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The Earl of Home moved Amendment No. 15:

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

The noble Earl said: My Lords, this is a very short, but a quite important amendment. When we spoke about this in Committee the Minister rejected it on the basis that the regulator would not be able to operate effectively if he was,

The purpose of this amendment was not to restrict the FSA in any way from carrying out its functions, as set out in the Bill or in the memorandum of understanding between the Treasury, the Bank and the FSA, nor is it the intention to expose it to speculative litigation. Of course, we accept that the FSA must be able to request and receive information without fear of retribution.

However, if a member of the FSA, through negligence or carelessness, loses a document, the contents of which are subsequently made public, that is a different and a very serious matter. The institution which gave the FSA the information in the first place could itself be liable to be sued by the third party which gave it the information. If that institution has no redress against the FSA for the carelessness of an individual or of itself, the banks and the institutions will only give the scantiest information that they can get away with. As the whole object is to build up confidence between the

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institutions and the FSA, it seems reasonable to ask that the institutions should have some redress purely for carelessness.

We do not ask for anything more than the same sanctions that might apply to any person who does not take reasonable steps to ensure that confidential documents do not get lost or carelessly left behind in a public place. When we had finished our discussion the Minister was kind enough to say that he would reflect on the amendment and possibly come back to me on it. We shall be grateful to know the result of his reflections. I beg to move.

Lord McIntosh of Haringey: My Lords, I did reflect on the amendment and I have looked back at the record of our debate on this subject. But I came to the same conclusion that this is an amendment which would reduce the scope of immunity conferred on the FSA as regards its new functions. Clause 25 is not about putting immunity for banking supervision on a statutory basis. That is already achieved by Section 1(4) of the Banking Act. This clause extends statutory immunity to supervision of the listed wholesale money markets.

As I said in Committee, if the regulator is to operate effectively he cannot be constrained by the fear of speculative or obstructive litigation. It is right that people can seek damages if the regulator can be shown to have acted in bad faith, and that is provided for on the face of the Bill. We want a regulator who is free to act as necessary and not to be too frightened of litigation to act effectively. I remind the House of the enormous importance of these issues and of the failures of banks because of bad management. There is a need, therefore, for a regulatory regime which is going to protect effectively the needs of investors in the wholesale as well as the retail money markets.

Narrowing the immunity could result in the FSA being held back from urgent action for fear of litigation. At the same time we do not want to have too much regulation. We do not want the regulator to be afraid of a suit for negligence which would encourage the FSA to collect more information than it would otherwise need; or to set tougher minimum standards or to take longer to take decisions than would otherwise be the case.

Inevitably there is a trade-off between the complexity of the regulation; the tendency for regulators to protect themselves and also the degree to which they can be challenged. I do not believe that it is true to say that the exclusion of negligence from these provisions is a serious problem for regulation.

Of course, the FSA must be answerable and its officials must be responsible for their actions. If we change the immunity in this way it could fundamentally change the nature of regulation. The example was given in Committee of documents being left on a train or unauthorised disclosure. That would be a breach of Part V of the Banking Act and of Part VIII of the Financial Services Act. The FSA and the officer concerned would be potentially liable for criminal prosecution. So there is plenty of incentive in existing legislation for the FSA to act responsibly.

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The board of the FSA will be accountable to Ministers and Parliament for any pattern of negligence or serious failures. Ultimately, Ministers will have the ability to change the board. The FSA is generally subject to judicial review like any other public authority. It is a matter of balance. We have to balance the rights of the organisations being regulated against the wider public need for effective regulation. We believe that the balance is right as it stands in the Bill. I hope that the noble Earl will not press his amendment.

The Earl of Home: My Lords, I thank the Minister for that response. I do accept that there have to be trade-offs from time to time in some of these matters. Today the Minister has given us a very much fuller answer, particularly to the point about leaving documents in public places. I shall certainly look up Part V of the Banking Act to ensure that that point is covered. If not, we shall have to return to it at Third Reading. I thank the noble Lord for a much fuller explanation. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 41 [General interpretation]:

[Amendment No. 16 not moved.]

Clause 44 [Extent]:

Lord McIntosh of Haringey moved Amendment No. 17:

Page 16, line 30, at end insert--
("(1A) Section 33 extends to the Channel Islands and the Isle of Man.").

The noble Lord said: My Lords, this is a technical amendment to ensure that the transfer of the gilts-registration function of the National Savings stock register to the Bank of England's register also has legal effect in the Channel Islands and the Isle of Man. I apologise for bringing this amendment to the House so late in the passage of the Bill, but the Jersey, Guernsey and Manx authorities have all agreed to it.

On Question, amendment agreed to.

Clause 46 [Short title]:

[Amendment No. 18 not moved.]

Schedule 2 [Cash ratio deposits]:

[Amendment No. 19 not moved.]

6.30 p.m.

Schedule 3 [Monetary Policy Committee]:

Lord Mackay of Ardbrecknish moved Amendment No. 20:

Page 21, line 32, leave out ("3") and insert ("5").

The noble Lord said: My Lords, in moving Amendment No. 20, I should like to speak also to Amendments Nos. 21 to 23. These amendments all deal with appointments to the monetary policy committee, not the important issue of who those members should be and where they should come from, which we discussed earlier but amendments none the less of some significance because they deal with the length of time that they may serve and, in the case of Amendment No. 23, with the question of who may or may not be

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considered for appointment. However, Amendment No. 23 is a little different and I leave it to one side for the moment.

Amendments Nos. 20 to 22 deal with the question of the length of appointment. In a way I am offering the Minister two alternative answers which perhaps he can discuss with us to see whether one or the other is attractive to him. Some of us still feel that a tenure of three years is too short. After all, the Government are appointed for five years. Three years is a pretty short time span. It is well within one Parliament and even within the chancellorship of one Chancellor. All four members could come up for reappointment, not just within the same Parliament, but within the same chancellorship, if I can put it in that way. If the Chancellor is displeased at the voting record or if theories on such matters have changed, in almost no time at all and certainly well within one economic cycle the whole composition of that important committee could be changed. We must add to that the fact that a Treasury official will also be on the committee. He can report back what is happening. If he signals one policy on behalf of the Treasury and the Chancellor and the members decide on another, will the members feel that their membership of the committee is, in farming terms, on a shoogly nail? I do not know, but I suspect that they will.

My first effort, Amendment No. 20, suggests that we change three years to five years. I believe that a member should be appointed for one term only, with the exception of those serving at the beginning who will be appointed for shorter periods in order to stagger the four appointments. The Minister and I entirely agree that that is fair and correct. If the Minister were to agree to the change from three to five, it is clear that if anyone who had been appointed for five years was then reappointed, that person would serve for 10 years. I know that the noble Lord does not like appointments of that length. He told me so. I pointed out that tenure at the Fed was for 14 years; at the Bank of France it was nine years; and at the Bundesbank, eight years. None of those figures seemed to find favour with the Minister. He thought that all those periods of tenure were far too long. That is why I appreciate that the noble Lord does not want long appointments and that is why my first suggestion is to change the tenure from three years to five years with no reappointments.

Just in case the noble Lord does not like that, I then thought, "Let's give him his three years because he is so keen on that", but if there is reappointment, three years could become six years and then even nine years. That began to worry me because it could be thought, "Be a good, reliable boy or girl; take careful heed of what the Treasury official says; read all the Chancellor's speeches; make sure your economic theories accord with his (even if they change) and reappointment will follow reappointment." Some noble Lords may well have experienced papers coming up from departments stating, "Professor Bloggs is a safe pair of hands, Minister, I think you should reappoint him." That is why I have tabled a limitation on three years. If the Minister is determined not to have a tenure of five years and wants to stick to three years, I suggest that a member may be

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reappointed only once, making a total of six years. I hope that the Minister will not have too much fun over the fact that I have approached this matter from two points of view. I have done so because I want to explore how we can specify a reasonable length of membership and how, if there are to be reappointments, we can determine the number. I hope that that is clear.

Amendment No. 23 is somewhat different. It is grouped with Amendment No. 20 for the convenience of the House and in order to make progress. Noble Lords will recall that I divided the monetary policy committee into the home team and the away team. I pointed out that five members will be the home team and four members will be the away team. We are now looking at the composition of the away team. I have already pointed out--your Lordships agreed with me--that it was not correct that all members of the away team should be drawn from the economic triangle of Oxford, Cambridge and London.

However, there is more to it once one has read the CVs of the very eminent people who have been appointed members of the away team, because one discovers that at one time they played for the home team in various roles. When I moved a similar amendment in Committee, the noble Lord, Lord Newby, rightly pointed out that if I excluded everyone who had ever worked in the Treasury or at the Bank of England, I would be excluding those who may have worked there for only a short time, perhaps at a low level. I took that point on board. The Minister knows what I am trying to prevent by this amendment.

Perhaps I may explain that of the four members of the committee, one of them, Professor Goodhart, worked at the Bank of England for 17 years as a monetary adviser and became the chief adviser in 1980. That is not an example of someone serving only a year or two on his way up the banking promotion tree. I repeat that he became the chief adviser in 1980. Furthermore, Sir Alan Budd has been the chief economic adviser at the Treasury since 1991. Indeed, the Treasury announced last year that his initial five-year contract has been extended until his retirement. Now, in retirement, he has been put on to the monetary policy committee. That led me to wonder whether an ex-governor could be put on the monetary policy committee or even an ex-deputy governor. If so, the whole meaning of the home and away teams would take on an entirely different complexion.

I know that the Minister will tell me that,

    "a senior employee of the Bank or the Treasury",

is not defined nearly closely enough. However, I hope that he will accept my concern and that he will not tell me that I can rely on the current Chancellor not to appoint those who have been senior at the Bank or at the Treasury because, first, he has already done so and, secondly, the right honourable gentleman will not be Chancellor forever. I am thinking about future Chancellors as well as this one.

If we are genuinely looking at four away players--four people who are there for their independence and expertise--we really should be considering those who

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have not held senior positions at the Bank or Treasury. When the Minister replies, perhaps he can clarify whether I am right in thinking that a former governor or former deputy-governor could be appointed as one of those four. I see no reason why they could not be appointed if a former chief adviser to the Bank and a former chief economic adviser to the Treasury can be.

I did not write it down, but I believe that the noble Lord, Lord McIntosh, said earlier that there were many expert people out there who could easily be appointed to carry out those tasks. I do not disagree. I am sure that there are. That is why I think that it would be right and proper for the Government to table an amendment for consideration next Monday because I fully appreciate that my phrase "a senior employee" is perhaps not adequately tight and I should like the Government at least to convince me that the away team could not be constructed in such a way that it was really the home team in another guise. I beg to move.

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