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Financial Services and Markets Bill

8.37 p.m.

House again in Committee.

Clause 152 [Power of the Director to request information]:

Lord Saatchi moved Amendment No. 233F:


The noble Lord said: This is a relatively minor amendment. It is simply intended to qualify the power of the Director-General of Fair Trading in obtaining information for the purposes of an investigation being carried on by him. The amendment would require the information requested by the director-general and the notice referred to in Clause 152(3) to be information relevant to the investigation. I beg to move.

Lord McIntosh of Haringey: This is certainly a nice, straightforward amendment; unfortunately, accreted to it are many government amendments to which I must speak. However, I start by making welcoming noises to Amendment No. 233F.

The amendments in this group concern the investigation powers of the Director-General of Fair Trading and the role of the Competition Commission in the external scrutiny arrangements. Amendment No. 233F, to which the noble Lord, Lord Saatchi, has just spoken, would amend subsection (3) of Clause 152. This clause gives the director-general powers to require people to provide him with documents and information.

Documents and other information are dealt with separately, in Clause 152(2) and (3) respectively. In Clause 152(2) the director may require someone to produce a specified document which, under paragraph (c) relates,


    "to any matter relevant to the investigation".

Clause 152(3), which concerns information, does not contain any similar provision. I agree that such a limitation would be appropriate. This would bring the clause into line with the analogous provision in Clause 26 of the Competition Act 1998. I am grateful to the noble Lord, Lord Saatchi, for bringing forward this amendment. If I may, I shall take it away and produce our own amendment on Report which will meet the point while ensuring consistency with the provisions of Clause 152(2)(c)--the main problem being the use of the words "relevant to" in the amendment.

Turning now to my own amendments in this clause--Amendments Nos. 234A, 234B, 234E, 234H, 234J, 234M and 234P--these amendments align the language in the Bill with that used to describe what the Competition Commission does in connection with mergers under the provisions of the Fair Trading Act 1973. In the case of mergers, following a reference by the Director-General of Fair Trading, the reporting side of the commission "investigates" a matter and reports its "conclusions".

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The language of this part of the Bill is partly consistent with this at present. For example, paragraph 1 of Schedule 13 refers to an "investigation" carried out by the commission, and Clause 153(8) talks about the commission's "conclusions". But there are also references to the commission "considering" a report at various stages and to the commission coming up with "opinions". The amendments we are proposing simply replace references to the commission "considering" the matter and coming up with "opinions" with reference to its "investigating" and coming up with "conclusions".

Finally, let me deal with Amendments Nos. 234G and 234R. These amendments affect what the FSA can be directed to do following an investigation by the commission. Clause 153 places the commission under a duty to come up with its conclusion as to whether regulating provisions or practices are anti-competitive. If it concludes that they are, then it considers whether the effect is justified. If it does not consider that the effect is justified, then it must say what it thinks should be done about it.

But Clause 153(7) provides that the commission must ensure, so far as is reasonably possible, that the conclusion it reaches should be compatible with the functions conferred on the FSA and the obligations imposed on it under the Bill.

Clause 154(7), which concerns the Treasury's power to direct the FSA to make changes, similarly provides that the authority may not be required to take action that would be incompatible with its functions or obligations.

Amendments Nos. 234G and 234R have not yet been spoken to. Although we can still deal with them in the same group, I would rather noble Lords opposite spoke to those amendments before I continue. I commend my amendments to the Committee.

8.45 p.m.

Lord Kingsland: My Lords, I shall now speak to Amendments Nos. 234G and 234R. So far as concerns Amendment No. 234G, under the procedure envisaged by Chapter III of Part X of the Bill, the Director-General of Fair Trading keeps the authority's so-called regulating provisions under review. If a report is made by the Director-General, the Competition Commission must consider the matter. However, under Clause 153(7) the commission must ensure, so far as it is reasonably possible, that the conclusion it reaches is compatible with the functions conferred, and obligations imposed, on the authority by or under the Bill.

This amendment proposes that the provisions of Clause 153(7) should be amended so that the Competition Commission must ensure that the conclusions it reaches take into account the functions conferred, and obligations imposed, on the authority by or under the Bill. The amendment would give the commission more flexibility in reaching its conclusions and it would not be restrained by the requirement that its conclusions must be compatible with the authority's functions.

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Amendment No. 234R is a probing amendment. Clause 154 of the Bill deals with the role of the Treasury once the Competition Commission has made its report under Clause 153. Clause 154(7) provides that the authority may not be required as a result of that clause to take any action--


    "(a) that it would not have power to take in the absence of a direction under"--

the clause--or,


    "(b) that would otherwise be incompatible with any of the functions conferred, or obligations imposed, on it by or under this Act".

The precise effect of this provision is not clear. If the authority cannot be required to do anything which is incompatible with any of the functions conferred or obligations imposed on it by or under the Bill, it puts into doubt the effectiveness of the competition provisions set out in Chapter III of Part X. The authority could argue that the rules in question are necessary in order for it to meet its regulatory objective of, for example, protecting consumers. In those circumstances, can the Treasury really require the authority to modify its rules?

There seems to be, if I can put it this way, an unsatisfactory overlap between the powers of the Treasury under Chapter III of Part X and the functions conferred or obligations imposed on the authority by Clause 2.

Lord McIntosh of Haringey: I am grateful to the noble Lord for his explanation of Amendments Nos. 234G and 234R.

These amendments effect what the FSA can be directed to do following an investigation by the commission. Clause 153 places the commission under a duty to come up with its conclusion as to whether regulating provisions or practices are anti-competitive. If it concludes that they are, then it considers whether the effect is justified. If it does not consider that the effect is justified, then it must say what it thinks should be done about it.

But--almost in the same words as those used by the noble Lord, Lord Kingsland--Clause 153(7) provides that the commission must ensure, so far as it is reasonably possible, that the conclusion it reaches should be compatible with the functions conferred on the FSA and the obligations imposed on it under the Bill.

Clause 154(7), which concerns the Treasury's power to direct the FSA to make changes, similarly provides that the authority may not be required to take action that would be incompatible with its functions or obligations. I fear that the noble Lord and I are repeating each other to some extent.

The amendments tabled by the noble Lord would remove this constraint. I am afraid that I cannot accept this. The effect would be to allow the Treasury, following an adverse report by the Competition Commission, to direct the FSA to change its rules in a way which could mean that the statutory objectives were no longer met. For example, the Treasury would be able to tell the FSA to stop imposing requirements

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"X" or "Y" or new entrants to the banking sector, where the effect of not imposing those requirements would be that consumers would not be adequately protected or that confidence in the financial system would not be maintained.

The purpose of this external competition scrutiny is not--let me emphasise this--to provide a means for the commission and the Treasury to second guess whether the objectives which Parliament has given to the FSA are the right ones. That would be the effect of these amendments. The purpose of this external competition scrutiny is to provide a mechanism for ensuring that where the FSA does not regulate at the right level--that is, where it fails to give sufficient weight to the matters set out in Clause 2(3)--then the Competition Commission can report its conclusions as to what action should be taken and the Treasury can direct the FSA to make any necessary changes to get regulation back to the right level.

That must surely be the right approach. Otherwise we would not need to put objectives or principles in the Bill; we could just give the Treasury a power to tell the FSA what its objectives should be from time to time. The noble Lord, Lord Saatchi, suggested that as a way of cutting out a lot of time-consuming debate at an earlier point in our proceedings. However, if we are serious about it, the Committee will agree that the current approach in the Bill is the better one.


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