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New clause
Lords amendment: No. 3, after clause 6, to insert the following new clause--Duty of Authority to follow principles of good governance--
(". In managing its affairs, the Authority must have regard to such generally accepted principles of good corporate governance as it is reasonable to regard as applicable to it.")
Motion made, and Question proposed, That this House agrees with the Lords in the said amendment.--[Miss Melanie Johnson.]
Mr. David Heathcoat-Amory (Wells): I beg to move an amendment to the Lords amendment, in line 2, leave out from 'to' to end of the Lords Amendment and insert
- 'all relevant generally accepted principles of good corporate governance and in discharging its functions the Authority must act in a way which is fair, reasonable, open and proportionate'.
We have debated that matter previously, but the Government have always been reluctant to ensure that the FSA respects the principles of good governance, even though they urge everyone else to abide by them. For instance, there is general agreement that companies--especially large public companies--should have split chief executive and chairman functions.
Many other observations have been made under several chairmen. Cadbury, Hampel and Greenbury successively produced codes on good governance, which have been summarised in a combined code of corporate governance. That should also be binding on the FSA. The obvious rejoinder is that, unlike a public company, the FSA does not have shareholders. However, that does not dispose of the matter. The same issues of checks and balances and of accountability apply to the FSA--perhaps with additional force because of the authority's power. The FSA enjoys a high degree of statutory immunity; it will be a rule-making and thus a law-making body. It will be charged with enforcing its own rules, as well as investigating wrongdoing and fining those who transgress those rules. The concentration of executive power in the FSA means that it should abide by those basic rules of good governance.
That view was taken by several Members in another place. They persuaded the Government to table an amendment to introduce the concept of good governance. However, we believe that it does not go far enough. In relation to the split between the chairman and the chief executive, we should recall the conclusions and recommendations of the Joint Committee chaired by Lord Burns. Paragraph 113 stated that
- in the longer term we recommend that the posts of Chief Executive and Chairman should be separated and that a non-executive Chairman should be appointed. We see advantages in this of limiting the power of and focus on a single individual; enhancing the power of non-executive directors; and ensuring that control of the agenda does not lie exclusively with the executive.
We especially want to disperse power within the authority. There is already a sufficient concentration of executive power in the body, which is, after all, only a private company with statutory functions. Power should be dispersed within that company. There is also considerable merit in having one person running the FSA from within, while someone else acts as the public outward face and speaks for the authority in the outside world--a time-consuming job in itself.
A separate non-executive chairman and chief executive would enhance the role of the latter and would give confidence in the regulating community that complaints would be considered at some remove from the chief executive and his office. Of course, other aspects of the Bill deal with complaints and we shall debate those later. However, splitting those roles would improve and increase confidence in the way that the FSA carries out its statutory functions. The Government have, in principle, adopted the concept of corporate governance, but they have not been persuaded of the merits of splitting the roles.
Slightly alarmingly, the notes on the Government amendment passed in another place say only that the principles referred to in the amendment
- might include those contained in the Combined Code of the Committee on Corporate Governance.
- fair, reasonable, open and proportionate.
The principle of openness should also be more clearly stated in the Bill. The Government do not have a good record on openness. We have already discovered from our consideration in Committee of the Finance Bill that there is a report on tobacco smuggling. The report is familiar to Ministers, but the Government regard it as secret and have failed to publish it, even though it deals with a matter of public interest. They talk much about transparency
and openness, but they have delivered little in practice. We want to ensure that the FSA, at least, operates openly when it consults on making or changing rules and across the whole range of its operations.Our amendment would strengthen the commitment in the proposed new clause to good governance in the way that I have described. It would provide a stronger steer towards splitting the role of chairman and chief executive and it would ensure that the authority operates in a
- fair, reasonable, open and proportionate
Mr. Howard Flight (Arundel and South Downs): I merely wish to ask the Government what they intend by the words that they have used. In the other place, the Opposition's objective was to shift the presumption that the FSA was not required to have a separate chairman and chief executive to the presumption that it would separate the roles. The current arrangements exist essentially because of Mr. Howard Davies.
The proposed new clause contains the phrase
- as it is reasonable to regard as applicable to it
It has become clear that, in an increasing number of cases--particularly phase two inspections--FSA teams have acted in a way that has not been reasonable or open. Why should the Government not accept the requirement that the body should act in a way that is
- fair, reasonable, open and proportionate?
4.45 pm
Miss Melanie Johnson: I shall first deal with why the Opposition amendment to Lords amendment No. 3 is unacceptable. The Opposition amendment would require the FSA to act in a
- fair, reasonable, open and proportionate
Opposition Members may therefore ask why we are rejecting their amendment if, in any event, the FSA is required to act in accordance with it. Accepting the amendment would risk throwing into doubt whether every other public body whose governing legislation did not specify such requirements would be required to act in accordance with those principles. I assume that Opposition Members do not seek such an outcome.
On openness, we have already put in place a variety of accountability measures and it may be worth while going through some of them quickly. In contrast with the current two-tier system, the FSA will be a single institutional regulator with clear objectives, regulatory principles and governance. However, in relation to procedures, the it will be required to consult, and to give the results of consultation, when making policy or changing rules and guidance. It will publish an annual report and have an open annual meeting. It will be required to provide a cost-benefit analysis of changes to its rules.
The FSA is also required to set up consumer and practitioner panels as part of its commitment to consult and must consider representations by them. If it disagrees with them, it must give them a written statement of its reasons for doing so. There will be an independent investigator of complaints, who will report publicly, and an independent tribunal to which the FSA's decisions can be referred. I took exception to the remarks of the right hon. Member for Wells (Mr. Heathcoat-Amory) about this Government and openness, as our track record on that is extremely good. Indeed, the track record of the previous Government compares unfavourably with ours. The measures on openness and accountability that I have just outlined speak volumes for our achievements in taking those issues forward.
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