|Previous Section||Back to Table of Contents||Lords Hansard Home Page|
The noble Lord said: My Lords, responsibility for prudential supervision of the insurance industry was transferred to the Treasury from the Department of Trade and Industry at the beginning of this year. The draft order, if approved, will enable the Treasury to authorise another person to carry out most of its functions in relation to the insurance industry. The authorisation will be supported by a contract defining the service and the chosen contractor is the Financial Services Authority (the FSA). Though the FSA is not named in the order because other comparable orders may need to be made without naming a contractor, we have no intention of contracting any of these functions to anyone other than the FSA.
The draft Financial Services and Markets Bill, published on 30th July this year, proposes that the FSA will become the single regulator for the UK financial services industry. The Financial Services Authority was launched in October 1997 and has made considerable progress in bringing together operations under the Financial Services Act and banking supervision under the provisions of the Bank of England Act 1998. The proposed contracting-out of insurance functions which my right honourable friend the Chief Secretary announced on 30th July will maintain the momentum by adding insurance supervision to the FSA's responsibilities. It will thus promote the early integration of financial regulation and help achieve the benefits of a single regulatory culture ahead of the primary legislation. It will not, of course, give the FSA the new powers foreseen in the Bill, nor will it pre-empt Parliament's consideration of that Bill, since the authorisation may be revoked at any time. Indeed, the presumption must be that the authorisation proposed in this order will be revoked when the Act comes into force.
We are not proposing to contract out all the functions transferred to the Treasury. Part II of the Deregulation and Contracting Out Act under which this order is to be made imposes some restrictions on the functions which can be contracted out. The powers to make subordinate legislation and certain activities which may affect the liberty of individuals, such as seizure powers and rights of entry, will remain with the Treasury. The power to raise fees will also remain with the Treasury. Most of
Perhaps I may say a word about staff. In general, the civil servants currently engaged on insurance supervision have already been offered contracts by the FSA and if they accept they will transfer to FSA employment. Others will transfer to the FSA on compulsory secondment, preserving their existing terms and conditions. Those staff who do not transfer will remain employed by their parent department, which in most cases is the Department of Trade and Industry. None of them will be made redundant.
Lord Higgins: My Lords, the House will be grateful to the Minister for that clear explanation. It is perhaps a somewhat strange situation to have an order transferring authority from one department to an outside body ahead of the primary legislation. However, perhaps one can understand the reasons for that.
Perhaps I may say how glad I am that the draft Financial Services and Markets Bill has been published in advance. I think I was the first Minister--when VAT was introduced--ever to do that. It is an enormous advantage in terms of getting legislation right. The history of financial services regulation is perhaps not so happy. The complexities of the matter are not always realised.
At all events, this seems to be an important measure and we understand the reasons why it is necessary to anticipate the main legislation. If I ask the Minister whether it will be in the Queen's Speech, he will reply that I must wait a little longer. However, it would be quite extraordinary if we agreed to this order and then there is no such legislation in the next Session.
I have one or two points I should like to raise, particularly with regard to staff. As I understand it, some will transfer from the Treasury to the Financial Services Authority. The history on these matters is perhaps not all that happy. Will they retain the same pension rights? Presumably at present they are in an inflation linked non-contributory pension scheme. Will they continue to keep that when they transfer to the outside organisation?
Perhaps I may clarify one point. I am somewhat puzzled. Prudential supervision of the insurance industry was transferred to the Treasury from the Department of Trade and Industry at the beginning of this year. I am not quite clear why it has switched back and forth in this rather strange way. It seems that some people will remain under the authority of the Department of Trade and Industry even after all these changes have been made, and the smile on the Cheshire cat's face will remain after the Cheshire cat has disappeared. Would
The schedule is rather complicated. I have apologised for raising one point on it, but I was surprised to find that there are a number of references to Lloyd's in the statutory instrument. Will the Lloyd's regulatory regime be at all affected by this measure? Quite specifically, as I began commercial life within the sound of the Lutine Bell, why is it that under Part II(62)(a), salvage operations as to the wreck of the "Lutine" are to be transferred from the Treasury to the FSA? I must advise the Minister that the "Lutine" sank a very long time ago. I am not clear why the provision needs to be perpetuated as opposed to the particular section simply being repealed.
Other than that, these are complicated matters and it is important that we ensure that the position of the staff is protected, and especially that parliamentary accountability is preserved. To what extent will Ministers continue to be answerable for the operations of the FSA? Will they make regular appearances in that respect, or in what other way will they remain accountable?
Lord McIntosh of Haringey: My Lords, I am grateful to the noble Lord, Lord Higgins, for his response to the order and for his acceptance, I think, of the necessity for it. With regard to the Queen's Speech, the noble Lord will get the answer that he expected. He will not have to wait all that long now to get the answer to his question about whether the Financial Services and Markets Bill will be included in the Queen's Speech. I do not think that I agree with the noble Lord that it would be extraordinary if this order were to be approved without that Bill coming before Parliament in the next Session. The order is justified in its own right.
The point about transferring insurance functions is that the FSA was established last October. It already has banking supervision functions under the Bank of England Act 1998. Putting the prudential regulation of the insurance industry alongside banking regulation is a step in the right direction which can be justified in its own right, even if there were to be no further progress, although, of course, there will be.
The noble Lord is right to seek assurances about the rights of staff, particularly their pension rights. I assure him that staff will keep their pension rights, including inflation-linking. The new FSA scheme for future service in the FSA has been certified as being broadly comparable to that of the Civil Service. Both existing and future staff will be treated in the same way and will not lose out.
The noble Lord asked why some members of staff are still treated as being DTI employees. It is because they chose to be treated in that way when the functions were transferred from the DTI to the Treasury at the beginning of this year. Presumably there are some advantages in continuity of employment with the same
The noble Lord asked me about salvage functions and the Lutine Bell at Lloyd's. If he looks at the schedule to the order, he will see that the functions are transferred under the Lloyd's Act 1871; the point being that in this order we are transferring all the functions that we can transfer, consistent with the limitations placed on us by the Deregulation and Contracting Out Act under which this order is being made. I assure the noble Lord that we are transferring only the existing prudential regulation. As he knows, the Financial Services and Markets Bill, which has been published in draft--I am grateful to the noble Lord for his comments about the value of that publication--includes provision for very much greater control of prudential regulation of Lloyd's, but the provisions in that Bill are not part of this order. There is no increase in the regulation of Lloyd's as a result of this order.
Finally, the noble Lord asked about parliamentary accountability. The answer is that there is certainly no reduction whatsoever in accountability to Parliament. Responsibility for the contracted-out functions remains with Treasury Ministers who will remain accountable to Parliament. Both Ministers and senior FSA staff can be called before Parliament, if Parliament so wishes. On that basis, I commend the order to the House.