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Lord McIntosh of Haringey: That is exactly why we have practitioner and consumer panels. Noble Lords are pushing in different directions. The noble Lord, Lord Newby, was satisfied that there was enough internal pressure in the FSA to make it review its own rules. His question was: what external pressure was there; and under what circumstances could external pressure be triggered? The noble Lord, Lord Elton, is now worried about the lack of internal pressure on a self-satisfied financial services authority which thinks that its rules are marvellous and does not want to consider changing them.

27 Mar 2000 : Column 568

That is exactly why we have the consumer and practitioner panels. They are set up to do exactly that job. Their chairmen have to be approved by the Treasury, so they have a sufficient level of independence to provide the external trigger. At the same time they are enough within the FSA to understand the issues and developments taking place within the regulation of financial markets and financial services in order to ensure that they are capable of making a well informed and rapid response to difficulties which arise. They are available both to the financial community and to consumers to do exactly the job for which noble Lords call.

I repeat this. There are adequate external constraints on rule making. The FSA needs to comply with its general duties, objectives and principles, as we debated at length on the first day in Committee, which will require the FSA in practice to keep under review all its operations. The panels will no doubt bring pressure to bear. Surely that is what we have been debating earlier in Committee. Surely that is the proper answer to the issues raised by the amendments.

Lord Saatchi: I am grateful to my noble friends for making somewhat better than I did the point I sought to make. Having listened to the Minister I am even more of the belief that we should test the opinion of the Committee on this matter.

I agree that these amendments would place an onerous obligation on the FSA to carry out these cost benefit analyses at regular intervals; and that the FSA would not enjoy that very much. That is exactly the point. If the amendments serve as a deterrent to excessive rule making and if a burden had to be fulfilled every time a rule was made, we should regard that as a benefit to the working of the FSA.

The second amendment seeks to raise competition to a higher level. As the noble Lord, Lord Newby, and the Minister said, that matter can arguably be dealt with in other parts of the Bill. However, we regard the raising up of the competition objective and the desire to maintain the competitiveness of the UK at every opportunity as a benefit. Therefore I should like to test the opinion of the Committee. I commend the amendment.

7.7 p.m.

On Question, Whether the said amendment (No. 231YA) shall be agreed to?

Their Lordships divided: Contents, 46; Not-Contents, 112.

Division No. 2


Astor of Hever, L.
Attlee, E.
Blackwell, L.
Blatch, B.
Boardman, L.
Brigstocke, B.
Carnegy of Lour, B.
Colwyn, L.
Cope of Berkeley, L.
Crathorne, L.
Dean of Harptree, L.
Denham, L.
Elton, L.
Ferrers, E.
Flather, B.
Fookes, B.
Gardner of Parkes, B.
Goschen, V.
Haslam, L.
Henley, L. [Teller]
Home, E.
Jenkin of Roding, L.
Jopling, L.
Kingsland, L.
Luke, L. [Teller]
Mackay of Ardbrecknish, L.
Marlesford, L.
Masham of Ilton, B.
Miller of Hendon, B.
Monro of Langholm, L.
Monson, L.
Montagu of Beaulieu, L.
Montrose, D.
Northbrook, L.
Northesk, E.
Onslow, E.
Park of Monmouth, B.
Pilkington of Oxenford, L.
Rees, L.
Renton, L.
Roberts of Conwy, L.
Rotherwick, L.
Saatchi, L.
Seccombe, B.
Tugendhat, L.
Vivian, L.


Addington, L.
Ahmed, L.
Alli, L.
Amos, B.
Archer of Sandwell, L.
Ashton of Upholland, B.
Avebury, L.
Bach, L.
Bassam of Brighton, L.
Bragg, L.
Brooke of Alverthorpe, L.
Brookman, L.
Brooks of Tremorfa, L.
Burlison, L.
Carlile of Berriew, L.
Carter, L. [Teller]
Christopher, L.
Clarke of Hampstead, L.
Crawley, B.
David, B.
Davies of Coity, L.
Davies of Oldham, L.
Dean of Thornton-le-Fylde, B.
Desai, L.
Dixon, L.
Donoughue, L.
Dormand of Easington, L.
Dubs, L.
Elder, L.
Evans of Parkside, L.
Evans of Watford, L.
Farrington of Ribbleton, B. [Teller]
Faulkner of Worcester, L.
Filkin, L.
Gale, B.
Gavron, L.
Gilbert, L.
Gordon of Strathblane, L.
Goudie, B.
Gould of Potternewton, B.
Grabiner, L.
Hardy of Wath, L.
Harris of Haringey, L.
Harrison, L.
Haskel, L.
Hilton of Eggardon, B.
Hollis of Heigham, B.
Holme of Cheltenham, L.
Howie of Troon, L.
Hoyle, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L. (Lord Chancellor)
Islwyn, L.
Janner of Braunstone, L.
Jay of Paddington, B. (Lord Privy Seal)
Jeger, B.
Jenkins of Putney, L.
Judd, L.
Kennedy of The Shaws, B.
Kirkhill, L.
Lea of Crondall, L.
Levy, L.
Lipsey, L.
Lockwood, B.
Lofthouse of Pontefract, L.
McIntosh of Haringey, L.
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
Mackie of Benshie, L.
Maddock, B.
Mallalieu, B.
Mason of Barnsley, L.
Massey of Darwen, B.
Merlyn-Rees, L.
Milner of Leeds, L.
Morris of Castle Morris, L.
Murray of Epping Forest, L.
Newby, L.
Orme, L.
Patel of Blackburn, L.
Paul, L.
Phillips of Sudbury, L.
Pitkeathley, B.
Plant of Highfield, L.
Ramsay of Cartvale, B.
Rea, L.
Rendell of Babergh, B.
Rennard, L
Richard, L.
Scotland of Asthal, B.
Sharman, L.
Sharp of Guildford, B.
Simon, V.
Stoddart of Swindon, L.
Stone of Blackheath, L.
Symons of Vernham Dean, B.
Taylor of Blackburn, L.
Thomas of Gresford, L.
Thornton, B.
Tomlinson, L.
Turner of Camden, B.
Walker of Doncaster, L.
Warner, L.
Whitaker, B.
Whitty, L.
Wilkins, B.
Williams of Elvel, L.
Woolmer of Leeds, L.
Young of Dartington, L.
Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to accordingly.

27 Mar 2000 : Column 570

7.17 p.m.

Clause 146 agreed to.

[Amendment No. 231ZA not moved.]

Clause 147 agreed to.

Clause 148 [Guidance]:

[Amendment No. 231A not moved.]

Clause 148 agreed to.

Clause 149 agreed to.

Clause 150 [Interpretation]:

Lord McIntosh of Haringey moved Amendment No. 232:

    Page 70, line 22, leave out paragraph (c).

The noble Lord said: Chapter III of Part X is concerned with the external competition scrutiny arrangements for the FSA. In earlier debates, I made it clear how much importance the Government attach to ensuring that the FSA gives the right weight to competition concerns. Getting the competition framework right is one of the main planks of economic growth and prosperity. But so is regulation. Without regulation there would be less investment and I do not need to spell out the adverse consequences of that. Consumers, both individually and as a whole, need to have confidence in the fairness and soundness of those with whom they deal if they are going to be willing to entrust their money to them.

The key to maximising welfare is ensuring that the level of regulation, and therefore the level of competition, is set at the right level; neither too much, nor too little. There are two ways in which that is achieved in the Bill. First, there are the internal constraints on the FSA and we have debated those. Most obviously, there are the constraints set out in the objectives and in Clause 2(3). Among those, as Members of the Committee will know, is the requirement in Clause 2(3)(f) for the FSA to have regard to the need to minimise the adverse effects on competition that may arise from any exercise of its general functions.

However, that is not all. The other matters in Clause 2(3) also act as constraints on over-regulation. There are procedural checks as well. I could single out the requirements that are placed on the FSA to consult on its regulatory provisions--rules, guidance and so on--and produce a cost benefit analysis (I can say that safely in the absence of the noble Lord, Lord Newby) which will have to look at the wider economic costs of the proposed rule or rules and not only at the direct costs for regulated persons.

In addition, we shall ask the FSA to produce an analysis in its annual report on the effect of its regulatory provisions on competition in the financial services markets. We want the FSA to take competition concerns very seriously indeed. Those are the internal constraints. Secondly, there are the arrangements for external oversight by the competition authorities. That is what this chapter of Part X is concerned with.

27 Mar 2000 : Column 571

Let us look at the special nature of this regime. If it was not there, there would be no competition scrutiny of FSA rules and practices. Statutory rules are not covered by general domestic or European competition law. We do not claim the credit for that. It was brought in by the Financial Services Act 1986. However, we have extended it to cover all the sectors which will be regulated by the FSA. That means that, for the first time, there will be competition scrutiny of rules to cover insurance companies, friendly societies, building societies and banks.

Furthermore, not only does the Bill include a competition regime for the FSA as regulator, it will also include similar regimes which cover the rules and practices of recognised exchanges and clearing houses and, for the first time, the competent authority for listing securities. Those arrangements are intended to be along broadly the same lines as those for the FSA, and we shall bring forward amendments to achieve that in due course.

Not only do the external scrutiny arrangements mean that matters can be put right where the FSA does not get them right, but their very existence will work to reinforce the provisions which the Bill applies directly to the FSA. It will be mindful that if it does not get the balance right between competition and regulation, it will run into trouble.

We have also made a number of improvements to the way that the arrangements work in the light of Don Cruickshank's interim report on banking services in the UK. The main change is that the Competition Commission will play a very significant role in the process. Rather than Ministers taking the final decision on whether regulatory provisions or practices have a significantly adverse effect on competition, that decision will be for the Competition Commission under the Bill. Where the commission finds that regulating provisions or practices have that effect--that is, an adverse effect on competition--it will have to come to a conclusion as to whether that effect is justified. In other words, it will balance the interests of competition against regulation and reach a view on whether the FSA got it right. Treasury Ministers came to a conclusion in this respect under the Financial Services Act 1986.

If the commission believes that the adverse effect is not justified, then the Treasury will have to direct the FSA to make changes. The only time that that does not apply is where the Treasury considers that there are exceptional circumstances which make it inappropriate or unnecessary to direct the FSA. The Bill does not spell out what those might be; we cannot predict them in advance. However, for example, it might be the need to meet the UK's international obligations.

The amendments which we propose make some further improvements to those made in another place. Amendments Nos. 232 and 233 provide necessary "tidying up". At present, the definition of regulatory provisions in Clause 150(1)(c) refers to guidance issued under Section 69. There is no guidance issued under that section. Therefore, Amendment No. 232 deletes subsection (c).

27 Mar 2000 : Column 572

Amendment No. 233 deletes subsection (e). That subsection includes in the definition of regulating provisions in Clause 150(1) the FSA policy statements on the imposition and amount of penalties. However, such statements bite on the FSA itself; they do not require anyone else to do anything and, therefore, there is no need to cover them in this definition. The important matter is what the FSA requires or encourages people to do through rules, guidance or statements of conduct and what it does itself. Those issues are covered by the reference to regulating provisions, as amended by Amendments Nos. 50 and 51, and by the reference to practices in Clause 150(1).

Amendment No. 233A makes a change to the language used to describe what the competition authorities--that is, the Director-General of Fair Trading and the Competition Commission--should be examining. At present, Clause 150 uses language which mirrors that in the Competition Act, which itself mirrors that in Article 81 of the European Treaty. When we looked at that clause, we considered that it was not appropriate. That legislation is concerned with the anti-competitive practices of commercial undertakings, not with statutory bodies.

If we were to keep the current wording, there would be a danger that it might attract the European Court of Justice jurisprudence. That is particularly the case now that the Competition Act, which imports the treaty test into domestic law, has been enacted. That has never been our intention and there are two reasons why it concerns us. First, the jurisprudence has developed in the context of commercial undertakings. There is always a risk that this would have unforeseen, and possibly unwelcome, consequences if applied in a different context.

Secondly, we do not want the external competition scrutiny arrangements to turn on the legal issues. While that may be appropriate under the Competition Act regime, where penalties can be imposed and legal certainty is essential, here we are dealing with questions of judgment rather than law. The key question that we want the competition regulators to address is whether the FSA, in discharging its general duties, has struck the right balance between competition and regulation. The answer to that should turn more on economic than legal arguments.

That is why we are using the reporting side of the Competition Commission rather than the appeal side. It is the reporting side of the commission which considers mergers where the issues are similarly economic ones rather than legal ones. Therefore, Amendment No. 233A moves away from the Competition Act language and refers to adverse effects on competition. That is a broad term which is readily understandable and which picks up the language used in the principle in Clause 2(3)(f), which has been agreed.

In addition, this amendment allows the competition authorities to look at the regulating provisions or practices of the FSA which require or encourage people--perhaps for a good reason which I shall explain in a moment--to exploit strong market

27 Mar 2000 : Column 573

positions. In most cases where someone exploits a strong market position there will also be an adverse effect on competition, but that is not always the case. The change simply ensures that the coverage is complete.

The other amendments in this group simply make consequential changes, replacing references to significant anti-competitive effects, as currently defined in Clause 150(2), with references to significantly adverse effects on competition, as defined in this amendment. However, I am grateful to noble Lords for spotting an error in Clause 154 where the reference should indeed be to Clause 153(2). That is dealt with in opposition Amendment No. 234L. However, since the effect of my Amendment No. 234K is to amend that subsection, I am afraid that I am denied the pleasure of accepting it.

However, I am not so grateful for Amendment No. 233B, the effect of which would include in the definition of anti-competitive effect things which prejudice the competitive position of the United Kingdom. There can be no doubt about the importance of the FSA having regard to the competitive position of the United Kingdom. That is why we have included such a provision in Clause 2(3). That requires the FSA to have regard to,

    "the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom".

Although I have sympathy with the aim which underlies Amendment No. 233B, there is no need for it. It would be unnecessary.

If the FSA were to regulate in an anti-competitive way, it would undoubtedly impact on the competitive position of the UK, given the level of competitiveness in the global market place for financial services. However, there is no need to spell that out here. There is also a more specific point. The whole purpose of this section is to bring to bear the expertise of the competition authorities--that is, the OFT and the Competition Commission--on matters covered by Clause 2(3)(f). That expertise is not directly relevant to the other principles covered by Clause 2(3)(a) to (e). That does not in any way diminish their importance to the FSA. However, it means that there will not be a role for outside agencies to assist in taking account of those principles in the same way as there is for competition. I beg to move.

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