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Lord Bach: We want it to work and we believe that it will. We believe that the body's independence is already well established in practice as well as in theory.

I shall deal first with Amendments Nos. 247 and 248. They deal with paragraph (2) of Schedule 16, which sets out the FSA's key responsibilities in relation to the ombudsman scheme. Those

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responsibilities are, first, that the authority must establish the scheme manager to exercise the functions of the scheme; and, secondly, that the authority must take the necessary steps to ensure that the scheme operator is at all times capable of exercising those functions. The amendments seek to change paragraph (2) so that both the authority and the Treasury are placed under these obligations. At first blush, that does not seem an unattractive change. However, on reflection, we believe that it would be a mistake.

Schedule 16 places two key obligations on the authority; unequivocal statutory obligations. The Bill is clear and the authority must do these things. There is no get-out clause and no room for fudge. By splitting those obligations in some unspecified way, as the amendments propose, we would reduce the clarity of that responsibility. It would not be clear where the buck stopped and that could damage the commitment of the FSA to get an effective scheme up and running and to enable it to keep running.

Nor do we believe that it would be right to say that the amendments would increase accountability. On the contrary, they would confuse the lines of accountability. The Bill as drafted makes the authority responsible for setting up the scheme, and it makes the scheme operator and the chief ombudsman clearly accountable to the FSA.

However, we believe that the fear about independence is unreal. Schedule 16 also makes it clear that the board's independence from the authority must be secured by the terms of appointment and, importantly, the terms governing removal from office. As my noble friend Lord Borrie made clear, the scheme operator, not the FSA, will appoint the ombudsman again on terms consistent with their independence. Therefore, the independence of the scheme operator and of the ombudsman is written onto the face of the Bill.

Perhaps I may remind Members of the Committee that the present chairman of the Financial Services Ombudsman Scheme is no less than Mr Andreas Whittam Smith. It was perhaps ironic that the noble Lord, Lord Elton, should use the parallel of a newspaper editor when debating this topic. Members will know well that a few years ago Mr Whittam Smith was a most distinguished and independent-minded editor of the Independent newspaper. He was appointed following a Nolan-style selection process on terms designed to secure independence. Following open competition, Walter Merricks was appointed as chief ombudsman. Anyone who has any dealings with him, or knows anything about him, will know that, to put it mildly, he is an independent-minded individual.

Lord Elton: The more the noble Lord makes us repose our confidence in the excellent characters of the people who will fill the post, the more he diminishes it in the machinery which those people will fill. I was hoping that he would persuade us that nothing could go wrong, whoever did the job. However, he is saying that nothing can go wrong because brilliant saints and

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wonderful geniuses are filling the jobs. I say nothing in denigration of them, but they are the worst possible examples he could choose.

Lord Bach: I do not believe that the noble Lord could have been listening carefully to what I was saying before I began my eulogy on the two individuals concerned. I was pointing out--and I thought that it was clear--that Schedule 16 makes it clear on the face of the Bill, which is significant, that the scheme is as independent as is sensible.

I turn to Amendment No. 249. It would have the effect of requiring the Treasury to lay before Parliament copies of reports it receives under paragraph (7). That paragraph does not appear to provide for any such reports to be made to the Treasury. Members of the Committee may consider that that goes to the heart of the matter and that the Bill should make provision for the Treasury and for Parliament to receive such reports. I have no doubt that that was one of the issues being addressed by the noble Lord, Lord Sharman. Indeed, that appears to be the intention behind Amendment No. 249.

We can understand the concern of Members of the Committee. Clearly, Parliament has a valid interest in what the ombudsman scheme gets up to, just as more generally it has an interest in the activities of the authority itself. However, the Bill sets up a clear line of accountability which we believe it would be wrong to confuse. The line runs from the scheme operator to the FSA and then further to the Treasury and to Parliament. The FSA has a responsibility for setting up the ombudsman scheme.

Both the scheme operator and the chief ombudsman report at least once a year to the FSA and those reports must be published. In turn, the FSA will be accountable to Treasury Ministers, who are of course accountable to Parliament. The FSA in its turn must make an annual report to the Treasury covering the discharge of its functions under the Bill. One of them is to set up a scheme and ensure that it can run effectively. That report must itself be laid before Parliament. That requirement is set out in Schedule 1, paragraph (10). We believe that the amendments would muddy the water. Furthermore, the scheme manager will be a company under the Companies Act and it will be obliged to publish a full report and accounts in accordance with relevant statutory requirements.

The Government are grateful to the noble Lord, Lord Sharman, for tabling the amendments because we have had a short and good debate on the important issue of the independence of the new scheme. We believe that there are protections on the face of the Bill and that, as my noble friend Lord Lipsey said, in the real world there is nothing for the noble Lord, Lord Sharman, to be concerned about.

Lord Sharman: I am grateful to the Minister for his reply. He adequately summarised my anxieties by saying that I am more concerned about the perception of independence than the actual activity of those charged with the duty of performing the role of

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ombudsman. We have touched on this matter in previous debates on the Bill. The purpose of legislation is not to provide for those who are carrying out the job at present; it is to provide for an ongoing situation. That is why I use the analogy of "Jurassic Park": when the scientists were good and friendly, nothing happened. That is my concern.

I would point out that the ombudsman operates from the same address as the FSA. That, prima facie, does not exactly make one think that he is independent. I can understand the noble Lord's response that the first two amendments that we tabled might cause a little confusion, but they were intended to add an independent thread to the appointments process. I, for one, endorse the comments made by the noble Earl, Lord Onslow, who made the point more elegantly than I did.

The chain of command is there. If one appoints a body to appoint someone, that person is appointed. This is wonderful, but out in the real world that is what happens. If I create a subsidiary of a business and that subsidiary appoints its chief executive, no one would consider that I had appointed him. My goodness! Therefore, I believe that a misperception exists and that is what market confidence is about. I accept that the final amendment in the group was not elegant in its drafting. It did not achieve what I sought to achieve.

The phrase in the Bill that concerns me is,

    "publish[es] ... [as] it considers appropriate".

I have forgotten the exact reference but I am sure that the noble Lord will remember it. The ombudsman will publish his annual report as he considers appropriate. I do not believe that that is adequate. I believe that there should be a compulsion to lay those reports before Parliament. Nevertheless, having listened carefully to what the noble Lord--

4.30 p.m.

Lord Elton: Before the noble Lord withdraws his amendment--I believe that that must have been the preface to withdrawing the amendment--I am anxious to be clear in my own mind. I presume that he will come back to the matter at a later stage. If that is the case, I should like to refer to something that the Minister said with regard to splitting the authority and the Treasury and putting them in a harness together. If the noble Lord were to bring back the amendment without "the authority" and have this matter stand clear of the ombudsman, from a different postal address and with the right website address functioning, then I would find it a much more attractive amendment. I hope that we shall see it again in that form.

The Earl of Onslow: Before the noble Lord continues, it seems to me that Members of the Committee have a perfectly genuine and real concern. I understand also that the Government believe that they have it right. Although I have a feeling that they may have it right, it does not look right. Can the noble Lord say, "I accept that concern has been raised. We

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shall have a little think about it again. I cannot promise to do anything but I shall look at it with an open mind"? That is the House of Lords at its best, and he is a good Minister.

Lord Bach: The noble Earl flatters easily and he flatters me even more easily than others. Of course, we shall do exactly as he says. Our doors are open to representations on this, as on any other, subject between now and Report. I must cover what I say by using one of the remarks that he made; that is, we do not commit ourselves to any change. I thank him for his contribution.

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