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Lord Kingsland: Everything I wanted to say in relation to my amendment in the group has been said by the noble Lords, Lord Sharman and Lord Eatwell. They will be relieved to know that I have no intention of repeating it.
I understand that the FSA believes that the memorandum of understanding between the Chancellor of the Exchequer, the Governor of the Bank of England and the head of the FSA is the appropriate vehicle for considering questions of systemic risk. However, as the noble Lord, Lord Eatwell, indicated, unless the FSA has power to react in relation to the institutions for which it is responsible, it will not make a constructive contribution to the work of that meeting. As Members of the Committee are aware, the Bank of England no longer has responsibility for the management of the financial sector.
I want to draw the Committee's attention to Amendment No. 57, which is purely technical and relates to page 2, line 37, of the Bill. Its purpose is simply to make it clear that "financial system", referred to in Clause 3(2), is not just the activity of taking deposits. That is a regulated activity. It refers also to the institutions which carry on that activity; that is to say, the banks themselves.
Lord Alexander of Weedon: I am pleased to support the amendment tabled by my noble friend Lord Kingsland and the spirit of the amendment tabled by the noble Lord, Lord Eatwell. It is an important matter. It is crucial that the FSA should seek to preserve market confidence and have that as an objective. But it cannot do so in any spin-doctoring sense in regard to financial stability. If it is truly to be able to do that in a substantive sense, it must have a greater responsibility for the preservation of financial stability.
I also share the view expressed by my noble friend Lord Kingsland about the memorandum of understanding. That is no doubt an admirable division of responsibilities between the Treasury, the Bank of England and the FSA. However, in this regard, the duties of the Financial Services Authority should be spelt out in statute so that it may be able to play its role to the full and so that there may be no doubt as to true accountability.
Lord McIntosh of Haringey: These are important amendments. They raise the important issue of the extent to which the FSA's market confidence objective gives it responsibility to deal with threats to the stability of the UK financial system. For reasons referred to by the noble Lord, Lord Alexander, that is closely linked to the relationships between the FSA, the Treasury and in particular the Bank of England.
It is an important part of the FSA's responsibility. Sound and prudent regulation lies at the heart of maintaining financial stability and it is already covered by the objective of maintaining confidence in the financial system. For that matter, it is also an important part of the consumer protection objective. This wide interpretation of the interests of consumers is critical to the way in which the FSA's various powers under the Bill work; for example, the power to vary permissions under Part IV.
During the hearings of the Burns committee, my noble friend Lord Eatwell drew attention to the desirability of giving the FSA the explicit task of managing systemic risk. The point that he made was picked up in the final recommendations of the committee, which stated:
However, I have not had an opportunity to speak to my noble friend about the issue in detail. Between now and Report stage, I should like to meet him, with officials and any other Members who want to be involved, in order to go through what I concede to be difficult and potentially contentious areas. An issue is not solved by naming it on the face of the Bill. Good intentions are fine--and, clearly, we all have good intentions--but we shall not resolve them with forms of words. We shall resolve them only with powers that are effectively used.
With those comments, I turn to the way in which the Government believe that systemic risk is covered and that the maintenance of confidence in the financial system is covered in a way that is not reflected in the Bill. It is not the responsibility of the FSA alone. As the Government pointed out in response to the Joint
That is the subject of the Memorandum of Understanding between the Treasury, the Bank and the FSA, which the Government published on October 1997. It sets out the respective responsibilities of each institution for maintaining financial stability.
The problem with these amendments is that they lose the focus on the fact that the FSA's role, while important, is not the end of the story. They appear to give the FSA the sole responsibility in this area and to the exclusion of the Treasury and the Bank of England. That cannot be right. The Memorandum of Understanding also sets out the details of standing arrangements for ensuring that there is full and effective co-operation between the Treasury, the Bank and the FSA.
With that, I return to Amendment No. 13 to Schedule 1. It seeks to impose inappropriate and unnecessary rigidity on those arrangements, with biannual meetings between the FSA chairman and the governor. The standing arrangements envisage information exchange between the Bank and the FSA on a number of levels; through cross-membership of the court of the Bank and the FSA board, through secondments and through the ongoing sharing of information.
The standing arrangements also provide for monthly meetings between the Treasury, the Bank and the FSA in the standing committee. That can meet more frequently and at short notice where circumstances warrant it. Therefore, the rigid requirement that is provided for in Amendment No. 13 would not add to those flexible and effective arrangements. Of course, if it makes sense for the chairman and the governor to have regular bilateral meetings as well, there is nothing to prevent that.
I turn to Amendment No. 57. I can assure the noble Lord, Lord Kingsland, that, where the Bill states that the "financial system" includes regulated activities, that includes regulated activities carried out by authorised persons. But I cannot see the value of saying so. The important point is that the concept of what constitutes the "financial system" is not restricted to the activities of authorised persons, but includes the activities of those who do not need to be authorised by virtue of various exemptions, or those who should be authorised but are not, but who may still have an influence on overall financial stability.
In conclusion, I agree that the FSA has a very important role in, although not the sole responsibility for, seeking to maintain the stability of the UK's financial system. That role is already encompassed within the scope of Clauses 3 and 5. The standing arrangements for co-operation between the Treasury, the Bank and the FSA under the tripartite memorandum of understanding are a robust, flexible and effective mechanism for ensuring that each of those institutions plays its important role in achieving the overall objective of a sound economy and a healthy and stable financial system.
Lord Sharman: I am grateful to the Minister for his remarks. In response, perhaps I may say that I was fascinated to hear the noble Lord, Lord Jenkin, talk of the Mersey Docks and Harbour Board, and Rolls-Royce. They are deeply ingrained on my mind from the time that I spent working on them.
I very much look forward to meeting the Minister on this issue because I believe, and feel very strongly, that it is not in any way a substitutive matter. I am not seeking to substitute one thing for another, but to add to and clarify the Bill in order to make it clear. With that remark, I beg leave to withdraw the amendment.
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