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Financial Services and Markets Bill

8.36 p.m.

House again in Committee on Schedule 1.

Lord Saatchi moved Amendment No. 33:

("( ) the costs and expenses incurred by the Authority in the period covered by the report, a break-down of those costs and expenses and a comparison with the corresponding costs and expenses incurred in the previous year;
( ) the fees paid to the Authority under rules made under paragraph 17 in the period covered by the report and a comparison with the fees paid in the previous year;

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( ) a review of the costs incurred by the Authority in the period covered by the report in comparison with the costs incurred by regulators in other jurisdictions;
( ) the work of the investigator and any action taken by the Authority in response to criticisms of the Authority's conduct made by the investigator;
( ) the operation of the penalties scheme referred to in paragraph 16 in the period covered by the report and a comparison with the operation of the penalties scheme in the previous year;").

The noble Lord said: At present, under paragraph 10(1) of Schedule 1, the FSA must at least once a year make a report to the Treasury on the matters set out in headings (a) to (c) of paragraph 10(1). There is also a provision for the Treasury from time to time to direct on other matters on which it wishes to receive a report.

The purpose of the amendment is to spell out specific further items which we should like to see included in the FSA's report to ensure full accountability in its activities. The first section of the amendment would ensure that a breakdown of costs and expenses incurred by the FSA in the period covered by the report would be included and that a comparison would also be provided with the corresponding costs and expenses of the previous year. It is one of the most basic of the generally accepted accounting principles that readers of a financial report are provided with a comparison of performance with the previous accounting period.

The second section of the amendment states that the fees paid to the FSA under rules made under paragraph 17--these are fees paid to the FSA by authorised persons to cover the FSA's expenses--should be detailed and that a comparison with the fees paid in the previous year should also be included in the report. The purpose is to make more transparent the amount of fees paid to the FSA by the community that it is regulating and to be able to disclose how those fees have increased from one year to another.

The third additional section that we should like to see in the report is a calculation of the costs of regulation in the UK as against those incurred by regulators in other jurisdictions. The regulated community itself and many others will want to see this level of transparency and comparability.

Under the fourth section of the amendment we aim to see a description of the work of the independent complaints investigator as referred to in paragraph 8. In addition, we should like to see described the action taken by the FSA in response to any criticisms of the FSA's conduct made by the investigator following the investigation by him of complaints against the authority.

The final part of the amendment details the operation of the penalties scheme and the provision of a comparison with the previous year. We believe that these are reasonable minimum requirements for the disclosure of performance indicators by any body that performs a public duty. Certainly, they are not sufficient for the purposes of a full review of the FSA's

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actions, for which we must look to our later Amendments Nos. 84 and 86, but we believe that they are necessary. I beg to move.

Lord Newby: The amendments standing in our name in the Marshalled List in this and the next group deal with two matters. The first is that the report of the FSA to Parliament should be as full as possible. Our model for the kind of report that we believe is required is that produced by the Securities and Exchange Commission to Congress as part of its annual appropriation process. We believe that that covers all the relevant information that is required in a considered and detailed manner.

Amendment No. 34, like Amendments Nos. 37 and 37A, seeks to remove the Treasury filter within the framework of the Bill in terms of the relationship between the FSA's reporting function and Parliament.

Amendment No. 36 deals with another matter which was raised briefly in an earlier debate; namely, the extent to which the practitioner and consumer panels are taken seriously. It is all very well to have such panels, the establishment of which we strongly support, but it is more important that their recommendations are taken seriously by the FSA and that everybody can see when the authority does not follow them, rather than that the panels submit proposals which simply disappear into a black hole. Amendment No. 36 would give effect to the suggestion of the Joint Committee that in its annual report the FSA should be required to state the recommendations made by the practitioner and consumer panels appointed under Clause 8 of the Bill and whether the authority has implemented them.

8.45 p.m.

Lord Jenkin of Roding: I was not a member of the Burns committee but I have read a good deal of its two reports in a pre-legislative context. There appears to be widespread acceptance that with a Bill of this kind that has been a most invaluable innovation. One wishes that perhaps the Government had adopted more of the committee's recommendations. We have debated some of them during the course of this afternoon and we shall come to others later. There is no doubt that, faced with a highly complex and technical Bill of this kind, the Joint Committee of the two Houses did an amazing job in an astonishingly short time. It demonstrates the value of that piece of machinery.

I believe that in part the accountability of the FSA must be to Parliament. Perhaps a report to both Houses would be very cumbrous. I do not see how the FSA could report only to this House. No doubt the other place should have an opportunity to question the chairman and others about the activities of the FSA, but the idea that there should be a Joint Committee (on the lines of the Burns committee) which has an opportunity to receive the annual report and have a session with the chairman, and no doubt one or two others, is extremely valuable. Although I do not necessarily agree with the specific amendment that is before the Committee, something along these lines is justified on the grounds that the FSA is a very large,

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powerful and unique body with an extraordinary range of powers and severe penalties that can be applied to individuals. I do not believe it is enough that the FSA should be accountable to the Treasury and that Treasury Ministers should then be accountable to Parliament as now. I believe that we should adopt this proposal as part of the general stiffening up of the accountability of the authority, and, therefore, I very much support it.

I should be interested to hear the reply of the Minister to the question of what should go into the report. I believe that it is very reasonable to ask for statistics which enable comparisons to be made not only with previous years but also with comparable bodies; and that there should be a separate report by the non-executive directors' committee on their view of the cost-effectiveness of the whole operation. They appear to be very valuable provisions, and I hope that the Minister is able to accept them.

Baroness O'Cathain: I am utterly confused by the contribution of my noble friend. I thought that the Committee was considering the first group of amendments. We have not yet reached the later group. I strongly support Amendment No. 33, except that I have a slight concern about one of its proposals. If we proceeded along these lines, the general public would have greater confidence in the transparency of the authority, which is important. More importantly, it would encourage the authority to improve its performance year on year in the management of its costs. I am aware that having to produce two lines of figures giving year-on-year comparisons which enable people to see whether they are doing better or worse is a good incentive to raise the level of the game. Another encouragement is that it would be a document in the public domain and the media would crawl all over it with a fine-tooth comb, which would not be a bad idea.

One comes to the,

    "review of the costs incurred by the Authority in the period covered by the report in comparison with the costs incurred by the regulators in other jurisdictions".

I am slightly concerned that the actual costs and time incurred in making a true comparison may outweigh the benefits. The comment is always made that one must take account of exchange rate movements; that perhaps one is comparing apples with pears and so on. Although it may be of great interest, one must be very careful about balancing the advantage against the cost. However, I believe that the whole of Amendment No. 33 is a great improvement on what is now in the Bill.

Lord Haskel: I believe that of far greater importance than the working methods of the consumer and practitioner panels and their reporting procedures is their independence. If they are not independent, whatever they do does not have much value. I was a member of the Joint Committee. We were careful to ensure that the two panels should be independent so that they could make whatever reports they wanted to make. We went as far as to say that the consumer panel should be financially independent and have a separate

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budget. Therefore, I am not sure that these amendments are important. As long as the panels are independent, they can do virtually whatever they think is necessary.

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