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Rehabilitation of Offenders Act 1974 (Exceptions) (Amendment) (England and Wales) Order 2011

Volume 729: debated on Tuesday 5 July 2011

Considered in Grand Committee

Moved By

That the Grand Committee do report to the House that it has considered the Rehabilitation of Offenders Act 1974 (Exceptions) (Amendment) (England and Wales) Order 2011

Relevant documents: 23rd Report from the Joint Committee on Statutory Instruments.

My Lords, as the Committee will be aware, the Rehabilitation of Offenders Act 1974 exists to support the resettlement of offenders into society where they have demonstrated that they have put their criminal behaviour behind them. After a prolonged period of time, therefore, the Act declares convictions spent and an ex-offender need no longer declare them. When they apply for jobs, or seek insurance, they need not disclose this information and subsequently not suffer the potential discrimination as a result of it.

There must of course be exceptions to this rule. Where, for example, someone is applying to work with children or with vulnerable adults, it is appropriate that the employer knows the full history of the individual. The exceptions order to the Act is the means by which this is achieved.

The exceptions order lists certain activities that are exempt from the Act. This means that where an individual is applying for a job within a specified activity or is involved in specified proceedings, their full criminal record history is available to the employer. If an individual has a conviction that has been declared spent, the prospective employer will then see it. We must be careful not to jeopardise the operation of the Rehabilitation of Offenders Act, so the activities listed on the exceptions order are only those that present an opportunity for people involved to cause harm to the public or the work concerned is of a sensitive nature, which might include children, the finance sector or national security.

This careful balance between allowing offenders to lead law-abiding lives by removing barriers and maintaining public protection needs to keep pace with the present. The exceptions order must therefore remain up to date with developments elsewhere. The order presented today is an illustration of the Government seeking to maintain this balance in line with the developments occurring in the financial and legal sectors.

Noble Lords will know that wide proposals for reform of the Rehabilitation of Offenders Act are being considered by the Government. Today is not the day to debate these, and I cannot make further announcements at this stage.

The current exceptions order enables the Financial Services Authority to take spent convictions into account when authorising a person to carry out regulated activities under the Financial Services and Markets Act 2000. This amendment will enable the Financial Services Authority to take spent convictions into account when authorising a new category of business—payments institutions.

Payments institutions were brought within the scope of regulation by the Financial Services Authority in 2009. They provide payment services, for example enabling cash to be placed in or withdrawn from a payment account, and range from large credit card companies to sole traders offering to send money abroad for a small fee. Money remitters, for example, transfer large amounts of money to and from overseas, with many specialising in remitting funds to specific accounts, such as in India, Pakistan or Poland, on behalf of immigrant communities. In many cases these customers are financially disadvantaged people, who have limited access to the banking system.

There have been a number of failures of business in the money remittance industry, and the failures have uncovered an element of mismanagement, financial impropriety or fraud. It is therefore important that the Financial Services Authority can assess those responsible for management of these businesses before authorising them to carry on business. This amendment will therefore bring payments institutions within the exceptions order so that the Financial Services Authority can take into account the full background of those responsible for the management of these bodies.

The second amendment relates to the introduction of alternative business structures, which will allow lawyers and non-lawyers to work together to provide legal and non-legal services. These bodies will be licensed and regulated by licensing authorities. Two new roles—head of legal practice and head of finance administration—are being introduced and will be responsible for an alternative business structure’s compliance with their licence. Licensing authorities must be satisfied that individuals applying to be heads of legal practice and heads of finance administration are fit and proper persons for appointment. In particular, not only will persons in these roles be responsible for compliance with the body’s licence, they could have access to vulnerable clients, client money and personal or sensitive client information. Making this amendment means that licensing authorities can seek information on previous convictions and cautions from applicants seeking to take up the role of head of legal practice and head of finance and administration. This will ensure that they are fit and proper for appointment.

I am aware that a further request has recently been made by the Legal Services Board for non-lawyer owners and managers of alternative business structures to be added to the exceptions order. At this early stage, no decision has been made. We will of course give careful consideration to this request, and this process is under way.

The final amendment is one of wording only. There is currently an entry on the exceptions order relating to “actuary”. The term is currently defined in the exceptions order as,

“a member of the Institute of Actuaries or a member or student of the Faculty of Actuaries”.

On 1 August 2010, these two bodies merged to become the Institute and Faculty of Actuaries. In order to continue to give effect to the applicable exception the definition is to be updated to reflect this change.

I hope that I will have the agreement of all noble Lords that the exceptions order is an important means of protecting the public. The instrument presented today responds to the latest analysis of risks. It therefore ensures that legislation is up to date and effective in its aim, while maintaining the vital balance towards the resettlement of offenders that the Rehabilitation of Offenders Act seeks to achieve. I beg to move.

My Lords, I declare an interest in the global firm of solicitors, Beachcroft LLP, where I have been a partner since 1969, and as vice-chairman of Justice. I say that with trepidation in the presence of the emeritus chairman of Justice—my noble friend Lord Goodhart—because Justice must deserve a great deal of credit for the original rehabilitation of offenders legislation.

However, I need help from my noble friend the Minister on giving a commitment—a commitment that was given by the party opposite when it had responsibility. I also gave personal commitments when I was leading for the Opposition from the Front Bench and made it clear, right at the outset, that a single set of regulatory standards would be required for alternative business structures.

The Minister has received a fascinating brief from his officials to explain the mistake in singling out “head of legal practice” or “head of finance and administration”. I warmly commend the officials for having thought up this reason, but it was two years ago that we made it clear that it is the owners and managers of the alternative business structures who must be the people in the spotlight. It may well be that they will need under them a head of legal practice or finance and administration, but at the end of the day the key role played by the owner/investor/manager of the alternative business structures must mean that they should be subject to the same authorisation rules as solicitors in regard to disclosing criminal offences. Why? Because we must ensure, as both Front Benches agreed we had to, that convicted criminals are not able to become owners and managers of legal practices.

It is not just that a request has only just been received from the Legal Services Board, because it was in June 2009 that the Solicitors Regulation Authority made it clear that a single set of regulatory standards would be required. Why on earth this is not included now I just do not know, because what it means is that someone who has served a sentence for a serious crime such as money laundering does not have to disclose this when applying to be an owner or investor in an alternative business structure firm.

I suppose that my noble friend can immediately move to give me assistance by promising that there will be a further order to rectify this omission, which will then make it clear that the exemption of course also applies to owners and managers of ABS firms, as well as to the heads of legal practice and finance and administration within those firms.

My Lords, I thank my noble friend the Minister for the explanation that he offered on the order. My noble friend Lord Thomas of Gresford has commented on some aspects of the order, particularly in relation to the Legal Services Act 2007 (Appeals from Licensing Authority Decisions) Order 2011. I intend to build on that. However, let me make a confession first. My noble friend Lord Hunt just wanted a minute from me, but in that minute he has stolen half my thunder. But I can build on what he said—and certainly the Minister might look sympathetically at why we are making this request.

As one who is promoting the Rehabilitation of Offenders (Amendment) Bill, I am aware that this order is adding additional exceptions to the Rehabilitation of Offenders Act, which does not include external owners. The matter was brought to the attention of the Ministry of Justice by the Solicitors Regulation Authority, which said that a single set of regulatory standards will be required, based on the existing ones for solicitors and traditional law firms and on the assumption that all potential owners of alternative business structures will have to disclose all previous criminal convictions. It would be very helpful to know from my noble friend the Minister why the Government have not included external owners in the list of exceptions. The Solicitors Regulation Authority is clear that it will not be able to subject external owners and managers to the same standard of fitness and propriety checks as apply to solicitors. I am told that the SRA conducted a public consultation and no objections were raised about alternative business structure owners and managers.

Will the Minister now intervene to ensure that the liberalisation of the market can occur with appropriate public protection? My Private Member’s Bill includes exceptions in serious cases, and that is right; it is how it should be, if we are to build the confidence of the public in the structures that we promote. The crux of the matter is to establish a strict regulatory regime so that serious criminals cannot take control of legal practices. This is where changes are necessary.

There is a clear divide between what the Ministry of Justice is proposing and what is required by the SRA of the Law Society. It would be helpful to have the Minister’s reasons for this order. It poses difficulties for the SRA, whose task it is to establish standards, and it is the SRA’s view that it cannot license ABS until these exceptions are in place.

My Lords, I support my noble friends in their comments. On the previous occasion, as I am sure the noble Lord will recall, I used the illustration of having appeared in Hong Kong in a case where I was instructed by what turned out to be a Triad-backed solicitor’s firm. The solicitor was merely the front man. Therefore, the owners and managers of a firm must be of a proper standard.

While my noble friend was replying to the previous debate, I suddenly recalled that within the past three years I have represented someone charged with stealing a house. It was a fairly unlikely charge, which I had not come across before, but there were two solicitors in the dock with the person in question. This is the real world. This is where people who are undesirable can move in and take advantage of the legal system if it does not contain all the safeguards. The necessity for owners and managers of alternative business structure firms to be subject to the same checks as every other solicitors firm is essential, so I support my noble friend.

My Lords, I also support what noble Lords opposite have said. Of course, as the Minister said, we have to be careful not to jeopardise the workings of the Rehabilitation of Offenders Act 1974, but there clearly have to be exceptions. Like noble Lords opposite, frankly I do not understand why this order does not encompass ABS firms, or the head of legal practice and head of finance administration, to which the Minister referred. In view of the strong feelings that have been expressed in Committee this afternoon, I wonder whether the Minister would consider taking back this order and relaying it once proper consideration has been given to the inclusion of the owners of ABS firms. I think that all noble Lords present would like to see one single set of regulations. That would make for much better government and much better governance, and I should be grateful for the Minister’s views.

If the noble Lord is not able to take back this order—and he may not be able to do so—I should be grateful for an assurance that he will come back in the very near future with another order that encompasses the ownership of ABS firms. I quote from his honourable friend Jonathan Djanogly, who, when speaking for the Conservative opposition in the House of Commons—I am afraid that I do not have the words of the noble Lord, Lord Hunt of Wirral, in front of me—said:

“The effectiveness of fitness-to-own provisions is a crucial element of the public protections that need to be in place before external ownership of ABS firms can safely be permitted. It is essential to avoid the spectre of law firms being owned by criminal elements”.—[Official Report, Commons, Legal Services Bill Committee, 22/6/07; col. 300.]

I think that, unless we have an order before us in the very near future that encompasses ABS firms, we will indeed have that spectre before us.

I knew I was right when I said that the enemies are behind me, but very constructive enemies they have been. One of the benefits of this procedure is that we can examine orders such as this in a non-partisan but expert way. As much as it is within my power to give the assurances that the noble Baroness, Lady Royall, has asked for, I give those assurances. The points that have been made by my noble friends during this debate should be treated with proper urgency. I am not in a position to withdraw the order, which covers matters that it is important to take forward. However, the noble Baroness is quite right: in opposition both Jonathan Djanogly in the other place and my noble friend Lord Hunt made it very clear that the effectiveness of fitness-to-own provisions was a crucial element of the consumer protection measures that needed to be in place for all ABSs. That position has not changed.

I can assure the Committee that the gist of this debate—or at least Hansard—will be made known to my colleagues in the Ministry of Justice, along with the strong message that a sense of urgency is needed in taking this matter forward. The argument that a compelling case and a clear understanding of the potential risks are needed to justify inclusion in exception orders is valid. Licensing authorities have a range of regulatory powers and will be required to put in place strict licensing rules to ensure that licensing bodies are properly regulated and consumers adequately protected.

Nevertheless, I accept the point made by my noble friend Lord Dholakia. I hope we can carry forward his initiative in producing a new Private Member’s Bill that updates the Act. If we are to get general public support for a rehabilitation of offenders Act, and carry public confidence in it, we must have exception orders to give the protections that the public require. Certainly, the case made today for owners being part of the Act is, to my mind as a lay man, almost unanswerable. I hear what has been said. It would seem only natural to a simple lay man that owners and managers of ABSs should be included in the order. I will take the very strong recommendations of this Committee back to colleagues. In the mean time, I ask the Committee to accept this order.

Motion agreed.