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Lord Saatchi moved Amendment No. 30:

(c) which recognises the international character of financial services and markets and the desirability of not adversely affecting the competitive position of the United Kingdom").

The noble Lord said: My Lords, in Amendments Nos. 30 and 31 we address the question of competition and its place in the FSA's hierarchy of duties and obligations. As noble Lords will be aware, we support the concept of a single regulator. We also agree that strong regulation is a competitive asset. However, we could have an army of FSAs and an FSA man on every street corner in the Square Mile but we would not have the million jobs that exist in this industry. We would not have an industry which has a disproportionate share of global business and without which Britain would be in balance of payments deficit permanently.

Therefore we seek a balance between regulatory purity and creative innovation sparked by free competition. That search for balance is one of the key themes of our amendments throughout the Bill's passage in your Lordships' House. This principle of balance is contained in Amendments Nos. 30 and 31 which relate to the important issue of maintaining the competitive position of the United Kingdom. During Committee stage when we debated the competition scrutiny provisions in Chapter III of Part X, the Minister made clear that the competition scrutiny provisions could not override the FSA's statutory objectives. He said,

    "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".--[Official Report, 27/3/2000; col. 596.]

That is a clear warning that in pursuing its regulatory objectives the FSA will not be subject to effective competition scrutiny. This is alarming and worrying because it confirms our concerns that there is no proper balance in the Bill between the pursuit by the FSA of its regulatory objectives and the desirability of encouraging competition and the competitiveness of the UK. We believe that it is essential to seek to achieve

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that balance, notwithstanding the difficulties to which that may give rise for the FSA in performing its functions.

Our amendments are small but would change the complexion of the Bill for the better. In the Bill at present the objectives of the FSA are in effect the targets it has to meet. Below those objectives in status are the "have regard tos" which we have discussed on a previous occasion. Competitiveness is one of those "have regard tos". I remind your Lordships of the conclusion of Don Cruickshank, to whose report I referred earlier. He considers competition and regulation in financial services in that report. He seeks to do very much what we are trying to do, which is to strike the right balance. He concludes at page 317 of the report:

    "The high potential for regulation to weaken competition in this sector means it is essential to get the legal and institutional framework right".

He then gives his recommendations, which include the recommendation that,

    "the FSA should have a primary competition objective, in addition to its regulatory objectives".

We agree with that. The Bill at present relegates competitiveness to a "have regard to" provision rather than a goal. That is a bad portent for the FSA's performance in future and for the industry to which it will apply its objectives.

It is all very well that the FSA will ensure compliance with the letter of the law, but if the cost and weight of compliance cut across business, in this global industry there are numerous open doors for companies to enter. As I believe I have said once before, Britain has no God-given right to 55 per cent of global trading in non-UK companies. It has no particular right to 25 per cent of the global marine insurance market. These shares can disappear. In 1900 we had a 42 per cent share of world shipping. In 1979 it was 7 per cent; today it is 1 per cent.

Therefore, our Amendment No. 30 is a modest one. It does not even go as far as Don Cruickshank recommends. It does not raise competitiveness to a regulatory objective, but it does have the effect of increasing its weight and thereby achieving a more appropriate balance. The amendment would require the FSA, in discharging its general functions, as far as reasonably possible to act in a way which recognises the international character of financial services and markets and the desirability of not adversely affecting the competitive position of the United Kingdom.

The provision applies only as far as is reasonably possible. The obligation on the FSA in the amendment is limited to a requirement to act in a way which recognises the international character of financial services and markets and recognises the desirability of not adversely affecting the competitive position of this country. Surely, that is not too much to ask, is it? If the requirement creates tension within the FSA's regulatory objectives, we regard that as a good thing and as indicating a better outcome. The difficulties of working within the competing requirements will not, I am sure, defeat the formidable resources at the disposal of the FSA. I beg to move.

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6.30 p.m.

Lord Borrie: My Lords, on the face of it this appears to be a relatively reasonable amendment which we should all happily agree to. We should all, whether it is the FSA, the Department of Trade and Industry or the Treasury, recognise the importance of the international competitiveness of our financial sector, which has done amazingly well. As the noble Lord indicated, it will not always necessarily be top dog in the field, yet we would certainly all like it to be.

I suppose one reason why the amendment looks harmless and rather like apple pie and so forth is that it uses the word "recognises". It is like the wonderful clauses one sees in European legislation which begin with the word "whereas". Then there is a long list of exceedingly desirable things to which we should pay lip service, and perhaps more than lip service, before one reaches the real part of the law or regulation. Undoubtedly we can all agree that it is most important in the United Kingdom for the global business of the financial sector to be successful. It is certainly most important that overregulation, to which the noble Lord and I myself referred to at Committee stage, should not interfere either with competition between firms in this country or indeed with our success in terms of international competitiveness.

Perhaps I may remind your Lordships of what we are talking about as regards this section at the beginning of the Bill. We are talking about the Financial Services Authority, its role in life and, in particular, its objectives. At the moment in Clause 2(3) we have a number of elements which even the splendid Don Cruickshank mixes up at times. There is competition, the desirability to avoid anti-competitive practices and competitiveness. They are all different. There are three separate paragraphs in Clause 2(3) dealing with those three separate matters. It seems to me most suitable that after the four principal objectives of the FSA set out at the beginning of that clause that there are a number of factors, including the three elements that I have just mentioned, which should be taken into account in order to ensure the effective achievement of the principal objectives.

Unfortunately, I believe that the amendment is inappropriate because it seeks to elevate the important--indeed, I admit, vital--matter of maintaining and enhancing United Kingdom competitiveness above all the other factors into an inappropriate position. It is appropriate for the UK Government and for the Department of Trade and Industry, but it is not appropriate as a prime objective of the Financial Services Authority. Those objectives are set out here. At neither Report nor Committee stage have I heard either the principal Opposition or the Liberal Democrat opposition disagree in any way with those principal objectives.

I mention a very important point made by my noble friend Lord Eatwell in Committee at col. 1801 of Hansard on 16th March. He is not here today, but perhaps I may repeat the essence of what he said

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because it is valid. It concerned a similar amendment though not exactly one in the same words. My noble friend Lord Eatwell said:

    "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".

Then there was an intervention from the noble and learned Lord, Lord Fraser of Carmyllie. My noble friend then made this point. The SEC, which has been mentioned earlier, is a similar body in the United States to the FSA. He said:

    "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".

It is important to distinguish those matters because I do not believe it is suitable for this authority, as distinct from the Government, the nation or whatever, to have as a prime, elevated objective the promotion of Britain's competitive position in the world in financial services.

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