agency have been altered by or pursuant to a direction given by the Secretary of State under this Chapter shall not preclude their subsequent alteration or revocation by that organisation, exchange, clearing house or agency.

• (5) In determining under this Chapter whether any guidance has, or is likely to have, any particular effect the Secretary of State and the Director may assume that the persons to whom it is addressed will act in conformity with it.

PART II — Insurance Business

Application of investment business provisions to regulated insurance companies

129

Schedule 10 to this Act shall have effect with respect to the application of the foregoing provisions of this Act to regulated insurance companies, that is to say—

• (a) insurance companies to which Part II of the Insurance Companies Act 1982 applies ; and

• (b) insurance companies which are authorised persons by virtue of section 31 above.

Restriction on promotion of contracts of insurance

130

• (1) Subject to subsections (2) and (3) below, no person shall—

• (a) issue or cause to be issued in the United Kingdom an advertisement—

• (i) inviting any person to enter or offer to enter into a contract of insurance rights under which constitute an investment for the purposes of this Act, or

• (ii) containing information calculated to lead directly or indirectly to any person doing so; or

• (b) in the course of a business, advise or procure any person in the United Kingdom to enter into such a contract.

• (2) Subsection (1) above does not apply where the contract of insurance referred to in that subsection is to be with—

• (a) a body authorised under section 3 or 4 of the Insurance Companies Act 1982 to effect and carry out such contracts of insurance;

• (b) a body registered under the enactments relating to friendly societies;

• (c) an insurance company the head office of which is in a member State other than the United Kingdom and which is entitled to carry on there insurance business of the relevant class ;

• (d) an insurance company which has a branch or agency in such a member State and is entitled under the law of that State to carry on there insurance business of the relevant class;

and in this subsection " the relevant class " means the class of insurance business specified in Schedule 1 or 2 to the Insurance Companies Act 1982 into which the effecting and carrying out of the contract in question falls.

• (3) Subsection (1) above also does not apply where—

• (a) the contract of insurance referred to in that subsection is to be with an insurance company authorised to effect or carry out such contracts of insurance in any country or territory which is for the time being designated for the purposes of this section by an order made by the Secretary of State ; and

• (b) any conditions imposed by the order designating the country or territory have been satisfied.

• (4) The Secretary of State shall not make an order designating any country or territory for the purposes of this section unless he is satisfied that the law under which insurance companies are authorised and supervised in that country or territory affords adequate protection to policy holders and potential policy holders against the risk that the companies may be unable to meet their liabilities; and, if at any time it appears to him that the law of a country or territory which has been designated under this section does not satisfy that requirement, he may by a further order revoke the order designating that country or territory.

• (5) An order under this section shall be subject to annulment in pursuance of a resolution of either House of Parliament.

• (6) Subject to subsections (7) and (8) below, any person who contravenes this section shall be guilty of an offence and liable—

• (a) on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine or to both;

• (b) on summary conviction, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum or to both.

• (7) A person who in the ordinary course of a business other than investment business issues an advertisement to the order of another person shall not be guilty of an offence under this section if he proves that the matters contained in the advertisement were not (wholly or in part) devised or selected by him or by any person under his direction or control and that he believed on reasonable grounds after due enquiry that the person to whose order the advertisement was issued was an authorised person.

• (8) A person other than the insurance company with which the contract of insurance is to be mads shall not be guilty of an offence under this section if he proves that he believed on reasonable grounds after due enquiry that subsection (2) or (3) above applied in the case of the contravention in question.

Contracts made after contravention of s. 130

131

• (1) Where there has been a contravention of section 130 above, then, subject to subsections (3) and (4) below—

• (a) the insurance company shall not be entitled to enforce any contract of insurance with which the advertisement, advice or procurement was concerned and which was entered into after the contravention occurred ; and

• (b) the other party shall be entitled to recover any money or other property paid or transferred by him under the contract, together with compensation for any loss sustained by him as a result of having parted with it.

• (2) The compensation recoverable under subsection (1) above shall be such as the parties may agree or as a court may, on the application of either party, determine.

• (3) In a case where the contravention referred to in subsection (1) above was a contravention by the insurance company with which the contract was made, the court may allow the contract to be enforced or money or property paid or transferred under it to be retained if it is satisfied—

• (a) that the person against whom enforcement is sought or who is seeking to recover the money or property was not influenced, or not influenced to any material extent, by the advertisement or, as the case may be, the advice in making his decision to enter into the contract; or

• (b) that the advertisement or, as the case may be, the advice was not misleading as to the nature of the company with which the contract was to be made or the terms of the contract and fairly stated any risks involved in entering into it.

• (4) In a case where the contravention of section 130 above referred to in subsection (1) above was a contravention by a person other than the insurance company with which the contract was made the court may allow the contract to be enforced or money or property paid or transferred under it to be retained if it is satisfied that at the time the contract was made the company had no reason to believe that any contravention of section 130 above had taken place in relation to the contract.

• (5) Where a person elects not to perform a contract which by virtue of subsection (1) above is unenforceable against him or by virtue of that subsection recovers money paid or other property transferred by him under a contract he shall not be entitled to any benefits under the contract and shall repay any money and return any other property received by him under the contract.

• (6) Where any property transferred under a contract to which this section applies has passed to a third party the references to that property in this section shall be construed as references to its value at the time of its transfer under the contract.

• (7) A contravention of section 130 above by an authorised person shall be actionable at the suit of any person who suffers loss as a result of the contravention.

• (8) Section 61 above shall have effect in relation to a contravention or proposed contravention of section 130 above as it has effect in relation to a contravention or proposed contravention of section 57 above.

Insurance contracts effected in contravention of s. 2 of Insurance Companies Act 1982

132

• (1) Subject to subsection (3) below, a contract of insurance (not being an agreement to which section 5(1) above applies) which is entered into by a person in the course of carrying on insurance business in contravention of section 2 of the Insurance Companies Act 1982 shall be unenforceable against the other party; and that party shall be entitled to recover any money or other property paid or transferred by him under the contract, together with compensation for any loss sustained by him as a result of having parted with it.

• (2) The compensation recoverable under subsection (1) above shall be such as the parties may agree or as a court may, on the application of either party, determine.

• (3) A court may allow a contract to which subsection (1) above applies to be enforced or money or property paid or transferred under it to be retained if it is satisfied—

• (a) that the person carrying on insurance business reasonably believed that his entering into the contract did not constitute a contravention of section 2 of the said Act of 1982; and

• (b) that it is just and equitable for the contract to be enforced or, as the case may be, for the money or property paid or transferred under it to be retained.

• (4) Where a person elects not to perform a contract which by virtue of this section is unenforceable against him or by virtue of this section recovers money or property paid or transferred under a contract he shall not be entitled to any benefits under the contract and shall repay any money and return any other property received by him under the contract.

• (5) Where any property transferred under a contract to which this section applies has passed to a third party the references to that property in this section shall be construed as references to its value at the time of its transfer under the contract.

• (6) A contravention of section 2 of the said Act of 1982 shall not make a contract of insurance illegal or invalid to any greater extent than is provided in this section; and a contravention of that section in respect of a contract of insurance shall not affect the validity of any re-insurance contract entered into in respect of that contract.

Misleading statements as to insurance contracts

133

• (1) Any person who—

• (a) makes a statement, promise or forecast which he knows to be misleading, false or deceptive or dishonestly conceals any material facts ; or

• (b) recklessly makes (dishonestly or otherwise) a statement, promise or forecast which is misleading, false or deceptive,

is guilty of an offence if he makes the statement, promise or forecast or conceals the facts for the purpose of inducing, or is reckless as to whether it may induce, another person (whether or not the person to whom the statement, promise or forecast is made or from whom the facts are concealed) to enter into or offer to enter into, or to refrain from entering or offering to enter into, a contract of insurance with an insurance company (not being an investment agreement) or to exercise, or refrain from exercising, any rights conferred by such a contract.

• (2) Subsection (1) above does not apply unless—

• (a) the statement, promise or forecast is made in or from, or the facts are concealed in or from, the United Kingdom;

• (b) the person on whom the inducement is intended to or may have effect is in the United Kingdom ; or

• (c) the contract is or would be entered into or the rights are or would be exercisable in the United Kingdom.

• (3) A person guilty of an offence under this section shall be liable—

• (a) on conviction on indictment, to imprisonment for a term not exceeding seven years or to a fine or to both ;

• (b) on summary conviction, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum or to both.

Controllers of insurance companies

134

In section 7(4)(c)(ii) of the Insurance Companies Act 1982 (definition of controller by reference to exercise of not less than one-third of voting power) for the words " one-third " there shall be substituted the words " 15 per cent. ".

Communication by auditor with Secretary of State

135

• (1) After section 21 of the Insurance Companies Act 1982 there shall be inserted—

(21A) (1) No duty to which an auditor of an insurance company to which this Part of this Act applies may be subject shall be regarded as contravened by reason of his communicating in good faith to the Secretary of State, whether or not in response to a request from him, any information or opinion on a matter of which the auditor has become aware in his capacity as auditor of that company and which is relevant to any functions of the Secretary of State under this Act. (2) If it appears to the Secretary of State that any auditor or class of auditor to whom subsection (1) above applies is not subject to satisfactory rules made or guidance issued by a professional body specifying circumstances in which matters are to be communicated to the Secretary of State as mentioned in that subsection the Secretary of State may make regulations applying to that auditor or class of auditor and specifying such circumstances; and it shall be the duty of an auditor to whom the regulations made by the Secretary of State apply to communicate a matter to the Secretary of State in the circumstances specified by the regulations. (3) The matters to be communicated to the Secretary of State in accordance with any such rules or guidance or regulations may include matters relating to persons other than the company. (4) No regulations shall be made under subsection (2) above unless a draft of them has been laid before and approved by a resolution of each House of Parliament. (5) If it appears to the Secretary of State that an auditor has failed to comply with the duty mentioned in subsection (2) above, the Secretary of State may disqualify him from being the auditor of an insurance company or any class of insurance company to which Part II of this Act applies; but the Secretary of State may remove any disqualification imposed under this subsection if satisfied that the person in question will in future comply with that duty. (6) An insurance company to which this Part of this Act applies shall not appoint as auditor a person disqualified under subsection (5) above.

.

• (2) In section 71(7) of that Act (which lists the provisions of that Act default in complying with which is not an offence) after the words " section 16 " there shall be inserted the word " 21A ", and in section 97(4) of that Act (which provides that regulations under that Act are to be subject to annulment) after the word " Act" there shall be inserted the words " , except regulations under section 21A(3), ".

Arrangements to avoid unfairness between separate insurance funds etc.

136