Source: https://api.parliament.uk/historic-hansard/lords/1986/jul/10/building-societies-bill
Timestamp: 2019-04-18 13:00:41+00:00

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§ The noble Lord said: May I remind the Committee that under this Part of the Bill and under Clause 34 building societies will, in the future, when the necessary regulations have been made, be entitled to offer various ancillary services such as conveyancing, insurance, and so on, to the public and to their borrowers. The object of Clause 35 is to prevent and prohibit a building society from making it a condition of a loan to a borrower that he or she uses one or more of the ancillary services which the building society will be entitled to provide. I entirely agree and accept that prohibition. The reasons for it are evident, but I take the view that it does not go far enough.
§ The clause seems to assume that building societies ration their mortgages (if I may put it in that way) when there is a general mortgage famine, and will therefore seek to make it a condition of the granting of a mortgage that the borrower shall use one or more of their ancillary services. That is all right; but when building societies are flush with money and are looking for ways of placing it, and when they want to encourage and compete to find borrowers to whom they can make loans, the temptation is the opposite. They may be tempted to say to the borrower, "We will make an advance provided that you make use of one or more of our ancillary services". That is as objectionable as the matter with which the clause deals, and should also be prohibited. That is the effect of the first part of the amendment.
§ The other matter which is dealt with by the second part of the amendment is that it will be open to building societies to engage in what I might call differential pricing. They may subsidise the services or make them free to any borrower. However, if anyone who is not a borrower wants to make use of their services they may require that person to pay the full 458 price. That would link the services and the borrowing, and is equally objectionable. I hope that I may get a favourable answer to this question from the Minister, because the whole spirit of it is to follow along what Clause 35 intends. I beg to move.
The noble Lord, Lord Foot, has made many interesting points in his remarks and I must express sympathy with at least some of them. But we must beware of trying in this Bill to usurp what are properly matters for competition legislation. I can foresee two dangers in this. First, as more lenders enter the mortgage market it would be wrong and unfair to shackle building societies with too many restrictions that do not apply to others.
Secondly, competition policy does not always lend itself to simple rules. The line between fair competition and unfair competition is sometimes a difficult one to draw. It is one which, I suggest, is best examined case by case by the Director General of Fair Trading using his powers under the fair trading and competition Acts and the expertise at his disposal in the Office of Fair Trading.
The Bill nevertheless includes two restrictions in this clause, but they deal with matters about which there has been concern in the past. Both parts of the noble Lord's amendment would go beyond those two clear-cut issues into matters which are by no means as black and white. The Bill prohibits building societies from tying the provision of a loan to borrowers using an ancillary service. There has been a lot of concern about this in recent years, particularly in the field of insurance, but the amendment would apply the prohibition the other way round, which I do not believe is justified.
The existing provision is justified because of the market muscle that the societies have in mortgages. The same argument does not apply to the Schedule 8 services. It would make little commercial sense for a society's estate agency or insurance arm to turn people away because they wanted to go elsewhere for their loan. This part of the amendment is unnecessary and therefore inappropriate.
The second provision in the Bill requires building societies to itemise the prices of individual services when offering several together. It is quite right and proper that the customer should know where he stands, but the noble Lord's amendment would go further and eliminate all cross-subsidisation. That would restrict the commercial freedom of the societies to a quite unacceptable extent.
Others in the house-buying market—banks, estate agents, insurance companies, and so on—can and do offer cut-price special offers. It is a perfectly legitimate marketing ploy—part of the cut and thrust of competition. It does not necessarily involve predatory pricing, as it is known, and if the practice turned into an anti-competitive one then the OFT would have the powers to investigate it.
The noble and learned Lord, Lord Templeman, spoke about conflicts of interest when he spoke to, I think, Amendment No. 7. He made some interesting points there which are along the same lines as those the noble Lord raised this afternoon. The Government 459 agree that there are circumstances where particular conflicts are so serious as to warrant statutory prohibitions. There is, for example, Clause 13(2) of this Bill which prohibits anybody with an interest in the sale of a house, or the agent for the vendor, from advising the society of its value for the purposes of security.
The Government recognise the potential conflict between the role of estate agent and mortgagee, and have dealt with it in Schedule 8 by requiring estate agency services to be offered through separate subsidiaries and prohibiting a society's employees from acting on behalf of the estate agent's subsidiary. We have already discussed how the recognition rules to be made by my noble and learned friend the Lord Chancellor under Schedule 21 will address the potential conflict between lender and borrower, and we shall have a debate later this afternoon on those particular parts of the Bill. I can assure the noble Lord that my noble and learned friend will take into account all that is said when we come to that.
The Government think that conflicts of interest are best dealt with individually on their merits in this way. We should not discourage people from offering more than one service to the public, whether packaged or not. The generalised approach of this amendment would bring too much within the net without dealing adequately with the more serious conflicts. But having said that, the Government are certainly not deaf to the concerns expressed. There are safeguards both in this Bill and elsewhere, and for the reasons that I have given we think that the amendment is too sweeping. I hope that in the explanation I have given I may have given some comfort to the noble Lord and that he will agree to withdraw the amendment.
My noble friend in his response to the noble Lord, Lord Foot, has admitted—as indeed Members in the other place have admitted—the dominant position of the building societies with regard to mortgages. It is this point that one must always bear in mind. What happens in the real world is that the vast majority of people (wisely, in my view) keep as far away from lawyers and financiers, and people of that ilk, as they can, except on one occasion in their life—and it is usually the first occasion in their life—that is, when they buy a house. That is what starts them off.
I believe strongly in the famous Jesuit principle that if you catch the child young enough, you have got him for life. Beyond any doubt at all that is what is going to happen. The building societies will try—as indeed the banks do this very day—to capture, and rightly so in a way, all the financial business of their customers. If my noble friend had words with the insurance brokers he would find that on a daily basis the banks are turning round to customers who go to the banks for mortgages and second mortgages and saying to them quite clearly, "We will be handling your insurances, won't we?" To which they will inevitably get the response, "I have been dealing with my insurance broker for the last 15 years, and I see no reason to change". They will then repeat, "We will be dealing with your insurances, won't we?" And they lose this business time after time. I am concerned about that, and it may happen with the building societies.
460 My major concern is not that the Bill does not attempt to handle that, but I cannot see how Clause 35 can possibly be believed. I should like to know how the evidence will come before the authorities if it happens. It is certainly not going to come from the person affected, because he would obviously consider that it is not in his own interest to blow the whistle, so to speak, on the society that is lending him money.
On the last point, surely the evidence, if there is any, will come from those who feel aggrieved; that is to say, the independent insurance broker or the estate agent. If they find that their local building society is doing something that they consider should be brought to the attention of the Office of Fair Trading, they are the ones who will bring it to the Office of Fair Trading. It obviously will not be the customer who thinks he is getting a good deal. I think that is the way that would operate.
The noble Lord in his reply to the amendment—a reply with which, incidentally, I did not disagree—pleaded in aid the powers of the Office of Fair Trading, the office having general supervision. On previous occasions we have had in this Chamber Bills where the Office of Fair Trading and competition law were pleaded in aid. The question I would put to the noble Lord is: is he satisfied or will he give us an assurance that the Office of Fair Trading will be adequately staffed to meet the extra demands that different Bills are placing upon it?
The noble Lord makes a good point. I am well aware that not only this Bill but also other Bills are liable to put extra work on to the Office of Fair Trading. I would very much hope—I can go no further than that this afternoon—that indeed the noble Lord's anxieties will be satisfied in that the Office of Fair Trading will be well enough staffed to cope with this kind of problem. I must say straight away that in this particular case I do not see that there will be much of a problem. I do not see that there should be that much extra work for the Office of Fair Trading. That is not what I was trying to say on this occasion.
I am afraid I am a little disappointed by the Minister's reply, but I am grateful to him for dealing with the matter so fully. The best I can do is to say only this: I cannot understand why the Government have produced Clause 35 in order to prohibit what they regard as a serious evil, because the only reason why the clause is in the Bill is that the Government think that to link the ancillary services with the loan is against the public interest. Yet the Minister will not have it that it is equally against the public interest for a building society to say to a prospective borrower, "Look, you can have access to all our ancillary services, our conveyancing services and the rest, but only on condition that you take a loan from us". That seems quite similar in principle. It is an example of the linking of the ancillary services with the loan, and it seems to me that it is just as objectionable as the evil with which Clause 35 at present deals. Having said that, unless the Minister would care to say anything further in reply, I shall beg leave to withdraw the amendment.
§ Page 52, line 16, leave out subsection (3).
§ The noble Lord said: I tabled this amendment to draw attention to Clause 35(3), which in my view demonstrates that Her Majesty's Government must be the only people in the country who believe that there is such a thing as a free lunch. I also believe that it is fundamentally anti-competitive in that if the first part of Clause 35 prohibits the linking of services, this part positively encourages cross-subsidisation. It is only the big institutions which will be able to afford to do this. Any of the independent licensed conveyancers or solicitors would not be able to afford to do it. Of its very nature this demonstrates the anti-competitive element of this subsection. I can see why this provision is here—because certain building companies, offer, for example, free conveyancing as a carrot to selling a house; but I do not think it would be right and proper for a building society giving professional advice to the public to have this power. I beg to move.
As I stated when replying to the previous amendment, we do not want to put building societies at a competitive disadvantage to their rivals in the home loans market. As my noble friend Lord Morris said, the building companies sometimes offer free conveyancing, and there is nothing to prevent banks or other people who offer mortgages from doing the same. I really do not think that in this respect to place on building societies a restriction which did not apply to others would be fair to them. As I said in reply to the noble Lord, Lord Foot, cross-subsidisation may frequently be a perfectly legitimate practice.
I take issue with the principle behind my noble friend's amendment; that is, that the building socieites will have an enormous amount of money available to offer free services such as this. They are very much in competition at the moment in their prime business; that is to say, the offering of home loans and the attracting of deposits with which to match them. I do not know whether my noble friend noticed in today's Financial Times a report that the United Kingdom's biggest building societies had yesterday to push up their interest rates without altering their mortgage rates. Therefore their margins have been squeezed. I do not think that they will therefore find themselves able to offer these sorts of services free of charge in any case.
There are also a couple of technical defects in my noble friend's amendment. First, leaving out subsection (3) would not prevent building societies from offering these services free. It is purely a declaratory subsection. Secondly, even if they did not offer them free, they could offer them for £1 or something like that. So I do not think my noble friend's amendment would have any effect at all; nor do I accept the dangers that he foresees.
I am most grateful for my noble friend's interesting reply. Certainly I am if not wiser, better informed. In the light of that I beg leave to withdraw the amendment.
§ The noble Lord said: With leave of the Committee I shall speak also to Amendment No. 108. These are drafting amendments. I beg to move.
§ Page 54. line 18, leave out ("their") and insert ("the society's").
§ On Question, Whether Clause 36, as amended, shall stand part of the Bill?
Clause 36 is the first in Part VI of the Bill, and just for a moment or two I wish to draw attention to the price which the building societies will have to pay for the flexibility that they seek in this Bill in order to widen the scope of their activities and services. This is the clause in which the building societies embrace their chains. The controls and the authority of the commission are very wide indeed. It is quite obvious that the Treasury has insisted on this array of safeguards, restraints, oversight and authority for giving directions so as to avoid building societies misusing their new freedom or being negligent in using it.
It seems to me that the Bill is in some respects heavily distorted by the demands of the larger building societies. It enables them to do much more than they are doing now in the field of consumer lending. This I think is a danger. Consumer lending is the profitable part of the credit system at present. This is an addition to the area in which people may get personal unsecured loans and other forms of extended credit. These restraints may be necessary, but I think the building societies must feel that they are submitting to a degree of oversight, control and authority which robs them of some of the dignity and prestige which they have had in the past. They will be subordinate to a form of authority which is not applied to any other sector of similar activity. It is certainly more rigorous than anything they have had to submit to before.
However, I am not complaining; I am merely pointing out that this is a consequence of the ambitions of the bigger building societies, at any rate, to go into a wider area of financial activity. Whether they are going to be contributing anything to the welfare or the wealth of the nation is an open question. I am not going to pursue that. But here we have a sequence of clauses in the Bill which I think illustrate the full extent of the discipline which has been imposed upon the building societies as the price of the additional flexibility in their activities.
I would make just two points to the noble Lord, Lord Houghton of Sowerby. Firstly, I think that on the whole the building societies seem to be going pretty willingly into this new legislation. In fact, the legislation has been worked out 463 in very close co-operation with the association. They are keen to go down this path. As far as the extent of the supervision is concerned, it is not nearly as tough as that in relation to the banks, I understand, but it is in keeping with what is necessary for the new role which they themselves wish to undertake.
§ Clause 36, as amended, agreed to.
§ Page 55, line 35, leave out ("company insolvency laws") and insert ("applicable winding up legislation").
§ The noble Lord said: I spoke to this amendment with Amendment No. 72. I beg to move.
§ Page 58, line 13, at end insert (", including the holding of any property or rights").
§ The noble Lord said: I beg to move Amendment No. 110. This amendment is to broaden the definition of "activity" applicable to Clauses 38 to 40 to include the act of holding property or rights. I beg to move.
§ Page 60, line 2, leave out ("to an appeal").
§ The noble Lord said: I beg to move Amendment No. 111 and to speak to Amendments Nos. 112, 114 and 115. These are drafting amendments, suggested to us by the Scottish draftsman, which apply Clauses 39 and 40 to Scotland. I beg to move.
§ Page 60, line 3, leave out ("to a petition").
§ On Question, Whether Clause 39, as amended, shall stand part of the Bill?
I should like to clarify one point of Clause 39. Clause 39 defines the determination, notification and effect, and the appeal procedures. It seems to me that a situation could arise in which, until the determination to ascertain a building society's powers has actually been made, it is not realised by the society or by anybody that a certain activity is outside the powers of the society. I should 464 have thought that Clause 39(6) should include some sort of provision allowing the High Court, on the application of a director, to absolve that director from personal liability—which is what the point is—if, in all the circumstances, it is just and equitable to do so. I would ask the noble Lord the Minister whether he will clarify that point and consider it and see whether he could adjust the wording at a future stage of the Bill.
The best that I can do, I think, is to consider it rather than to clarify it at the moment. I shall certainly look into what the noble Lord, Lord Williams, has suggested. Perhaps I could write to him, if necessary, if there is a problem here.
§ Page 61, line 37, after ("above") insert (", so far as it relates to directors,").
§ The noble Lord said: I beg to move Amendment No. 113. This is a purely drafting amendment.
§ Page 62, line 20, leave out ("to an appeal").
§ Page 62, line 21, leave out ("to a petition").
§ The noble Lord said: I spoke to Amendments Nos. 114 and 115 with Amendment No. 111. I beg to move the two amendments together.
§ On Question, Whether Clause 41 shall stand part of the Bill?
May I raise a question on Clause 41, with the leave of the Committee? Again, this refers to the power to direct application to renew an authorisation. When we look at Clause 41 it will be noted that the commission may direct a society to apply to renew its authorisation if the commission has reason to believe that the society's business is or may be being conducted in a way that may not adequately protect the investors. As far as I can see, there is no machinery for appeal against such a direction. There is a right of appeal against a subsequent refusal to grant renewal of authorisation, but this would involve a society having to go through the process of renewing its application for authorisation, which it would not have to do if the original direction to apply for renewal were wrongly made.
It is further the case that the commission are to decide under Clause 41(6) who are "fit and proper persons" and what are the "criteria of prudent management". While Clause 45, later on, provides certain guidelines for deciding the criteria for prudent management, that clause uses a number of expressions, such as "requisite accounting records", "sufficient number of persons who are fit and proper" 465 and who have "prudence and integrity". On all these matters, it seems that the commission itself will be empowered to form its own view.
I would suggest, first, that the wording might be altered at a number of points requiring the commission not simply to take a potentially arbitrary view but to have good and sufficient reason for believing that the society's business is or may be conducted in a way which is not satisfactory; and that the commission also should be required to be reasonable in deciding who are fit and proper persons and what are the criteria of prudent management. I very much hope that the noble Lord the Minister will take my remarks away, as they say, and consider them if he cannot reply on the spot.
My short answer to the noble Lord is that there is the matter of judicial review, which could be brought into operation on this aspect. The commission will be publishing guidance as to how it interprets "adequate", "sufficient", etc. Those two points might help the noble Lord. I shall certainly read carefully what he has said and see if there is anything which needs to be done.
Will the noble Lord the Minister specifically concentrate on the point whether or not, in addition, there should be a right of appeal against a direction requiring a society to apply for renewal of its authorisation?
Yes, I shall certainly look into that.
When my noble friend considers this point, I wonder whether he will also consider the immense importance of this clause. As I understand this clause, it gives the commission a very important power; namely, to act quickly. It is the time element which is often so important in these matters when things go wrong in a financial institution, and they must have the power to act quickly.
Certainly I will take that into account.
§ Clauses 42 and 43 agreed to.
§ The noble Lord said: I spoke to these amendments with Amendment No. 42, and I beg to move the two.
§ Clause 44, as amended, agreed to.
§ Clauses 45 and 46 agreed to.
§ Page 72, line 18, leave out ("Chancellor of the Exchequer") and insert ("Lord Chancellor or Lord Advocate.").
§ The noble Lord said: I beg to move Amendment No. 118, standing in the names of my noble friend Lord Barnett and myself. We are dealing here with a question of the membership of the tribunal to which appeals may be made. It is our view that since the Treasury are, as it were, the sponsoring and controlling department of building societies, they should not be the people who appoint the judges in a particular case of a tribunal. Without wishing to involve the noble and learned Lord the Lord Chancellor in even further obligations under this Bill, we feel it is more appropriate that he should assume the task of appointing the two other members, rather than leaving it to the Treasury in the form of the Chancellor of the Exchequer. In the case of Scotland, it would be the Lord Advocate rather than the Lord Chancellor. In that spirit of trying to get a proper judicial position for these tribunal appeals. I beg to move.
I should like to ask my noble friend what is his intention in the structure of the commission. Is it intended that the commission should be composed to a major extent of Treasury officials? I have the highest possible opinion of Treasury officials, but I do not have quite the same confidence in their power of appointment. I think it would be quite wrong for this to be to a major extent a Treasury organisation.
It is quite true that the Treasury will be answerable in Parliament for the work of this commission, but I hope that the Government will make sure that the commission is composed of men of very broad outlook, with experience and knowledge over a wide range of subjects, and that it is certainly not composed of people who spend most of their time in the Civil Service. I think this is very important because the whole of this Bill turns on the confidence which the commission is able to maintain. It should be a commission of very widely experienced people whose exercise of their duties is based on the depth and breadth of their judgment.
I am delighted to hear that Mr. Walden is to be deputy chairman, I think it is. We could not have a more admirable man. I should like that kind of approach to continue—that men of wide experience in this whole area take part in the work of the commission.
It appears that the noble Lord, Lord Williams of Elvel, has an interesting and good point here. However, I cannot help but point out to him that he does not seem to have a great deal of faith in his own amendment because there is a whole series of consequential amendments which should have been tabled with this. This is a purely technical matter, and if the noble Lord wants to know where it should go, I shall speak to him afterwards.
I am most grateful to the noble Lord, Lord Morris, for his advice, but I am 467 perfectly aware that there are consequential amendments. We put down this one amendment knowing that if the Government took it up, they would table the appropriate consequential amendments. But I am grateful to the noble Lord for the technical advice he has so kindly sought to give me.
I hope that neither the noble Lord nor I will need to put down consequential amendments since I hope I shall be able to satisfy the noble Lord, Lord Williams of Elvel, with what I have to say. I quite understand the fears that the noble Lord has expressed and I hope that I may be able to reassure him.
Given the particular mix of experience that an appeal tribunal will need to command, we fear that split appointments are inevitable. It is clearly right that the chairman should be a lawyer of some standing, and the noble and learned Lords the Lord Chancellor and the Lord Advocate are obviously the people best placed to appoint the right man or woman. But the other two members will need to have expertise in financial matters. As the Bill puts it more specifically, one should have experience of accountancy and the other experience of building societies or other financial institutions. I am sure that my noble and learned friend the Lord Chancellor will agree that his department is not necessarily the best equipped to consider candidates with that background. So I think it is a sensible and logical provision to provide for the Chancellor to make such appointments.
Having said that, I can assure the noble Lord that my right honourable friend the Chancellor of the Exchequer may be relied upon to appoint independent-minded and impartial people to the job. There will be no question of the Treasury taking the part of the commission in such hearings. Just as I sought to reassure my noble friend Lord Selkirk on Second Reading that the commission would be independent of the Treasury, so I now assure the noble Lord that the Treasury will be independent of the commission.
I should add that arrangements are in hand within the Treasury to make sure that those responsible for policy on prudential supervision and for the day-to-day relations with the commission will play no part in any appeals under these provisions. The secretary to the appeals tribunal will be someone from a completely different area of the Treasury. Any departure from the highest standards of impartiality will, of course, be capable of challenge on judicial review. So the incentive for the Treasury to make these provisions work fairly is a very strong one.
Perhaps I may turn to the point made by my noble friend Lord Selkirk. He is on a slightly different point at the moment. In this clause we are talking about the appeals tribunal. My noble friend talks about the composition of the commission itself, and I can give him the assurance that four of the members of it will be part-time and will be in the majority. I think there will be seven members to start with—three senior civil servants of different grades at the top and four part-time members, three of whom we have already appointed, including Mr. Walden, whom my noble 468 friend mentioned, and Mr. Procter, who has great experience of banking. So I think I can give my noble friend that assurance. However, it is not actually quite the point we are on at the moment. Having given the assurance that I have to the noble Lord, Lord Williams of Elvel, I hope he will feel able to withdraw this amendment.
I am most grateful to the noble Lord the Minister and I apologise to the Committee for being somewhat provoked by the noble Lord, Lord Morris, into intervening at an improper time. But I am perfectly satisfied that the Government will take all possible measures to make sure that the membership of the tribunal is fair, independent and, as the noble Lord said, perfectly objective.
I am very grateful also to the noble Lord the Minister for his very firm statement on this matter which really goes as far as we can go, certainly at this stage. I accept his statement as a ministerial intent, and in the light of that I beg leave to withdraw the amendment.
§ ( ) for granting to any person such discovery or inspection of documents or right to further particulars as might be granted by a county court in England and Wales or Northern Ireland or, in Scotland, for granting to any person such recovery or inpsection of documents as might be granted by the sheriff;").
§ The noble Lord said: I beg to move Amendment No. 119, and I shall speak also to Amendment No. 120. The first of these two amendments provides expressly for Treasury regulations under this clause to cover the taking of evidence on oath and the ability of the tribunal to grant discovery of documents to parties to the appeal. The second amendment extends the right of appeal to the High Court on a point of law to an individual whose fitness for office in the society has been adversely pronounced on in a commission decision. I beg to move.
§ Page 75, line 6, after ("society") insert ("or other person").
§ The noble Lord said: I have already spoken to this amendment. I now beg to move it formally.
§ On Question, Whether Clause 50 shall stand part of the Bill?
I wonder whether the noble Lord the Minister can think of any circumstances in which a direction would be given to a building society under subsection (2) to cease advertising of all descriptions. This is really a most draconian power which is given to the commission. Can any building society to which this direction might be given have any right to be in business at all? It seems to me that what has been prescribed within the powers of the commission is so authoritarian and so complete in some ways as to be almost incompatible with a more or less free society.
I do not think we ought to pass this kind of thing without at least a query as to why it is in the Bill. I can understand that this particular clause is intended to give some control over misleading advertisements that might appear when the cut-throat competition really begins between building societies in the new jungle of financial transactions; but to say that building societies should be prohibited from issuing advertisements of all descriptions I think beggars description. Can the Minister justify it?
This of course is much the same as appears in the 1962 Act. Perhaps I may try to explain how and when this power may have to be used. If a society has issued advertising material which is for any reason undesirable it has generally been possible to get it withdrawn or modified. We fully expect that to continue, but we need statutory powers in the background.
The Building Societies Association's code of conduct is still in its infancy but it is hoped that it will be extended and policed by the association. That should be satisfactory in itself. However, this power might be used, for instance, where advertisements may mislead potential investors or borrowers in relation to interest rates or other terms, where persuasion has failed or where proceedings against a society are in hand. Potential investors would not be aware whether proceedings were under way with a view to the use by the commission of its statutory powers. It would be quite unfair in that situation if potential investors were encouraged by advertisements to invest in a society if the commission was just about to make a decision. That is really why this power is in now. We very much hope that it will never have to be used.
§ ("(3A) This section does not authorise any requirement in relation to information, documents or other material to be imposed on a subsidiary of or other body associated with a building society unless that body carries on business in the United Kingdom; but a requirement may be imposed under this section on a building society in relation to information, documents or other material in the possession or control of a subsidiary or associated body outside the United Kingdom.").
§ The noble Lord said: I beg to move Amendment No. 121, and I shall speak also to No. 122. These amendments provide that requirements to obtain 470 information and documents can only be imposed directly on subsidiaries or associates operating in the United Kingdom, but that the obligation to provide information may be placed on the building society if the subsidiary or associated body has no presence here. The second amendment is consequential upon that provision. I beg to move.
§ Page 80, line 1, after ("(4)") insert ("Subject to subsection (3A) above,").
§ Page 81, line 37, leave out from first ("or") to ("body") in line 38 and insert ("other").
§ The noble Lord said: I beg to move amendment No. 123, and I should like to speak at the same time to the following group of amendments: Nos. 124, 125, 126. 128, 129, 130, 132, 133, 134, 135, 136, 137, 138, 139, 140, 141, 142, 143, 144, 145, 147, 151 and 153.
§ The amendments in this group affect further detailed scrutiny and discussions on the disclosure provisions in the light of the parallel provisions in the Financial Services Bill and the proposed new banking legislation. Most of these amendments are technical, and of course I should be glad to deal with any specific points noble Lords may have when we reach the appropriate amendments.
§ Several of the amendments deal with the further disclosure of information received by one supervisor from another. Following the passage of the series of regulatory Bills which are either before Parliament or are proposed for next Session, there will be a range of financial supervisors at work with a range of powers. The financial institutions they are supervising will in many cases be part of conglomerate groups, so that the jurisdiction of different supervisors will increasingly come to overlap. In these circumstances it is vital that there should be a free flow of information between the different financial supervisors to ensure that problems do not fall down any cracks.
§ The basic principle of these amendments is that when one supervisor passes information to another the second should not be inhibited from using the information for his own supervisory purpose. In some cases this may involve further disclosure; for example, to an appeal tribunal or to a professional body with which the first supervisor does not have any dealings in the normal course of events. But information will have been supplied to the first supervisor on the understanding that it will be subject to strict confidentiality restrictions. A potential problem therefore arises where the second supervisor wishes to disclose the information in a way which would not be open to the first supervisor who originally supplied it.
§ The amendments to Clause 53 accordingly provide that information supplied by the commission to another supervisor may be disclosed by the recipient, subject to his own confidentiality restrictions, provided that the commission gives its consent. The amendments to Clause 54 provide for a reciprocal arrangement for disclosure by the commission of information obtained from the Bank of England. Further disclosure by the commission is possible with the consent of the bank, the power being framed in general to allow the furtherance of the commission's functions. With that explanation, I beg to move.
I am very grateful to the noble Lord for speaking to so many amendments at the same time and also for explaining so clearly exactly what is the thrust of the amendments. I understand the problem the Government have got themselves into: that they are creating a number of supervisory bodies in all directions and some of those supervisory bodies have not yet come before this Chamber officially, so that we do not know what their powers are going to be or indeed what noble Lords may decide their powers should be in the future. So I reserve our position on these amendments until we have gone through the relevant legislation, particularly the Financial Services Bill, and can see exactly how noble Lords think the supervisory bodies should perform.
There is one particular amendment on which I would wish to reserve my position even more strongly, if I may put it like that. I refer to Amendment No. 126. As the noble Lord will realise, this starts to raise the question of the auditors' responsibilities to the commission. We shall come to this at a later stage in the Committee under a different amendment, but I wanted to signal to the noble Lord that I was not entirely happy with Amendment No. 126 and, should the Committee decide that our position on Government Amendments Nos. 188 and 189 is the proper one, there may be a consequential change on Amendment No. 126. Having said that, I do not wish to oppose these amendments, but we will look at them again at the Report stage, after we have had a chance to look more closely at the Financial Services Bill.
§ Page 81, line 41, leave out from first ("or") to ("may") in line 1 on page 82 and insert ("or other body").
§ Page 82, line 4, after ("relates") insert ("and (if different) of the person who furnishes it to the Commission").
§ Page 82, line 34, leave out ("as auditors") and insert ("to the Commission").
§ The noble Lord said: I spoke to Amendments Nos. 124 to 126 with Amendment No. 123. I beg to move all three en bloc.
§ ("(h) in order to enable the Office of Fair Trading to discharge any of its functions under this Act or otherwise.").
§ The noble Lord said: I beg to move Amendment No. 127 on the Marshalled List in the names of my 472 noble friend Lord Barnett and myself. This is, I think, a supplementary amendment, and the noble Lord, Lord Brabazon of Tara, may be able to satisfy me that it is an unnecessary amendment. But I have had experience in the past where information which has come to the attention of a particular body, such as the commission governing building societies, cannot be transmitted to the Office of Fair Trading, which is to carry out certain functions under the Fair Trading Act. Indeed, there was a specific clause put into the Price Commission Act 1977 to allow the Price Commission to communicate information that was required by the Office of Fair Trading.
§ In replying to, I think, the noble Lord, Lord Foot, on an earlier amendment, the noble Lord pointed out that competition law and the Office of Fair Trading were going to be active in supervising certain aspects of building society activity in the future, and it would seem only common sense that the Office of Fair Trading should be allowed to have access to confidential material which would allow it to discharge its functions under this Bill, under what the noble Lord has said or, indeed, under the various Acts which are now relevant to the office. The noble Lord may be able to say to me that this is already covered in the Bill, in which case he is one jump ahead of me and I shall be very happy. But I should be most grateful if he could look at this and assure us that this is either in the Bill or will be put into the Bill. I beg to move.
The noble Lord makes a valuable point, and 1 hope that I shall be able to give him the answer for which he is looking. The good functioning of the financial system requires that the different supervisors need to be able to share information on matters of common interest or where their responsibilities overlap. I agree with the noble Lord that the Director General of Fair Trading has supervisory responsibilities which properly bring him within that net.
Nevertheless, the Government think that a disclosure power should not be necessary in furtherance of all of the OFT's functions. The principle that we apply is that disclosure should be allowed only to those who will have a reasonable need for the information. There may be no need to provide for disclosure in respect of the Director General's functions under, for example, restrictive trade practices or competition legislation. The commission will have little, if any, information that will be relevant to the discharge of those functions, and societies may be reluctant to discuss forward plans which are as yet at a formative stage if they believe that such information might find its way to the OFT before their proposals are properly formed.
Nevertheless, the Government think that disclosure to the Director General would be appropriate for the purpose of his functions under the Consumer Credit Act and the Estate Agents Act, both of which are regulatory legislation clearly irrelevant to building societies. I am advised that the order-making powers in this clause are wide enough to permit the disclosure to the Director General of Fair Trading, and I can give the noble Lord the assurance that they will be used for the purposes I have indicated. Further, if it appeared in 473 the future that disclosure to the Director General was appropriate in respect of other functions, a further order could be made. Therefore, I hope that the noble Lord will be able to withdraw this amendment.
I am most grateful to the noble Lord for his reply. When he replied to, I think, the noble Lord, Lord Foot, on the first amendment that the Committee discussed this afternoon, he mentioned that competition law was adequate to deal with certain circumstances. I took him to mean by "competition law" that it would be the intervention —and I think he specified the intervention—of the Office of Fair Trading and, eventually, should that take place, a reference to the Monopolies and Mergers Commission. I am grateful for his answer and I do not wish to press him too far, but is he satisfied that the case that he mentioned in his reply to the noble Lord, Lord Foot, is covered by his answer and that the Office of Fair Trading would have adequate information coming from the privileged sources under this Bill to take action?
I would not want to stand up here and give the noble Lord a clear assurance on that point at this stage without taking further advice, which may or may not arrive before I sit down. But what I think I said in answer to the noble Lord, Lord Foot, was that these are not necessarily matters which would need the commission's intervention. They would be matters between the aggrieved party and the building society, in particular. I am not certain how closely involved the commission would get in individual cases like that. I shall certainly look into what the noble Lord has said and will have to write to him on this point.
I am most grateful to the noble Lord. It appears that advice has not arrived magically from a certain quarter, and, therefore, I shall rely on the noble Lord's assurance that he will be communicating with me in due course. I beg leave to withdraw the amendment.
§ The noble Lord said: I spoke to Amendments Nos. 128 to 130 with Amendment No. 123. I beg to move.
§ The noble Lord said: I spoke to this amendment with Amendment No. 63. I beg to move.
§ The noble Lord said: I have spoken to Amendments Nos. 132 to 142 with Amendment No. 123. With the leave of the Committee, I should like to move them en bloc. I beg to move.
§ Clause 53, as amended, agreed to.
§ Page 85, line 36, after ("Commission") insert ("or further disclosed;").
§ Page 85, line 40, leave out ("or"). Page 85, line 41, after ("442") insert ("or 446").
§ The noble Lord said: I spoke to Amendments Nos. 143 to 145 with Amendment No. 123. I beg to move.
§ Page 86, line 6, leave out from beginning to ("(inspection") in line 7 and insert ("440 or 441 of the Companies (Northern Ireland) Order 1986").
§ Page 86, line 10, leave out ("109") and insert ("442").
§ Page 86, line 12, leave out from ("under") to ("(investigation") in line 13 and insert ("Article 424, 425, 435 or 439 of the Companies (Northern Ireland) Order 1986").
§ Page 86, line 24, leave out line 24 and insert ("442 of the Companies (Northern Ireland) Order 1986;").
§ Page 86, line 27, after ("(4)") insert ("(5), (6), (8)").
§ Page 86, line 30, leave out ("109") and insert ("442").
§ ("but, in the case of subsections (5), (6) and (8), so far only as they relate to the discharge of the Commission's functions or the interests of shareholders and depositors.
§ (3A) If and in so far as it appears to the Bank of England that the disclosure of any information will enable the Commission better to discharge its functions under this Act (but not otherwise), information obtained by the Bank under or for the purposes of the Banking Act 1979 may be disclosed to the Commission and, with the Bank's consent, further disclosed by the Commission, notwithstanding the provision as to security of information contained in section 19 of that Act.
(b) with respect to that information the references in subsection (3), (4), (6), (7), (8) and (11) of section 53 to subsection (1) of that section shall be construed as including a reference to the said section 19 but, in the case of subsections (6), (7) and (8), so far only as they relate to the discharge of the Commission's functions or the interests of shareholders and depositors.").
§ The noble Lord said: I have spoken to Amendments Nos. 146 to 153, either with Amendment No. 63 or with Amendment No. 123. With the leave of the Committee, I shall move them en bloc. I beg to move.
§ Clauses 55 to 58 agreed to.
§ The noble Lord said: This is in the nature of a probing amendment to discover whether our reading of the Bill as drafted is correct or incorrect. It seems to us on reading the Bill that there is a difficulty about the chief executive of a building society also being a director of a building society. There would be certainly be many occasions on which this might be sensible and desirable. The noble Lord, Lord Skelmersdale, who is to reply, may tell me that my interpretation of the Bill is wrong, in which case there is no problem. But if my interpretation of the Bill is right we should like the Government to reconsider the position because the responsibilities of directors should embrace the sort of responsibilities that a chief executive has. I beg to move.
The noble Lord is quite right in two respects, the second of which is that he is wrong, which I shall go on to explain. However, at the risk of disappointing him, I must tell the Committee that Clause 117 of the Bill already allows for the 476 circumstances which he envisages—namely, that an individual should be both a director and the chief executive of a society where circumstances warrant. That clause defines "executive" as meaning, in relation to a director … a person who holds office as a director and also as chief executive, secretary or manager". I therefore hope that the noble Lord will be satisfied that the Bill already provides for what he wants.
I am most grateful to the noble Lord. This is what comes of having civil servants who are able to brief you rather than not having civil servants. The noble Lord has explained the position quite clearly and I therefore beg leave to withdraw the amendment.
§ Amendment, be leave, withdrawn.
§ The noble Lord said: With this amendment I should like to speak also to Amendment No. 157, which is the substantive amendment of this group.
§ Subsection (10) reflects Section 292(1) of the Companies Act and was intended to prohibit the election of a slate of candidates. It prevents only one vote being used in favour of two or more candidates. On reflection, however, the subsection appears to be unnecessary since Clause 60(3) already requires voters to have one vote per every vacancy. This amendment accordingly deletes subsection (10). I beg to move.
§ Page 96, line 5, after ("directors") insert (", after consultation with the Commission,").
§ The noble Lord said: This brings us to a point about directors of building societies which has not been raised before. A number of noble Lords may wish to close their ears for this debate. We on this side of the Committee are rather worried that building societies, and particularly building societies in the future, with their new responsibilities, may not have a proper spread of directors and that, if I may speak in rather frank language, chairmen and directors of building societies in the past have been known simply to co-opt their friends on to the board of directors. This amendment seeks to address that problem.
§ We are very concerned that building societies, particularly in their new role and particularly with their new responsibilities and activities, should have proper boards of directors who are fully cognisant of the responsibilities which are placed on them and that whoever is co-opted should not be just a person whom you happen to meet on the golf course or anywhere else and who happens to be a friend. Therefore we seek to have some restriction on building societies appointing additional directors to fill vacancies without some sort of control.
§ I accept that this is in the nature of a probing amendment and I accept that this may not be the proper formula, but it seems to be incumbent on me to draw the points to the Government's attention. We are concerned about this. We believe that boards of directors of building societies should be properly representative and we believe that the commission should have more than just a passing interest in who is on the board of directors, who is co-opted and for what reason.
§ This is additionally important, as my noble friend Lord Houghton of Sowerby has pointed out, because we are moving into a completely new era in building societies. There are going to be some major financial institutions here. They should have a proper sense of their responsibilities and the commission should have a proper sense of the responsibilities of the boards which are controlling these new institutions. We do not want this to become or continue to be, if it is, a cosy club. We wish the commission to pay attention to this point and we wish the Government to pay attention to the point, which is why I have raised this matter. I beg to move.
Perhaps I may intervene for just a moment. I am going to support my noble friend. Much as I dislike giving the commission more opportunities for intervention, on this matter the commission ought to have a look sometimes at what boards are doing when they come to co-opt members to fill vacancies. At the present time the boards of building societies are largely a male chauvinist preserve. There are very few women on the boards of building societies. Leaving aside the possibility that the board may have some favourite son it wishes to appoint, the new responsibilities of the boards of building societies will, I believe, justify getting in some new blood. I do not know how they are going to get such new blood otherwise. The chances of a candidate being elected to a board of a building society against the will and consent of the board are very remote indeed. Moreover, experience has shown that the boards of building societies have a real box of dirty tricks when it comes to keeping off people who are candidates for election to the board.
For one thing many building societies try their hardest to dissuade anybody from standing because, apart from anything else, of the expense of holding a ballot throughout a large membership. It is after all an expensive matter. What the building society boards do not want is somebody being elected whom they do not like. In a number of cases the candidate for election has been a thorn in the flesh of a board; he has been a rebel in the building society. He has turned up at meetings and made a fuss. The boards do not want such people and therefore they use every opportunity they can to dissuade them.
I am not going to make allegations that I cannot prove but sometimes undue pressure has been brought to bear upon those who wish to stand for election. In the circumstances we are justified in bringing the commission into the selection of persons to fill casual vacancies; otherwise the boards of building societies are self-perpetuating oligarchies. A person cannot get his nose in unless the board will let him. I have been the person to whom many complaints have come at 478 different times from those who have sought to be candidates for the boards of building societies but who have found obstacles put in their way.
We ought to take this matter rather seriously. How else does the Minister think that we shall have the boards of building societies opened up for their new responsibilities and powers? When we come in a moment or two to Clause 61, concerning candidates standing for election, we shall have to think about what the conditions will be. But here is the only opportunity that we shall have of persuading the commission to examine what is happening with the composition of the boards of building societies. I certainly support my noble friend.
I am grateful to the noble Lord, Lord Williams of Elvel, for raising this subject, because I, on behalf of the Government, accept straight away that long term co-options such as those which the noble Lord, Lord Houghton, has just mentioned are definitely not a good thing. However, a provision to allow for the co-option of directors is necessary. Co-option can cope with such circumstances as a director reaching retirement age and not wishing to wait until the next annual general meeting before leaving, or snapping up individuals who might otherwise be lost to societies it those individuals had to wait until the next AGM.
The co-option route may have been subject to a degree of abuse in the past, but any director who is co-opted under the powers of this clause is required to stand for election within a specified period, as is identified in Clause 61(13), if he wishes to stay in office. I hope that will go some way to satisfying the noble Lord, Lord Houghton.
If the noble Lord will allow me to intervene, it is the case that the director will first be co-opted, and when his period of co-option ends he must submit himself to election. How ever, if the situation emerges that no one puts up against him, then that director is automatically elected to the board.
Yes, my Lords, I accept that point, but I was going on to say that Clause 45, which we have just passed, requires the commission to consider the overall direction and management of a society. I have no doubt that if societies were to get into the kind of difficulties that the noble Lord envisages, then the commission would want to know about it and would act. Although there may be a few cases in which such a thing happens, the remedy is between the building societies themselves and the commission.
I find the Minister's reply wholly unsatisfactory. First, I know of no case where a co-opted director has not been elected at a subsequent AGM. That is the normal procedure with companies where a co-opted director goes for re-election to the AGM. I myself have been co-opted to the boards of a number of companies—and I see my noble friends nodding at this—and I have never been rejected at the subsequent AGM, having been co-opted and having come forward with the recommendation of the 479 chairman of the board of directors. Shareholders do not reject such appointments, and I do not suppose that the members of building societies would do so.
Secondly, the Minister refers the Committee to Clause 45. That is a very general clause that deals with the criteria for prudent management. That does not respond to the point that my noble friend Lord Houghton of Sowerby was making. It is not the question of how many women are to be on the boards of building societies to which the commission is going to pay attention. The commission will not worry either whether so-and-so was met on the 17th hole of a golf course and was co-opted accordingly. The commission will not become involved in that kind of detail. I do not believe that under Clause 45 the commission will have the kind of authority that it needs specifically to answer the point upon which we are concentrating. I hope that the Minister will be able to give the Committee a much more encouraging reply.
I wish to support my noble friend. This is a very curious anomaly. Most of us have been members of quangos or of various other bodies, where one is told to resign. That is usually done because of age. Age is the worst condition from which one can suffer in this country. If one has reached a certain age, one is assumed to be useless. However, one is certainly never asked to be co-opted because it suits the convenience of a particular group, so that later they can reinstate one in a full position.
It seems strange to me that we should be legislating in this way on a matter that affects so many people. I was horrified to find that there are something like 400 government amendments. I believe they are taking advantage of the fact that they had a long sitting on another Bill last night, and they imagine that they will gallop through this Bill because the building societies want it. In fact, this is a matter that affects thousands of people. Today, thousands of ordinary people are involved in building societies. It seems to me that the rules that apply in, for example, the consumers councils and various other groups should equally apply to the building societies. Hitherto, the building societies have had their own way, but as we are now legislating and have the opportunity to change matters, we ought to do so. My noble friend has made a very valid point, and the Minister gave a very unsatisfactory reply.
I am not sure that I can help the Committee very much further, except to say straight away to the noble Baroness, Lady Phillips, that there is no question, as my noble friend explained on the first Committee day, of trying to coerce the Committee or pull wool over the Committee's eyes. When either my noble friend or myself has been asked to explain matters, we have done so to the best of our ability. I accept that there are moments such as the one I am suffering now, when clearly I have not been able to satisfy the Committee as well as the Committee feels that it should have been satisfied.
I return briefly to the point at issue in this amendment. Overall, the Bill seeks to improve the accountability of boards. For example, candidates 480 seeking to stand are given new rights, such as having election addresses circulated. Also, there is a new provision, to which reference has already been made, for co-optants to submit themselves to election. There is also scope for abuses of the proxy system to be cut down.
At the end of the day, it is for the members of the building society to decide who they want on their board. If they find that the board is not doing the things for which it was elected, then the remedy must surely be in the members' own hands.
I am sorry to intervene again, but we really have reached a sticking point. The noble Lord has just spoken in a most engaging way, and I admire his candour about his state of mind on this amendment. However, this is an important matter concerning the government of the building societies. As the Bill is designed to fit the building societies movement to go forward in this new field with new responsibilities, one also wants to be satisfied that the boards will be fit to bear those responsibilities.
Let us be honest. Positions on the boards of building societies, especially in the case of medium-size and larger societies, are very attractive positions to be offered. Directors fees are between £5,000 and £10,000 a year. I can quite understand that those who are to be on the boards must be reasonably acceptable to those who are already on them. However, there is a danger that existing members may know somebody they would like to have on the board, and that person will then obtain that place. Once he was on the board in a co-opted capacity, as my noble friend, Lord Williams, said a moment ago, it would take an earthquake to move that person.
When the noble Lord, Lord Skelmersdale, says that it is up to the members of the society to decide who they want on the board, he makes me laugh. I do not know whether he realises what a ballot for a member of a board, and the response to it, is like. One discovers that among building society members there are hundreds of thousands, if not millions, who take no interest at all in the society. They are in a financial institution and interested only in what they get on their investment or the mortgage that they can get from it. They are not active members in the sense that we all understand. The smaller societies are much healthier in this respect. It is the larger societies that must be taken care of, because they will have much wider responsibilities placed upon them.
If we are realistic about this we have to admit that it would be difficult to justify leaving the present method of filling vacancies on the boards of building societies just as it is. If the commission is to have this degree of oversight that we have been speaking about in the clauses we have just passed, and if it is to oversee to the extent that the Bill provides, then I believe that the commission should be consulted about filling vacancies to ensure that candidates offered for consideration are regarded as suitable. Let us do it that way. I know of no other way.
One cannot get on to the board of a building society with all the weight of the establishment behind either the sitting members or behind the candidate who has been co-opted. The board makes sure that a member 481 is co-opted to be available when the election takes place. I know of no occasion when an election has taken place in any building society with which I have been connected where there has been a vacancy to be filled by ballot. There is always someone there, a sitting co-opted member—it is rarely a woman; I know of no women on boards—who is re-elected. Let us be absolutely realistic. That is the crude truth about how people become members of the boards of building societies; and once on the board, they stay there.
I should not like the crude truth of the noble Lord, Lord Houghton, to be thought the normal in the appointment of directors. In my experience the appointment of directors is carefully gone into. Several candidates are brought forward, and after a period of examination and consideration they are very carefully selected. The professional experience they bring forward is also considered.
As my noble friend the Minister said, it is very important that the vacancies should be filled if it is a long time before the annual general meeting. Indeed, the Bill has strengthened the position of the examination of new directors in that they have to bring forward particulars and have their CV put down in the annual report. Whatever the experience of the noble Lord, Lord Houghton, might be, it is not my experience in the appointment of directors.
I again declare an interest as a director of one of the large building societies. The noble Lord, Lord Houghton, is probably right in saying that he does not know of occasions were there has been a vacancy without a nomination which has been put forward by the board or the chairman. However, I think he ought to remember that only this year there was a contested election in the second largest building society, and as a result someone came on to the board who had not been expected. It was unfortunate—and I say "unfortunte" because I am in favour of more women on the boards—that it was the woman member of the board who lost her seat.
The noble Lords, Lord Houghton of Sowerby and Lord Williams of Elvel, are protesting a little too much. Unless I have this wrong, my understanding is that in company law there is no legal requirement whatever for a director to have any skill, ability or intergrity. That never has been the case. The noble Lord, Lord Williams, is quite correct that Clause 45 will only bite, so to speak, after the event when there is evidence of a failure in prudent management. However, it quite clearly states that some of the criteria of prudent management is that the directors be fit and proper, that they conduct their business with prudence and integrity and that they must have adequate professional skills. That is a much higher standard for directors than in the Companies Act, and I think we can rely strongly on that.
It has been an interesting debate. I am bound to say that I am glad the noble Lords, Lord Plummer and Lord Campbell of Croy, intervened. They are, of course, chairmen or directors 482 of building societies—and quite properly the noble Lord, Lord Campbell of Croy, declared his interest as such.
I still feel that I am not in the least persuaded by the arguments of the noble Lord, Lord Skelmersdale. I still feel that we must go further. There is an important point of principle about which we on these Benches feel strongly. Unless the noble Lord, Lord Skelmersdale, can reassure me on the points that I and my noble friends have raised, I shall seek the opinion of the Committee.
§ On Question, Whether the said amendment (No. 156) shall be agreed to?
§ Their Lordships divided: Contents, 70 Not Contents, 107.
Aylestone, L. Llewelyn Davies of Hastoe, B.
Banks, L. Lloyd of Kilgerran, L.
Boston of Faversham, L. Lovell-Davis, L.
Brockway, L. Morton of Shuna, L.
Bruce of Donington, L. Mulley, L.
Cledwyn of Penrhos, L. Pitt of Hampstead, L.
Crawshaw of Aintree, L. Ponsonby of Shulbrede, L.
Dean of Beswick, L. Ritchie of Dundee, L.
Elwyn-Jones, L. Ross of Marnock, L.
Ewart-Biggs, B. Sefton of Garston, L.
Fisher of Rednal, B. Serota, B.
Gallacher, L. Silkin of Dulwich, L.
Harris of Greenwich, L. Underhill, L.
Hatch of Lusby, L. Wallace of Coslany, L.
Houghton of Sowerby, L. Wells-Pestell, L.
Jenkins of Putney, L. Wigoder, L.
Auckland, L. Cullen of Ashbourne, L.
Belhaven and Stenton, L. Davidson, V.
Brabazon of Tara, L. Dilhorne, V.
Brougham and Vaux, L. Drumalbyn, L.
Cameron of Lochbroom, L. Ellenborough, L.
Campbell of Alloway, L. Elliot of Harwood, B.
Campbell of Croy, L. Elliott of Morpeth, L.
Colville of Culross, V. Fortescue, E.
Fraser of Kilmorack, L. Perth, E.
Gainford, L. Peyton of Yeovil, L.
Hailsham of Saint Quinton, L.
Hardinge of Penshurst, L. Reay, L.
Henderson of Brompton, L. Romney, E.
Hives, L. St. Aldwyn, E.
Long, V. [Teller.] Terrington, L.
Mancroft, L. Thomas of Swynnerton, L.
Massereene and Ferrard, V. Thurlow, L.
Maude of Stratford-upon- Tryon, L.
Maybray-King, L. Vaux of Harrowden, L.
Mowbray and Stourton, L. Whitelaw, V.
Murton of Lindisfarrre, L. Wise, L.
Nugent of Guildford, L. Young, B.
§ Page 99, line 14, leave out subsection (10).
§ The noble Lord said: I spoke to this amendment with Amendment No. 155. I beg to move.
§ On Question, Whether Clause 61, as amended, shall stand part of the Bill?
At Clause 61(2) (line 31, page 97) of the Bill, there is again the magic sum of £100—this nice round figure—which of course tallies with the "prescribed amount" in paragraph 36 of Schedule 2. I shall be returning to that subject at a later stage in the Bill, but in the meantime I draw attention to the fact that £100 is much less than the average industrial weekly wage. It is really a minimal sum to prescribe either as a qualifying condition of voting or for the purposes of this clause. I am not moving an amendment because I have not tabled one, but I think that to provide that no society can require a candidate to have more than £100 invested in the society is to put it at a very low value indeed.
At Report stage I shall say that the "prescribed amount" ought to be very much higher than £100. I do 484 not think that at any time an investment in a building society of just over half the weekly wage of the industrial worker constitutes an investment of such significance as to justify qualification for full rights. Still less do I think it can be regarded as a qualification of a candidate for a directorship. However, there it is. I think that this £100 must have been thought of about four years ago, when these discussions first started.
§ On Question, Whether Clause 62 shall stand part of the Bill?
It is a simple question that I wish to put to the noble Lord. I wonder whether he can explain what Clause 62(1) means.
This clause follows Section 311 of the Companies Act, and is the first of a number of clauses relating to directors where it is considered sensible to replicate that Act unless there are good and solid reasons for not doing so, because obviously building societies are peculiar and particular in certain respects.
So far as concerns this particular provision of the Bill, we see no reason why the two should not coincide. Its purpose is to limit the society's liabilities for directors' fees and to facilitate members' control over directors' fees. For example, qualifying members voting on a resolution at an annual general meeting quite rightly will have no way of knowing the tax position of individual directors. It is absolutely right that this provision should apply to societies as it does to companies; and banks, of course, are also caught under the Companies Act. So there is a generality among the financial services institutions of which I hope the noble Lord will approve.
I certainly approve of it, but I am not clear how anybody can receive any income free of tax. I should be very interested to know who receives income free of tax. I should like to join such an organisation. I can understand someone receiving a salary that is is net of tax and it being grossed up, but that is an entirely different matter from what is said in Clause 62(1). I am just not clear as to what the noble Lord means.
As I understand the position— and if I get it wrong I shall certainly write to the noble Lord—the object of this provision, which is general to all financial services legislation, as I have said, is to prevent the payment of emoluments net of tax.
§ Clause 62 agreed to.
§ The noble Lord said: The purpose of the Amendment is to seek information about the present 485 situation. It is a probing amendment. The current information could be insufficient in the case of a small building society where the directors effectively control it. That is why the amendment is put down. If the information is at least included in the annual report it will not be able to be kept within the close confines of the directors of what is effectively a director-controlled small building society. I beg to move.
I assume that the noble Lord was not speaking to Amendment No. 159 at the same time. The provisions of Clause 63, like the earlier clause to which the noble Lord drew our attention, are based on the Companies Act 1985, in this case Section 317. I can see no reason to impose a more onerous requirement on building societies in this respect than on banks. However, Clause 102 of the Bill provides the Treasury with the power to amend relevant provisions of the Bill to mirror future changes in company legislation. If the Companies Act provisions are amended to require declarations from directors of interests in contracts to be included in the annual report, the Government will undertake to use the power to amend the Bill so that that provision will apply to building societies also; in other words, we want to keep all the financial institution legislation in line. I hope that the noble Lord will agree that that is a correct and proper aim.
I am obliged to the noble Lord. I beg leave to withdraw the amendment.
§ Clauses 64 to 68 agreed to.
§ The noble Lord said: If I may, I shall speak also to Amendments Nos. 161 and 162. These amendments have a little more meat to them. It is appropriate to extend the penalty provision for supplying false or misleading particulars so that those who read the register kept under Clause 69 are not misled. This amendment covers both the precise particulars to be given under Part I of Schedule 10 and the estimates within prescribed bands under Part II of this schedule. It is necessary to ensure that an estimate provided is a true one, justified by the available figures.
§ Parts II and III of the schedule were added during the course of the Bill's passage in another place in answer to criticisms that the original provisions imposed unduly burdensome administrative require- 486 ments on societies and on firms in which their directors have interests. However, Parts II and III provide both belt (that is, the estimates) and braces (that is, the overlapping bands) with the obvious temptation to those concerned to opt for the lower of two overlapping bands. This amendment removes the braces; namely, the overlapping bands. That is Amendment No. 161. Amendment No. 162, I am glad to say, is purely drafting. I beg to move.
I wonder whether the noble Lord could help us on one point. What exactly is the definition of a justified estimate?
If this were Question Time I could get away with saying, "Not without notice". I do not know the answer off the top of my head, and perhaps I may be permitted to write to the noble Lord and put a copy of that interesting information in the Library.
§ Page 218, line 6, leave out from ("provisions") to end of line 9.
§ The noble Lord said: I beg to move Amendments Nos. 161 and 162 together. I spoke to these with Amendment No. 160.
§ The noble Lord said: I wish also to speak to a another pretty large group of amendments: Amendments Nos. 164, 165, 167, 168, 169, 170, 171, 175, 176, 178, 184, 185 and 186.
§ All the amendments are technical refinements to the accounting and audit provisions. Some respond to points raised with the Government by the profession (for example, Amendments Nos. 163 to 165) and others are purely for clarification. Again, I shall be glad to try to deal with any questions which noble Lords may have on the detail of any amendment. I beg to move.
§ Page 114, line 33, after ("or") insert ("there is reasonable ground for expecting").
§ Page 114, line 34, after ("society") insert ("other than insignificant assets or liabilities in respect of the management of the society").
§ Page 116, line 11, leave out subsection (12).
§ The noble Lord said: With this I shall speak also to Amendments Nos. 223 and 224. These amendments concern the term "linked by resolution" with respect to a body corporate associated with a building society. The amendment to Clause 71 deletes subsection (12), which defines "linked by resolution", with reference to Clause 18, for application to Part VIII (accounts and audit) only. I beg to move.
§ Page 117, line 25, leave out ("cases or classes of case") and insert ("descriptions of society").
§ The noble Lord said: I spoke to this with Amendment No. 163. I beg to move.
§ ("() make different provision for different descriptions of society,").
§ The noble Lord said: I spoke to this amendment with Amendment No. 163. I beg to move.
§ Page 119, line 22, after second ("directors") insert ("and persons connected with them").
§ Page 119, line 22, leave out ("or") and insert ("and").
§ Page 119, line 23, after ("officers") insert ("and persons connected with them").
§ The noble Lord said: I spoke to these amendments with Amendment No. 163. I beg to move them en bloc.
§ Lord Brabazon of Tara moved Amendment No. 172.
§ ("(5) The information comprising the annual business statement shall give a true representation of the matters in respect of which it is given.").
§ The noble Lord said: In moving this amendment, I wish to speak also to Amendment No. 179. These two amendments are to clarify that each of the particulars contained in the annual business statement must be true in itself and be fairly presented. The present requirement in the Bill for an annual business statement to give a true and fair view uses a term understood by accountants to relate to an overall view of a set of accounts that imposes a wider breadth of judgment than is appropriate to a compendium of discreet statistical presentations or statements of business information, which, it is expected, the annual business statement will contain.
§ Unlike a set of accounts, an annual business statement is not intended to be a composite set of financial statements which, together with its notes and the accounting policies behind it, can be considered as to whether they give an overall true and fair view. Instead, they will comprise a set of particulars, each of which must be true in itself and each of which must contain sufficient facts not to mislead by omission of relevant information. These amendments achieve that. I hope that they will also satisfy the noble Lords, Lord Barnett and Lord Williams of Elvel. I hope very much that we have met the points they put forward in Amendments Nos. 173, 174 and 180. With that, I beg to move.
I am grateful to the noble Lord for his presentation of the amendments and also for the fact that he referred to the amendments standing in the name of my noble friend Lord Barnett and myself, Amendment Nos. 173, 174 and 180, to which I can perhaps also refer.
The noble Lord is quite right in saying that the expression "a true and fair view" is a term of art in the accountancy profession and is clearly understood as such. The point of our amendment and indeed the point of the government amendment, I think, is to avoid having to use that expression where clear accounting information that can be properly examined and on which an audit report can be given is not available. It is to a certain extent a contradiction in terms to say that a business statement can be regarded as being true and fair, because the truth, like an onion, has a number of skins.
Referring to the particular wording, I would argue, and I hope the noble Lord will perhaps agree, that our wording is preferable to the Government's wording. We think that the auditors should be sure that the business statement is, fairly stated and properly prepared in accordance with this Act". I would add that this is not our wording. It is the wording of the Institute of Chartered Accountants in England and Wales. The government wording says that it shall give a true representation of matters in respect of which it is given. That goes a little further in some ways, and less far in other ways, than ours. For auditors to satisfy themselves that there should be a true representation implies that the auditors have to get into the mind of those making the representation and satisfy themselves that the people who are making the representation regard it as being true. We are simply saying that it should be fairly stated.
489 The government amendment does not place the duty on the auditors to make sure that the statement is, properly prepared in accordance with this Act". We feel that this is a rather important duty and that the auditors should be aware of it. Having said that, I am not going to argue further. I hope very much that the noble Lord will take a look at the wording. We are happy with the Government's wording, if I may put it this way, as second best wording. We think that ours is better. But if what the Government propose is all that we are going to get, we accept it. I hope very much, however, that the noble Lord will take another look at the matter before Report stage.
I shall certainly have another look at it. Obviously, one is in the hands of the parliamentary draftsman in these matters and this is what he has suggested in seeking, as we hope, the same aim that the noble Lord seeks to achieve. I shall certainly look to see whether we can improve upon the wording. I give that undertaking.
§ Page 121, line 27, after ("statement") insert ("and, where this subsection extends under section 78(5A) to the auditors' report also, of the auditors' report").
§ Page 121, line 35, after ("statement") insert ("and, where this subsection extends under section 78(5A) to the auditors' report also, of the auditors' report").
§ The noble Lord said: I spoke to these amendments with Amendment No. 163. I beg to move.
§ Page 122, line 24, after ("appoint") insert ("from a list of accounting firms approved by the Commission").
§ The noble Lord said: We have a worry about the quality of auditing firms that will be required to discharge their substantial duties under the Bill. As noble Lords will know, there is a wide variety of accounting firms, some small, some large. They have, if I can be perfectly honest (and no noble Lord will, I think, dissent from what I say) different capabilities. Some are relatively experienced in these matters. Others are less relatively experienced.
§ As building societies move forward, using the powers that they will have under the Bill, we believe that the auditing of building societies should be to the highest standard possible. We feel that there are 490 occasions when building societies, particularly smaller building societies, have used local accountants in particular areas who might not be as expert in the sort of matters that they will have to review in future as the larger firms.
§ I accept immediately that our formula in the amendment may not be perfect. It might be rather difficult for the commission to single out one firm of accountants rather than another, all firms of accountants being properly qualified. Nevertheless, there is a serious point lying behind the amendment. If we wish building societies to be properly audited and controlled, there must be some arrangement whereby the commission can intervene to make sure that the auditing firms understand the job that they have to do and that they are properly qualified to do it. It is therefore in the spirit of a probing amendment that I move the amendment. I beg to move.
The idea of a panel of approved auditors, whether for banks or building societies, is not a new one. It has been discussed and rejected many times, by the inspectors appointed to investigate the Grays Building Society and most recently, last year by the report of the committee set up to consider the system of banking supervision under the chairmanship of the Governor of the Bank of England.
There are a number of reasons why the proposal has been so regularly rejected and why the Government do not consider it to be appropriate for this Bill: it would be wrong in principle and a retrograde step for the commission to be required to make a judgment on particular accountancy firms, since this is an area which is properly left to the respective responsibilities of the individual firms, the accountancy bodies and the boards of societies. The accountancy bodies in their professional guidance expect their members to carry out their professional work with due regard for the technical and professional standards expected of them as members and not to undertake professional work which they are not competent to perform unless they obtain the necessary advice and assistance to enable them to carry out the work competently. It is therefore for each auditor to satisfy himself that he has the necessary competence. If he fails to do so, he makes himself liable to disciplinary proceedings by his professional body. In addition, the onus is on the society's board to satisfy themselves that the auditors appointed have the appropriate knowledge, expertise and resources to fulfil their duties under the Bill in relation to the size and business of that particular society. If they are not so satisfied, they should bring forward proposals to the members for a change of auditors or, as in some cases happens, for supplementing the existing firm with another.
It seems to me entirely proper that the auditors, their professional bodies and the boards of societies should shoulder their respective responsibilities in this matter and not have them shrugged off onto the commission. As the noble Lord, Lord Williams of Elvel, said, it would be, moreover, an invidious task for a body such as the commission to make initial assessments of competence and then monitor performance continuously or periodically. Nevertheless, Clause 53(2)(g) enables the commission 491 to refer shoddy audit work to the disciplinary authorities of the professional body. It is proper for the audit firm to be judged by its own professional peers. Furthermore, any inadequacy in a society's auditors is most likely to reveal itself in relation to the auditors' review of the society's systems of control and inspection. The commission has power to carry out inspection itself of the society's systems, to appoint others to do so, and to require an independent accountant's report on the information provided to it by a society. These powers can be used to enable the commission to take an initial view on the quality of audit and the commission can discuss any problems with the society and/or its auditors.
I think that I have given a fairly reasonable explanation. However, with regard to the point which the noble Lord, Lord Williams, made—that it would be a difficult job for the commission to start to form a list of this kind—I would ask him to withdraw his amendment in view of what I have said.
I must apologise to the noble Lord. I did not quite catch his reference. Was it Clause 52 of the Bill in which he said the commission has powers to look at audit? I wonder whether he would kindly refresh my memory on that?
Clause 53(2)(g) on page 82 of the Bill says: with a view to the institution of, or otherwise for the purposes of, any disciplinary proceedings relating to the exercise by a solicitor, auditor, accountant or valuer of his professional duties". That is the paragraph at which I was looking.
I am grateful to the noble Lord; I have found it. The problem is that this clause deals with the disclosure of information. I fully understand that if disciplinary procedures are to be taken against an auditor, a commission under this clause, to which the noble Lord has referred the Committee, is entitled to disclose information. What the clause does not do—and in my view there should be some provision in the Bill that this should happen—is to allow the commission to intervene where it feels that an audit is unsatisfactory, or that an accounting firm needs to be complemented, as the noble Lord said, by a second accounting firm. The noble Lord may be able to point me to another part of the Bill where that can happen. If there is no place in the Bill where it happens, I hope very much that the noble Lord will consider this point, and perhaps bring it back at Report stage.
I shall certainly look into that point and perhaps I can get in touch with the noble Lord on it.
I am most grateful. It is very important from our point of view. I hope that the noble Lord will recognise that. In the light of what has been said, I beg leave to withdraw the amendment.
§ Clause 77 agreed to.
§ ("(5A) If the auditors' report includes a qualification of their opinion that the annual accounts give a true and fair view of the matters specified in subsection (4) above subsections (8) and (9) of section 76 extend also to the auditors' report.").
If Amendment No. 179 is agreed to, I cannot call Amendment No. 180.
§ Page 123, line 23, leave out paragraph (a) and insert— ("(a) the information given in the annual business statement gives a true representation of the matters in respect of which it is given.").
§ The noble Lord said: I spoke to this with Amendment No. 172. I beg to move.
§ ("( ) If the auditors are of the opinion that the development of the system of control of a society's business is not or may not be adequate for the future development of the society's business, they should make a separate report to that effect to the Directors.").
§ The noble Lord said: I beg to move Amendment No. 181 standing in the name of my noble friend Lord Barnett and myself, in the words as on the Marshalled List. We come to an extremely important area in the Bill which is concerned with the duties of auditors towards their clients. There are a number of such amendments which we shall be debating in this Committee, and this is the first.
§ This amendment arises out of the inspector's report on the Grays Building Society collapse and, indeed it tries to strengthen the relationship between the auditor and the client. We are very happy that the Government have decided to include in the Bill a retrospective judgment by the auditors on a society's system of controlling its business. What worries us is that there is no provision in the Bill should the auditors see that the society in question for which they are auditors is going into a new form of business, is developing its form of business along the lines allowed in the Bill, and the systems of business control are not adequate for future development. We seek to introduce this amendment in order to ensure that the auditors will have the power, and indeed the duty, to make a separate report to the directors if they feel that the control systems inside the society are not, or may not in the future, be adequate for the future development of the society. It is those last words on which I would lay particular emphasis.
§ Societies will be allowed to do all kinds of things which they have not done hitherto. We should like to see that they are properly controlled. We have had a number of debates on this very matter. One of the major systems of control, and, indeed, probably the only system which will adequately stop fraud from occurring, is where auditors are happy with the internal systems of control that societies have. This has been proved time and time again in the case of banks. We think that it should be proved in the case of building societies.
§ The auditors will have this function to report not to the commission but to the directors. This in turn is designed to make sure that the audit relationship with the client is given greater prominence—we shall be coming back to this in later amendments—than it is in the Bill at the moment.
§ We are worried that the Bill, in general, seeks to make auditors some form of policemen or spies and does not instruct them to be sufficiently responsive to their relationships with their clients. This amendment is the first of a number which seek to do that. It concentrates on the system of control of the society's business and whether that will be adequate in the future. I believe that the amendment should commend itself to the Government. I do not believe that there is a difference between the two sides of the Committee on this point. The Government should look at this matter seriously. I beg to move.
I question the necessity for the amendment. I remember those far off days when I was an auditor. An integral part of any audit was the audit of the system of internal control. Invariably, the accountants handling the audit of a building society or company will always report on that matter. It is central to the proper financial control of any business. I take the point that this amendment relates to reporting to the directors. Of course, the auditors would be reporting immediately to the company management if there is any weakness.
It is part of the practice rules of the Institute of Chartered Accountants in England and Wales, which have reams of instructions, if I remember rightly—I know that the noble Lord, Lord Barnett, will recall that—on this point. It is an essential part of the auditors work to look at the point that has been raised by the noble Lord, Lord Williams.
I am grateful to my noble friend Lord Morris for his remarks. We believe that the amendment is unnecessary and possibly misconceived. It is misconceived because the auditor's statutory duty is to the members with respect to the stewardship of members' funds and the truth and fairness of the financial accounts; and to the commission regarding the accounting records and systems of control of the business.
The auditor's duty is not and should not be to the directors whose stewardship and fulfilment of their statutory duty is one of the areas reviewed by the auditor. The amendment is unnecessary because directors are free to instruct auditors to report to them on any matter. There is no need for a statutory duty for that purpose. In addition, auditors are required to review a society's system of control of its business, and 494 "business" is defined in Clause 45 as embracing business that the society proposes to carry on.
If the auditors concluded that the systems did not comply with the Bill's provisions, they would have to report back to the commission via the board. If, however, the auditors were satisfied that the systems complied with the legislation they would advise the board of any shortcomings found.
I also believe the amendment to be unnecessary because it is accepted good practice and recommended in the accountancy profession's auditing guidelines on building societies that auditors should ensure that non-executive directors are made aware of their reports to the management, and that auditors should attend board meetings to explain any matters arising from their audits. I hope that with that explanation the noble Lord will be able to withdraw the amendment.
I am grateful to the noble Lord. It is a difficult point. I fully accept that the best auditing firms send a management letter each year which describes what the audit firm sees as being wrong with the internal control. I use the expression "best auditors". It is by no means universal practice. It is done by the best auditors. I have been in receipt of many management letters in my time and I know that they are penetrating and sensible documents.
I believe that such management letters should be compulsory under the present arrangements for the building societies. In the Grays report the inspectors recommended that the auditors should confirm to the supervisory authority that a management letter had been sent to the directors. If the noble Lord is telling me that that is what he is saying and that such confirmation will be forthcoming, I am happy. I am trying to ensure that there should be a management letter and that that should not be left to the best auditors to do it and the worst auditors not to do it.
I think that I shall have to rely on the profession's auditing guidelines on building societies. It should be for the profession to apply this to its members.
I understand the noble Lord's last point. I hope that the professions will take it into account. In my last words I was paraphrasing the words of the former chairman of the accounting standards committee of the Institute of Chartered Accountants in England and Wales. In the light of what the noble Lord has said, I beg leave to withdraw the amendment.
§ ("(c) to attend meetings of Directors of the society at which the Annual Accounts and the annual business statement are approved,").
§ The noble Lord said: The amendment arises from a recommendation in the Grays case. It comes from the same gentleman who was previously chairman of the accounting standards committee of the Institute of Chartered Accountants in England and Wales. It seeks 495 to ensure that auditors are fully involved in the process of deciding what is in the annual accounts and the annual business statement.
§ At present, there is no general provision for auditors to do other than ensure that the books have been properly kept and satisfy all the requirements under the Bill. There is no provision for them to talk to the directors of the company about the accounts. They will of course read out the audit report to the annual meeting. In our view, that is not enough, particularly because auditors have to make certain representations about the annual business statement.
§ We therefore feel it would be appropriate when describing auditors' duties that they should at least once a year—we think that is the point where the directors of the company decide on the content of the annual accounts—be present at that meeting and should take a full part in it. I beg to move.
Before I reply to this amendment, may I make a couple of remarks on the last amendment which may be helpful. The commission will seek to see that there is a management letter and can demand to see it. That may clarify the point.
On this amendment, the commission, again, will be seeking to ensure that the auditors attend meetings. It will be the subject of a commission guidance note. We believe that the amendment is unnecessary. It is recognised good practice for building society auditors to attend board meetings at which the annual accounts are to be approved. In addition, existing guidance from the accountancy profession recommends that where an auditor considers that a qualified report may be necessary, he should fully discuss the matter with the directors of the society.
No responsible building society board would seek to exclude the auditors from attending the meeting to approve the annual accounts, and being heard there. If there were such a board, the amendment would not solve the problem because it only deals with attendance and not with the right to be heard. It would do little to establish the expected relationship. The analogous section of the Companies Act 1985 contains no such provisions. I therefore ask the noble Lord to withdraw the amendment.
I am grateful to the noble Lord for that explanation. I hope that I heard him aright when he said that the commission would be issuing a guidance note which would contain the principles which we are attempting to embody through this amendment. I am grateful for that information, and on that basis I beg leave to withdraw the amendment.
§ Clause 79 agreed to. Clauses 80 and 81 agreed to.
§ ("and after consultation with the Directors of the Society").
§ The noble Lord said: I beg to move Amendment No. 183 standing in the names of my noble friend Lord Barnett and myself, with the words as on the Marshalled List. Again we come back to the question of the relationship between auditors and their clients. In Clause 82 we are dealing with the auditors' duties to the commission and related rights.
§ It is our view that auditors should not be required to go behind the backs (if I may put it like that) of directors of a society of which they are auditors; and if they are going to make a report to the commission, in accordance with subsection (5) of the clause we are dealing with, on the conduct of the business of the society during that year, it seems to us only reasonable that they should discuss that report with the directors of the society before they send it to the commission. Any other procedure would prejudice the relationship between the auditor and his client. I beg to move.
I question the necessity of this amendment, because the end of subsection (5) says: and the society shall, within the period of 90 days so beginning, send the report to the Commission together with such comments as the board of directors think fit to make". I should imagine that the only way that could possibly happen would be if they consulted the directors beforehand anyway.
We believe that this amendment which requires auditors to consult the directors before making their annual report to the commission on the society's accounting records and systems of business control is at best unnecessary and, I am afraid, at worst undesirable. The accountancy profession's guidelines on building societies emphasise the importance of reporting significant weaknesses in internal controls to management and of ensuring that non-executive directors are made aware of these reports, and recommends that auditors should attend board meetings to explain matters in the audit. It seems to me to be wholly inappropriate to try to legislate from the fine detail of relationships between boards and auditors. This is a matter best left to common sense and good practice.
The purpose of Clause 82 is to provide a formal means whereby auditors can draw the attention of the commission to failure to comply with statutory requirements for accounting records and control systems. It is therefore essential that, while an auditor will normally take the sensible precaution of both checking his facts and discussing the problems with the directors before making his report to the commission, he must be free to make his report without influence being exerted on him—something that the word "consultation" may be held to imply.
The clause does, however, include safeguards for directors in that the auditors' report is sent first to the society and the board, and the board have the opportunity to submit their comments alongside the report when they send the report to the commission. This means that if they are unhappy about any aspect of it, their comments are immediately available to the commission. In the light of that explanation I hope that the noble Lord will be able to withdraw this amendment.
I am again grateful to the noble Lord. He has the advantage over me in that he has knowledge of certain guidance notes that are undoubtedly going to be sent out which I do not have. I accept that if there is in some guidance note a general principle that the auditors should discuss these questions, and, I think the noble Lord said, verify their points before they send the report off to the commission, that is tantamount to consultation, and so I have no particular problem with that. I do not believe that the noble Lord's construction of the word "consultation" means quite what he says, but that is a matter of semantics.
Again we come to this in Amendment No. 187, and I feel that this is a question of establishing a proper relationship between the auditor and his client. However, in the light of what the noble Lord has said about the guidance notes and the general practice I shall read carefully what he has said, and in the meantime I beg leave to withdraw the amendment.
§ Page 127. line 29. leave out (and").
§ (c) the system of safe custody of documents maintained under section 12(13).'").
§ ("(d) as regards the system of safe custody of documents, whether or not the system complies with the requirement of section 12(13) and, if not, specifying the respects in which it was not complied with.").
§ The noble Lord said: I spoke to Amendments Nos. 184, 185 and 186 with Amendment No. 163. I beg to move the three amendments en bloc.
§ Page 128, line 30, leave out ("as soon as is practicable after sending") and insert ("before they send").
§ The noble Lord said: I beg leave to move Amendment No. 187, standing in the names of my noble friend Lord Barnett and myself, with the wording as on the Marshalled List. This is essentially the same point as I was making before, as I am sure the noble Lord recognises. I think that the noble Lord, Lord Morris, drew attention to the provisions of this subsection, which allows the directors to comment on an auditor's report.
§ Our only point is that instead of being "as soon as is practicable after sending" the report, it should be "before they send" the report. This would seem to be a sensible way of dealing with the matter. If the noble Lord can tell me that there is a guidance note somewhere that I have not seen, or which will be issued, and that it will have this effect, I shall be perfectly happy. I beg to move.
I did not want to miss the opportunity of replying on this occasion and accepting the noble Lord's amendment. I should draw attention to one thing that I think the noble Lord, Lord Williams, might have misheard in my reply to the last amendment. I was not referring to guidelines to be sent 498 by the commission; I was referring to the accountancy profession's guidelines on building societies, which already exist. That is another point. Anyway. I am pleased to accept this amendment.
§ Page 128, line 37, after ("them") insert ("and whether or not to do so would be contrary to the interests of the society").
§ The noble Lord said: I beg to move Amendment No. 188, and with the leave of the Committee to speak to Amendment No. 189 at the same time. These amendments were foreshadowed in another place in a Written Answer on the Financial Services Bill by my honourable friend the Parliamentary Under-Secretary of State for Trade on 9th June. Perhaps I may quote from col. 45 of the Official Report for that day. A further amendment will be proposed to provide that no duty which an auditor owes to a company or firm should prevent him from giving information to a supervisor. The auditor will accordingly not be liable for loss suffered as a result of such a report if made in good faith. Nor will he be liable for defamation as such reports would automatically attract qualified privilege".
§ My honourable friend concluded his answer by saying that the Chancellor of the Exchequer was considering the introduction of a parallel measure for banks, as described in the White Paper on banking supervision, and for building societies.
§ Under the Building Societies Bill, and Clause 82 in particular, auditors will owe duties to both the society and the commission, as the supervisory body concerned to promote the protection of the investments of both shareholding members and depositors. In the vast majority of situations communication between auditors and the commission would be with the knowledge of the society. This is the normal and well established position, and the Government have no wish to undermine traditional relationships between auditors and their clients. But there needs to be provision for exceptional circumstances where the auditor may need to alert the commission to a particular situation. By removing doubt as to the extent of an auditor's right to pass information, this amendment will facilitate communications between the auditor and the commission and contribute to the development of an effective relationship between them.
§ Turning to the second amendment, perhaps I may again quote from what my honourable friend said at col. 45 of the Official Report for 9th June: I have given especially careful consideration to the definition of those circumstances in which an auditor should be expected to report on his own initiative to a supervisor.
§ In the light of this consideration and of the many representations which I have received from the profession, I have concluded that there should be no general duty placed on auditors in the Bill to report to supervisors. The particular circumstances in which a report should be made need to be carefully defined. I believe this is best achieved by professional guidance and I look to the professional accountancy bodies, in consultation with the supervisors, to draw up such guidance. But an amendment to the Bill will be brought forward to give the Secretary of State a reserve power to lay down rules obliging auditors to report in certain circumstances to the supervisors. Such a power would be invoked only if suitable professional guidance was not issued".
§ My honourable friend went on to say that a parallel measure for banks and for building societies was being considered by the Chancellor of the Exchequer.
§ The Government believe this reserve power to be desirable for this Bill because of the importance of effective communication between building society auditors (who must visit their societies regularly and may be the first to detect the danger signals) and the commission as the supervisor. However, as my honourable friend said, the Government are of the opinion that such matters are best dealt with by the professional bodies concerned. It is therefore intended that this power will only be exercised by the commission if the profession fails to produce an effective code of practice.
§ I feel that in some ways I have drawn the short straw in having to move these two amendments as they will probably be discussed on the Financial Services Bill and indeed if we have the banking supervision Bill in the next Session. Nevertheless, they have reached me and this Chamber first because this is the first time they have been debated in either House on the Building Societies Bill. I therefore commend them to the Committee. I beg to move.
The noble Lord, Lord Brabazon of Tara, is quite right when he says that he has drawn the short straw. These amendments and the issues they raise have been the subject of intense debate in the press and elsewhere for a number of months now—indeed, ever since the Johnson Matthey affair and the Chancellor's committee of inquiry which was set up after that event and reported last August.
We fully understand that the Government propose to introduce similar amendments to this on the Financial Services Bill and the forthcoming Bill on banking supervision. The amendments—I am referring particularly to Amendment No. 189, which is to us the more objectionable of these amendments— specificially require the auditor to override his normal duty of confidentiality to his client. Thus he is required by law, by a statutory instrument, to break the relationship that an auditor normally has with his client. We believe that this idea arose out of the Chancellor's committee of inquiry into the adequacy of banking supervisory procedures which reported last August. It recommended the establishment of a dialogue between bank supervisors and auditors to, assist each other to carry out their respective functions"— that is, the supervisors and the auditors. This recommendation set all kinds of alarm bells ringing among the professional accounting institutes.
The institutes' concerns were threefold: first, the audit relationship is dependent upon confidence between the auditor and the client. That confidence, in turn, is dependent to a considerable degree on the fact that the auditor will not divulge to any third party information obtained in the course of his work. The principle of confidentiality is vital to a system which depends on the auditor obtaining all the information and the explanations he may need for the purposes of his audit. The Chancellor's committee's proposal was seen as a fundamental breach of this principle.
The second concern is the nature of the auditor's role. He is not a source of information and should not be a source of information. But he is a source of 500 opinion upon information supplied by his client. Unless the auditor himself is running the society, the bank or the financial services organisation in question, all he can do is rely on the quality of information that his client gives him. There is a problem with this for the auditor. He has to satisfy himself that the information is reasonably correct, but it is not the job of the auditor to dig out information which he then passes on to a third party.
Finally, there is the problem of fraud. We should have great reservations about a statutory requirement that requires an auditor to report suspected fraud. "Fraud" has multiple meanings in law and any duty to report what are inevitably no more than suspicions seems to us to be extremely dangerous. We are also concerned that a duty to report suspected fraud will come to be seen as a duty to detect fraud, which we regard both as unrealistic and not in the performance of the auditor's normal duties.
As I have said, these two amendments have been the subject of considerable debate in the press and elsewhere. They have come to the Committee at this stage of a Bill that has gone through the full procedure in another place. These amendments could have been tabled in another place. It is not very difficult to draft this amendment—at least, I do not think it is very difficult. The amendments have not been tabled. They have come to this Chamber and are not yet in the Financial Services Bill so far as I can see, because, having read through it, I cannot find them. I feel rather concerned for the noble Lord, Lord Brabazon of Tara, in that he has to stand up to defend amendments which properly should have been tabled in another place when this Bill was going through all the stages it did without the guillotine.
The noble Lord quite rightly said that Amendment No. 189 provided the Government with reserve powers in case the professions failed to issue proper guidance to their own members. Our preferred approach is for the professions to be free to issue professional guidance which is a genuine reflection of professional responsibilities, and not be subject to a sword of Damocles hanging over their head in case they fail to do so. We therefore oppose most vigorously both these amendments. I hope the noble Lord will see fit to take them away again, consider them and perhaps redraft them. Perhaps we will help him to try to find some sort of arrangement satisfactory to both sides of this Committee.
Whatever the noble Lord may have said about the close collaboration between the Building Societies Association and the Government, I really cannot believe that the Building Societies Association thought up this one. This is George Orwell stuff. The commission is already Big Brother, and almost every amendment that the Ministry has brought forward is making it a bigger brother than ever. All I can say is that if this is what the Building Societies Association has agreed, the Government must have got it into a grovelling condition and said, "Look, you have to put up with this. You want all that the Bill will give you in wider opportunities, but this straitjacket is to go on you". That is how it reads to me.
501 I cannot understand this. One wonders whether we are dealing with responsible members of a board. Surely the building society movement today is not in a condition that this kind of thing has to be imposed on it. I know that whenever proposals get into the hands of governments, their advisers and the parliamentary draftsmen, every eventuality has to be thought of and every loophole has to be stopped. Whoever drafted all this should be promoted at once to be a member of the Board of Inland Revenue, because they need him badly. I think we should have an easier time on finance Bills if the draftsmen of this clause were available for them. It is difficult to treat this matter seriously. My noble friend, in his calm and collected manner, dealt with this proposition in almost an academic spirit. I cannot do that. I am not made that way. I want to protest, and that is what I am doing.
In the vast majority of situations communications between the auditors and the commission would be with the knowledge of the society. This is the normal, well-established position, and the Government have no wish to undermine traditional relationships between auditors and their clients. But there needs to be provision for exceptional circumstances where the auditor may need to alert the commission to a particular situation and where informing the society's management would not suffice to secure the protection of investors.
An obvious, if perhaps extreme, example would be the suspicion of imminent execution of substantial fraud with direct involvement of those for the time being in de facto control of the society. In principle it is intended that there should be a power, not a duty, for an auditor to communicate with the supervisor where this is expedient in the interest of investors and depositors.
This is provided for in Clause 82(8). This would be exceptional. The normal mode of communication would be through the society or directly between commission and auditor with the knowledge of the society. But it is entirely proper that enabling provision should be there for the exceptional circumstance. The question of entitlement of auditors to send information to, or answer questions by, the commission relating to the society's affairs has been the subject of consultation and wide debate in relation to the Financial Services Bill and the proposed banking legislation.
Auditors will need guidance as to the circumstances in which a report should be made, and the Government expect, and would welcome, the introduction by the professional accountancy bodies of such guidance agreed with the supervising authorities. We think that that is the right way to proceed. But the Government also think that a reserve power is needed in case, for whatever reasons, the preferred arrangement fails. This reserve power is this amendment to the Bill.
The Government believe that this reserve power is needed as a fall-back. They remain convinced that their preferred option and that of the professional bodies—a power to communicate rather than a duty—is the right one. But we are moving into largely 502 uncharted waters at a time of very considerable change in financial markets and in relation to financial institutions. We have to guard against the possibility not only that suitable guidance may not be agreed with the professional accountancy bodies, but also that it may not prove sufficiently effective in practice against the possibly unforeseeable needs of the future.
I am able to tell your Lordships that the preferred system is the voluntary system, and if possible it should be left to the professions. The auditors' duty is to the members and to the commission; it is not to the director and the managers. In the case of a building society, it is the members as the shareholders who need to be protected. It is not intended that auditors should do the commission's work for them. The Bill is careful to distinguish between the boards, the auditors and the commission. But it needs the ability in very exceptional circumstances for auditors to talk direct to the commission. The essential point is not the sensitivity of auditors but the protection of the investors. For those reasons I must urge your Lordships to accept these amendments.
May I ask my noble friend whether any similar conditions exist in the Companies Act?
I am afraid that there, is a very serious difference of opinion between myself and the noble Lord, Lord Brabazon of Tara. He says in his justification of these amendments that they are a reserve power, but perhaps I may just read to the Committee what is said in Amendment No. 189. in subsection (9) which is to be inserted: The Commission, with the consent of the Treasury, may by order impose on the auditors of building societies an obligation to furnish to the Commission, in such circumstances as may be prescribed in the order, relevant information available to thorn of such descriptions as may be prescribed in the order;"— which means to say that the commission can ask for anything from the auditors. To say that that is a sort of reserve power that we are never going to use and that we hope very much that the accountants will all get together and sort it all out seems to me to be quite misrepresenting the nature of the amendment.
What I meant when I said "reserve power" was in reference to Subsection (10) of Amendment No. 189.
I am sorry if I misunderstood the noble Lord. I understood him to say that the whole amendment was a reserve power, because he preferred to have the professions setting out their own guidelines, and that it was only if they tailed to do that that these arrangements would be invoked. I hope that I have not misunderstood the noble Lord on that.
What I am saying is that the power to make an order under this subsection is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament. In other words, it must come to Parliament before it can be used.
I am grateful. I understand that and I know what happens to orders when they come before Parliament under the annulment procedure. Nevertheless, I think that they are reserve powers and I think that the noble Lord said that he hoped very much, and the Government hoped very much, that the professions would sort it out themselves. We should like the professions to be left to sort it out for themslves. In case I seem too academic to my noble friend Lord Houghton of Sowerby I would say that I really feel that this is something on which my noble friend and I would agree and that if I appear academic, it does not mean to say that I do not feel very strongly about it. I would continue to oppose this amendment.
§ On Question, Whether the said amendment (No. 188) shall be agreed to?
§ Their Lordships divided: Contents, 92; Not-Contents, 49.
Airey of Abingdon, B. Long, V.
Belstead, L. Massereene and Ferrard, V.
Brabazon of Tara, L. Morris, L.
Brougham and Vaux, L. Mowbray and Stourton, L.
Broxbourne, L. Murton of Lindisfarne, L.
Caithness, E. Nugent of Guildford, L.
Campbell of Alloway, L. Orkney, E.
Campbell of Croy, L. Pender, L.
Carnock, L. Peyton of Yeovil, L.
Colville of Culross, V. Portland, D.
Denham, L. [Teller.] Reay, L.
Enniskillen, E. St. Aldwyn, E.
Ferrers, E. St. Davids, V.
Feversham, L. Sanderson of Bowden, L.
Hailsham of Saint Strathcarron, L.
Hardinge of Penshurst, L. Terrington, L.
Henderson of Brompton, L. Thorneycroft, L.
King of Wartnaby, L. Vaux of Harrowden, L.
Boston of Faversham, L. Llewelyn Davies of Hastoe, B.
Bruce of Donington, L. Mishcon, L.
Caradon, L. Morton of Shuna, L.
Carmichael of Kelvingrove, L. Mulley, L.
Cledwyn of Penrhos, L. Munster, E.
Dean of Beswick, L. Nicol, B.
Elwyn-Jones, L. Ponsonby of Shulbrede, L.
Fisher of Rednal, B. Rea, L.
Gallacher, L. [Teller.] Seebohm, L.
Graham of Edmonton, L. Serota. B.
Hatch of Lusby, L. Shepherd. L.
Houghton of Sowerby, L. Stallard, L.
Irving of Dartford, L. Wallace of Coslany, L.
Jenkins of Putney, L. Williams of Elvel, L.
§ ("(9) The Commission, with the consent of the Treasury, may by order impose on the auditors of building societies an obligation to furnish to the Commission, in such circumstances as may be prescribed in the order, relevant information available to them of such descriptions as may be prescribed in the order; and it shall be the duty of any auditor to furnish information to which the obligation extends notwithstanding any obligation of confidence incumbent on him.
§ (10) The power to make an order under subsection (9) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
§ (11) In subsection (9) above "relevant information" means information relating to the conduct of the business of building societies or their subsidiaries or associated bodies.").
§ The noble Lord said: I have already spoken to this amendment, and beg to move.
§ On Question, amendment agreed to. Clause 82, as amended, agreed to. Clause 83 agreed to.
§ Page 228, line 47, leave out ("but not to be bound by").
§ The noble Lord said: I beg to move Amendment No. 190 on behalf of my noble friend Lord Ridley, and I suggest it would be convenient for his Amendment No. 192 to be discussed at the same time. If the Government agree, I think it would save time if their Amendment No. 193 were discussed also. The resumption of the Committee stage of this Bill today has been at short notice, though welcome, but my noble friend Lord Ridley could not break an engagement today and therefore cannot be here. He has asked me to explain briefly his amendments, and 505 I know he would wish me to declare his interest as a director of a building society.
§ The Bill appears to introduce a new power for ombudsmen. I use that as a generic term because the first ombudsman in this country was called the Parliamentary Commissioner, and in this Bill he is called the adjudicator. He could, under the Bill as it now stands, ignore or override a contract between a society and a customer. So far as I know, this has not been tried before in the legislation and arrangements for ombudsmen. If I am mistaken in this I hope my noble friend on the Front Bench will tell me, but, so far as I know, with the Parliamentary Commissioner and the ombudsmen for local government, national health services, banking and insurance, there has been no provision whereby the ombudsman could override a contract. It seems, therefore, that it is an innovation which has been carried out in this Bill, and that the building societies have therefore become the subject of a new departure.
§ It is also a serious matter, I submit. I know that in another place a great deal of time was given to the subject, but the result is that the ombudsman can intervene in legal agreements freely reached between persons. The Government's Amendment No. 193 appears to recognise this, and does go some way towards meeting the point. The Government are aware, I know, of the concern of the building society movement, which is glad that the problem is being recognised. I know my noble friend Lord Ridley hopes the Government will continue discussions to see if more can be done to solve the problem.
§ Earlier today my noble friend Lord Brabazon of Tara stated on the first two amendments which we considered that the Government were aiming to avoid putting societies at a disadvantage compared with their competitors, such as the banks. But this seems a situation, concerning the ombudsman, where the societies are being asked to be part of a scheme which has an important new element in it which has not appeared in previous schemes for ombudsmen, and this is to their disadvantage. I beg to move.
I am grateful to my noble friend Lord Campbell of Croy for raising this issue. As he has said, it has been a matter for a certain amount of discussion between the Government and the Building Societies Association. The ombudsman's terms of reference should go beyond matters of strict legal entitlement. He must be able, having established the rights of the parties, to consider whether they were exercised in a just manner. In the Government's view, it is essential to have this recognised explicitly in the statutory requirements to belong to an ombudsman scheme. Without such recognition, the requirement would not be to belong to an ombudsman scheme, but simply to have an arbitrator. While the scheme set up in practice could go beyond that, the Bill must require the ombudsman to have the appropriate powers.
In seeking to provide a statutory requirement to belong to an ombudsman scheme it is important to include the minimum powers that an ombudsman must be expected to have. While a simple power to make recommendations may suffice for a purely voluntary arrangement, I believe that a statutory 506 requirement, with all that that implies, should spell out the duties with greater precision. Moreover, banks and insurance companies do not enjoy the freedom not to comply with the ombudsman's findings that the building societies are being given in this Bill.
Although the banks and insurance industries have self-imposed ombudsmen, this Bill provides for the first time for a statutory non-governmental ombudsman. The Government naturally understand the anxieties of societies about these novel provisions. But I firmly believe that if they continue to act in the best traditions of service to their members they will have little to fear. I am sure that where the ombudsman finds injustice or unfairness societies will be only to pleased to take the necessary steps to remedy the situation. But to guard against the possibility of a perverse decision by the ombudsman the provisions include the right of societies, in the last resort, not to implement his recommendations so long as they explain their reasons publicly in the way that the ombudsman requires.
As my honourable friend said in introducing this provision in another place, the Government hope that recourse to this procedure will be necessary only on rare occasions. I am sure that societies will find that to be the case once they have gained experience of the ombudsman's operations. However, I accept that the Government's first attempt to draft appropriate powers goes a little too wide. It is not the intention that the ombudsman should be able to rewrite contracts between building societies and their members or customers. That is a point which building societies have been worried about. It is no part of the ombudsman's functions to say that the wrong contract was entered into and that the parties should have gone into some quite different contract.
On the other hand, it is perfectly reasonable for an ombudsman to say that, whatever the strict terms of the contract might have been, it was unfair to enforce the contract in the particular case at issue. An example of this might be enforcement of an interest penalty for the early redemption of a mortgage when the borrower had reason to believe that it was not the society's policy to enforce such provisions. To take another example, it might be the withholding of interest on a share account where a fixed period of notice was required, without taking account of particular extenuating circumstances in the case in question. Other possibilities might be the levying of charges for the use of cheque facilities or the withdrawal of facilities unfairly. It is possible to envisage many examples of occasions when enforcement of the strict terms of the contract would not be fair and where, in the great majority of cases, a society would not seek to do so. However, there may be the occasional case where an individual is treated unfairly and where it would be right for him to have redress through the ombudsman.
The Government amendments, to which my noble friend has referred, seek to replace the present very wide power with one that defines much more precisely the circumstances in which the ombudsman should be able to act. I trust my noble friend will agree that the Government amendments go a very long way towards meeting the legitimate concerns of the building societies and that he will not feel the need to pursue 507 this amendment tonight but will come back to the subject at a later stage if, on reflection, he feels that the Government Amendment No. 191 and Amendment No. 193 (which is a technical drafting amendment on the same matter) need amplification. Indeed I am committed to continuing discussion on this matter at least until after Report stage; but for the moment I must tell my noble friend that the Government believe their proposals now strike the right balance between the legitimate rights of consumers and societies. I would accordingly invite my noble friend to withdraw his amendment.
I am grateful to my noble friend for giving a clear explanation of the reasons why the Government have put forward, first, the text of the Bill and, secondly, their amendments.
My noble friend did confirm that these were novel provisions: that was the term he used. I agree it is unlikely that there will be many cases, if any, in which the ombudsman would be required to do this and where there would be considerable difficulty with a society; but if a case did occur under the terms of the Bill as it stands, before the Government amendments are made, it would raise a matter of principle of some importance.
I hoped I had made it clear that I considered the Government amendments as coming some way towards meeting the wishes of my noble friend Lord Ridley and that they are improving the Bill. On hearing that the Government are committed to continuing discussions to see whether further improvements can be made, I beg leave to withdraw the amendment.
§ Page 229, line 32, after ("take") insert ("or desist from taking").
§ The noble Lord said: I spoke to this amendment with the last amendment, and I beg to move.
§ Page 131, line 30, leave out from beginning to ("contractual") and insert ("or the complainant not to exercise or require the performance of any of the").
§ The noble Lord said: I spoke to Amendments Nos. 193 and 194 with Amendment No. 190. I beg to move.
§ Page 133, line 3, after ("of") insert ("Part III of).
§ Clause 84, as amended, agreed to.
§ Schedule 14 agreed to.
§ Page 135, line 12, leave out ("company insolvency laws") and insert ("applicable winding up legislation").
§ Page 135, line 28, leave out ("company insolvency laws") and insert ("applicable winding up legislation").
§ Page 136, line 6, leave out ("company insolvency laws") and insert ("applicable winding up legislation").
§ ("(5) In this section, "contributory" has the same meaning as in paragraph 9(2) or, as the case may be, paragraph 37(2) of Schedule 15 to this Act.").
§ The noble Lord said: I spoke to these amendments with Amendment No. 72 and I beg to move them en bloc.
§ ("Application of winding up legislation to building societies.
§ 90.—(1) In this section "the companies winding up legislation" means the enactments applicable in relation to England and Wales, Scotland or Northern Ireland which are specified in paragraph 1 of Schedule 15 to this Act (including any enactment which creates an offence by any person arising out of acts or omissions occurring before the commencement of the winding up).
§ (2) In its application to the winding up of a building society, by virtue of section 88(1) or 89(1), the companies winding up legislation shall have effect with the modifications effected by Parts I to III of Schedule 15 to this Act; and the supplementary provisions of Part IV of that Schedule shall also have effect in relation to such a winding up.
§ (3) In sections 37, 88, 89 and 101, "the applicable winding up legislation" means the companies winding up legislation as so modified.").
§ The noble Lord said: Again, I spoke to this amendment with Amendment No. 72. I beg to move.
§ ("Power of court to declare dissolution of building society void.
.—(1) Where a building society has been dissolved under section 87 or following a winding up, the High Court or, in relation to a society whose principal office was in Scotland, the Court of Session may at any time within 12 years after the date on which the society was dissolved, make an order under this section declaring the dissolution to have been void.
(2) An order under this section may be made, on such terms as the court thinks fit, on an application by the trustees under section 87 or the liquidator, as the case may be, or by any other person appearing to the Court to be interested.
(3) When an order under this section is made, such proceedings may be taken as might have been taken if the society had not been dissolved.
(4) The person on whose application the order is made shall, within seven days of its being so made, or such further time as the Court may allow, furnish the central office with a copy of the order; and the central office shall keep the copy in the public file of the society.
(b) in the case of a continuing offence, to an additional fine not exceeding £40 for every day during which the offence continues.").
§ . Where a building society is being wound up or dissolved by consent, a member to whom an advance has been made under a mortgage or other security, or under the rules of the society, shall not be liable to pay any amount except at the times or times and subject to the conditions set out in the mortgage or other security, or in the rules, as the case may be.").
§ The noble Lord said: I hope it is for the convenience of the Committee, since these are two new clauses which I spoke to with Amendment No. 72, if I move Amendments Nos. 200 and 201 en bloc. I beg to move.

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§ 90