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Lord Fraser of Carmyllie: My Lords, as the noble Lord has indicated, this is not the first time I have intervened on this issue. In my own defence, I did begin by believing that this matter should be elevated to a regulatory objective. In the spirit of moderation I am now accepting that it should occupy a lesser role. However, it still seems to me to be extremely important that the provision should enjoy its position and should not simply be in Clause 2(3), as the noble Lord, Lord Borrie, has pointed out, and is in its present resting place.

What continues to concern me is effectively the same point as that which concerns the noble Lord, in that there should not be overregulation. We have no God-given right to have such a successful industry in the United Kingdom. I remain troubled that, unintentionally, if the FSA pursues its regulatory objectives with too much zeal without having regard to whether there is any business left to regulate, very real damage could occur to the economy of the United Kingdom. That is hugely important.

I do not wish to have the FSA replace the Competition Commission or anything like that, but in the discharge of these regulatory objectives it should understand how important it is that our international competitiveness is maintained.

My concern is simply this. I do not believe that we shall ever be able to prove not just the desirability but the necessity for this amendment until, sadly, it might be too late once the business has left the United Kingdom. Even if it is not to be put under this statutory requirement, nevertheless I hope that the FSA will appreciate just what a fragile financial services industry we have. If the FSA is clumsy or

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heavy-footed in the way it imposes regulations, that success could disappear very quickly to other countries either in Europe or elsewhere.

Lord Boardman: My Lords, I support the amendment. The noble Lord, Lord Borrie, seemed to damn with faint praise the vast success of the City of London in the field of international financial services.

Lord Borrie: My Lords, that was absolutely not my intention. I hope that I have not given that impression to the noble Lord, Lord Boardman, or indeed to anyone else.

Lord Boardman: My Lords, I accept what the noble Lord has said. It was the impression I gained from his overall speech. The noble Lord, Lord Borrie, should be full of praise--I am sure that he is--for the great successes that the City of London has achieved in the field of financial services, particularly overseas.

This amendment is designed to recognise that and to include it with sufficient ranking in the Bill. It is designed to avoid any action being taken which is detrimental to our competitive position. That is something, surely, that the Government would wish in every way to encourage. The kind of action I have in mind--I accept it is outside this Bill--is the introduction of a withholding tax, which would be very damaging to the international financial services of the City of London.

It is right that the amendment should appear in the Bill; that it should endorse the international character of financial services; and that it should urge that no action be taken to damage the competitive position of the United Kingdom. I support the amendment.

Lord Elton: My Lords, I hope that the noble Lord, Lord Borrie, in his initial conflict with the noble Lord, Lord Boardman, was not blinded to the effect of what he was saying. Repeatedly in his speech, the noble Lord, Lord Borrie, referred to the "promotion" of the interests of the United Kingdom, and how wrong it was to make this a principal requirement under the Bill. But that is not what the amendment does. The amendment uses weaker language than that already in subsection (3). It seeks to include merely,

    "the desirability of not adversely affecting the competitive position of the United Kingdom".

My anxiety is not that it is too strong, but that it is too weak. I hope that my noble friend will not be driven from his position.

The Earl of Home: My Lords, I speak briefly in support of the amendment. I have spent 25 years promoting the City of London through the British Invisibles Export Council, more recently called British Invisibles. Potential overseas investors, when looking at London, Paris, Frankfurt or wherever to establish their European operations, now often ask not what is the attitude of the Government--in the old days of the BIEC it used to be what is the attitude of the Bank of England--but what is the attitude of the FSA.

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I do not think any of us are at odds about the desirability of the amendment; it is more a question of where it should be placed and what emphasis one should put on it. If it is placed as high as Clause 2--and potential investors can see that it is one of the main duties to which the authority must, as far as is reasonably possible, have regard--that would be a much better way of persuading foreign investors to come here than placing it in one of six or eight clauses which appear later in the Bill. If one says that it is a part of one of the main three clauses, that is a powerful selling tool. Foreign investors are worried about a light touch--we talked previously about the Governor's eyebrows, and so on. It is that kind of emphasis that attracts foreigners to this country rather than to Paris or Frankfurt.

6.45 p.m.

Lord McIntosh of Haringey: My Lords, I am afraid that it is necessary for me to explain again what Clause 2 does. I think that there are still misunderstandings about it.

Clause 2 sets out the FSA's general duties. In doing that, subsection (1) makes it clear that the FSA must, so far as is reasonably possible, act in a way which is compatible with its regulatory objectives and which it considers is most appropriate to meet those objectives. So the key to that is "act in a way". Subsection (2) lists the objectives and subsection (3) sets out a number of matters, sometimes referred to as principles--they may be principles of good regulation--to which the FSA must have regard in carrying out its objectives.

The purpose of these amendments is to ensure that the FSA's regulatory objectives do not adversely affect the competitive position of the United Kingdom. I agree that it is vitally important that there are checks in place to ensure that the competitive position is not adversely affected by too much or too little regulation. The United Kingdom is a world leader in the provision of financial services. I agree with everything that the noble Lord said about our share of the world financial markets. We must do what we can to keep it that way. The problem lies in the way this amendment proposes to do so.

At present, the requirement on the FSA to take account of the international character of financial services and the desirability of maintaining the competitive position of the United Kingdom is one of the FSA's principles. The amendments seek to move this principle from its position in the clause. While not making it a regulatory objective as such, they would appear to seek to give it the same status as the regulatory objectives set out in Clauses 3 to 6. This is because, if the amendment were accepted, the FSA's duties in relation to the proposed paragraph (c) would be the same as those in relation to the regulatory objectives set out in Clauses 3 to 6.

I have three problems with this. First, as I said in Committee:

    "subsection (1) places a positive requirement on the FSA to take action. That is appropriate when discussing objectives; that is, the aims of regulation. In contrast, the need to take account of international competitiveness is something which should

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    condition the way in which the FSA goes about meeting the objectives. That is as true for competitiveness as it is for the other matters dealt with in Clause 2(3)".--[Official Report, 16/3/00; col. 1803.]

Secondly, as the Burns committee pointed out, and as my noble friend Lord Eatwell emphasised at Committee stage--my noble friend Lord Borrie used the same quotation--in so far as the amendments might be understood to make competitiveness an objective, they could damage the FSA's relationship with other international regulators.

Thirdly, by placing the same duties on the FSA in relation to this issue as it has in relation to the regulatory objectives themselves, the amendment introduces into the Bill a degree of ambivalence as to the relationship between those objectives and the proposed new duty. Is the proposed new duty inferior to the objectives, superior to them, or something which ranks equally alongside them? I do not know the answer, and I do not think that the FSA will know either. The danger is that we would risk introducing confusion where the Bill currently provides for clarity.

Finally, I repeat the point that I made in Committee, that the primary responsibility for maintaining the UK's international competitive position does not lie with the FSA itself--this is the point of my noble friend Lord Borrie--but with those in the industry, who are, after all, the people who built up the UK's commanding international position in the first place. This point is crucial because the FSA is not equipped to take on--nor would the industry welcome--a role that involved it in trying to pick winners among United Kingdom firms or telling them how to run their business. I am sure we could all agree that this would be likely to do more harm than good.

What the FSA must do--and I re-emphasise this because I was quoted as emphasising it in Committee--is to take into account the effect of its regulatory actions on the United Kingdom's international competitiveness, as well as competition and all the other principles in subsection (3).

Before I leave the issue of competition, there has been some misunderstanding of what Don Cruickshank said. He did indeed recommend that the FSA be given a competition objective, but that is not a competitiveness objective. Again, my noble friend Lord Borrie has properly pointed out the difference. We have explained many times why it would not be appropriate; it is simply not an objective of financial regulation.

When we responded to Don Cruickshank's interim report, his press release in response said:

    "The Government believe that this outcome can be achieved without giving the FSA a primary competition objective in addition to its regulatory objectives. My concern has always been that the outcome should be as Ministers intend. I am not wedded to any particular means of achieving this and I welcome any changes to the Bill which deliver the outcome in practice".

And that is what we did: we reviewed the way in which the principles in Clause 2(3) work and we made changes which, together with the other requirements placed on the FSA and the external scrutiny regime, ensure that the FSA gives full weight to competition

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concerns in the way that it regulates. But, again, that is not the issue raised by this amendment, which is about international competitiveness.

We are all agreed about what we want. The noble and learned Lord, Lord Fraser, made the point very clearly in Committee when he said:

    "The last thing I want to see is the United Kingdom as a kind of 'Wild West' of financial services competitiveness ... where anything goes".--[Official Report, 16/3/00; col. 1799.]

But we do have to strike a balance.

When I say that there is a misunderstanding about Clause 2(3), it may be partly my fault. I used the word "hierarchy". That may have given an impression that in some way the principles impose requirements on the FSA that are less important or less binding than the objectives. The point I was making is that in carrying out its functions the FSA will turn to the objectives because they tell it what it must aim to achieve. However, in considering them it will have to consider, at the same time, how it will go about the task. That is where the principles come into play. The FSA is bound to have regard to the principles in deciding how to meet its objectives. But although the principles and the objectives are different in purpose, they are both legally binding on the FSA. It simply would not be possible for the FSA to take into account the need to maintain the competitive position of the UK, which is in the part of the Bill which Amendment No. 31 would take out, and then assign it zero weight, so that it could forget about competitiveness once and for all. It must keep in competitiveness, together with the other objectives and principles. Competitiveness is in the right place. I urge the noble Lord not to press the amendment.

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