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Lord Jenkin of Roding: I believe that the noble Lord misquoted the sub-paragraph. He said "penalties imposed on it", whereas the last line reads "penalties imposed by it". If the noble Lord suggests that in relation to a particular regulated person or firm the fees take no account of any penalties that it may have to pay, that is one thing. However, that is not what the sub-paragraph says. The sub-paragraph provides that in fixing the level of fees no account is taken of whatever may be received by way of penalties, which presumably is available to the authority as a source of income. I understand the Minister's point about reciprocity with paragraph 16(1), but I do not believe that that is what paragraph 17(2) says. Perhaps the Minister will look at it again or consider whether I have misunderstood it. I read the provision as meaning that the fees are fixed and no account is to be taken of the fact that there is another slug of income arising from the generality of fined firms.
Lord Donaldson of Lymington: The problem is that, whereas in a court of law the prosecution will never specify the penalty but merely allege that the offence is serious or otherwise, in disciplinary tribunals of this kind it is not unknown for the prosecuting authority to say that it does not believe the offence is worth more than, say, £5 or £6 million. That produces an extremely embarrassing situation for the tribunal, particularly if one visualises a suggestion that if another £1 million is added a dividend can be declared. That is a thoroughly unhelpful atmosphere. While I agree that there is a problem over what to do with the fines--above all, they must not go to the Treasury--certainly they should be divorced from the fees which are paid by the members. Perhaps a benevolent fund should be set up for that purpose. All kinds of possibilities exist. But one must not have a situation in which an authority that prosecutes its members tries to hot up the penalties in order to reduce its fees.
Lord McIntosh of Haringey: I believe that the noble and learned Lord confirms what I said. Incidentally, if when I quoted the sub-paragraph I was heard to say anything different from the words of the Bill the fault was my articulation. Perhaps the fault was the noble Lord's hearing, but I prefer to blame it on my articulation. The point the noble and learned Lord makes is critical. The FSA does not take account of penalty income because it has to operate a scheme to rebate penalties under paragraph 16(2) of the schedule. That was a recommendation of the Joint Committee and the Bill reflects it.
Schedule 1, as amended, agreed to.
Clause 2 [The Authority's general duties]:
Lord Kingsland moved Amendment No. 45:
- Page 1, line 19, at end insert ("; and
The noble Lord said: The amendment seeks to add a paragraph to Clause 2(1). The wording of the amendment is similar to that of Clause 2(3)(e), referring to,
Why do we seek to do so? In its present position, that provision is a factor to which the FSA must have regard. That means that it is a relevant factor, but the weight given to it is up to the FSA. For example, as the Bill is currently drafted, the FSA can take into account the desirability of maintaining the competitive position of the United Kingdom but give that factor zero weight. We believe that the issue is central to the way the FSA goes about its work. The desirability of keeping in mind the importance of the international competitive position of the City should infect every decision the FSA takes.
In the proposed new position, that is precisely what would happen. Under Clause 2(1) the Bill would read:
The Opposition are content to leave the question of initiating competition and fighting cartels in the clauses as drafted. Indeed, as regards fighting cartels, a new chapter in the Bill deals with the relationship between the FSA and the Director-General of Fair Trading.
But the competitive position of the City is central, because if we over-regulate we quickly lose the wealth that the City has created. In those circumstances, the benefits that consumers of financial services have gleaned from additional probity would be completely undermined by the loss of inventiveness and the inclination to take initiatives that characterised the City before the Bill came on the statute book. I beg to move.
Lord Borrie: I find this an odd amendment. Surely no Member of the Committee would dispute the importance of London, or the UK, being globally
I believe that effective financial regulation is a plus, a positive, in making Britain more rather than less competitive in financial services. Of course I agree that we must avoid over-regulation. However, in his amendment the noble Lord has "lifted"--that is his word, but I should say "elevated"--the promotion of competitiveness to a position which is wrong in the context of the Bill. He has moved it to a place above and beyond the four statutory objectives of the authority. He has raised it above the objectives of ensuring market confidence, consumer protection and so forth, but surely it is already in its proper place as one of a number of factors which it is wholly desirable for the authority to take into account.
Lord Kingsland: I am most grateful to the noble Lord for giving way. He will see that the regulatory objectives have their initial status under subsection (1). Therefore, competitiveness is not raised above the regulatory objectives, but is given equal status.
Lord Borrie: Most Members of the Committee will have noticed that I listed (or began to list) the regulatory objectives, and they come after the place where the noble Lord wants to insert the phrase in his amendment. However, I understand his point and I hope that he understands mine; that he is seeking to raise the matter to a position of significance which is wrong in the context of the Bill where the main objectives of the FSA are the four listed. The Opposition have no objection to them and they accept them as being perfectly proper. I believe that competitiveness, as one of the factors to avoid over-regulation which the authority should take into account, is listed in the proper place.
Lord Fraser of Carmyllie: The noble Lord, Lord Borrie, has advanced what I would describe as a "reckless" argument. When we discussed the matter in the Joint Committee, I attempted--I must admit that I failed--to persuade the other members that the issue of the international competitiveness of the United Kingdom, rather than simply of the City of London--I stress that to my noble friend--should be included among the regulatory objectives.
As everyone seems to agree, we are attempting to achieve a "balance". Indeed, the noble Lord, Lord Borrie, used that word in addressing the Committee. If the issue of the desirability of maintaining the competitive position of the United Kingdom were to be found only in subsection (3), that would relegate it to too low a status. I say to my noble friends Lord Kingsland and Lord Saatchi that the positioning of their amendment in Clause 2 meets exactly the objective of securing a balance. I shall surrender, albeit reluctantly, my initial argument that it should be among the objectives. For my purpose, I should be content to see it fit where my noble friends have suggested that it should be placed. That seems to me to achieve exactly what we are trying to do. The last thing
The noble Lord, Lord Borrie, is absolutely right: good regulation is good for business. I have no doubt that that is correct. Although I believe that the present administration in the Financial Services Authority is well seized of the desirability of ensuring the international competitiveness of the United Kingdom, nevertheless we are putting down in statute what should be its responsibilities beyond the immediate administration. It seems to me that this is the correct place in which to put that.
In advancing the argument--I make no bones about it--it is something of a concession from the position I originally wanted to see, as the noble Lord, Lord Burns, will know from hearing me state it endlessly while we conducted our deliberations. It would achieve the desirable balance. I hope very much that the Government will appreciate that we are not trying to cause serious damage to the scheme of the first clauses of the Bill; nor are we criticising the existing approach of the Financial Services Authority. I believe that it is desirable to encapsulate in statute the balanced approach that would be best for the United Kingdom in the future.
I hope that in the fullness of time--I doubt that we shall do so tonight--we shall achieve the agreement of the Government. It must be desirable that we do not do anything that damages the international competitiveness of the United Kingdom. The noble Lord, Lord Newby, believed that the issue of the chairman and the chief executive was the most important change to be achieved in the Bill. I must say to the Committee that by a long, long way, I regard as quite the most important feature that we ensure at all times the international competitiveness of the United Kingdom.
It surprises me that the importance of this is not better understood. At the moment, not only the City of London but, dare I say it, Scotland, which perhaps commands approximately 25 per cent of financial services in the United Kingdom, are in a position of extraordinary pre-eminence and one that we cannot afford to risk losing. My hope is that if the Financial Services Authority will grasp this as being the correct basis on which to approach its general duties, the pre-eminence that we enjoy at present will not be damaged. I hope that the noble Lord, Lord Burns, and my other colleagues on the Joint Committee will recognise that, because of the elegance of the solution that my noble friends have put forward, with a degree of reluctance I depart from the original approach that I once suggested.
( ) which does not unnecessarily impair the competitive position of the United Kingdom").
"the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom".
Essentially the Opposition seek to lift paragraph (e) of Clause 2(3) and add it to Clause 1 as a new paragraph (c).
"In discharging its general functions the Authority must, so far as is reasonably possible, act in a way which does not unnecessarily impair the competitive position of the United Kingdom".
The Minister will recall that, at Second Reading, your Lordships' House touched on the competition provisions in the Bill. Many noble Lords may recall that competition is defined in three different ways in Clause 3: first, in the way I have just described; secondly, in terms of the importance of the FSA having regard to the desirability of facilitating competition; and, thirdly, the importance of minimising the effects on competition that might arise from the general function.
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