Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Saatchi: The Committee owes a debt of gratitude to the noble Lord, Lord Newby, because he has introduced what is obviously an important issue on which many Members of the Committee have expressed important thoughts. It is, after all, an issue on which the committee of the noble Lord, Lord Burns, spent many hours and on which it made a specific recommendation which the noble Lord, Lord Newby, has tried to address in his group of amendments.

I hope that I may explain why many of my noble friends have concerns about this aspect of the Bill. The issue that those outside the Chamber have brought to my attention and on which they have expressed concern is the very issue that we are discussing. Many practitioners in the City are deeply concerned that the first step that is being taken is to create a powerful body and that the second step will be to create a powerful executive at the head of that body. I hope that my noble friend Lord Elton will allow me to mention the name of the present incumbent again. As the noble Baroness, Lady Turner, said, it is no part of our aim to create disruption in a body which has worked well. Some of us have said that it has worked spectacularly well. It is a minor miracle that the FSA has been able to operate without the underpinning of this legislation. That is a great tribute to its board and to its present chairman. As I say, we believe that it is important not to cause disruption.

However, I reiterate what many of my noble friends have said; namely, that it must be the object of this Chamber to look ahead and to prepare legislation to underpin the working of the FSA for 15, 20 or 50 years. If Howard Davies is listening to, or watching, the debate, or will read the debate in Hansard, I should like him to know that I and all my noble friends have great respect for him. We do not fear him, but rather his potential heirs and successors.

I had difficulty with some of the Government's arguments--many of which the noble Lord, Lord Newby, reiterated--against splitting the two jobs. The first argument that the Government put forward was that having a separate chairman and chief executive would create confusion as regards who would attend certain meetings. It has been raised as an issue that it would not be clear who would attend the tripartite committee on financial stability, a very important body on which the FSA is represented along with the Bank of England and the Chancellor of the Exchequer.

16 Mar 2000 : Column 1713

The Government have also said that there would be other uncertainty about who would attend certain meetings. There are apparently regular meetings of regulators from different countries and the Government are concerned that people would not know who to send. I must agree with the noble Lord, Lord Newby, that it ought to be possible for sensible people to decide who would attend such a meeting. For example, it may be possible to agree that the chief executive in a split role would be the appropriate person to attend these meetings. He is obviously the executive with operational control. Certainly that would be the case in a private company. The chief executive would attend those types of meetings.

That brings us to the heart of the Government objections to splitting these roles. The Government say that the FSA is not a private company. That is why the Government say it is not appropriate to apply the Cadbury or combined code guidelines of corporate governance to the FSA. That is the heart of their argument. I quote the Government in saying they are,

    "mindful of the fact that parallels with other models of corporate governance are not exact".

What they mean by that is that the FSA is not a private company. It does not have shareholders.

It is certainly true that the FSA is odd in form, as the noble Lords, Lord Grabiner and Lord Jenkin, have said. Despite the fact that it exercises public power on behalf of these Houses of Parliament, it takes the form of a private company limited by guarantee. Tim Herrington of the City law firm Clifford Chance explained to the committee of the noble Lord, Lord Burns, that:

    "The legal structure chosen for the FSA creates challenges in establishing clear accountability arrangements. It is a hybrid; a private body exercising public functions".

It is true that in any normal private company accountability of those in power--in other words, the executive directors--is achieved because the board of directors reports to shareholders who can remove them. The FSA, as the Government say in this argument, has no shareholders. Therefore, how is accountability of the executives to be achieved, and to whom?

This question has led to the wide and consistent calls, which the noble Lord, Lord Newby, has reflected with this group of amendments, for the role to be split in order that an independent chairman can provide a dispassionate view of the performance of the executives. What the critics of the present set-up are driving at is what they see as the advantage in principle in any organisation of having a chief executive, however good he is, who also has a chairman to whom he must answer. They say that the advantage of having the two is a general advantage of good governance and would apply to any type of organisation, especially so when setting up a very large and complex organisation such as the FSA.

16 Mar 2000 : Column 1714

The City--those regulated by it and those outside it--would then have in the chairman, as they see it, someone whom they can approach with their anxieties but who, if he is not instantly responsible for the issues, can take them up with the chief executive in order that the whole system can be seen to work better. Those noble Lords who have expressed anxiety about what this would mean in terms of the running of the FSA might consider this point.

A good example of how this works in practice is the BBC. I am sorry to see that the noble Lord, Lord Birt, is not in the Chamber. However, I think I know his views. This is exactly the type of situation that the critics of the present set-up are concerned about. If, for example, the BBC were accused of political bias of a serious nature, or if it were accused of some gross invasion of privacy, or if it were accused of not meeting its programming obligations in a major way, then it would be clear that someone other than the executive responsible for the allegedly offending decisions would become the court of appeal. That person is the chairman of the BBC. The structure works perfectly well and we all believe that the BBC is an icon of how organisations should be run with the public interest in mind.

Lord Haskel: Is it not the task of the practitioner panel to bring it to the attention of the chairman or the directors of the FSA if the City has concerns about some of its activities?

Lord Saatchi: Yes, it is. Unfortunately--and we shall come to this in other amendments--the status of a practitioner panel is nowhere near adequate for the type of issue that I am describing here. It would only be able to make representations and that would be all, whereas the position of chairman is that of the person who is in command of the board and therefore can take responsible decisions.

It is also worth bearing in mind that IMRO, the SIB and the SFA, which were three of the FSA's regulatory predecessors, and three very important ones, all operated on a system which split the functions of the chairman and the chief executive.

I shall close by saying, only half seriously, that one of my honourable friends in another place researched quangos to see how many of them operated on a similar basis to what is proposed in this Bill. He found only two: the Central Laboratory for Research Councils and the Trinity Lighthouse Service.

Lord Faulkner of Worcester: Before the noble Lord sits down, did that research also include regulators? The FSA is a regulatory body. For example, the Director-General of Fair Trading is a single individual and the railway regulator is a single individual. Is that not a rather closer parallel than the kind of organisation to which the noble Lord has referred, including the BBC?

Lord Saatchi: I am glad to deal with that point. One of the arguments that the Minister, if I have learnt to anticipate his arguments at all well, will reflect is what has just been said. Why are we complaining about this

16 Mar 2000 : Column 1715

when other regulators in other countries and other regulators in Britain too are single individuals--they are usually called "director-general"? I think the Minister reacted enthusiastically when it was said that other financial regulators in other countries have a single individual at the top. I am sure he will deploy that argument. I am pleased to be able to respond to that in advance. The point is that it is not necessarily the case that because all one's friends decide to build their house on a frozen lake in winter that one is obliged to do the same. To take another example which comes to mind, if 11 countries decide that they want to merge their currencies into one, it is not necessarily the case that Britain has to do the same.

I reiterate that one of the points that underpins our great concern about this Bill in so many key areas is that the financial services industry is unique in Britain. Britain has a miraculous thing in the financial services industry, an industry which is a world leader. Our share of the sectors of the financial services industry is much, much bigger than we would deserve on any pro rata basis of our share of world GDP. There are particular reasons for not wanting to disturb what is an extraordinary success story.

Next Section Back to Table of Contents Lords Hansard Home Page