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Lord Newby: My Lords, I am grateful to the Minister and to all noble Lords who have taken part in this debate. Perhaps I may begin by answering the point made by the noble Lord, Lord Wedderburn, about enforceability under the combined code. The answer is to be found in paragraph 2(3) of the schedule. The Treasury, as the body which appoints and removes members of the FSA, would be able to enforce the code. If the FSA did not comply with the code, it could remove the members of the FSA and put in place people who would comply with it.

I found the Minister's response to this group of amendments extremely interesting, although I was not clear about it until the final sentence. We were seeking to achieve two things with these amendments. First, we believe that all directors should have the powers of directors in company law. That was the purpose of Amendments Nos. 1 and 4. The Minister gave us an assurance on that point. The second point related to the whole question of the extent to which the board would operate within the terms of the combined code. In the first part of the Minister's reply on that point, he said that he agreed with part of that but not with other parts of it in respect of the chairman and chief executive. He said that the Government would come forward with an amendment at Third Reading which would partially incorporate into the Bill what we have sought to achieve in these amendments, that he would pick the parts of the combined code with which the Government agree and insert them, and leave aside the parts of the combined code with which the Government do not agree, particularly in respect of the chairman and chief executive.

Lord McIntosh of Haringey: My Lords, I do not think I said that. I shall read again the final sentence of my reply, which brought clarity: I undertake to review the relevant part of Schedule 1 in the light of

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Amendments Nos. 11 and 16 and to return at Third Reading with any amendments needed to achieve the effect which noble Lords sought to achieve in tabling them.

Lord Newby: My Lords, I am most grateful to the Minister. That is what I was just about to say. On the basis that the noble Lord has undertaken to produce at Third Reading amendments which will achieve what we are seeking to achieve, and in the spirit of co-operation which the noble Lord has already shown in terms of discussing with us what he may be proposing, I shall ask leave to withdraw the amendment.

Lord Wedderburn of Charlton: My Lords, before the noble Lord sits down, he was kind enough to reply to my question. I understood his reply; namely, that the Treasury would be the effective investigator and complainant if need be. In that event, with the Treasury controlling in that respect the principles on which the directors are to act, does the noble Lord think it is entirely relevant to quote, as all speakers in the debate seem to have quoted, Hampel, Greenbury or Cadbury, which concern principles relating to public companies with shareholders. Not a single item has been cited regarding private companies, although there are points that apply to private companies. The codes mentioned by the noble Lord--even my noble friend mentioned them--relate to public companies. In legal terms, there will be a great deal of difficulty in applying all of them to a private company controlled only by the Treasury.

Lord Newby: My Lords, they relate to governance. We are seeking to ensure that the FSA operates within the best practices of corporate governance. In terms of the problems to which the noble Lord referred, his noble friend the Minister said that that is exactly the issue with which he and his officials wish to grapple between now and Third Reading.

Lord Kingsland: My Lords, before the noble Lord sits down, in withdrawing his amendment, is it his understanding that the Minister has undertaken, in coming to your Lordships' House at Third Reading, to include the separation of the chairman and chief executive as one of his changes of position?

Lord Newby: My Lords, my understanding is that he will come forward with a provision allowing the separation of the chairman and chief executive, which is in line with our three amendments which provide for a chairman and a chief executive but allow for the possibility of those posts being combined. That is my understanding of what will happen because that is my understanding of the combined code.

Lord Peston: My Lords, before the noble Lord sits down, I do not see how he can possibly say that.

Lord Elton: My Lords, perhaps I may--

Lord Carter: My Lords, this is Report stage; we are not in Committee. We shall ask brief questions and then I think the noble Lord wishes to withdraw his amendment.

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4.30 p.m.

Lord Peston: My Lords, I am delighted that the noble Lord wants to withdraw his amendment, but I am not keen for him to do so on the basis of a misunderstanding. My noble friend said in Committee that the Bill facilitates what the noble Lord claims his amendments facilitate. Therefore, I do not see how he can be regarded as coming back with something new when he has already told us on several occasions that the Bill already allows for that division. That is why some of us are completely mystified by the amendments in the first place. I am slightly mystified by my noble friend's incredibly conciliatory reply, but I am delighted that he made it because it enables us to proceed. However, I do not see that he can possibly go further than what he has already said.

Lord Elton: My Lords, before the noble Lord finally sits down, will he allow the Minister to say what he actually did mean, so that we all understand?

Lord McIntosh of Haringey: My Lords, I have said what I mean not only once but twice. I do not think I am called upon, like the Bellman in The Hunting of the Snark, to say it three times.

Lord Saatchi: My Lords, I wonder whether I may detain the Minister for a moment. Is he saying that at Third Reading he will bring forward amendments which will contain the presumption that the role of the chairman and the chief executive of the FSA will be split in the future, as the combined code of corporate governance says it will? Is that what he meant by his description of the amendment that he will bring forward at Third Reading?

Lord McIntosh of Haringey: My Lords, with the leave of the House, we are very much out of order now. What I said about what I would do at Third Reading referred to Amendments Nos. 11 and 16, which relate to the whole of the code of corporate governance. If the noble thinks that the code requires that there should be a separation of the chairmanship from the role of the chief executive, he had better read the code more carefully than he has done.

Lord Newby: My Lords, in my remarks I explained my understanding of the code in respect of the chairman and the chief executive. I believe that the Minister in responding said that he would ensure that the amendments that he brought forward expressed the spirit of what I had said in moving my amendments.

Lord McIntosh of Haringey: My Lords, I referred to Amendments Nos. 11 and 16.

Lord Newby: My Lords, the Minister confirms that. Therefore, that is what I expect him to do. With that assurance, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Schedule 1 [The Financial Services Authority]:

[Amendments Nos. 2 to 11 not moved.]

Lord Kingsland moved Amendment No. 12:

    Page 228, line 32, leave out sub-paragraph (1) and insert--

("(1) The Treasury and the Authority must secure that the majority of the members of the Authority's governing body are non-executive members.
(1A) The Authority must secure that a committee of its governing body, consisting solely of the non-executive members, is set up and maintained for the purposes of discharging the functions conferred on the committee by paragraph 4.").

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 13 to 15. Perhaps I may speak also to an earlier amendment in this context although it was not moved.

Lord Carter: My Lords, will the noble Lord give way? I congratulate him on his ingenuity.

Lord Kingsland: My Lords, I just take it for granted!

These amendments concern the position of the non-executive members of the FSA's governing body. At present, under paragraph 3(1)(a) it is the authority that must secure,

    "that the majority of the members of its governing body are non-executive members".

However, the authority has no power to appoint members of the governing body. That power is reserved exclusively for the Treasury under paragraph 2(3). Therefore, the only way in which the authority can secure that the majority of the members of its governing body are non-executive is by conferring executive functions on a minority of its members.

That is an odd way of approaching the problem. If the Treasury removed non-executive members of the governing body, leaving a majority of executive members, the authority would have to remove executive functions from one or more of the remaining members in order to comply with paragraph 3(1)(a).

Would it not be more satisfactory if the obligation to secure a majority of non-executive members was joint: imposed on the Treasury, with the power to appoint and remove members of the governing body, and on the authority, with the power to determine who is responsible for exercising executive functions? That is achieved by Amendment No. 12.

Amendments Nos. 13 to 15 are intended to emphasise the point that the committee of non-executive members, established under the current provisions of paragraph 3(1)(b), is the particular committee set up to discharge the functions described in paragraph 4. We want to avoid any implication that the powers of the non-executive members are limited by paragraph 4. In particular, the use of the definition, "the non-executive committee", is most unhelpful and our amendments avoid the need to use that definition.

What lies behind all these amendments is the desire to see the non-executive members make their presence felt. The FSA is not directly accountable to this House or another place. Moreover, the FSA is not directly accountable to its paymasters, the members of the City

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community. So we should do what we can to strengthen the position of the non-executive directors. Although the amendments are only modest improvements, we believe that they will have that desirable effect. I beg to move.

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