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FINANCIAL SERVICES AND MARKETS BILL [WAYS AND MEANS] (No. 2)

Resolved,



(a) the imposition of charges to income tax and corporation tax by provisions of that Act relating to the treatment for the purposes of the Income and Corporation Taxes Act 1988 of payments made to any person as a result of any provision made by the Financial Services Authority for the distribution of money repaid to it by the Lord Chancellor in respect of the legal assistance scheme;
(b) the imposition by the Authority on authorised persons of requirements to make payments to it in connection with the legal assistance scheme;
(c) payments into the Consolidated Fund.--[Mr. Timms.]

27 Jan 2000 : Column 600

Orders of the Day

Financial Services and Markets Bill

[1st Allotted Day]

As amended in the Standing Committee, considered.

Schedule 1

The Financial Services Authority

1.40 pm

Mr. David Heathcoat-Amory (Wells): I beg to move amendment No. 19, in page 196, line 24, at end insert--


"(aa) a chief executive; and".

Mr. Deputy Speaker (Sir Alan Haselhurst): With this it will be convenient to discuss the following amendments: No. 20, in page 196, line 41, leave out "Authority" and insert "Treasury". No. 54, in page 197, line 8, at end insert--


"(aa) reviewing and approving the Authority's annual budget of income and expenditure,".

No. 21, in page 197, line 10, leave out "and".

No. 22, in page 197, line 13, at end insert--


"; and
(d) providing an independent perspective on the overall running of the Authority, scrutinising and monitoring the approach of its executive management, the Authority's performance and its standards of conduct".

Mr. Heathcoat-Amory: This group concerns the powers of the chief executive and chairman and whether they should be combined or separated. The amendments also make provision for changes in connection with the non-executive directors.

The Bill gives statutory backing to the Financial Services Authority, which relies in most cases on powers derived from the Financial Services Act 1986. The FSA can rely in some respects on more recent legislation such as the Bank of England Act 1998, which provided for banking supervision to be given to the FSA.

In many respects, the Bill gives statutory backing to an authority and concentrates executive authority in a way not seen before in regulatory legislation. The FSA will not only be a strong executive body but will make rules that will have the force of law. Those rules will be consulted on and I am sure that the FSA will not bring them forward without proper care and attention--but Parliament will be delegating that rule-making and, in effect, law-making process to another body. We ought to be careful of the conditions under which we do that, and need to put checks on any abuses that could occur.

The FSA will also enforce its rules. It will investigate breaches and discipline those found to be breaking them--if necessary with large fines. The authority's power to fine will be unlimited. The FSA is not part of government, so not directly accountable to the House. It is a private company limited by guarantee but has statutory functions conferred by the Bill and other measures. The authority enjoys a considerable degree of statutory immunity, which we shall debate in due course.

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Even from that brief and inadequate description of the FSA, it is clear that its accountability is an important issue. The authority must be accountable to the market it serves; to those who have paid its expenses through the levy; and to consumers and Ministers--and it must be accountable at law. One safeguard is to ensure the correctness of the FSA's internal management structures--the powers of the directors and chairman and their relationship with each other and the outside world.

1.45 pm

The amendment provides for a separate chairman and chief executive. It has been pointed out that good corporate governance now requires the separation of chairman and chief executive. That was a recommendation of the Greenbury committee, and is still accepted to be how large public companies should be structured.

Against that, it is said that the FSA is not a commercial company in the normal sense of the word. It is a company, of course, but it certainly does not have normal shareholders. On the other hand, many public bodies do have different chairmen and chief executives, the BBC being one. We can all be grateful that there is not a concentration of power in a single person at the BBC. Instead, the director general is, in some senses, accountable to the chairman and the governors. A number of regulatory agencies are similarly structured--the Environment Agency, for example, has a separate chief executive and chairman.

Against that, it has been argued fairly that most foreign financial regulators have combined the two tasks of chairman and chief executive. However, not many overseas regulators have brought together so many powers in one body. It is comparatively unusual for banking supervision to be conducted by the same body as regulates the rest of the market. Clearly, the debate could go to and fro almost indefinitely, and I am not sure if the issue can be decided in that way.

I prefer to look instead and be influenced by more long-term considerations about how the FSA should be run. Also, we should not be too influenced by any particular holder of the office. Howard Davies is the present executive chairman of the FSA. I have a high regard for him, and it is no criticism of him that we believe, as a development in the longer term, that the roles should be split. That was the recommendation also of the Joint Lords and Commons Committee which examined the issue last year.

I emphasise that we are legislating for the longer term. People come and go, personalities change and the regulatory environment alters. We must set up the necessary internal checks and balances to prevent any abuse of power, while ensuring that the FSA is a strong and effective regulator.

Mr. Jim Cousins (Newcastle upon Tyne, Central): It seems from the amendment that what is being sought is for the chief executive to be appointed as a member of the governing body by the Treasury. Is that seriously what the right hon. Gentleman intends?

Mr. Heathcoat-Amory: Absolutely. The chairman is appointed by the Treasury at present, so the chief executive should be. The hon. Gentleman has interpreted the amendment correctly.

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I was about to refer to the powers and role of the non-executives; it would enhance their role if they came under a non-executive chairman. That is an important part of the thinking behind our amendments. In other amendments, we want the Treasury, and not the FSA, to appoint the members of the non-executives committee.

Liz Blackman (Erewash): Would the amendment not split the role as soon as the Bill is enacted and not in the long term? Is the right hon. Gentleman not arguing against his original point?

Mr. Heathcoat-Amory: As I have said, it is not my intention to do anything to change the position of the current chairman, who has another two and a half years in the job. If the Government accepted the amendment, I am sure that they could devise a form of words to give clarity to the thought that the proposal is for the longer term and would not upset the present managerial structure as it affects the chairman.

I conclude by dealing with the role of the non-executive directors. The other amendments in the group are designed to give them and the committee of non-executive directors the additional and stronger functions that they need. Specifically, they should be given the tasks of reviewing and approving the annual budget and of explicitly scrutinising and monitoring the executive management. As the Bill stands, they have several specified functions, but they are somewhat insipid.

I contrast the wording in the schedule with what the FSA believes non-executives should do in the rest of the market. Consultation paper No. 35 helpfully lays out what it believes they should do. Their role should include


That is a fairly good description of what non-executives should do and it should be reflected in the functions required of the FSA's non-executive members. The amendments would bring the Bill's wording into line with the FSA's view of what non-executives should do.

I hope that I have said enough in this brief introduction to give our thinking about the roles of chairman and chief executive and to put that in the context of what we believe non-executives should do when they are headed, as they should be, by a non-executive chairman.

Mr. Deputy Speaker: I call Mr. Jim Cunningham.

Mr. Cousins rose--


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