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Lord Jenkin of Roding: My noble and learned friend Lord Fraser of Carmyllie has painted a picture of himself as a lone fighter battling against vast forces, championing his cause and hoping that one day it will come right. With the greatest respect to my noble and learned friend, I believe that he under-estimates his allies. I am sure that the noble Lord, Lord Burns, will

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recognise that many people have voiced concern that the competitiveness objective has been downgraded in the way that it now appears in the Bill.

I turn to the Interim Report into Competition and Regulation in the Banking Sector produced by Don Cruickshank. He noted that in effect other regulators have an additional regulatory objective to promote competition, stemming from their role in relation to competition in a particular authority. However, here we are talking about competitiveness overseas--with other markets. It is in that respect that the practitioners are really worried.

A survey of practitioners by the FSA's Practitioner Forum found that a large majority believed that

    "enabling the UK to remain competitive"

was an essential criterion for a regulator. A large number have insisted that it is imperative that these dual considerations of competition and competitiveness be elevated to principles to make the Bill more balanced.

The National Consumer Council, the British Bankers' Association and the Association of British Insurers all made it clear to the Burns committee that an objective relating to competitiveness and competition was required urgently. The Cruickshank banking review also favoured it, summarising well the bigger issue, as follows:

    "Our priority should be to develop a strategy for striking the optimal balance between competition and necessary regulation. In the search for a higher sustainable growth rate in the UK beyond a stable low inflation macro-economic climate, there is in my view nothing more worthwhile for government to do than to get this balance right."

Downgrading the competition clause so that it appears where it does in the Bill now, rather than among the principles seems to me to be doing precisely the opposite.

Apparently the Government gave a pledge to reconsider the matter were Cruickshank to take a position on the issue. I am told that there has been no response. The Treasury Select Committee in another place also agreed that there was a good case for its inclusion, and called on the Government to consider it. That is in its third report of 1998-99. It should be noted that the SEC in the United States, with which many comparisons were drawn on Second Reading and the only body with comparably large powers, is now under a duty to consider, not just to have regard to,

    "whether the action will promote efficiency, competition and capital formation".

Therefore, I strongly support the amendment. My noble friend is not a voice crying in the wilderness; he is voicing the concerns of a very large part of the financial community, a voice that the Government so far do not seem to have listened to. I hope that they will listen to it tonight.

Lord Eatwell: The noble and learned Lord, Lord Fraser, was quite right in arguing that he has consistently put forward this point, including to the Joint Committee, but he was a little coy as to why the Joint Committee rejected it.

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The point that was made then, and is important here, was that in so many situations today the regulatory strength of the Financial Services Authority will be defined by its relationship and joint action with other regulatory authorities. This is because of the general internationalisation of financial markets today and the need for regulators to act in co-operation with one another to secure the objectives set out in Clause 2(2).

The problem with the amendment is that if it were seen that it was an objective, or indeed one of the prime responsibilities, of the FSA to promote the competitive position of the United Kingdom, the FSA's ability to persuade other regulators to act in the interests of the UK would be impaired, since they would have a reasonable suspicion that the FSA was acting to promote the UK's interests against the interests of their national markets.

Lord Fraser of Carmyllie: I think that we are getting into a Clause 28 argument. The amendment reads:

    "which does not unnecessarily impair the competitive position of the United Kingdom".

There is a distinction to be drawn.

Lord Eatwell: I believe that the noble and learned Lord is taking his argument too far. For example, I refer to the point made by the noble Lord, Lord Jenkin. The SEC rule gives it a duty to promote competition but not a duty to promote the competitive position of the United States, which would be a quite different requirement.

I believe that this amendment switches the balance much too far. The competitive position of the UK is dealt with in the right part of the Bill. If this provision is placed as required by the amendment, it will weaken the voice of Britain in international regulatory fora.

Lord McIntosh of Haringey: I wonder whether some Members of the Committee fully appreciate the full hierarchical beauty of the way in which this part of the Bill is constructed. The Burns Committee appreciated that beauty and was extremely supportive of the approach which we have adopted and, in particular, was very supportive of the role which is given in the hierarchy to the competitiveness objective.

Lord Kingsland: The noble Lord must accept that appreciating the beauty on the one hand and being very supportive on the other are not necessarily the same.

Lord McIntosh of Haringey: That is why I mentioned one after the other. You can appreciate the beauty and disagree with it. But the Burns Committee appreciated the beauty and agreed with it. I did not say that they were necessarily connected. I said that those two did follow in the Joint Committee report.

Clause 2 sets out the FSA's general duties. Subsection (1) makes it clear that the FSA must, so far as reasonably possible, act in a way which is

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compatible with its regulatory objectives and which is appropriate to meet those objectives. Subsection (2) then lists those objectives, while subsection (3) sets out a number of matters, sometimes referred to as principles--that is, principles of good regulation; I do not mean legal principles--to which the FSA must have regard in carrying out the objectives. That is the hierarchy.

The purpose of the first six clauses of the Bill is simple. We want the FSA to regulate at the right level: neither to over-regulate nor to under-regulate. The objectives and principles work together towards that end, backed by the accountability and transparency arrangements which the Bill puts in place.

The purpose of the noble Lord's amendment is to bring competitiveness as an objective higher up the hierarchy. In answering that, I can do no better than to refer to the Joint Committee report. First, the Joint Committee supported the principle that the Bill should set statutory objectives and principles to inform its behaviour as it seeks to ensure markets of integrity and to provide a yardstick for accountability. It states:

    "We agree that these should be set at a high level of generality, so as to be adaptable to changing circumstances. We agree that they should apply at the level of general policy and principles, rather than applying directly to every single act and decision of the FSA. We agree that they should not be ranked".

That is in paragraph 24. Then it goes on to deal specifically with competitiveness and competition:

    "We agree with the importance of maintaining and seeking the competitiveness of UK financial markets. Some of us",

and presumably that is the noble and learned Lord, Lord Fraser,

    "would prefer competition and competitiveness to feature among the FSA's statutory objectives".

That is the noble and learned Lord, Lord Fraser, mark 1 rather than mark 2. It goes on:

    "However, the Committee is content that competition and competitiveness should remain among the principles, rather than being turned into objectives. Making competition an objective would confuse the roles of the FSA and the OFT; making the competitiveness of UK financial services an objective could damage the FSA's relations with overseas regulators",

as my noble friend Lord Eatwell pointed out.

Those arguments are absolutely decisive. Nothing in what we are saying suggests that we do not have positive competitiveness objectives nor does it suggest that the Government are opposed to competitiveness. This is an area where the primary responsibility does not lie with the FSA. The international competitive position of the UK financial services industry will be maintained by the people who built it up; that is, our financial services businesses themselves.

10.45 p.m.

Lord Bagri: With due respect, I do not believe that that is only in the hands of the practitioners. If one over-regulates--there is little downside for regulators in over-regulating--that adds to the burden of regulation, which adds to the cost. There is nothing the practitioners can do to reduce that cost. I do not see

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why we are bashful about saying that we shall improve the competitiveness of UK industry and making that an objective.

Lord McIntosh of Haringey: I agree entirely with that. The effect of bringing competitiveness up the hierarchy in the way that the amendments propose would be to increase the regulatory burden rather than to reduce it. I do not know whether he wishes to, but the noble Lord, Lord Bagri, is in effect supporting the point I am making.

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