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Lord Elton: One answer to my question could be a vast, and probably too large, expansion of the number of non-executive directors. That is not an area of policy. Does the answer to my question lie in the practitioner panel and not in the constitution of the non-executive members of the executive? It is an important question when it comes to how the body will actually work.

Lord McIntosh of Haringey: Without giving an unequivocal undertaking that the practitioner panel

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will include every single sector within the broad range of financial markets--I do not want to be trapped into doing that--the answer is that the representative function is the responsibility of the practitioner panel. The non-executive directors of the FSA are not there as representatives of individual disciplines within financial markets, but as wise persons with knowledge of a wide range of financial markets, able to contribute to the work of the authority.

Lord Saatchi: As I understand the Minister I grow more uncomfortable; more so than when I first entered the Chamber. I must explain the thrust of our amendments and why this is such an important point. The Minister tells us that a restricted description of the role of the non-executive directors of the FSA is contained in the Bill--

Lord McIntosh of Haringey: I am sorry, but I am not saying that at all. I am saying that there is a finite description in paragraph 4 of Schedule 1 of the responsibilities of non-executive directors in their capacity as members of the non-executive committee and only in their capacity as members of the non-executive committee, which is set up as a counterbalance, deliberately excluding the executive directors. There is no such limitation on the role of non-executive directors in their capacity as members of the board.

Lord Saatchi : Except that that leaves open and unstated the role of the non-executive directors. This is causing difficulty to me and, I believe, some of my noble friends and the Liberal Democrat Front Bench. I am sure that the thrust of our amendments is becoming clear to the Government. Our basic concern is that this unique body is very powerful indeed. The question to which we are trying to obtain a better answer is: who guards the guardians?

We had a long debate about whether or not a key guardian figure might be the chairman. The Minister said no. We are now asking whether the guardian role might be performed by the non-executive directors. The Minister is again saying no. He is stating that he does not want to define the role, even though the FSA wants definition. That is the problem.

Lord McIntosh of Haringey: I thought that what I said was that the responsibilities of the non-executive directors encompass all the responsibilities of the members of the board, including the executive directors. If I failed to say that, I apologise to the Committee. Any attempt, as in these amendments, to be prescriptive about those functions can only restrict the functions of the non-executive directors rather than add to them.

Lord Donaldson of Lymington: I do not want to detain the Committee. However, perhaps it is possible for a total outsider, in the most helpful spirit, to join in what appears to be a private fight. If one inserts inverted commas in paragraph 4(2) around the words "non-executive functions", I believe the functions

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would then be confined to those which have to be performed by the committee. That would cast no doubt upon other functions of non-executive directors, but one need not turn it into a term of art.

Lord McIntosh of Haringey: I shall, with great trepidation, put that matter, through legal advisers, to parliamentary counsel.

Lord Saatchi: I thank the noble Lord for that intervention. We are unhappy with the outcome of this discussion and shall want to return to it on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (Lord Strabolgi): I must inform the Committee that if Amendment No. 15 is agreed to, I cannot call Amendments Nos. 16 to 22.

[Amendments Nos. 15 to 24 not moved.]

7.15 p.m.

Lord Kingsland moved Amendment No. 25:


    Page 218, line 40, leave out ("Authority") and insert ("investigator").

The noble Lord said: This group of amendments concerns the role of the investigator. The amendments that we have tabled deal with two issues. The first concerns to whom the complaints should be made.

Under the Bill, the complaints against the authority are to be made to the authority. If the authority then considers a complaint to be serious, it passes it on to the investigator. Our amendments question the wisdom of that procedure for two reasons. The most obvious is that the complaints are likely to be against the authority. It seems odd to have the authority performing the act of filtering complaints against itself. Secondly, it seems to us a complete waste of time to filter the complaints through the authority when they could go directly to the investigator. Moreover, that would add independence and credibility to the investigator's role.

The second group of amendments concerns the obligation of the investigator to report the result of its investigation to the authority. I understand that the authority has said, unofficially, that there will be circumstances in which it is prepared to make an ex gratia payment to a complainant where the complaint is held to be justified. Indeed, I believe that an internal memorandum exists in the authority setting down the criteria that it would apply in order to come to a conclusion as to whether or not an ex gratia payment should be made.

The intention of our second group of amendments is to require the Bill to say on its face that there will be circumstances in which the investigator will recommend an ex gratia payment. I should add that if we do not succeed later on in our amendments to remove the statutory immunity of the authority with respect to negligence, we shall then, at Report stage, reconsider our amendments on ex gratia payments,

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probably moving to convert them into an obligation to pay a complainant whose complaint turns out to be justified.

Lord Borrie : I am doubtful of the value of the amendments. It seems to me clear that the investigator is independent. The Bill not only states specifically that he is independent, but, most important, if the authority decides not to investigate a complaint, it must notify the investigator. Schedule 1, paragraph 8(4), states:


    "If the investigator considers that a complaint of which he has been notified ... ought to be investigated, he may proceed as if the complaint had been referred to him under the complaints scheme".

He has complete independence and freedom to investigate even if the authority has not submitted the complaint to him under the complaints scheme. Therefore, I do not see that there is any doubt about the reality of the independence of the investigator.

Baroness O'Cathain : I can see the reason for the remarks of the noble Lord, Lord Borrie. However, the reality would be a rather tortuous procedure. Would it not be better for all complaints to go to the investigator in the first place rather than having them looked at by the authority and passed to the investigator? It seems that there should be two bites of the cherry. In the interests of complaints being dealt with and finalised to the satisfaction of the FSA or the complainant, as soon as possible, I believe that that is how it should be done.

Lord Borrie: Perhaps I may respond briefly. I took it for granted that the complaints should go to the authority. It is surely in everyone's interest that the authority should be told that a complaint has been made against it. It may need to respond. In any case, it may determine the matter rapidly and favourably towards the complainant without the matter needing to go further.

Baroness O'Cathain: Perhaps I may pursue the matter. If someone makes a complaint about the Financial Services Authority, it might be easier for that person to go through an independent investigator. I take the point that if it was a silly complaint, the authority could say, "Sorry, there has been a misunderstanding. This is the way it should be done". However, I believe the complainant would have more confidence if he or she went straight to the investigator rather than just to the authority. Experience shows that if the complaint goes to the people who are supposed to have done wrong, it is better to have an independent investigator. A complainant would feel better about that.

Lord Donaldson of Lymington: Perhaps I may refer to the banking ombudsman scheme which I used to know quite a lot about. In that scheme, as in the insurance ombudsman scheme and no doubt other schemes, the complainant is first required to exhaust his remedies with the authority. There is good reason for that. As has been said, there may be a misunderstanding or a "slip-up" by somebody down

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the chain. The matter can then be speedily put right, perhaps by ex gratia compensation or by recantation on a ruling. It would not do any harm and, as the noble Lord, Lord Borrie, pointed out, the complainant must be kept informed.

I believe that there are respectable precedents for suggesting, indeed requiring, that complaints go first to those being complained against.


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