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Lord Elton: I thank the noble Lord for giving way. It is wholly unfortunate that an individual should be constantly named in this debate. We are trying to build something to last possibly 50 years. We should look at the problem and not the people.
Lord Grabiner: I entirely agree, although why I should be picked on as the target for that point I do not know. I agree with the noble Lord and I shall refrain from mentioning the gentleman's name again.
The non-executive committee will have wide ranging statutory functions and duties which are also provided for in the first schedule. These arrangements are novel and substantial. As I said, they render the debate about Cadbury irrelevant.
Fourthly, there is nothing in the Bill, still less in Schedule 1, which would prevent the authority at some future time adopting a split function of chairman and chief executive if, in the light of developing experience, it were thought necessary to do that. In my view, that is the short answer to a great deal of the formalistic debate which arises on these proposed amendments.
Lord Grabiner: One thing I have learnt over many years as a lawyer is never to speculate over what was in the mind of the draftsman of a document. He probably would not know the answer himself. However, I suggest that the language of the schedule is sufficiently flexible to permit the structure which, in effect, these amendments are seeking. Nothing in the schedule would inhibit or prevent that structure from being introduced at some time in the future without the need for primary legislation.
My next point is that, under the proposed structure, it is important to appreciate that the executive chairman, whoever he may be, will have no role to perform in the disposal of enforcement cases. There will be a separate enforcement committee which will be chaired by a legally qualified person. The committee will decide the key questions, such as the charges to be laid and, in due course, the penalties to be imposed and other matters of that kind. Noble Lords must not assume that the executive chairman will be bogged down with all kinds of detailed matters which, if that were the case, would inevitably impede his ability to exercise his judgment in relation to strategic matters and leadership issues, which noble Lords on both sides of the debate regard as being of overriding importance.
I have said a few words about the form of these arrangements. However, as I have already indicated, what really matters is their substance. What really matters is the calibre of the people who will run and staff the FSA. Since everyone agrees that the chief executive is the right person for the job, I suggest that we should let him get on with it without more ado.
Lord Fraser of Carmyllie: Like other noble Lords, I was somewhat taken aback by the black-and-white terms in which the noble Lord, Lord Eatwell, addressed this difficult issue. It certainly does not reflect either the evidence or the debates that we had in the Joint Committee under the noble Lord, Lord Burns, either in public or in private. I believe that this is a difficult issue and one that needs to be understood in relation to the variety of models about which we have heard. On the one hand, we have had the Cadbury proposal. I am bound to say that, given the structure that is required for the FSA as a company under the Companies Act, to dismiss Cadbury out of hand seems to me to verge on the cavalier.
On the other hand, we appreciate the arrangements within the Bank of England. I do not believe that there is anyone on this side of the argument--and not necessarily only those on this side of the House--who does not want to see those at the head of the FSA enjoying powerful responsibilities and positions in the country. I would trust that in the future they would be more than confident that they could take on the Chancellor of the Exchequer or the Governor of the Bank of England. For that reason, I believe that we need to look at this very carefully indeed.
Furthermore, I do not believe that there is a good argument for saying that, if we were persuaded of the desirability of separation, we should be arguing the case in relation to Howard Davies himself. I hold him in very high regard, but that is not any part of my argument. As I recollect our discussions and what is contained in our report, we had an objectively valid reason to advance for retaining Howard Davies in a combined role at this time. Indeed, as the Explanatory Notes to the Bill dictate, no fewer than six bodies are to be drawn together into this one authority, setting aside a number of SROs that are also to be included within it. It seems to me that there is a different function to be performed when such bodies are to be melded together into a single organisation. For anyone who knows anything about the FSA at the present time, it must be clearly recognised that that has indeed proved to be a difficult task and one that I hope is now being accomplished successfully. I do not believe that it can be said that we are being inconsistent in our approach.
Without inviting the Minister to respond to me immediately, I should like to pursue one separate line of inquiry because it would tip my personal opinion one way or the other. As I understand it, it would be either a matter of expectation or requirement on the part of the FSA, as it looked at the recognised investment authorities in the City, that that separation between chairman and chief executive should be maintained. If it is the expectation or requirement that such a division is to be pursued, because such RIAs have responsibility for much of the regulatory functions of the FSA in a devolved fashion, it strikes me as rather startling that the "super-regulator" would not have such a separation of responsibilities, but would require all those at the second level to maintain such a distinction, whether they were mutualised or demutualised organisations. If I am wrong about that, I hope that the Minister will either say so now; alternatively, perhaps he will write to me. That would be helpful because if there is such an expectation or requirement, that would seem to me to be a compelling reason for requiring the same kind of separation within the FSA itself.
Lord Burns: I find myself in considerable agreement with what has been said by the noble Lord, Lord Jenkin of Roding. As the noble and learned Lord, Lord Fraser of Carmyllie, has pointed out, this is not a black-and-white issue; rather, it is quite a difficult issue. We spent a good deal of time debating it in the Joint Committee.
As a number of noble Lords have pointed out, the FSA is a big and powerful organisation. I happen to believe that that is right and appropriate, given its responsibilities. Furthermore, I believe that it is right that we should have a single regulator. However, it means that we must think carefully about the governance arrangements. The noble Lord, Lord Fraser, also pointed out that the Joint Committee came to the view--although many different opinions were expressed in the course of our debates--that, on
It was a difficult balancing act and we were concerned that we did not wish to do anything to undermine the position of Howard Davies. In this case I make no apology for mentioning his name because we were in the early stages of setting up an important organisation and it was vital that nothing was done to destabilise that position. However, we also accepted the argument that it was right not to limit the power and focus on a single individual and that, if possible, moves should be made to enhance the position of the non-executive directors.
For various reasons the Government did not accept that recommendation--it was one of the few recommendations that they did not accept. They stated that they were happy with the present arrangements and did not wish to change them. They also put forward their argument on the importance of establishing a direct line of accountability to Treasury Ministers from the senior executive of the regulator. I can understand their concerns here, because even if in the longer term they do see the merits of splitting the post, it would be highly disruptive to make an issue of it at the moment. It would then hang over the organisation at the point when we are trying to specify what the position should be, either after Howard Davies or at some later stage. I would be worried, not only in terms of the individual concerned but also because of the danger of giving the impression that we now have in place an organisation which is in some sense wrong, inappropriate or deficient. That would not broadcast a good message to the world.
So, while I continue to come down on the side that in the longer term a different organisation would be sensible, I question whether we need to include this in the legislation and to be quite so specific at this stage. Perhaps the situation could be left as one where a variety of different organisational structures might be possible.
Apart from the conventional corporate governance arguments, it is also a question of the type of individuals available to do the job. Although I am a great admirer of Howard Davies, I do not want to fall into the trap of concluding that he is irreplaceable. Nevertheless it is important to recognise that sometimes one must design organisations in terms of the responsibilities to be placed on the people who are available.
My preference remains, in the longer term, for the job to be split. But I do not want to create a situation where the present arrangements are deemed inadequate or flawed. That leads me to feel that we should not legislate in the detail being put forward for the alternative model. We should have a situation where the Bill leaves open whether or not the chairman
This has been an interesting debate on a difficult issue. I have come to the view that we do not need the detail of the organisational structure contained within the legislation. I should prefer the Government to indicate that they feel other arrangements can work and that they are not wedded to this model for all time; that they are willing to look at changing the way it is run according to the circumstances. Perhaps they can give an indication that over the longer term we shall have something which involves more of a division of responsibilities. However, we could get ourselves into a great deal of trouble if we try to design in detail an organisational structure which may have to face circumstances we cannot envisage at this point.
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