Select Committee on Treasury Minutes of Evidence

Letter to the Chairman of the Committee from the Economic Secretary to the Treasury

  At my appearance before your Committee on 30 October I undertook to write to the Committee to clarify some of the points that came up during the session.

  The first point relates to Section 68 orders issued by HM Treasury under the Insurance Companies Act 1982. As you know, these orders allow for variations to be made in the valuation of insurance company assets and liabilities for the purposes of regulatory returns. Each order is given technical consideration and approval by the FSA. The formal power to issue an order could not be delegated to the FSA ahead of the full implementation of the Financial Services and Markets Act 2000, so Treasury officials currently act on FSA advice as to whether or not this power should be exercised in each case.

  The power under Section 68 will be replaced after N2 by powers conferred directly on the FSA by section 148 of the Financial Services and Markets Act 2000 to modify or waive FSA rules as they apply to particular companies.

  Jim Cousins MP asked how many Section 68 orders there were for the year 2000. The number of Section 68 orders granted each year is published in the Insurance Annual Report, which is laid before Parliament. During 2000, a total of 165 orders were granted.

  The second point I would like to address is the position regarding the legal immunity of the FSA before and after N2, as raised by Andrew Tyrie MP. I can confirm that as I suggested during the Committee session the option remains open for people to pursue alleged failures of regulation through the courts if they so wish. In addition, this option remains open after N2 for any alleged acts or omissions prior to that date.

  The statutory immunity which will cover the FSA after N2 was the subject of considerable debate during the passage of the Financial Services and Markets Act 2000. It was accepted by Parliament that statutory immunity was essential for the functioning of a single regulator such as the FSA in order to achieve effective regulation, and that this should be balanced by a strengthened complaints process. That is what we have put in place. In addition, statutory immunity does not apply to actions or omissions made in bad faith, to actions under the Human Rights Act 1998 or to judicial review. I am confident that the decisions made by Parliament at that time remain the right ones today.

  I hope that this is helpful.

6 November 2001

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