Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Kingsland: Does the Minister know whether the concept of a legislative function is used in an Act establishing any other public authority in this country?

Lord McIntosh of Haringey: I am sure that it is not an original concept since many regulatory bodies have

16 Mar 2000 : Column 1686

to work via rules, statements of principle or policy, and issuing codes. I shall write to the noble Lord about the detail of which other legislative examples occur.

Lord Kingsland: I ask because it seems strange that we have a non-parliamentary body with a legislative function but with no obligation to lay its legislative rules before the legislature.

Lord McIntosh of Haringey: "Legislative function" is perhaps shorthand. We are talking here about functions which are laid on the Financial Services Authority by statute.

Lord Elton: Shorthand is not the language for legislation. If the Minister means that he is referring to the authority's rule-making or regulation-making powers, the Bill should say so. To call them "legislative powers" calls into question the function of this Chamber.

Lord McIntosh of Haringey: I used the phrase "legislative powers" in introducing them in order to provide a collective description of those functions described in the legislation as rules, statements of principle or policy, codes of conduct, codes of practice and so on. I attempted to help the Committee by giving a collective noun to describe them all. "Legislative functions" does not appear in the Bill.

Lord Elton: It does. At lines 12 and 13 on page 216, the Bill states:

    "For the purposes of this Schedule, the following are the Authority's legislative functions".

I am happy for the noble Lord to be free with his language. I am not happy for the statute to be free with its language if it does not mean what it says. It is a fairly important matter as to whether Parliament is the only authority in this country which can make legislation.

Lord McIntosh of Haringey: I am happy to accept the noble Lord's correction about what appears in the Bill. The Bill is trying to be helpful, as I am. But it is not new; it is not an innovation. I can respond to the noble Lord, Lord Kingsland, that the phrase "legislative functions", used in the same way, occurs in the Financial Services Act 1986.

On Question, amendment agreed to.

Lord McIntosh of Haringey moved Amendments Nos. 2 to 6:

    Page 216, line 16, after ("section") insert (" 63 or").

    Page 216, line 17, leave out ("publishing statements of policy") and insert ("issuing statements").

    Page 216, line 17, after ("section") insert (" 63,").

    Page 216, line 18, leave out ("or 311") and insert (", 311 or 319").

    Page 216, line 19, leave out ("guidance under section 69 or").

On Question, amendments agreed to.

16 Mar 2000 : Column 1687

Lord Newby moved Amendment No. 7:

    Page 216, line 24, after ("chairman;") insert--

("( ) a chief executive;").

The noble Lord said: In moving the amendment, I speak also to Amendments Nos. 8 to 11. These are the first of the amendments dealing with the governance of the FSA. It is one of the most contentious issues facing us during the passage of the Bill. The amendments propose explicitly that the roles of the chairman and the chief executive should be split.

At Second Reading, virtually everyone who spoke on the issue agreed that there was merit in separating the role of the chairman and chief executive. In doing so, they echoed the view of the Joint Select Committee. Why was that so? The concerns about the current situation centre on a core worry that a combined chairman and chief executive would be too powerful a creature. The powers of the FSA in making and enforcing rules and levying fines are vast. The scope of the FSA which has been enhanced during the passage of the Bill to include listings and mortgages--we hope that it may be extended further to deal with long-term care--is also vast. We believe that one person solely in charge is too great a concentration of power. We believe that there is a separate job to be done by having a strong, independent voice at the top to ensure that the power of the FSA executive is handled in a careful and appropriate manner. We believe that the way to achieve that is by having a separate chairman.

In looking at the structure at the top of the FSA and more generally, two models have been considered. The model that is enshrined in the Bill is essentially that which we find at the Bank of England where, broadly speaking, the Court exercises the role which the Bill envisages being exercised by the FSA non-executive directors. We do not believe that that model is appropriate.

The Court of the Bank is not a hugely powerful body. When the Select Committee on the Monetary Policy Committee examined its workings, we found that it had not always been active in monitoring certain aspects of the work of the MPC. We believe that to have a non-executive body or group of directors sitting to the side of the executives is not a sensible way forward. My noble colleague Lord Sharman will deal with the issue in greater detail when we consider it later. However, it is relevant to the chairman and chief executive because the Government have taken the whole Bank of England management, in the shape of a governor and a court, and transposed it into the FSA.

The alternative, which we prefer, is to have a single board with a separation of powers between the chairman and chief executive. We believe that via that mechanism, good rules of corporate governance should apply here as they do elsewhere.

It has been argued by the Government and the FSA that the model is incorrect; that it is a bad model because there are no shareholders in the FSA and therefore different rules apply. Clearly, in a technical sense, there are no shareholders, but there are certainly stakeholders in the work of the FSA, whether practitioners, customers or Parliament, and they all

16 Mar 2000 : Column 1688

rightly expect the FSA to follow the highest possible standards. We believe that in this respect the highest possible standards are best achieved by following the normal rules of corporate governance.

What arguments have been used against the model? The issue has generated considerable heat, not least within the FSA. We are fortunate in that we have a detailed explanation by the non-executive directors of the FSA as to why, in their view, the model in the Bill is appropriate. I hope that your Lordships will forgive me if I go through it because it demonstrates the paucity of their case.

First, they argue that,

    "fears of an over-mighty executive are best addressed by a board that is fully integrated into the decision taking of the organisation, with their Chairman in a full time executive role".

The first part relating to the fears of an over-mighty executive does not hold water. Under the model in the Bill, the non-executives are not fully integrated. The scope of their powers--the areas which they are allowed to examine in their committee--do not cover the whole of the work of the FSA. Therefore, that argument is not borne out by the Bill. The argument that having a chairman in a full-time executive role somehow curtails an over-mighty executive is a straightforward non sequitur. By simply stating that, they are not making a case.

They then turn to a number of detailed points. First, they state that the number and significance of the decisions, some of which must be taken at the highest level, require a single person at the top. Again, that seems to be a complete non sequitur. I do not know how one can reach that view. Secondly, they state:

    "there is a strong benefit in a single individual providing a recognisable public face".

Clearly, there are many circumstances in which the FSA will want to have a recognisable public face. But many organisations have recognisable public faces, which are just that; public faces. One thinks of the BBC--and I see the noble Lord, Lord Birt, in his place. Unless I am mistaken, it has more than one public face, as does the CBI. The fact that an organisation might have two public faces rather than one seems to be an advantage rather than a disadvantage.

Thirdly, they state:

    "the Standing Committee structure established by the Treasury/Bank of England/FSA ... would be unbalanced if the FSA chairman were non-executive".

I believe the argument is that if there were in a room Eddie George, Gordon Brown and the chairman of the FSA, in some sense the chairman would be a weak creature. There are several ways around that, one of which is that both the chairman and the chief executive could attend the meeting and the other two could take seconds, too. In my view, that is not an argument of great substance.

Fourthly, they state:

    "accountability is enhanced by a single individual taking responsibility for the performance of the organisation as a whole ... and he is the person with whom the buck stops".

16 Mar 2000 : Column 1689

The FSA is not unique in that situation. Unless I am much mistaken, the same considerations apply equally to every company in the country. No one argues that individual chief executives and chairmen in companies are not accountable to their shareholders or that no one knows where the buck stops. Again, that is not a strong argument.

The next argument is almost my favourite. It is that if there were a split,

    "the UK would risk losing authority in international discussions if the FSA were represented by a non-Executive Chairman, or a Chief Executive reporting to one".

Perhaps Members of the Committee will picture the scene at a meeting in, say, Brussels attended by Howard Davies. He could be the chairman or the chief executive of the FSA and when he entered the room all his colleagues and counterparts would be there. Does anyone seriously believe that they will tut-tut and say, "Poor old Howard Davies. He has no powers or authority. He is only the chief executive"? I find that extremely difficult to believe. The argument that someone who would have the authority of either the chief executive or the chairman of the FSA in the UK would suddenly be put down by his counterparts from other regulatory authorities because he did not share those roles is, in my view, unsupportable.

Next Section Back to Table of Contents Lords Hansard Home Page