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The Earl of Home moved Amendment No. 57:

Page 10, line 37, at end insert ("or negligent"").

The noble Earl said: Clause 25 refers to the immunities to be enjoyed by the authority. Those previously working on supervision within the Bank enjoyed Crown status, which was understandable particularly at the more senior levels in the Bank. Some people were above the Chinese wall, in that they were involved not just in supervision but also, in those days, in advice on monetary policy. That status will, as I understand it, be removed for those being transferred and indeed for new recruits to the authority. Those types of people will now have their immunities enshrined in statute. By and large, in the interests of transparency, I support this change.

The members of the authority are now a combination of policemen, auditors and agony aunts. As far as I know, those three categories of professionals are not immune from action for negligence. The Government have repeatedly stressed that they are looking for maximum co-operation in all parties affected by this legislation. Institutions and individuals would be more willing to volunteer information if they knew that there was some redress if information leaked because a member of the authority negligently left a document in a train or other public place. Other aspects of disclosure of information will be discussed later. I am talking here about negligent disclosure of information. There is no reason why members of the authority should not be subject to the same disciplines as the rest of us in this instance. I beg to move.

Lord McIntosh of Haringey: I am glad to hear that the noble Earl supports the change in general. It is a helpful context in which to consider this amendment. We take the view that it is essential, if the regulator is to be able to operate effectively, that he is not constantly constrained by the fear of speculative or constructive litigation. It is right for people to be able to seek damages if it can be shown that the regulator acted in good faith. But we want a regulator who is free to act as necessary. It is important that the FSA is not too timorous to be effective. Narrowing immunity, which

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would be the effect of the amendment, would result in the FSA being unduly constrained by the fear of speculative or obstructive litigation.

Alternatively, the FSA might be encouraged to collect more information than it would otherwise need, or to set tougher minimum standards, or to take longer over decisions than otherwise. That would drive up the costs for the businesses being regulated. The existing regulation provides immunities for the FSA and the Bank so long as they act in good faith.

The clause simply extends the same immunity to the FSA's new functions in relation to money market institutions. The wording follows exactly that of Section 1(4) of the Banking Act, which will apply to the Financial Services Authority.

There is no change imposed here. The noble Earl is in fact proposing more intrusive regulation for wholesale market institutions, which have hitherto benefited from a separate, lighter touch regime. With due respect to my noble friend Lord Eatwell, who is clearly concerned about this lighter touch regime, it is out of character for the Opposition to be seeking to make the regime more intrusive than proposed here. On that basis, I hope that the noble Earl will withdraw his amendment.

The Earl of Home: I am not trying to restrict any information; I am trying to stop negligence and encourage what is called in the City, a "clean desk" policy, which means that they are negligent in letting bits of paper fly around the place and ought to be accountable for gross acts of negligence such as leaving a bit of paper on a train. Not being a lawyer, I may have come up with the wrong wording to achieve the objective which I required. It was not my intention to put the fear of God into the regulators in thinking that they would sued. The objective was to stop ordinary negligence. We had better return to this on Report when I have taken more legal advice.

Lord McIntosh of Haringey: Before the noble Earl withdraws the amendment, I should like to say that, in the light of the debate we have had on my noble friend's amendment, I would like to reflect on his amendment as well.

The Earl of Home: I am most grateful to the Minister for saying that he will reflect on it. If he can let me know before Report stage it may save a lot of time if we can solve this problem along the lines on which I would like it to be solved. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 25 agreed to.

Clause 26 [Power to charge fees]:

The Earl of Home moved Amendment No. 58:

Page 11, line 16, leave out ("an") and insert ("a proportionate").

The noble Earl said: In speaking to this amendment I shall also speak to Amendments No. 59 to 62. The FSA consultative document, to which I have referred many times, states,

    "the charge should be proportionate to some measure of the size of the bank and the nature and extent of its business".

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I do not dissent from that. It is helpful in that it recognises the principles. The Economic Secretary said,

    "The FSA will have a statutory duty ... to be efficient and economic to ensure that costs ... and restrictions on firms are proportional to the benefits of supervision".

The first four amendments simply ask the Government to confirm the principle of proportionality on the face of the Bill. They have been consistent in saying that they want this anyway, and so I hope it should not create any particular problem.

Amendment No. 62 simply asks the Government to confirm their intentions following on from the consultation paper. Given that these proposals are of an interim nature and will last only a couple of years, I believe that the financial sector will go along with them, whilst no doubt making strong representations on the future structure during the consultation process on Stage 2.

I would here beg the Minister to ensure that this consultation process is done thoroughly but also speedily. We know that at any one time there are probably dozens of foreign banks and institutions wondering whether to locate here or whether to go elsewhere. Overhead costs are a vital element in deciding where to locate, and the supervisory costs within those overheads, being a significant proportion, could influence their thinking.

Also, several institutions are currently regulated by more than one body. As far as possible, institutions need to know the totality of costs, and particularly those considering coming here rather than those already here would be more than interested to know the Government's thinking on this. Again, to the degree that they can let us know what those costs would be, institutions would be grateful.

I make no apology for saying yet again that we are under the threat of competition from Frankfurt, Paris and other European centres, and in particular institutions which would now only be regulated by one or two bodies are concerned that the infrastructural costs of the authority might place undue strain on them.

Finally, I should be grateful if the noble Lord could also enlighten me on one further point. The consultation paper says the transition costs will be recovered over "a few years related to the annual fee". We all know that it is expensive to set up a new big group and the FSA will need departments such as human resources and internal audit, which individual groups to date have not needed. Can the Government yet tell us over what period the start-up and transition costs will be recovered? I beg to move.

7.15 p.m.

Lord McIntosh of Haringey: These amendments cover ground that was available for discussion when we were considering Clause 21. Because I was being economical in my speeches, I possibly did not make some of the points that I could have made then. I want to reassure the noble Earl by saying, first of all, that the FSA is currently consulting on banking supervision fees for next year. I take his point that the consultation should be as quick as possible in order to reassure banks

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and, particularly foreign banks. Also, the FSA has published a plan and a budget for 1998-99 which shows a reduction in budgeted costs for banking supervision of £6 million, from £73 million to £67 million. That will influence the charges that are made by the FSA to the banks being supervised.

Strictly speaking, the amendments are not entirely clear. The noble Earl says that he wants the proportionality to be the size of the institutions. There are various ways of measuring the size of institutions. One could also argue that proportionality should be to the benefit of regulation. The FSA is clear about the need to ensure that the costs that it imposes, through its rules as well as directly through its fees, are proportionate to the benefits of regulations. Proportionality of the regulatory burden is the principle which underlies the wholesale market regimes to which Clause 26 refers.

The FSA will be subject to statutory objectives, including one to be efficient and economic, and to impose only those costs on the industry as are proportionate to the benefits of regulation.

The second Bill, a draft of which will be published this summer, will provide that when the FSA consult on fees, it will have to publish details of its proposed budget as part of the same exercise. This will give the industry a much better opportunity to participate in the setting of the FSA's priorities.

I well appreciate the concerns which underlie the noble Earl's amendment. I hope that what I have said to him about what will happen next year and what is proposed for the second Bill will alleviate at least some of his concerns.

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