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The varying of the utilisation of powers by bodies such as the MoD and HMRC is in response to the way in which those bodies have experienced the requirement for the use of RIPA. I make it clear that the powers that are contained within RIPA are not in any substantial or negligible way increased. The powers remain; they are simply being put within a legal framework that makes them ECHR-compatible.

Questions are asked about the extent of serious criminal offences and their definition, but if the definition proposed is that one should test the offence by reference to custodial sentence, that creates a very wide notion of what a serious criminal offence would be and goes against the definition contained in Section 81 of RIPA. Plainly, there is nothing that one can do in statutory instruments to alter the terms of the primary legislation.

Certain areas, which the noble Baroness identified, are essentially differences of policy. The Government would be against the notion that council leaders should be involved as it would appear to introduce a politicised element into covert surveillance, which might be thought in many quarters to be undesirable. The notion that magistrates should be used at each stage again is a policy choice which the Government have not seen fit to follow. Certainly it is not required to establish the lawfulness of the RIPA structure.

In relation to questions of guidance and training, I am told that good progress is being made on producing a tailor-made instruction manual for local authorities in their use of directed surveillance. I am afraid that I cannot give precise detail as to what that "good progress" might be. I gather that the development of accredited

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training is also proceeding apace. We are working with the Local Government Association group to develop these measures.

4.00 pm

As regards sanctions for local authority authorising officers who make decisions that are not absolutely right, the process has been that supervision is deployed to assess whether or not this power is used correctly. One has used the process of the commissioners and their reporting as an appropriate way in which to provide not only a broad sanction as to what may be done, but a means of achieving useful outcomes rather than pushing matters into a blame culture or into contest in court.

The noble and learned Lord, Lord Lloyd of Berwick, raised a very important issue in relation to the way in which McE had developed. It has been implied in a number of quarters that in some way the Government have sought to ignore the Divisional Court's decision; that they proceeded apace and that they acted unlawfully or have countenanced acting unlawfully. This I also understood to lie behind a lot of the points made by the noble Lord, Lord Pannick.

The Government have not in any shape or form simply ignored the Divisional Court's decision. In fact, the position as it is understood is that no such operations were carried out by the police or the Prison Service after the Divisional Court's decision. Following the judgment in November 2007, guidance was issued to the police and Prison Service that sought specifically to address the concern identified by the court regarding the safeguards in relation to directed surveillance of legal consultations. That guidance was provided pending the appeal. The appeal has obviously produced the result that it has. During the appeal, counsel indicated that the Government were intending to bring about changes in relation to the way in which these issues were dealt with.

I hope that provides some reassurance at least that the Government have not cavalierly disregarded the Divisional Court's decision, which of course would be a serious matter.

Lord Lloyd of Berwick: As I understand the noble and learned Lord, he is telling the House that there has been no surveillance since the decision of the Divisional Court in 2007. If that is the case, then why, after nearly two and a half years, is it necessary to have such surveillance now?

Lord Davidson of Glen Clova: The point that I was trying to address was the notion that the Government were in some way acting unlawfully, or countenancing that they might act unlawfully. I am asking it to be accepted that that is not the case. The notion of what might be important in operations is a matter based on evidence provided by the relevant authorities as to what they regard as essential for carrying out their tasks and meeting their obligations.

As for the way forward, the noble Baroness, Lady Hamwee, raised several points about the way in which the order, and indeed the entire primary legislation,

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contains what she sees as grey and very wide areas. As these issues can cover a wide area of serious problems, they are tested by inevitably broad consequences. The facts and circumstances required to be weighed at each stage are gauged by necessity and proportionality. Because these are broad terms, inevitably, the language will be in wide terms. The addition of seriousness as one of the tests for authorisation would, I hope, to some degree, provide some reassurance that the concepts applied will provide a high level of protection against unwanted intrusion into privacy.

The noble Baroness's suggestion that this might be done better by going through the police at each stage is one with which the Government would take issue. There are 123 statutes which impose on public authorities various requirements of assessment, protecting public health, and so on. Inevitably, there are questions of resources. Parliament has decided that these particular authorities have these particular responsibilities. One can see that that is the road down which the enactment of RIPA has proceeded, bearing in mind resources and the parliamentary responsibilities of various public authorities. If one uses codes to provide guidance to these authorities, that, again, is precisely what primary legislation expressly recognises as a way in which these legal obligations may be guided.

Baroness Hamwee: On that point, the code has great weight under Section 72 of the Act, but a code must be more than guidance in this context. We have a code that-I think the Minister would say inevitably-is not black and white. Can he say anything about how one reconciles the difficulties around that? If you follow the code you have not infringed the statute, but the code itself is-inevitably, as the Minister would probably say-not clear.

Lord Davidson of Glen Clova: With respect, the noble Baroness has understood what my answer might be. Given the wide-ranging nature of the area, it will inevitably contain elements of vagueness. There is, on one view, always an inherent ambiguity in any matter of law. The law courts have been full of that for many hundreds of years. The notion that we can suddenly produce a high level of lucidity is not, perhaps, a matter for statutory instrument.

The central concern which the noble Baroness identified was the question of there being no judicial oversight. While it is absolutely true that these issues do not daily find themselves in a court of law, there is none the less, to a degree, an element of judicial oversight in that the commissioners themselves are drawn from those who have held high judicial office. If one considers that there are in excess of 500,000 applications annually, one can see that the implications for a hard-worked judicial system would be exceptionally threatening.

With respect, I take issue with the characterisation of the authorisation structure as one of self-certification. What is set in place is a complex and sophisticated structure of authorising, where one must go to the authorising officer. In certain limited examples one must then go to an approving officer, which would be the Secretary of State or the chief commissioner. The

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point is that it is not simply a matter of an officer thinking, "I will authorise myself". He must go through a structure of getting approval and must keep reports and a record of all this so that the lawfulness of it may be attested. One knows that if there were a complaint, it could be brought to the Investigatory Powers Tribunal where, again, the rectitude of the decision could be assessed. Therefore, I respectfully suggest that the notion that this is simply a sham is erroneous.

On the question of urgency, I apprehend that the noble Baroness did not in any way suggest that there was bad faith or that urgency was created simply to deal with a difficult situation without any reality. The problem is that, in this context, urgency is precisely what it means. There is a requirement, and if no senior authorising officer is available, a junior authorising officer will therefore be available. If it is of comfort, the use of authorisation in those circumstances is not of lengthy duration; my understanding is that it is 72 hours.

The other question that the noble Baroness raised on this area was proportionality. Perhaps I dealt with that to a degree when I referred to the question being assessed by reference to facts and circumstances. However, the notion of proportionality does not lend itself to precise definition because it is inevitably a weighing, on the one hand, of the requirement for the intelligence, and, on the other, the extent of the intrusion into private or family life. Inevitably, there will be a lack of detail regarding proportionality. I should say again that if there are safeguards, the reporting by commissioners and the Investigatory Powers Tribunal should create a structure that is regarded as lawful and sufficient to provide a safeguard for this process.

The only other matter, so far as I can detect, was raised by the noble Lord, Lord Pannick, in relation to whether the state prosecution would wish to rely in court on evidence obtained by these means. He invited me to consider the question raised by the statement of the noble and learned Lord, Lord Carswell, as to how he would see the matter if it were to come before him for judgment. Perhaps I may reassure the noble Lord that the Government are ad idem with the approach of the noble and learned Lord.

I trust that I have answered most of the points raised by noble Lords.

Motion agreed.

Regulation of Investigatory Powers (Covert Surveillance and Property Interference: Code of Practice) Order 2010

Copy of the Order
5th Report from the JCSI
6th Report from the MC

Motion to Approve

Moved By Lord Davidson of Glen Clova

Motion agreed.

23 Feb 2010 : Column 942

Regulation of Investigatory Powers (Extension of Authorisation Provisions: Legal Consultations) Order 2010

Copy of the Order
5th Report from the JCSI
6th Report from the MC

Motion to Approve

Moved By Lord Davidson of Glen Clova

Motion agreed.

Regulation of Investigatory Powers (Communications Data) Order 2010

Copy of the Order
5th Report from the JCSI
6th Report from the MC

Motion to Approve

Moved By Lord Davidson of Glen Clova

Motion agreed.

Regulation of Investigatory Powers (Covert Human Intelligence Sources: Code of Practice) Order 2010

Copy of the Order
6th Report from the JCSI

Motion to Approve

Moved By Lord Davidson of Glen Clova

Motion agreed.

Regulation of Investigatory Powers (Covert Human Intelligence Sources, Matters Subject to Legal Privilege) Order 2009

Motion of Regret

Tabled By Baroness Hamwee

Motion not moved.

23 Feb 2010 : Column 943

Financial Services Bill

Bill Main Page
Copy of the Bill
Explanatory Notes

Second Reading

4.14 pm

Moved By Lord Myners

That the Bill be read a second time.

The Financial Services Secretary to the Treasury (Lord Myners): My Lords, we have just started to emerge from a financial crisis that has affected businesses and consumers across the world. This global crisis has led us, in the same way as other countries around the world, to fundamentally review our financial system and its interaction with the broader economy. Last year, with the Banking Act, we ensured that UK authorities have the power to deal with failing banks, while continuing to protect consumers and taxpayers. This year, we have an opportunity to revitalise the financial framework, so that the UK is ready not only to address the effects of the crisis, protecting consumers and businesses, but also to tackle its root causes.

Well managed, well functioning financial institutions are in the national interest. It is clear that our objective should be to help build a financial sector that supports the wider economy, and is not only commercially viable, but also stable. The Government have a duty to ensure that we harness the lessons of the past two years, and make sure that, in future, any crisis will be not only less damaging, but less likely altogether.

To achieve this, we need to tackle shortcomings throughout the system. There is no one silver bullet that can remedy in a single attempt all the global challenges we face, and that is why we need to pursue a comprehensive set of measures. We need to deal with both the way firms are managed, and the quantity and quality of capital they hold; both the way regulators assess and monitor risk, and the way the authorities co-ordinate their activities; and both the way consumers handle their financial affairs, and the way they get redress in cases of detriment.

This Bill seeks to address some of these important issues. I think all sides of the House will agree that tackling these matters is the right thing to do, and I am pleased that both opposition parties made statements in support of this piece of legislation in another place. Indeed, the Conservative spokesperson in another place said in his speech at Third Reading that, when glancing at the content of the Bill, he realised how much of it he supported. This show of support is indicative of the sensible nature of the measures in the Bill, which are designed to achieve objectives on which we can all agree.

First, the Government have a clear strategy to enhance the focus on systemic risk, and provide a clear mechanism for co-operation. Clauses 1 to 4 establish a statutory Council for Financial Stability, made up of the Chancellor, the chairman of the FSA, and the Governor of the Bank of England. The purpose of this council is to ensure that systemic risks to the stability of the UK financial system and the wider economy can be swiftly identified and addressed. It will deal with both immediate and longer-term strategic issues, and will formally consider the Bank's financial stability report and the FSA's financial risk outlook in quarterly strategic meetings.

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I am aware of the extensive debate on the institutional structure of financial regulation that occurred during the discussion of this legislation in another place, but I am clear that our model, with an independent central bank and a single, independent financial regulator, is the right approach.

The council will strengthen the existing regulatory structure and provide the high-level framework needed to better co-ordinate the authorities' approach to financial stability. It will deliver important improvements through a more structured, formal, open and accountable approach to co-ordination between the three authorities.

The Bill requires the council: to meet regularly, at least once a quarter; to be much more open, through minuting its quarterly strategic discussions; and to be accountable to Parliament, through a formal annual report on the council and financial stability that will be laid before Parliament. These are all useful, important changes that improve the way tripartite co-ordination works in practice.

As noble Lords are aware, the Government are keen to have these enhanced arrangements in place as soon as possible, and we have set up the council in shadow form on the basis of the model set out in this Bill and the draft terms of reference. The council met first on 14 January, and minutes of that meeting are now available on the Treasury website.

The meeting, which I attended, was very useful, and I am highly optimistic that it will deliver on its objectives. The council is perhaps not a glamorous or radical upheaval of the current system; instead it is a practical attempt to put the framework for co-ordination on a formal, statutory basis, with greater structure, transparency and parliamentary accountability. I am hopeful that noble Lords will view the usefulness of this forum from a pragmatic perspective, rather than insist on institutional chopping and changing in the hope that simply rearranging the deckchairs will somehow be conducive to the improved monitoring of financial stability. Clearly, that would not be the case. In tandem with the council, the FSA, through Clauses 5 and 7, will be given a financial stability objective and related powers to underline the need to consider systemic risk when supervising individual banks.

Clauses 9 to 11 address the issue of remuneration practices that incentivise excessive risk taking. Misplaced incentives for bankers to conduct business in an overly risky or even reckless manner played a significant part in the run-up to the crisis. The Government will not tolerate any further cavalier behaviour where depositors' and taxpayers' money is involved, and where failures could significantly affect the rest of the economy. We need to ensure that remuneration and bonus arrangements do not encourage executives to take excessive and unmanaged risks.

The measures in the Bill are twofold, with proposals to enhance control of the system of rewards on the one hand, and transparency and disclosure on the other. First, Clause 11 strengthens the FSA's hand to take action against remuneration policies that encourage excessive risk taking. The FSA, as regulator, is best placed to ensure that remuneration is consistent with effective risk management, as it is close to the industry, independent and subject to obligations of fairness.

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The measures that we propose do not simply reaffirm the FSA's existing powers: they place a duty on the FSA to ensure that remuneration policies are consistent with effective risk management, and are in line with the Financial Stability Board's recommendations, which take into account the importance of international agreements in this area.

We are also empowering the FSA to make rules that impose specific prohibitions on the way in which individuals can be remunerated, by providing for any element of a remuneration agreement that breaches such a prohibition to be automatically void, and for the recovery of any related payment made. This will ensure that executives are not rewarded for failing to manage risk effectively. I assure the House that these provisions will not be retrospective, and that the Government have amended the Bill in another place to clarify this point.

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