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Lord Peston: The noble Lord has put his finger on something which I realise now is central. I take it that his argument in reply to my noble friend Lord Faulkner is that the industry being regulated is different from all other industries in this country. That is the essence of the position as he sees it. I must admit that, until he said it, I had not heard any other argument as to why this industry is different from all other industries. It seems a little late, if I may say so, since he has only just raised it, that we should now be having to think about it. None of us has had a chance to say that we are not convinced. I take it that he is going to say yes; that is the essence of his position. This industry is completely different from the whole of the rest of the British economy.
Lord Saatchi: Yes, I am going to put that argument very clearly. It is a unique situation in that the industry itself is a jewel. The reason that the question of the chairman and chief executive is so puzzling to practitioners in the industry is that the FSA is the body that supervises the very companies which themselves are obliged to supervise the application of the combined code to their clients. Reasonable people are mystified as to why the rules of governance that they are expected to apply to their clients should not be applied to the body which regulates them.
Lord McIntosh of Haringey: A long time ago the noble Lord, Lord Newby, said that this is the most contentious issue that will be considered in the Committee stage of the Bill. I hope that the noble Lord is right. It would be very agreeable if we could be amicable about all other matters.
I recognise that this is an issue on which strong views are held and the Government recognise the sincerity and force with which those have been expressed. I have to say that those view have been expressed from all sides of the Committee with considerably less unanimity on the side of the amendment than might have been expected from the trailers to these debates which have been conducted in the broadsheet newspapers over the past few days. So it is necessary that I should restate the Government's position.
Like all those who have spoken, we want the governance structure which best enables the FSA to achieve its objectives. In our considered view, the arrangements we have--a single person as chairman and chief executive with a non-executive deputy chairman--are the best way of meeting the objectives. My speaking notes say that I know that all noble Lords agree that Howard Davies has been doing a very good job indeed. But I am not allowed to say that, so I have not said it! The present arrangements have been working well, and we see no need to change them.
There are a number of reasons for that. First, there is the question of accountability. This point will be dealt with in many later amendments. We believe that there is great advantage in having a single public face of the FSA; a single chief point of contact who is accountable to the Treasury and who can be called before parliamentary committees; a single person with whom the buck stops within the FSA. Separating the roles would risk confusing that very clear chain of accountability, blurring the lines as to who is responsible for what, and creating doubt as to the authority of any one person to represent the FSA, and, ultimately, to carry the can. The earlier remarks of the noble Lord, Lord Stewartby, were pertinent to that point.
Secondly, we need to ensure that there is a person with the authority to lead the FSA both in its daily business and in the international arena. My noble friend Lord Eatwell referred to daily business. Daily business may well be urgent business. My noble friend said that it is something where there has to be a quick reaction to a crisis, but it could be to any event which requires top-level decision making. In those circumstances, a single person is more fit to do that. In the international arena--what I am going to say has been anticipated so many times that I am almost afraid to say it, but it is my duty--we are anticipating that the FSA will continue to be a major player on the international regulatory stage. Virtually all other major international financial regulators are represented by full-time executive board chairmen. They are the public representatives of those
Thirdly, the nature of the authority and its business means that there is a very real need for an executive office holder to have the full authority to take difficult decisions and to commit the FSA. If, for example--I refer again to the point made by my noble friend Lord Eatwell--the FSA needed to take urgent action to deal with a systemic issue, that decision would need to be taken by a person at the very highest level, with a full-time commitment and a real involvement in the issues. For more everyday matters, there is undoubtedly benefit in having a single individual providing a recognisable public face for the organisation.
It has been suggested by some that the roles of chairman and chief executive should be split in order to reflect the current thinking on corporate governance best practice. The noble Lord, Lord Boardman, made that point about the Cadbury rules, although I doubt whether they are the most recent thinking on current good practice. My noble friend Lord Grabiner answered that point anyway. Although we understand that line of thinking, the parallels with ordinary companies are not exact. The combined code is designed for companies with shareholders, and who do not benefit from the various accountability checks and balances provided for by the Bill. The spirit of the combined code is that there should be a strong non-executive element on the board.
We have more than provided for this. There will be a majority of non-executives. The non-executives will form a committee to keep under review whether the FSA is discharging its functions in the most efficient and economic way; to review the FSA's financial controls; and to determine remuneration. The committee will be chaired by the non-executive deputy chairman. We intend that the deputy chairman should be a key and influential member of the board, leading the non-executive majority in board discussions, in providing an independent perspective to the overall running of the FSA, scrutinising the approach of the executives, and the FSA's overall performance. The noble Lord, Lord Jenkin, described this as "housekeeping". It is a good deal more than that and it covers all of the points raised by the noble Lord, Lord Boardman, and more.
On top of that there are a range of other accountability measures which a "normal" company will not have. The board will be appointed by the Treasury and be subject to transparent appointment procedures. There will be an annual report to Parliament, the contents of which have been agreed with the Treasury. There will be an annual open meeting where stakeholders can air their concerns. Practitioner and consumer panels will be consulted on the FSA's general policies and practices and will make their own annual reports; and of course there are the principles and objectives, guiding the way in which the FSA--and hence its governing body--acts. Those are on the face of the Bill and will be debated later. So the FSA is not really a company of the kind to which the
Having said that, we recognise that there is room for more than one view on these matters. It is in recognition of this that the Bill has not been drafted in a way that sets the current arrangements in stone. I shall not become involved in the discussion between the noble Lord, Lord Jenkin, and my noble friend Lord Grabiner, as to whether is was intended that way. I am simply recording it as a matter of fact. The Bill allows flexibility for future administrations to review whether a different governance structure may be appropriate when different individuals are in charge--for example, a non-executive chairman with a chief executive; or indeed, as the noble Lord, Lord Alexander, wants, an executive chairman, although it is not at all clear to me whether that is provided for in the amendments under discussion. Indeed, it is not at all clear to me whether the amendments under discussion are clear as to whether, under certain circumstances, the roles of chairman and of chief executive could be combined in one person, as some noble Lords seem to want.
We do not therefore believe that any amendments need to be made. We think that amendments might make the current position, which I believe has general support, more difficult to sustain. We would risk losing authority in international discussions; for example, Howard Davies is the UK representative on the governing bodies of IOSCO and FESCO, the global and European organisations of securities regulation. As the noble Lord, Lord Haskel, pointed out, all his international colleagues on these bodies are full-time executive chairmen.
Many analogies have been made with other bodies. I do not have time to go into them all. But the FSA is not the only regulator with such a structure. This is the model used with many UK regulators--the Director-General of Fair Trading, the Director-General of Telecommunications and the rail regulator. Incidentally, I should say to the noble and learned Lord, Lord Fraser of Carmyllie, that the Bill does not require investment exchanges to have a separate chairman and chief executive.
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