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("(1) The Treasury must secure, after consulting the Authority, that the majority of the members of the Authority's governing body are non-executive members.
(1A) The Authority must secure that a committee of its governing body, consisting solely of the non-executive members, is set up and maintained for the purposes of discharging the functions conferred by paragraph 4.").

The noble Lord said: In moving Amendment No. 14, I shall speak also to Amendments Nos. 16 to 21, which are included in this grouping. My noble friend Lord Kingsland will address Amendments Nos. 22 to 24.

Amendment No. 14 splits into two sub-paragraphs what is currently paragraph 3(1) of Schedule 1. Although the Treasury has the power to appoint and remove members of the FSA's governing body, paragraph 3(1) requires the FSA itself to secure that a majority of the members of its governing body are non-executive members. Given that the Treasury has the power of appointment to the FSA's governing body, it seems to us more appropriate that the Treasury should secure the non-executive majority. That would be achieved by our new paragraph 3(1)(a). Clearly, the Treasury should consult the FSA about those appointments. Hence, Amendment No. 14 provides that the Treasury's obligation is to be performed "after consulting the authority".

Proposed paragraph 3(1)(b) in effect repeats the current provisions of paragraph 3(1)(b), except that the functions of the non-executive committee of the governing body are spelled out by referring to the functions conferred in paragraph 4, rather than the current wording which refers only to the functions conferred "by this schedule".

Amendments Nos. 16 and 17 later in this group are intended to emphasise that the particular committee of non-executive members established by paragraph 3(1)(b) is that particular committee set up to discharge the functions described in paragraph 4. New sub-paragraph (4) to paragraph 3 set out in Amendment No. 18 is intended to emphasise that the governing body of the FSA may set up and maintain other committees of the governing body for purposes other than those referred to in paragraph 3(1)(b).

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Proposed sub-paragraph (5) to paragraph 3 is a further measure to provide checks and balances in the operation of the FSA's governing body. It provides for the FSA to make arrangements at its own cost for the non-executive members of its governing body to obtain independent legal advice in relation to their responsibilities and the performance of their duties. Such an arrangement for non-executive directors to obtain independent legal advice is a standard feature of publicly listed companies.

Amendments Nos. 19, 20 and 21 are ancillary to Amendment No. 18 and, again, are intended to make clear that the particular committee of the non-executive members of the FSA's governing body referred to in paragraph 3(1)(b) is a specific committee established for the particular purposes set out in paragraph 4. As I said, my noble friend Lord Kingsland will refer to Amendments Nos. 22, 23 and 24.

Perhaps I may quote the combined code of the Committee on Corporate Governance. It states that:

    "The board should include a balance of executive and non-executive directors ... such that no individual or small group of individuals can dominate the board's decision-taking".

Our amendments and our arguments reflect that because we want to give the non-executive members of the governing body additional and stronger functions, such as reviewing and approving the annual budget, and scrutinising and monitoring the performance of the executive management.

Without Amendment No. 14, the role of the non-executive members of the governing body of the FSA will be restricted to examining matters of efficiency, auditing and remuneration. We want to see this kind of definition of the role of the non-executive directors of the FSA, which, if I may, I shall read to the Committee:

    "Assisting their colleagues within the firm's governing body in setting, and monitoring, the firm's strategy, providing an independent perspective to the overall running of the business, scrutinising the approach of executive management, and the firm's standards of conduct".

I did not write that description. It comes from the FSA consultation paper No. 35 on the way that the role of the non-executives should be defined in the companies that the FSA regulates. Therefore, surely it cannot be that what the FSA believes is right for the description of the role of the non-executives in the firms which it supervises is wrong for itself. I beg to move.

Lord Sharman: I rise to support the amendments as set out and to speak briefly to Amendment No. 15. As the noble Lord, Lord Saatchi, said, these amendments aim to clarify on the face of the Bill the functions already performed by the non-executive members of the putative FSA. I feel that the authority should be required to meet the principles of good corporate governance.

I am much troubled by the way in which some Members of the Committee have waived the application of corporate governance. I have spent a career trying to persuade people to exercise that. It would be helpful to have some support. All we have are

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the Cadbury recommendations; there is nothing else. This has been arrived at through a considerable body of opinion, a considerable amount of work, and through much time spent looking at what goes on around the world and deciding what is best. I feel that we should take it into account.

As non-executive members of the corporate body, they should be responsible for advising the FSA executive regarding the management of the authority. More importantly, if they are properly to discharge their functions as directors of a company, they must be involved in establishing policy and reviewing its application.

At present, the executive restricts the role largely to budgetary items and efficiency. Although my professional background would lead Members of the Committee to believe that I consider this to be very important, I recognise that the issues of strategy and of overall supervision are equally important. It is interesting to compare this with the model of the responsibilities for the Bank of England's Court of Directors. The Bank of England Act 1998 provides for a sub-committee of directors of the Bank. It provides for them to keep under review the Bank's performance in relation to the objectives and strategy determined by the Court of Directors of the Bank. That is what we propose in these amendments.

Lord Borrie: There seems to me to be considerable merit in the amendments tabled by both the noble Lords, Lord Saatchi and Lord Sharman. In particular, I believed that there was considerable logic in the amendment of the noble Lord, Lord Saatchi. Bearing in mind that the Treasury will appoint, the Treasury should secure that the majority of the members of the governing board are non-executive members. Indeed, I believe that it would be impossible for the Treasury to do its appointing job without ensuring that. It is impossible for the authority to do so on its own. Therefore, I believe that the Treasury must do so through its appointment.

I say that there is considerable merit in relation to the amendments as a whole, but I am less certain as to whether the other amendments should be embodied in legislation. After all, the company governance rules which are, in a sense, followed here are not themselves embodied in companies legislation. I do not believe that the Government intend that they should be embodied in the companies Bill which they will bring forward in due course. That remains to be seen. However, the fact is that they are not in legislation at the moment. There are certain difficulties in having them embodied in legislation for a public authority. Some provisions of the Fair Trading Act 1973, to which the Office of Fair Trading is subject, were very dated after a number of years. They are still there, because they have never been amended, and I suppose there is never parliamentary time to amend them.

There are serious risks in putting into primary legislation detail relating to current mantras of what is desirable--in this instance, in corporate governance. However we may think the legislation is amendable, in practice it is not easily amendable. The fact that we

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have a Financial Services and Markets Bill in 2000, 14 years after the last one, is not bad; it usually takes 20 years or more to have substantial legislation changed again. It might be undesirable to put all this precise wording about the functions of non-executive members rigidly into the legislation before us.

Lord Stewartby: I hope that the Minister can make it plain when he responds whether the fact that some non-executive functions are listed in the schedule is meant to imply that they are the only non-executive functions. I am very sympathetic to what my noble friend Lord Saatchi and the noble Lord, Lord Sharman, said. Clearly, one would expect the non-executive directors to perform much the same kind of role as good, efficient, active, energetic non-executive directors of any public corporation or body in the private sector would. But the wording of paragraph 4 is such that it could be read to imply that what is expected of them is only what is defined there. If that is so, it is not satisfactory. I hope that the noble Lord can assure us otherwise.

Lord Fraser of Carmyllie: I wish to tell the noble Lord, Lord Borrie, that it seems to me that the point in question has been picked up and that Amendment No. 14 is correct. I am at a loss to understand how the authority can secure that a majority of the members are non-executive. What happens if the Treasury fails to appoint a sufficient number of non-executive members, or if it decides to dismiss some of those non-executive members, so that the non-executives are in a minority, even though the authority has understood that? I see no provision in the schedule that enables it to return to a majority. I do not think it can even sack the executive members of the governing body, because they are also appointed by the Treasury.

My other point concerns the matter raised by my noble friend Lord Stewartby. The functions of the non-executive committee--essentially housekeeping operations--are spelt out in some detail in paragraph 4, because that is the one committee that is to be wholly non-executive in character. The rest of the schedule indicates that the non-executives are to be in a majority on the body, and we see in paragraph 5 that any of its functions--other than those in relation to legislation, so described--may be,

    "discharged by a committee, sub-committee, officer or member of staff of the Authority",

and doubtless it could have a committee of any character doing that.

That would seem to me to follow, but I should be grateful if the Minister would confirm it.

There seems to be a rather curious imbalance here, in that so much detail is spelt out as to what the non-executive committee is to do, with so little indication of what the majority of non-executive members might do in discharge otherwise of the authority's functions.

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