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The scheme nevertheless ensures transparency, so if the FSA decides not to investigate a complaint, the investigator should know about it; and if the authority decides to go ahead and investigate, again, the investigator should be informed. The investigator can then take up the complaint if he or she sees fit.

Of course, if the FSA does not sort out a complaint satisfactorily, the independent investigator comes in. Taking the FSA out of the picture in the first instance would not be right or efficient.

The Joint Committee suggested that we consider the possibility of ex gratia payments. We have been doing that, and we continue to do so, but it is not appropriate to come to a decision until we see the FSA's consultation paper on the proposed arrangements for the complaints scheme. Amendment No. 188 argues for just such compensation.

It is important that the complaints scheme is not seen as a means of circumventing the FSA's statutory immunity. We do not want to encourage people to take

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pot shots at the FSA and distract it from its proper business of regulating. As the scheme is not part of the Court Service--indeed, the investigator need not be a lawyer--he or she would not necessarily come to a decision based on legal principles that a court would apply. The complaints scheme is an informal mechanism for investigating complaints and, where appropriate, bringing shortcomings into the open; it is not a court, nor is there a right of appeal for the FSA if the investigator makes an adverse finding against it.

Although the Bill does not give the investigator the power to award damages, the complaints scheme will have real teeth. The investigator can publish his or her reports and has the power to name and shame the FSA--or, if he or she sees fit, individuals within it. Therefore, the strength of the arrangements should not be underestimated. The FSA will also need to include details concerning complaints in its annual reports to the Treasury and to Parliament.

I hope that, once they have considered my remarks and the Government amendments, hon. Members may see fit to withdraw their amendments in this group.

Mr. Flight: Government amendment No. 480 is quite acceptable. It responds to an issue that we raised about speeding up the handling of complaints.

We are now in the single most important territory of principle. As the Burns committee set out in its doctrine, and as has been the universal response from the industry, if there is to be effective legal immunity, there must be a clearly independent system of complaints--if not with the ability legally to award compensation, with the ability to recommend and suggest fair recompense when businesses have been damaged by incorrect or wrong conduct by the FSA.

As the Minister has just said, in Committee the Government accepted the principle that the investigator could suggest ex gratia payments. There is no Government amendment to that end, and the Minister has said that the matter is still under consideration, awaiting the FSA's comments. We ourselves have had discussions with the FSA on this issue. It pointed out that, if the payments were compensation, there would be a potential problem of legal disputes, particularly over matters such as the refusal of applications, but it is perfectly happy with the principle of ex gratia payments being recommended to it. Amendment No. 32 has been worded deliberately to accommodate that. It proposes that the investigator recommend suitable sums for payment by the FSA, so that it will ultimately be an ex gratia regime.

We will wish to withdraw amendment No. 188, which is clearly stronger, and sets out a specific proposal for compensation. Our other amendments seek to create a complaints regime that is fully independent. While there may be something in the argument that the complaints investigator's time should not be wasted with minor issues, the bigger argument is that it is inappropriate for all complaints to come to the FSA first. The FSA has the power of life or death over businesses in terms of authorisation. There is considerable fear of the FSA in the industry--fear that, if offence is given or a foot is put out of line, a business may suffer. It is therefore inappropriate that complaints should first be vetted by the FSA. The investigator needs to be fully independent to receive and consider complaints, and recommend recompense if a business has been genuinely damaged by a wrong action by the FSA.

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We shall come in due course to the issue of legal immunity. The two issues might best have been debated together, but it is absolutely clear that, in achieving a fair and sensible balance of power--if there continues to be effective legal immunity, as the Bill at present prescribes--it is essential, as the Burns committee made clear, to have an independent system of complaints, and for the body concerned to be able to recommend, if not award, fair payments for damage suffered by businesses as a result of the FSA's mistakes.

Sir Nicholas Lyell: I agree with the points made by my hon. Friend the Member for Arundel and South Downs (Mr. Flight), including those about the importance of having an independent investigator who can award compensation, of at least a reasonable nature.

My hon. Friend pointed out that our amendments are in two forms--amendment No. 188, which requires that the investigator be able to award compensation, and amendment No. 32, which requires that he or she be able to recommend an award of compensation, leaving the ultimate decision to the authority. To that extent, it would be ex gratia. We put that in to water down our recommendation, to make it easier for the authority, and to stop it being frightened that its immunity would thereby be completely undercut.

We are the Opposition, not the Government. The Government need to reflect seriously and carefully on exactly how to handle this matter. I echo my hon. Friend's statement that the recommendation was made by the Burns committee, which gives it great weight, just as the committee's views on the chairmanship and the question of chairman and chief executive gave that great weight. I hope that both those matters will be reflected on extremely carefully.

This group of amendments and the next group, on immunity, hang together, as my hon. Friend rightly said. The Minister knows that I support a substantial degree of immunity for the FSA. I think that it is necessary, for the reasons that my hon. Friend stated. We do not want to see the authority undercut, and, as the Minister said, we do not want unreasonable pot shots. They may be much more than pot shots; they may be major attacks by extremely powerful institutions.

That is one side of the picture. The other side is that the FSA is being given immense power over the livelihoods of thousands of people whose own money is at risk. If it performs its functions badly, it should be capable of being held to account. If it does significant damage to individuals working in the market through its own fault, there should be some comeback and some financial compensation. The authority is big enough to be able to behave properly to those whom it has a duty to regulate, but whom it has let down as a result of inadvertence, stupidity or worse.

I hope that that will not happen very often, but I would feel much more confident about its being a rare occurrence if I knew that the authority was aware that it must look over its shoulder, at least to a limited extent, and realise that if it messes up those working in the market or others through its own incompetence or error, it can be held reasonably to account for at least reasonable sums to return them to the position in which they ought to have been.

We are setting up a huge institution. What we are doing is unprecedented. We really must be big about it: we must not be frightened--Governments, whatever their

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complexion, must not be frightened--to be prepared to pay compensation to those who suffer when misregulated. There is no reason why the whole regulatory system should collapse as a result of that balance.

If we do not get this right, Strasbourg may eventually force us to get it right. One of the problems of this Bill is that it is so defensive about the idea of judicial review. Nearly every provision that could be drafted so as to inhibit the opportunity for judicial review is thus drafted. It will not prevent judicial review on the part of financial institutions that are rich and powerful enough to afford that expensive and complex process, but judicial review would be far less necessary if the system involving the investigator and reasonable compensation were established properly.

I am in favour of that system. I am in favour of a comparatively formal process. However, if it is so boxed in--if I may use another contentious phrase--that it is not effective, people will look outside it. Eventually, they will take the cases to Strasbourg. They will rely on article 6 of the European convention on human rights in relation to lack of due process, on article 7 in relation to the right not to be punished except in accordance with the law, and on the first protocol of article 1, which relates to the right to possession of property. If someone is running a business that is also his property, and if that business is seriously damaged as a result of the authority's incompetence, possession of the property may be denied him. In one way or another, people will find a way of bringing a case outside the confines of this country.

Let us get the legislation right. Let us ensure that it is reasonable and balanced.

Miss Melanie Johnson: We are still considering the issue of ex gratia payments. The FSA is consulting on it, and I do not think it appropriate to pre-empt the results of its consultation. I am not saying that we will decide one way or the other; I am saying that we are waiting for the results.

I do not think that people should view the complaints investigator as a potential first port of call, as the Opposition seem to suggest. In any event, the post is not being established for the purpose of financial redress; the point is for the focus to be on the process, and on the importance of transparency.

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