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Lord Newby: Along with the noble Lord, Lord Eatwell, I have also put my name down to this amendment which seeks to delete paragraph (g) in Clause 2(3). We on these Benches support the amendment because we felt that two kinds of confusion might arise in the Bill. First, there may be confusion in terms of the role of the FSA, as has already been mentioned. Secondly, we felt that confusion might arise over who is to take responsibility for competition between the FSA, the OFT and the Competition Commission.

On one of the rare occasions when it could be argued that a little delay in your Lordships' House has been beneficial, we have today received the Cruickshank report, which explicitly deals with this matter. As I began reading the relevant section, I was relieved to see that he reached a conclusion which states:

I feel that I can strongly agree with that statement and therefore Don Cruickshank must agree with our amendment, in that a weak competition provision in the Bill--which is what this will amount to--is clearly unsatisfactory.

Unfortunately for those on this side of the argument, Mr Cruikshank then goes on to argue that the competition responsibility of the FSA should be

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greatly strengthened and, indeed, that the FSA should be given primary responsibility for competition. He further states that the optimum outcome,

    "will be most efficiently and accountably delivered if responsibility for it is internalised within the FSA".

learly, he envisages a structure in which the FSA will have primary responsibility for competition within the sector, with the OFT and the Competition Commission providing a review mechanism and some external oversight if the primary body falls down on the job. For that reason, the second part of the Cruikshank report is, in one sense, deeply depressing because it goes directly against our argument.

Having heard the Minister's initial comments on this point, in which he seemed to argue that the FSA should not have that kind of responsibility, perhaps we now all need to study the Cruickshank report. For our part, I believe that we shall need to be persuaded of the merit of giving the FSA all the additional powers proposed in the report. If the Cruickshank proposals are to be implemented, that will almost certainly require further amendments, which no doubt the Government will wish to bring forward on Report. However, given the very short time we have had to examine the report, I suspect that we all need an opportunity to read it in more detail and perhaps return to this matter at the next stage.

3.45 p.m.

Lord Jenkin of Roding: I am full of admiration for those who have found the time even to go along to the Printed Paper Office to collect a copy of the Cruickshank report, let alone to have begun reading it. I saw the headline announcing its publication in the Evening Standard, but that is as far as I have got.

Perhaps I may advert to what I believe is the thinking that lies behind both of these paragraphs. Those of us who were involved in financial services at the time when the first rulebooks came out following the initial raft of legislation in this field will recall feeling appalled by the amount of detailed regulation being put forward. The regulations appeared to prescribe in the most minute detail precisely how products should be described, marketed and sold. Indeed, the regulations seemed to form a salesman's handbook as to how a financial representative should present himself and his product to his customers. I can well remember the angst that was loudly voiced at the time. It was said that it would make competition between life and pension companies--I cite those because that is my area of experience--very difficult. Everyone would have to offer the same projections and present products in much the same way.

The fear was then voiced that if we continued on down that road, we would end up with a system rather like that in Germany, where for many years a new financial product in, for example, the insurance field could not in fact be marketed until it had been approved as a product by the regulators. The result was that when markets began to be opened up in the European Union, there was great demand on the part of British companies who recognised that this would be a tremendous opportunity. The UK industry was

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vastly more vibrant, thrusting, inventive and innovative than anything on the Continent. However, liberalisation came only extremely slowly because it did not at all suit the regulators on the Continent. They felt that their regulation would be interfered with in a profound and detailed manner.

As I read both the paragraphs in the clause, I believe that they indicate that the FSA must not go down that road. The Minister has already made the point that innovation and competition must lie at the heart of the FSA's method of operation. Whenever phrases such as, "When exercising its functions" are used, provision must be made to facilitate and encourage the industry to use the freedom it has to be competitive, while obeying the regulatory requirements in order to avoid those ills aimed at by the rest of the Bill. If that is what is intended, I have to say that I totally support that. It must be right that we do not fall into the same trap, as did the early regulators, of specifying in minute detail the requirements to be imposed on the industry.

Happily, with experience, the regulators have moved back from that early position. The rule books became progressively less detailed, less mandatory, less prescriptive and moved towards setting out the requirements in terms of principles. If that is what the amendment is aimed at, it must be right.

In relation to the point put forward by the noble Lord, Lord Borrie, perhaps I can say this. One of the early actions taken by regulators of life insurance at the instance of the Competition Commission--or the Monopolies Commission as it was then called--was to outlaw the minimum commissions agreement which existed between companies and had done for a long time. The ostensible objective was that if the minimum commission rule was removed, then competition would force commissions down. Exactly the opposite happened.

Once companies were free from what had been seen by the industry as something which they had followed in the interests of the consumers, commissions generally rose. That is an object lesson in not trying to regulate competition too precisely. The Monopolies Commission got that wrong. It worked to the disadvantage of consumers. Nevertheless, it happened and it should be an object lesson for the Financial Services Authority. So I would emphatically resist taking out paragraph (g). That ought to be retained. The paragraph which wants to,

    "minimise the adverse effects on competition",

is entirely right.

I spent some happy hours over the weekend catching up with the amendments tabled by the Government, and some of those of my noble friends. Amendment No. 49 is what the Minister described as a technical amendment to paragraph (f). It is not entirely clear to me how it changes the meaning, but one has to accept the view that the draftsmen have their mysteries to which sometimes Ministers and others have to bow. But I am appalled to see the huge number of amendments that appear to be being tabled at regular intervals and are now running into hundreds. Perhaps the Minister can give us some indication as to how

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many more amendments of this kind, or indeed of greater substance, will be tabled during the passage of the Bill through this House.

A huge number of amendments were made--some of them very welcome--during the Bill's passage through another place. But it is somewhat shattering to discover that hundreds are still being tabled, most of which do not appear to reflect specific points made in another place or on which representations were made. They are simply the result of the Government having second thoughts as to what is the best way of putting this into legal language. While one is always searching for the optimum way of doing that, one wonders whether it is a sensible way to legislate. I have been told that we are likely to have up to 500 or 600 government amendments. In that case, one-third are already before us. Are we expecting twice as many again? Can the Minister help us on that?

Lord Alexander of Weedon: Perhaps I may follow up my noble friend's last point. As chairman of the Delegated Powers and Scrutiny Committee, I am conscious that the House invites us to consider amendments whenever we can. We do so whenever we can. But it is easier when all the proposed amendments to the Bill come in one tranche rather than piecemeal. I say that at the same time as acknowledging that no one could be more scrupulous and helpful than the Minister in seeking to facilitate the work of the committee by giving us both the amendments and the explanatory memorandum as early as he can. But for all that, the need to look at them piecemeal is neither particularly attractive, nor does it make for an efficient way of working.

Even on the day that the Cruickshank report is published, perhaps I may say that I am happy to declare that I once worked for a bank. One of the reasons why I am happy to make that declaration is that, as we all know, the SME sector in this country is one of the most powerful contributors to the private economy; it has been one of the most spectacular growth engines over the past 15 years; and it is the most successful within Europe. Across that period it has had the readiest access to finance of any SME sector within Europe.

But, as I understand it, the view of Mr Cruickshank that the regulator should have the additional objective of responsibility for competition has been known for some time. As I recollect it through exchanges, so too has the view of Mr Howard Davies. But it would be absolutely inappropriate for that objective to be included in the Bill. It only takes a moment's thinking to see why. The reason is that the authority is already the largest regulatory authority in the world with a huge task. We can imagine the difficulty if it had to take on the quite separate responsibility for competition.

That is the practical objection. The principal objection is that one of the key responsibilities of the authority is consumer protection. If it were also to have the responsibility of promoting competition, it would be set two objectives that could, from time to

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time, come head on into conflict. It is my understanding--perhaps the Minister will confirm this--that Mr. Cruickshank's views on this issue were known to the Government when they decided (absolutely rightly) not to include a market confidence objective in the Bill.

We all know the difficulty of consumer protection in this area. We all know the extent to which, increasingly, as a society we are expecting people to take responsibility for their own pensions, insurance needs, secondary pensions and long-term healthcare. We all know the dangers if those products are mis-sold. We saw it vividly in the pensions mis-selling scandal throughout a large part of the last decade. The Institute of Financial Studies says that we are already hearing of such matters anecdotally in regard to the new ISAs. It is critical that the system of consumer protection works. It is unrealistic to say that caveat emptor can operate very far in this complex area of life where most people, unlike some in this Chamber, lack access to an independent financial adviser, let alone have the ability to understand the advice.

It is paramount that the consumer protection objective should come first. But I welcome the retention of paragraph (g). That requires the authority to take into account the desirability of promoting competition. It makes clear that if that ever comes into conflict with proper regulatory protection of consumers, the promotion of competition must take second place to consumer protection. The Government have the balance right in the Bill and I hope that we can preserve paragraph (g).

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