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Lord McIntosh of Haringey: I am allowed to get away with it, okay!
The success of the financial services industry in this country is dependent on effective regulation. Members of the Committee have referred to the interests of depositors. This Government are on the side of the punters. That is what we have sought to achieve in this part of the Bill. Immunity of the kind that is provided in the Bill is essential in delivering that. Without it, the FSA could be frustrated by law suits and red tape.
Frivolous litigation could be an easy ploy to distract or hinder the regulator. We have had a good deal of discussion about the definition of "recklessness". What about negligence? I noticed that the noble Lord, Lord Kingsland, did not attempt to defend the amendment which seeks to extend the protection from immunity to negligence, which is a much wider concept than recklessness or bad faith.
Lord Kingsland: I obviously did not explain myself as clearly as I thought I had done. In my opening remarks I said to the noble Lord, Lord Burns, how much I regretted the fact that he felt that the FSA would be inhibited by having to face actions for negligence. I pointed out a number of examples where others who face those actions for negligence do not appear to suffer the same inhibitions. I meant to say--if I did not, I apologise--that I back 100 per cent my amendment on negligence.
Lord McIntosh of Haringey: I am delighted to know that the noble Lord, being in a hole, insists on continuing to dig. Earlier I used the word "succubus". I realise that I should not have done. It is a female demon believed to have sexual intercourse with sleeping men. I do not think that I quite meant that.
In an attempt to remove my own levity from the debate, I have said that we are on the side of the punters, of the depositors. But of course we are on the side of the financial services industry as well. The noble Lord, Lord Burns, made very clear at the time of his committee and a few minutes ago, that the absence of immunity could make the FSA more averse to risk; it could engender a more formalistic regulatory environment; it could lead to the FSA seeking to collect too much information, setting tougher minimum standards, avoiding giving guidance and taking longer to reach decisions than it otherwise would.
It is important that the FSA has the ability to implement the objectives and principles--especially those relating to competition and competitiveness. We
want the FSA to be a dynamic regulator. That might mean taking difficult or finely balanced decisions in cases where the answers are not black and white. In those cases, the authority should not have to run the risk of being sued as well. That is why core principle No. 1 of the Basel principles concerning banking regulators recognises the need for immunity of banking supervisors. We fully support that principle, and it is enacted here.Consumers could also suffer if immunity were cut back. They too will benefit from the FSA applying the right touch--which is occasionally the light touch--to regulated firms.
The Bill provides checks and balances on the FSA's powers. Look at the disciplinary provisions, for example. Before the FSA takes disciplinary action, it is required to issue a warning notice, to receive representations from the recipient of the warning notice and then to issue a decision notice. The person in question can then refer the matter to the independent tribunal to be considered afresh.
There are also international comparators. There are, for example, the Basel core principles, as I have said, and other jurisdictions, such as the United States and Canada, where there is immunity from suit to varying degrees.
Amendment No. 41 would extend immunity to those acting as an agent of the authority. But the Bill does not contemplate the concept of an agent of the authority. It is difficult to see why, if the authority chooses to use an agent, the Bill should confer immunity on the agent if he renders himself open to actions in damages because he fails to fulfil some duty which he owes independently. If the authority wishes itself to indemnify an agent, that is a matter for the authority.
Amendment No. 42 seeks to cut back the immunity to exclude cases where the FSA has been reckless. Distinguished lawyers on all sides of the Committee have been arguing about what is meant by "recklessness". It is a term with different shades of meaning in different contexts, but it is primarily a concept, I think, in the criminal law. I am not therefore persuaded that the amendment is appropriate.
I should not want to introduce doubt into the scope of the immunity, since it is a vital element in ensuring that the FSA is able to take difficult decisions and to make prompt and effective responses to fast moving situations. But I do not want it to be thought that the FSA has been given a licence to act recklessly by the immunity as it stands.
Amendment No. 43 draws attention to the possibility of the FSA breaching European Community law in the context of statutory immunity. But the responsibility for ensuring that proper effect is given to the UK's Community obligations is one which rests on the Government, not on the authority. For example, directives are addressed to member states and it is for the Government to ensure that proper effect is given to them. Where it is necessary for the authority to take action in order to implement a
directive, the Government must ensure that the relevant action is taken. If they fail to ensure that the action is taken, then it is the United Kingdom which will be in breach of Community obligations and the Government will be the proper respondent in infraction proceedings. That is why, although the Treasury has no general power of direction over the FSA, it will have such a power in respect of international obligations. Clause 389 refers expressly to Community obligations in this context.I hope that this persuades Members opposite that this amendment, while highlighting an important issue, is unnecessary.
Amendment No. 44--I apologise to the noble Lord, Lord Kingsland, for coming back to this--would lift statutory immunity for negligence. We believe that the FSA should be able to operate in a fast-moving environment without fear of being sued for negligence; otherwise, we believe that the balance between freedom to regulate and over-caution would be tipped too far.
The noble and learned Lord, Lord Fraser, asked specific questions about regulated investment exchanges. In line with the recommendations of the Burns committee, Clause 284 provides for such immunity in relation to actions by both non-members and members. The Bill has always provided immunity for recognised investment exchanges in relation to actions by members of the exchange. The Burns Committee recommended that the provision should be extended to actions by non-members and the Bill was amended accordingly in Committee.
In conclusion, I realise the importance that those on the Opposition Front Bench attach to these amendments. But they have been soundly thrashed from all sides of the Committee: from the Cross-Benches by the noble and learned Lord, Lord Donaldson, and the noble Lord, Lord Burns; and on their own Benches by the noble Lord, Lord Bagri. They have no friends. I recommend that they withdraw the amendments.
Lord Sharman: I found the Minister's response to the amendment totally unsatisfactory. If the arguments that have been arraigned on his side of the House and by others in this debate have any validity at all, they apply to anyone carrying out the functions of the authority. All the amendment seeks is to extend that immunity to people properly appointed by the authority to carry out its functions on its behalf. If one follows the logical extension of the arguments advanced, that must be right and proper. I give notice that we find the government response totally unsatisfactory and that we shall be returning to this point on Report.
As regards Amendment No. 42, I find my experience is somewhat intimidating and unique. I have the big guns of noble Lords who are learned in the law arrayed against me on what I thought was a sensible extension of the provision. While I do not have a great deal of experience in this matter, not being a lawyer, I probably have more experience than anyone in this
Chamber of being sued. In fact, I would put money on it. The prospect and the experience are generally good for the soul. I have yet to come across a lawyer who has advised me not to take legal action.I believe that there is a valid concern in regard to standards and behaviour, and the whole concept of the behaviour of staff in an authority. If an authority is totally immune--and it is clear that the authority will not be totally immune from damages--the young, aggressive men who go around the market-place seeking to fix problems are totally without control. There needs to be a sensible hand on the budget. Again, it would be sensible to return to this matter on Report. In the interim, I seek leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 42 to 44 not moved.]
On Question, Whether Schedule 1, as amended, be agreed to.
Lord Jenkin of Roding: Perhaps I may ask one small question on the schedule. I apologise to the Minister for not giving him notice of it. I return to the subject of fees, and my question arises in relation to paragraph 17(2):
- "In fixing the amount of any fee which is to be payable to the Authority, no account is to be taken of any sums which the Authority receives, or expects to receive, by way of penalties imposed by it under this Act".
When the insurance company with which I was concerned was subject to a penalty, there was widespread comment in the press that that was not unfair; it meant that everybody else's fees would be reduced and those who had to pay penalties paid the penalties. But this particular paragraph of the schedule appears to preclude any reduction in fees to anybody else to take account of the fact that the authority may have received penalties from some of its erring customers, as it were. Is that right, or have I totally misunderstood the paragraph?
10.15 p.m.
Lord McIntosh of Haringey: I do not believe that the noble Lord has totally misunderstood it; rather, he has read only half of it. Paragraphs 16 and 17 are a symmetrical provision. Paragraph 16(1) provides:
- "In determining its policy with respect to the amounts of penalties to be imposed [on] it under this Act, the Authority must take no account of the expenses which it incurs, or expects to incur, in discharging its functions".
- "In fixing the amount of any fee which is to be payable to the Authority, no account is to be taken of any sums which the Authority receives, or expects to receive, by way of penalties imposed [on] it under this Act".
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