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Lord McIntosh of Haringey: My immediate response is that I do not think so. I believe that if a director is challenging the legal advice that has been given, he is challenging it as a director and that the resolution of the board on 15th April which says that he may receive independent professional advice at the authority's expense is a full answer to that challenge. If I am wrong, I shall write to the noble Lord and to other noble Lords who have taken part.

Lord Boardman: I support my noble friend on this matter. It needs to be looked at. At the moment, it is incomplete and leaves the non-executive directors very exposed.

Lord McIntosh of Haringey: I must include the noble Lord, Lord Boardman, on the list of recipients of any such letter. But my immediate understanding is that the example which the noble Lord, Lord Jenkin, gave of a non-executive director challenging the legal advice would be a proper exercise of his functions as a director and would therefore come within the scope of the resolution I quoted.

Amendment No. 22 would require the non-executives to keep under review adherence to the board's general duties in Clause 2(1) and the principles of efficiency, competitiveness and so on to which it must have regard. Again, I suggest that those are duties of the whole board and not just the non-executives.

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Amendment No. 23 would specify that the governing body, as well as those below the level of the governing body, may discharge the FSA's functions. That is not ruled out by the Bill as currently drafted and the amendment is not necessary.

I should say to my noble friend Lord Borrie that he is right that the Treasury has a role because it determines who is appointed as a non-executive director but the authority has a role because it could, in the absence of a provision such as paragraph 3 of Schedule 1, assign roles to the directors which were incompatible with their being non-executive. That is why we have that provision in the Bill.

I repeat as a general argument on what I consider to be these well-intentioned amendments that there is no reason why the role of non-executive directors, quite apart from their responsibilities as a non-executive committee, should not be as wide as those of any other directors of the FSA. That is provided in Schedule 1. We expect the non-executives, led by the deputy chairman, to play a full role in the board, providing an independent perspective on the scrutiny of the executives and the FSA's overall performance.

Lord Fraser of Carmyllie : I am grateful to the Minister. I noticed that he did not reach Amendment No. 24, which concerns the word "but". I was going to say to the Minister that it would not be the most radical act of revision in your Lordships' House were that "but" to be deleted, but it seems a quite redundant word in that context. Its excision would have a marginal effect in reducing the length of the Bill.

7 p.m.

Lord McIntosh of Haringey: Allow me to defend parliamentary counsel. The "but" is absolutely essential. It is critical to the whole understanding of this part of the Bill. Paragraph 5(1) states that,

    "The Authority may make arrangements for",

the discharge of its functions,

    "by a committee, sub-committee, officer or member of staff ... But"--

it must be said--

    "in exercising its legislative functions, the Authority must act through its governing body";

otherwise, the authority could delegate without reference to the governing body and the governing body would be entirely bypassed. If the word "but" was not used, there would not be that protection.

Lord Jenkin of Roding: I greatly protest. I find that a thoroughly mischievous argument. Of course I understand the sense of what the Minister is saying, but the "but" would be appropriate if the two sub-paragraphs were one and ran straight into one another; then it would make sense. Otherwise, through the way in which they have been drafted, they are two paratactic sub-paragraphs. With the greatest respect

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to the Minister--I have a huge respect for his learning on such matters--"but" is not good English in that context.

Lord McIntosh of Haringey: It means what it is intended to mean. If the noble Lord can find in Fowler or Sir Ernest Gowers a prohibition on the use of the word "but" at the beginning of a sentence, I shall gladly talk to him about it afterwards. But certainly, the Bill as drafted means what it means.

Lord Stewartby: However--may I ask the Minister one more question? I am grateful for his assurance that there is nothing here which implies that non-executive directors' functions are limited, but will he reconsider the phrase, "the non-executive functions"? They are not defined in Clause 392 and therefore they do not have a special meaning within the Bill. The normal English language meaning of "the non-executive functions" in such a context would be all the non-executive functions. It is not a major point, but it implies that what is listed thereafter is the full list of what non-executives may do. If the phrase "the non-executive committee functions" was used instead, it would put the matter beyond doubt, because the whole paragraph relates to the committee. The way in which the phrase is used implies that the full range of non-executive functions are thereafter listed.

Lord McIntosh of Haringey: I do not see that. Paragraph 4(1) states that,

    "'the committee' means the non-executive committee".

Paragraph 4(2) states that,

    "The non-executive functions are functions of the Authority",


    "but must be discharged by the committee".

Paragraph 4(3) lists the non-executive functions. It is a finite list; it is intended to be. It is what was rudely called "housekeeping". It does not restrict the role of non-executive directors in their capacity as members of the board. It restricts their functions only as members of the non-executive committee.

Lord Elton: The Minister's slip of the tongue opens the door for me to be a broker between my noble friend and him. He said, "functions of the Authority which", but then corrected it to "but". If there is to be a definition in that sub-paragraph of the functions only of the committee and not of the non-executive members of the board, the substitution of that word would have that effect. I do not want to detain your Lordships on the matter. The Minister apparently is not going to use this opportunity to tell us how the Treasury, in trawling for members of the non-executive committee, will bring a sufficient range of practitioner experience on to the board. But will he be able to do so at some later stage?

Lord McIntosh of Haringey: I am sorry to have neglected that point. If I inadvertently paraphrased the Bill rather than reading it out, the Bill is right and I am wrong.

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On the more substantive issue of how the non-executive directors can be expected to embody the wide range of disciplines regulated by the Financial Services Authority, the answer is clearly that, with 11 non-executive directors, it would be impossible to secure that every single part of financial markets' existence and development should be covered within the personal experience of the members of the non-executive committee. They are people who have a wisdom in financial markets in general and who cover a wide range of financial markets, but they cannot be expected to cover every nook and cranny. That is why there is a practitioner panel as well.

Lord Saatchi: Yet again, I find that I must agree with the amendments tabled by the noble Lord, Lord Sharman. I should like to ask the Minister to clarify a point. If the FSA itself feels it necessary to spell out the functions of non-executive directors as it sees them, why would the Government not feel it necessary to spell out the functions of the non-executive members of the FSA, which is what Amendment No. 15 seeks to do?

Lord McIntosh of Haringey: The Government feel that it is unnecessary to spell out all the functions of non-executive directors, but it is necessary to spell out the functions of the non-executive committee, which is a subset of the board of the FSA as a whole and which is charged with certain housekeeping functions necessary as a control on the executives. In all other respects, non-executive directors have equal weight and equal fiduciary responsibilities with the executive directors and they act as members of the board as a whole. I do not see the difficulty with that.

Lord Saatchi: Would it then be acceptable to the Government if the words used in FSA consultation paper No. 35 were used to describe the general role of non-executive directors of the FSA?

Lord McIntosh of Haringey: Without having the consultation paper in front of me, I am not able to answer that question with the precision that I should like. I shall write to the noble Lord about the matter.

Lord Elton: I should know the answer to this question, but the Minister said that the number of non-executive directors was limited to 11--

Lord McIntosh of Haringey: I said that it is 11 at present.

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