Orders of the Day — Financial Services and Markets Bill – in the House of Commons at 8:45 pm on 9th February 2000.

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Amendment made: No. 183, in page 241, line 23, at end insert—

"1988 c. 1.The Income and
Corporaion Taxes Act 1998.
In section 76, in subsection (8), the definitions of "the 1986 Act", "authorised person", "investment business", "investor", "investor protection scheme", "prescribed" and "recognised self— regulating organisation".
In section 632, subsections (2ZA) and (2B).
Section 840A(2).
1991 c. 31.The Finance Act 1991.In section 47, subsections (1), (2) and (4).".

[Miss Melanie Johnson.]

Bill, as amended, to be reported.

Order for Third Reading read.

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury 8:56 pm, 9th February 2000

I beg to move, That the Bill be now read the Third time.

First, I pay a warm tribute to all those who have contributed to our debates. In particular, I thank all the members of the Standing Committee who worked long and hard through 35 sittings and for 90 hours or so—to say nothing of the three further sittings on the Floor of the House—properly to scrutinise the Bill and to make many improvements. The work of Lord Burns and his committee and of Don Cruickshank has also helped to improve the Bill. I am grateful to them for all their hard work.

I take this opportunity to thank especially my hon. Friends the Economic Secretary and the Financial Secretary for their enormous contribution. Theirs is real achievement and something of which they can be proud. I know that, even when it might not have seemed like it, it was truly a labour of love. I therefore extend thanks to them and to their predecessors. I am also grateful to our officials, to their colleagues in the FSA and to parliamentary counsel without whose skill and dedication a Bill of this size could simply not have been prepared and carried forward.

The reason for the extent of those labours is the importance, the scope and the inevitable technical complexity of such a Bill. I do not believe that there are real differences of opinion in the House or outside on the underlying objectives of modernising the regulation of financial services. We therefore very much welcomed the co-operation of the Opposition parties in using the innovative roll-over procedure last autumn and the other ways to progress the Bill. That will allow us, I hope, to get a fully scrutinised Bill on to the statute book in the spring. That is in the interests of everybody concerned.

As the right hon. Member for Wells (Mr. HeathcoatAmory) said on Second Reading, the importance of the Bill is undoubted. Its purpose is to put into place modern and effective regulation for one of our most important industries. Financial services account for 7 per cent. of gross domestic product and contribute £32 billion net to the balance of payments. The United Kingdom's world-beating financial services industry is vital not only because it employs more than a million people, but because it provides a means to look after the savings of many millions more. Firms in all sectors of the economy rely crucially on it for the provision of finance.

The Government inherited a regulatory system that could, perhaps, be most tactfully described as complex and interesting—if one likes that kind of thing. We are replacing that with something much better. In place of the outdated multiplicity of regulators, we shall have a single statutory, accountable regulator.

The FSA will have clear objectives and the right balance of powers and duties to provide, as we have said, a light touch where possible and effective consumer protection where necessary. It will be required and expected to operate in a way that is fair, transparent and accessible.

Important improvements have been made in the House to many aspects of the Bill; for example, the new market abuse regime, which was discussed earlier this evening, and the competition provisions, helping to protect the integrity and effectiveness of markets. Important clarifications and safeguards have been added in those and other areas. In addition, of course, many more technical improvements have been made with the support of both sides of the House.

The Bill will go to another place with its general framework in the shape in which I hope and expect it to emerge. Inevitably with a Bill of this nature, further refinements will be needed; for example, in additional technical improvements and transitional provisions. We shall also bring forward, as promised, changes to part VI, as a consequence of the developments in the stock exchange, which occurred after the Bill was introduced.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

It is absolutely clear that the other place will have to put in transitional arrangements and repeals. The Chief Secretary has made it clear that he wants to get the Bill on the statute book as early as possible in April, so why was it not possible to make those amendments before the Bill goes to the other place?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

There is a simple, commonsense reason for that. It makes sense to put in place the architecture and design of the new building before one handles all the arrangements for moving in, and that is the logical reason why many transitional provisions will be made later. As I said, demutualisation of the stock exchange has occurred since the Bill was introduced.

It is right at this stage to thank all those responsible for the important work of pre-legislative scrutiny carried out by Members of both Houses under the chairmanship of Lord Burns. That is a further aspect of the modernisation of procedures from which the Bill has undoubtedly benefited. The hon. Member for Arundel and South Downs (Mr. Flight) is on the record as saying that the Joint Committee virtually rewrote the Bill. That may be an exaggeration, but there is no doubt that it made a vital contribution in the form of several important recommendations on the draft Bill, the great majority of which we accepted and implemented prior to the Bill's introduction or during its passage through the House.

The Joint Committee proceedings laid the foundations for the co-operative scrutiny of this far-reaching, technical Bill in the House. The discussions have, at least until tonight, engaged many hon. Members, but we have exhausted the interest even of some of the more assiduous Conservative Members, as is evident from the sparse attendance.

For the overwhelming majority of the time there has been a constructive approach to the Bill, and I trust that it will continue in another place. It is clearly important that it should since we must all do what we can to get right this important legislation, while avoiding unnecessary delay in its enactment. I am glad that the right hon. Member for Wells acknowledged that point on Second Reading and on several subsequent occasions.

A couple of weeks ago, I had the pleasure of visiting the FSA with the Chancellor of the Exchequer, and we were both very impressed by what Howard Davies and his colleagues have already achieved. I have no doubt whatever that they are putting in place a world-class regulator for a world-beating industry. The Bill will give them a statutory framework to match, and I commend it to the House.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells 9:04 pm, 9th February 2000

The Bill is nearing the end of its long passage through the House. It has been something of a parliamentary epic, and I can claim to be a founder member of the club, together with my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton). He was in at the start, and I am glad that he is in at the finish.

The origins of the Bill go back to the weeks following the general election, when the Government announced their intention to legislate for a new, unified regulator to oversee financial services and banking. I am not sure that the Government understood what they were taking on in those days.

There have been many changes, many of them good, but the process has not been helped by the fact that there have been so many ministerial changes. That is no criticism of the industry and commitment of the Economic and Financial Secretaries, but there have been three complete changes of the ministerial team, which has undoubtedly caused a hiccup from time to time.

For our part, we have been constructive throughout in our criticism. We want a Bill that will be effective in regulating an important industry, while being fair in its procedures and just towards those accused of financial crimes. The problem has been that the more we scrutinise the Bill, the more misgivings we have, despite the fact that the Government have moved on a number of issues. I acknowledged that several times this evening.

Many of the difficulties are in the wording and the detail of the clauses. Matters are not helped by the fact that much of the Bill remains submerged. It will become apparent in secondary legislation, which we have not seen, even in draft form.

We have been more or less alone in carrying out our scrutiny task. It is flattering that we now have a Liberal Democrat with us—the hon. Member for Weston-super—Mare (Mr. Cotter), whose constituency is in my county, Somerset, is always welcome, as an observer if nothing else. We would have appreciated a more active role from that party during the long days and evenings last year when we were considering the Bill clause by clause. The silence of the Liberal Democrats, who were entirely absent from most of the Committee stage, will have been noticed by the trade bodies concerned and by the million or so people who are directly employed in that important industry.

Photo of Mr Brian Cotter Mr Brian Cotter Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson

On behalf of my hon. Friend the Member for Twickenham (Dr. Cable), may I say that, as the right hon. Gentleman knows, we targeted our efforts on certain issues? I pay tribute to my hon. Friend's work in that respect.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

The Liberal Democrats were certainly economical with their targeting, and the effort of intervening on Report clearly exhausted the hon. Member for Twickenham (Dr. Cable), who has left the Chamber.

We should try, even at this stage, to make improvements to the Bill. It still has to go to another place. As we have emphasised repeatedly, the financial services industry is not only extremely important and successful, but highly mobile. The City is under almost ceaseless attack. The competition in world markets is pitiless and continuing. A regulatory system in this country must respect that. While it must be effective, it must avoid imposing excessive costs. Whenever possible, it should promote competition at home and competitiveness in world markets. If it fails to do that, the economy will suffer a great deal of industrial damage, and consumers will also suffer. An industry that is driven to Dublin or Frankfurt may be subjected to a lower regulatory standard. Consequently, jobs could be lost and the general standard of regulation could suffer.

It has been observed that over-regulation leads to concentration of an industry by driving out small firms. Regulations are big business friendly because they raise the threshold of entry. Small businesses suffer. If a concentration occurs, further regulation is needed, and thus the ratchet effect increases constantly.

It is important that the authority's procedures are fair and can, if necessary, be challenged in court. There is a huge concentration of power in the authority. It combines rule making, investigating, disciplinary action and fining. Fines can be unlimited, and people can be deprived of their livelihoods. Failure of the procedures would lead to injustice in a domestic context, and the authority could also be torpedoed by the European convention on human rights.

I retain many doubts about whether the proposed statutory immunity will survive in the long term. If the authority acts negligently or incompetently and severely damages an individual or a firm, its action may breach the European convention on human rights if the person or firm is denied access to the courts to seek restitution. Statutory immunity is therefore vulnerable.

If the authority is torpedoed, the consequences could be serious. They could jeopardise, at least in the short term, the whole regulatory structure and render ineffective the powers that the FSA needs to ensure fair trading. We responded constructively to that by pressing the Government to accept the recommendation of the Burns committee that the complaints investigator should not only be genuinely independent but able to recommend financial awards against the authority when it acts wrongly. I regret that the Government have rejected that suggestion.

Instead of accepting our amendment to elevate the importance of competition, the Government followed a highly bureaucratic route of bringing in the Office of Fair Trading, which will report to the Competition Commission, which will report to the Treasury, which will alter the authority's rules. It would have been far better if the FSA's statutory objectives included supporting competition at home and competitiveness abroad.

The Government accepted some of our suggestions. The Bill is an improvement on the original measure, which was published in July 1998. However, the Government rejected our suggestions on too many subjects, and many matters remain outstanding. Time prevents me from listing them all, but I shall mention some of them.

We tried to improve the accountability of the FSA' s internal procedures by suggesting the appointment of a chief executive as well as a non-executive chairman. Its accountability would also be improved by enhancing the role of the non-executive members in line with good practice in the private sector. Again, the Government turned that down.

We also tried to ensure that the FSA is subject to regular independent reviews and that the existing rulebook—not only new rules—is subject to cost-benefit analysis. That would have been some defence against the inevitable tendency of public bodies to expand over time and would at least have ensured that the cost base from which it operates would be subject to cost-benefit analysis. Again, we were turned down.

Territorial scope, the treatment of electronic trading and how products are offered over the internet—often across national boundaries—are complex issues. The Government seem to have adopted the precautionary approach of catching them all and exempting some by secondary legislation. That is unsatisfactory, particularly given the time that they have had to consider and consult. It would have been better had they set out a strategy—preferably one of home state supervision and regulation, which could be jeopardised if the Bill proceeds in its current form.

We have a better Bill, which is due largely to the efforts of those on the Benches behind me, but it is flawed in a number of fundamental respects. Let no one be in any doubt about that. We shall continue our efforts to improve it in the other place and the epic is not yet over.

9.16 pm

Photo of Barry Sheerman Barry Sheerman Chair, Education Sub-committee

I am intruding on the debate, although I was deputy chairman of the Burns inquiry. I got off after four months, with good behaviour. The time between spring and the end of summer was invigorating and interesting and it was fascinating to watch Lord Burns, the poacher turned gamekeeper.

Photo of James Plaskitt James Plaskitt Labour, Warwick and Leamington

That is why he has gone hunting.

Photo of Barry Sheerman Barry Sheerman Chair, Education Sub-committee

Indeed. I wish Lord Burns well in the more difficult task on which he has embarked as a chairman.

The procedure for handling the Bill is of great constitutional importance. I am very interested in our constitutional processes, the background to which is constant sniping and criticism of the traditionally hasty passage of legislation through both Houses of Parliament. I enjoyed not only the long and interesting consultation that the Government took in hand, but the pre-legislative inquiry, which was totally new and set a precedent as it involved both Houses of Parliament. All who served on the Burns committee found that the peers—even some of the hereditaries, although one should not say that—assisted our deliberations and that their expertise improved the Bill.

What did we achieve? The pre-legislative inquiry made many sound and serious recommendations and I have been reading the Library report on how many were accepted over the past few days. A large number were agreed to and the Government have to be congratulated on being flexible and open to change. However, I still have one disagreement: the post of chairman and chief executive should be split in half. I say that honestly. It was a recommendation of the committee and I still think that there is something in it. I might have been tempted to vote for it, if the Opposition had had the courage to force a Division.

The process of consideration was interesting and should not be forgotten as it represents a way of dealing with complex legislation. The Bill is one of the most complex that the House will have to consider and if that process was good for it, it must be good for other Bills. We should extend the method and the Commons and the Lords should work together to improve Bills. The Bill has to go through subsequent stages, and I think that it will be further refined. However, we already have a better Bill and we have discovered a process that works. We should not forget that. We should use it.

As with all Oppositions, the right hon. Member for Wells (Mr. Heathcoat-Amory) showed why a pre-legislative inquiry is better. We sat round a semi-circular table. We were not scoring points across the divide day after day. We collaborated as a team to improve the Bill, and we did. One problem is that, when we get into a confrontational position in the Chamber, both sides have to find something to fight over. Some of the amendments, and some of his comments, showed that the Opposition have had to find something to criticise in a fundamentally good Bill.

We must not forget the lessons that we have learned. We should use the process. I say to all my colleagues on both sides who participated in the early part of the Committee's deliberations that, although I escaped to do other duties in other Committees, I learned a great deal from them and enjoyed the process. We did something remarkable that we should be proud of, so let us remember.

Photo of Tim Loughton Tim Loughton Conservative, East Worthing and Shoreham 9:21 pm, 9th February 2000

I am grateful to my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory). Some of us were present at what seems like the birth. Before that, the Bill was conceived in the Labour manifesto, of dodgy parentage. The first contractions were experienced in the draft Bill in July 1998, but there was no sense of urgency at that time. The patient was then rushed to hospital in serious need of help, and given over to the specialist, Lord Burns, in February 1999. On the face of it, the chief gynaecologist dealing with the Bill agreed with Dr. Burns's prognosis, but would not commit herself.

Despite that, there was a serious need for further opinions from consultation exercises. However, before the consultant's results even arrived on the scene, the patient was taken to the delivery ward and in July 1999 we had a new Bill altogether. No sooner had it arrived in the delivery ward, than the lead gynaecologist and the whole medical team were changed, replaced by rookies who were not privy to the patient's history, condition or entire medical records.

All that time, the patient was left in limbo, not knowing whether she was going to give birth, or to how many offspring. Contractions gathered pace between July and December of last year, although at times the new medical team seemed to have little understanding of what they were doing, which bits go where, who was responsible for what, and what will be produced, where and when.

Now, 18 months after the contractions started, the entire method of delivery is to be changed, and a straightforward single birth looks like becoming quadruplets all in the breach position. Members of the Government Front Bench are trying to perform an emergency caesarian, aware of all the time that has been wasted up till now.

My fear is that at least one of those quadruplets will appear with two large bolts attached either side of its neck. The nature of the beast that we are creating in the FSA will prove to be a Frankenstein monster that will turn on the financial services industry, and the potentially destructive powers of its regulatory zeal will soon run out of control. I thought that was a rather better metaphor than the leviathan that we have mentioned so many times.

I had lunch today with a senior director of a financial services firm in the City, who echoed many similar comments that have been made in recent weeks. He said that despite everything that we have inserted in the Bill, the balance of the rights of the regulated person against the powers of the regulator to initiate investigation, impose regulations and penalties, and ultimately withdraw authorisation and destroy whole livelihoods, has been completely tilted in favour of the regulator.

There is a climate of fear in the City. Firms will take excessive investigation on the chin, and the ensuing penalties will be out of all proportion to the misdemeanour or ability of firms to do anything about a rogue trader or a rogue incident. The climate of fear is such that firms are afraid to raise any objections in case they are singled out for intensive scrutiny and never given the benefit of the doubt.

Despite all our attempted safeguards, that climate of fear, far from being dispelled, is potentially worsened by the unlimited fining ability and enormously increased powers. That is very worrying, coming from so many practitioners of long standing. The cost of this Frankenstein's monster is forecast in the new budget document, just released, to be £162.5 million next year, up from £154 million for this year, an increase of 5.5 per cent.—and that is before taking account of the likely cost of regulating mortgages and whatever else.

At the end of the day, what so many people from the Labour Benches never realise is that the consumer will pay the cost of extra legislation. The very people that we are here to protect will be paying excessive amounts of money for excessive regulation. That is our fear.

The problem with the Bill is the unparalleled conferment of regulatory authority on an autonomous body. It covers the whole financial services sector, and now, apparently, mortgages. It covers prudential and conduct-of-business aspects, and has very wide-ranging powers: authorisation, legislation, investigation, intervention and discipline. It must be accountable and inspire confidence, but quite patently, as our deliberations show, it does not.

The generality of the objectives is such that they are open to interpretation. There is insufficient regard to competition, despite the parallel Cruickshank report that we considered midway through Committee. There are insufficient checks on the FSA's doing its job properly, and it needs to be accountable to Parliament. Too much is governed by rules to be made under delegated legislation and not subject to parliamentary review.

Far too much in the Bill is left open-ended. The chairman-chief executive split—the hon. Member for Huddersfield (Mr. Sheerman) quite rightly mentioned it; it is a shame he was not here to mention it earlier—is another example of the lack of accountability by the FSA. When Howard Davies leaves in a few years' time, we shall be dealing with entirely different characters.

There is a lack of commitment in the Bill to regular reviews and a proper look at the cumulative effect of regulation in an international context. The whole Bill is completely lacking in detail. The statutory immunity is not counterbalanced by independent investigation and a compensation scheme. The ultimate recourse of judicial review is impractical and just will not happen.

The extent of regulation is down to what the Treasury decides to specify at any given time. As my right hon. Friend mentioned, the lack of certainty under the market abuse clauses must surely in time be subject to the ECHR, articles 6 and 7. What is the role of the FSA with regard to systemic risk?

There is so much detail still to come at this late stage. Even today we have heard that there are no further details about the FSA's role as the competent authority. The mechanics of the excessively bureaucratic legal aid scheme, which is to be published, and the rebating of excess fees and fines we know nothing about. All this is so late in the day after such a long birth.

The Opposition want an FSA that is effective and streamlined and has clarity and transparency. We do not want a leviathan or a Frankenstein's monster which threatens the competitiveness, pre-eminence and international appeal of the whole financial services community, and for which ultimately the consumer will pay. This is a major lost opportunity in the Bill.

This is nanny—[HON. MEMBERS: "The hon. Gentleman does not mean that."] I mean it sincerely. This is nanny on an enormous scale. It is nanny with knuckledusters and expensive habits, and I therefore urge my hon. Friends to vote against the Bill.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford 9:29 pm, 9th February 2000

For the four of us on these Benches who have seen the Bill through all its stages from the Burns committee, tonight has something of an end of term feeling. I am sure that all four of us would wish to associate ourselves with the remarks of my hon. Friend the Member for Huddersfield (Mr. Sheerman) on the constructive way in which the committee dealt with the matter and its value through all the subsequent stages.

The main emphasis of all the evidence in the pre-legislative scrutiny Joint Committee was from financial practitioners, concerned, as the hon. Member for East Worthing and Shoreham (Mr. Loughton) has been, that the Bill would enable the Financial Services Authority to bear down on them too severely. In Committee, virtually all the Opposition amendments were designed to increase accountability, to make it easier to pursue the FSA in the courts, to remove or limit its immunities, or to secure increased consultation and reasoned responses.

It is vital for the Bill to be fair, and not to provide so draconian a regime that financial services companies in London and the rest of the country would be at a disadvantage in international financial markets. It is also vital, however, for the financial services industry in Britain to have a reputation for integrity. People should be able to trust our financial practitioners, without any suspicion or reservation. That point has never been so strongly represented in debates as has the need to avoid regulatory cost, and the need to prevent the FSA from becoming a behemoth—or the leviathan referred to earlier—trampling innocent financiers underfoot.

As the Bill moves to another place where there are many distinguished financial service practitioners, there is a danger that the same emphasis is about to be intensified—that there will be too much emphasis on accountability and restraint of the FSA, and that too little will be said about performance and effectiveness in the achievement of its objectives. I also feel some unease about the way in which so many strands of FSA accountability have been added to each other, without much debate about the total impact on the day-to-day effectiveness and flexibility of the organisation.

Let me briefly summarise the many dimensions of accountability that already exist in the Bill. The Treasury will appoint the board with a majority of non-executive directors, who will form a committee reviewing the economy and efficiency of the FSA. The executive directors will be subject to confirmatory hearings by a parliamentary Committee. An annual report will be published covering a prescribed list of topics, which will be reviewed by a parliamentary Committee. The Treasury may appoint investigators to inquire into whatever aspect of the FSA's work it wishes to be examined.

Two panels, one representing consumers and the other representing practitioners, must be consulted on various aspects of FSA practices and rule making, and their observations must be given reasoned answers. When guiding principles and codes of practice are to be established or subsequently amended there must be consultation with the relevant public, and responses must be made about why any observation has not been accepted. All FSA decisions are subject to appeal to a tribunal involving quasi-judicial proceedings, hearing cases from scratch, and there is to be an independent investigator of complaints.

If the other place piled on a few more accountabilities and introduced a few extra impediments to fast reaction in a spirit of giving misbehaving practitioners a sporting chance, the real fear would not be that a powerful unaccountable monster had been created and let loose. The real question would be whether the staff of the FSA would have any time, energy or motivation left to pursue dodgy dealers, financial fiddlers and insider traders.

It is reasonable that the accountability of such a powerful regulatory authority should be at the forefront of people's minds; but the FSA must have the ability and flexibility to achieve its primary objectives. That is vital to the future of the City and the financial markets, and to their international reputation for integrity and ethical dealing. Accountability and performance must be balanced. I hope that the FSA board, the Treasury and the parliamentary Committee will review that balance regularly as practical experience of the working of the Act is gained.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester 9:34 pm, 9th February 2000

I agree with much of what the Chief Secretary said. Of course, we all want regulation: we want regulation that works. We all agree that the ultimate objective should be to protect the consumer, but we do not agree on how to achieve it. Conservative Members do not think that the Government have got it right, despite our best efforts to guide them in Committee.

The reason why that should be of concern to us is, as several hon. Members have pointed out this evening and on many other occasions, that we are creating a hugely powerful institution. It has the power to act as a legislator; it can make its own rules. It has the power to act as an executive; it implements its own rules. It has the power to act as judge and jury. Within certain limits, it can even adjudicate on whether there have been any transgressions at all. It has at its head a man who has no one looking over his shoulder, a combined chief executive and chairman. That is the first and most important source of concern.

I thought that the best thing I could do this evening was to set out an agenda of the major issues that the other place needs to look at again—issues on which I feel that we have not had satisfactory answers, or where legislation is clearly still deficient. As I have said, we must split the role of chairman and chief executive. I hope that the other place comes back to that issue.

I do not think that it can be right that we are left in a position where the FSA can act recklessly and still be immune from a civil action. The FSA must have a duty to act fairly, reasonably and proportionately. It does not, as the Bill is drafted.

There is the whole issue of the practitioner panels. The industry must have more say as to the composition of the panels. It should not be left to the regulator to appoint the people who will give advice.

There is also the issue of reviews. It is extraordinary that the Government should have decided that they are not prepared to commit themselves to at least one thorough review of the Bill, in, say, three years. They want to retain the discretion not to have any review at all. That cannot be right.

There is the question of financial promotion from outside the UK, which is governed at the moment by the phrase: capable of having an effect in the United Kingdom", which is clearly far too stiff. We must go back to the principle that that sort of business promotion should be regulated if the intention is to direct the product at the UK. I notice that, after months of stonewalling in Committee, the Government are finally wavering on that. I hope that, in the other place, they will table an intelligent amendment on that point.

There is the question of market abuse, which we have discussed again tonight. I find it unacceptable that a firm may find itself guilty of market abuse, even if it had no intent and it can show that it had no intent to do so. Clearly, intent should be relevant in assessing the firm's guilt.

There is the issue of the FSA's powers of investigation. Those must be made subject to judicial review.

Today, we have discussed again the decisions of the ombudsman. His decisions should be binding on both parties—the firm and complainant—or on neither. They should both be permitted to go to judicial review. The imbalance, the asymmetry between the firm and the individual with respect to the ombudsman, is clearly unfair and may lead to a European Court of Human Rights review.

Finally in the list of 10 items as suggested prep for the other place to look at, there is the issue of mortgage regulation. It is true that the Liberal Democrats have scarcely been here during the whole of our lengthy scrutiny, but at least at the finish they came in with a couple of points about mortgage regulation, with which I thoroughly agree. I notice that one or two Labour Members also agree. The Government's approach, with the lender heavily regulated and the adviser not regulated at all, is clearly in no one's interests, certainly not the consumer's.

Those are 10 major items that I want their Lordships to consider. However, the Bill contains one overriding weakness, which we have discussed time and again—competition and competitiveness—and which the Government have still not got right. They have not fully grasped the implications of the fact that the optimal level of regulation is not one that will produce zero misconduct; it must be one that maximises the consumer benefit.

To its credit, the FSA produced an interesting document—the most interesting of the great bundle that it has generated—entitled, "A new regulator for the new millennium". In it, the FSA appears to recognise exactly what we have been saying all these months. In fact, Howard Davies has gone a long way towards redefining the market confidence objective in a way that embraces consideration of our concerns. Page 6 of the document states that the FSA should aim for as low an incidence of"— market— failure … as is consistent with the maintenance of competition and innovation". Mr. Davies, of the FSA, says: achieving a 'zero failure' is … undesirable … It would be likely to damage the economy as a whole". The FSA acknowledges that eliminating the risk of regulatory failure would be unacceptably costly to the industry, the consumer and the economy.

The chairman of the FSA is right, but the balance that he is trying to strike in the document should have been in the Bill. With this document, the FSA is merely patching up the failures of this legislation. It is introducing an economic performance test—a competitiveness test—through the back door: through article 127, which is the cost benefit analysis clause. It is worth pausing to think through how the FSA should go about the process. I suggest to the authority and the Government a simple test; it is not perfect but it will be a good rule of thumb to enable a cost benefit analysis approach—which is clearly what Howard Davies is thinking of applying much more stringently than had originally been intended—to be applied so as to enable economic performance to be maximised. That will enable the delivery of the competitiveness objective.

I want the Government to ask the FSA to consider, before any regulation or rule is made or changed, whether the proposed regulatory change would shrink or enlarge the market. If it would enlarge it legitimately, it would almost certainly benefit the consumer. Of course, there are provisos, which I will not go into as I do not have time, but if that simple test is applied and forms the basis for cost benefit analysis we may be able to secure through the back door what the Government have so determinedly refused to allow through the front: adding a competitiveness or economic performance objective to clause 2.

What the chairman of the FSA has done is welcome. It fills a major gap in the Bill. However, we should not have had to rely on him to produce that document or to interpret the rules so creatively on such a crucial matter. We should have had in the Bill the trade-off that he is trying to address in the document. The fact that it has now been produced and will have such an impact is a reflection of the enormous power that we are placing in his hands. If someone else were in charge who did not take such an enlightened view, we could be in a difficult situation—there could be a threat to the industry and the consumer, with the risk that economic performance would tail off and be eroded by regulation.

I have listed 10 major issues with which I want the other place to deal and have discussed an 11th at length. I have not touched on the many other financial and legal issues involved, which are in a thoroughly unsatisfactory state. The one comfort that I do take is that the other place is full of financial and, particularly, legal experts, and I am sure that they will do a very thorough job on the Bill.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 9:44 pm, 9th February 2000

This is the largest piece of legislation introduced by this Government. As described, it will affect 1 million people, our biggest industry and our biggest exporter. It is not exactly a red-hot sphere of party politics, but I think that the Government could be forced to accept that the Opposition's opposition has endeavoured to be constructive, to scrutinise the Bill in huge detail and to get it right—for the sake of our country, the industry and the people who work in that industry. I offer our thanks particularly to the lawyers who have advised us in our task, and who are sitting under the Gallery.

Although I am pleased to note that the Government have concurred on many of the issues that we have raised—that is largely why Report has taken so long—there are, as I said when we began our consideration, certain key points of principle that we wanted the Government to acknowledge and to put right. We feel that those principles continue to be fudged, which is undesirable for the legislation's success. My colleagues have dealt with those principles in our debates.

If a body as powerful as the FSA is to enjoy legal immunity, there will have to be, as Burns recommended, a clearly independent complaints procedure empowered to award recompense. The Government have come close to making such provision, but why will they not fully accept it?

The FSA's regulatory mandate should be to accept and to promote both domestic competition and international competitiveness. The Government have added their cumbersome machinery—including the Office of Fair Trading, the Competition Commission and the Treasury—but such an addition makes no sense unless the FSA is instructed up front that its regulatory activities are to be essentially pro-competition.

The FSA is a leviathan. It is the governor of a particularly large industry and is able to go forth without having to hold elections on its actions. It is surely right that its starting mandate should be to be reasonable, fair, open, accountable and proportionate. The Minister said that that is what the Bill says, but it does not—although the Opposition tried on several occasions to get it in there.

A body as large as the FSA surely should be subject to periodic independent reviews of its operation, efficiency, cost and cost-effectiveness.

On the chief executive, we have agreed with the Government that we should let Howard Davies sort out the issues. Thereafter, however, it must be right to follow the private sector's precedent of good practice by having a non-executive chairman and giving the non-executive board responsibilities analogous to those performed in the private sector.

It must be wrong to have a situation in which United Kingdom firms are damaged in their overseas business by attempted United Kingdom regulation. It must be completely wrong to pass legislation that the Government themselves have essentially accepted will damage our e-commerce.

The Bill has already been tremendously improved, but it will be further improved in the other place. Today, however, we shall be voting against it, to register the key points of principle that we have banged on about since we started consideration in Committee.

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury 9:48 pm, 9th February 2000

It is my great privilege to bring to a close the House's very extensive consideration of this necessarily very extensive Bill.

My right hon. Friend the Chief Secretary to the Treasury has already paid generous tribute to the work of the great many people, inside and outside the House, who have contributed to this work. I strongly endorse that tribute, as does my hon. Friend the Financial Secretary to the Treasury. We should like also to endorse the work of our predecessors and of the Burns committee.

This has been a model process of how to deal with important, but technically very complex, legislation. We have had extensive public consultation, followed by pre-legislative scrutiny of the most important aspects of the Bill, followed by constructive and co-operative line by line consideration. The Government would be the first to acknowledge that the Bill has been significantly improved at each point of the process. There is likely to be further scope for refinement in another place before the Bill returns to us for final consideration.

I have been much entertained by the speeches during the debate. I was pleased that my hon. Friend the Member for Huddersfield (Mr. Sheerman) felt able to rejoin the debate this evening, and I appreciate the contribution of my hon. Friend the Member for Bexleyheath and Crayford (Mr. Beard) and other members of the Select Committee who have contributed positively to the Bill. I was much entertained also by our debates on fine targeting with the Liberal Democrats.

I was particularly entertained by the comments of the hon. Member for East Worthing and Shoreham (Mr. Loughton) and his heavily laboured analogy concerning the birth of the Bill. I was somewhat bemused, as one of the reasons why the Bill has had so many amendments—the hon. Member for Arundel and South Downs (Mr. Flight) did say this—is that it has been much improved, and some of the amendments have been in response to points made by the Opposition. Some Opposition Members have dug themselves into opposition and kept digging, despite the fact that the Government have responded so positively to the many points that they raised.

The Bill will give the Financial Services Authority a coherent set of modern regulatory powers, and, as such, it constitutes a thorough and necessary overhaul of a relevant part of the statute book. The result will be to enable the FSA to operate as an effective, fair and accountable regulator. The reforms to be facilitated by the Bill are pro market confidence, pro consumer protection and pro consumer awareness. They are anti financial crime, anti-abuse and anti-malpractice. Scams, malpractice and market abuse will do nothing for a world-class industry, and consumers must be protected. That has been one of our overriding concerns, along with making sure that we have a first-class regulator.

One wonders why the Opposition are voting against the Bill, and what that will do for a world-class industry. The Bill is a prime example of the Government's aim to reform and modernise Britain. It responds to the changing face of the financial services industries, and it will bring a fair deal to those operating within one of our most successful industries, as well as to those who use and rely on financial services for their well-being and prosperity.

The industry is well regulated in the UK, and it has been maintained and secured. It is that success, the high standards and the high regard in which financial services in the UK are held around the globe, that the Bill seeks to maintain. The Bill is central to maintaining and enhancing that success. It will increase accountability, and it will have regard to competition. It will make sure that competition is at the heart of the consideration that the FSA gives to its work as a regulator. It will protect consumers.

Above all, the Bill will strike the right balance. It will provide light-touch regulation, and protection where necessary. It is a new regulator for a new millennium, and I trust that the House will support the Bill tonight.

Question put, That the Bill be now read the Third time:—

The House proceeded to a Division

Mr. Deputy Speaker:

I ask the Serjeant at Arms to investigate the delay in the No Lobby.

The House having divided: Ayes 340, Noes 128.

Division No. 70][9.54 pm
Ainger, NickBenton, Joe
Ainsworth, Robert (Cov'try NE)Best, Harold
Alexander, DouglasBetts, Clive
Allan, RichardBlackman, Liz
Allen, GrahamBlears, Ms Hazel
Armstrong, Rt Hon Ms HilaryBlizzard, Bob
Ashton, JoeBoateng, Rt Hon Paul
Atkins, CharlotteBorrow, David
Austin, JohnBradley, Keith (Withington)
Ballard, JackieBradley, Peter (The Wrekin)
Barnes, HarryBradshaw, Ben
Barron, KevinBrake, Tom
Battle, JohnBrinton, Mrs Helen
Beard, NigelBrown, Rt Hon Nick (Newcastle E)
Beckett, Rt Hon Mrs MargaretBrown, Russell (Dumfries)
Benn, Rt Hon Tony (Chesterfield)Browne, Desmond
Buck, Ms KarenGapes, Mike
Burden, RichardGardiner, Barry
Burgon, ColinGeorge, Andrew (St lves)
Burnett, JohnGeorge, Bruce (Walsall S)
Burstow, PaulGerrard, Neil
Butler, Mrs ChristineGibson, Dr Ian
Byers, Rt Hon StephenGilroy, Mrs Linda
Caborn, Rt Hon RichardGodman, Dr Norman A
Campbell, Alan (Tynemouth)Godsiff, Roger
Campbell, Ronnie (Blyth V)Goggins, Paul
Campbell-Savours, DaleGolding, Mrs Llin
Cann, JamieGordon, Mrs Eileen
Caplin, IvorGriffiths, Jane (Reading E)
Casale, RogerGriffiths, Nigel (Edinburgh S)
Cawsey, IanGriffiths, Win (Bridgend)
Chapman, Ben (Wirral S)Grogan, John
Chaytor, DavidGunnell, John
Chisholm, MalcolmHain, Peter
Clark, Rt Hon Dr David (S Shields)Hall, Mike (Weaver Vale)
Clark, Dr Lynda (Edinburgh Pentlands)Hall, Patrick (Bedford)
Hamilton, Fabian (Leeds NE)
Clark, Paul (Gillingham)Hancock, Mike
Clarke, Charles (Norwich S)Hanson, David
Clarke, Eric (Midlothian)Harman, Rt Hon Ms Harriet
Clarke, Rt Hon Tom (Coatbridge)Heal, Mrs Sylvia
Clarke, Tony (Northampton S)Healey, John
Clelland, DavidHeath, David (Somerton & Frome)
Clwyd, AnnHenderson, Doug (Newcastle N)
Coaker, VernonHenderson, Ivan (Harwich)
Coffey, Ms AnnHepburn, Stephen
Coleman, IainHeppell, John
Colman, TonyHesford, Stephen
Connarty, MichaelHill, Keith
Cooper, YvetteHinchliffe, David
Corbett, RobinHodge, Ms Margaret
Corbyn, JeremyHood, Jimmy
Corston, JeanHoon, Rt Hon Geoffrey
Cotter, BrianHope, Phil
Cousins, JimHopkins, Kelvin
Cox, TomHowarth, George (Knowsley N)
Cranston, RossHowells, Dr Kim
Crausby, DavidHughes, Ms Beverley (Stretford)
Cryer, Mrs Ann (Keighley)Hughes, Kevin (Doncaster N)
Cryer, John (Hornchurch)Hughes, Simon (Southwark N)
Cummings, JohnHumble, Mrs Joan
Darvill, KeithHurst, Alan
Davidson, IanHutton, John
Davies, Rt Hon Denzil (Llanelli)Iddon, Dr Brian
Davies, Geraint (Croydon C)Jackson, Helen (Hillsborough)
Davis, Rt Hon Terry (B'ham Hodge H)Jamieson, David
Jenkins, Brian
Dawson, HiltonJohnson, Alan (Hull W & Hessle)
Dean, Mrs JanetJohnson, Miss Melanie (Welwyn Hatfield)
Denham, John
Dobbin, JimJones, Rt Hon Barry (Alyn)
Doran, FrankJones, Helen (Warrington N)
Dowd, JimJones, Ms Jenny (Wolverh'ton SW)
Drew, David
Eagle, Angela (Wallasey)Jones, Jon Owen (Cardiff C)
Eagle, Maria (L'pool Garston)Jones, Dr Lynne (Selly Oak)
Edwards, HuwJones, Martyn (Clwyd S)
Ellman, Mrs LouiseJowell, Rt Hon Ms Tessa
Ennis, JeffKaufman, Rt Hon Gerald
Etherington, BillKeeble, Ms Sally
Fisher, MarkKeen, Alan (Feltham & Heston)
Fitzpatrick, JimKeen, Ann (Brentford & Isleworth)
Fitzsimons, LornaKeetch, Paul
Flint, CarolineKemp, Fraser
Flynn, PaulKennedy, Jane (Wavertree)
Follett, BarbaraKhabra, Piara S
Foster, Rt Hon DerekKidney, David
Foster, Michael Jabez (Hastings)Kilfoyle, Peter
Foster, Michael J (Worcester)King, Andy (Rugby & Kenilworth)
Foulkes, GeorgeKumar, Dr Ashok
Fyfe, MariaLepper, David
Galloway, GeorgeLeslie, Christopher
Levitt, TomRadice, Rt Hon Giles
Lewis, Ivan (Bury S)Rammell, Bill
Lewis, Terry (Worsley)Rapson, Syd
Liddell, Rt Hon Mrs HelenRaynsford, Nick
Linton, MartinReed, Andrew (Loughborough)
Livsey, RichardReid, Rt Hon Dr John (Hamilton N)
Lloyd, Tony (Manchester C)Rendel, David
Lock, DavidRoche, Mrs Barbara
Love, AndrewRooker, Rt Hon Jeff
McAvoy, ThomasRoss, Ernie (Dundee W)
McCabe, SteveRuane, Chris
McCafferty, Ms ChrisRuddock, Joan
McCartney, Rt Hon Ian (Makerfield)Russell, Bob (Colchester)
Russell, Ms Christine (Chester)
McDonagh, SiobhainRyan, Ms Joan
Macdonald, CalumSalter, Martin
McDonnell, JohnSanders, Adrian
McIsaac, ShonaSarwar, Mohammad
McKenna, Mrs RosemarySavidge, Malcolm
McNamara, KevinSawford, Phil
McNulty, TonySedgemore, Brian
MacShane, DenisShaw, Jonathan
Mactaggart, FionaSheerman, Barry
McWalter, TonySheldon, Rt Hon Robert
McWilliam, JohnShipley, Ms Debra
Mahon, Mrs AliceShort, Rt Hon Clare
Mallaber, JudySimpson, Alan (Nottingham S)
Marsden, Gordon (Blackpool S)Singh, Marsha
Marsden, Paul (Shrewsbury)Skinner, Dennis
Marshall, David (Shettleston)Smith, Rt Hon Andrew (Oxford E)
Marshall, Jim (Leicester S)Smith, Angela (Basildon)
Marshall-Andrews, RobertSmith, Miss Geraldine (Morecambe & Lunesdale)
Martlew, Eric
Maxton, JohnSmith, Jacqui (Redditch)
Meacher, Rt Hon MichaelSmith, Llew (Blaenau Gwent)
Meale, AlanSoley, Clive
Merron, GillianSpellar, John
Michie, Bill (Shefld Heeley)Squire, Ms Rachel
Milburn, Rt Hon AlanStarkey, Dr Phyllis
Miller, AndrewSteinberg, Gerry
Mitchell, AustinStewart, David (Inverness E)
Moffatt, LauraStinchcombe, Paul
Moore, MichaelStoate, Dr Howard
Moran, Ms MargaretStrang, Rt Hon Dr Gavin
Morgan, Ms Julie (Cardiff N)Stuart, Ms Gisela
Morley, ElliotStunell, Andrew
Morris, Rt Hon Ms Estelle (B'ham Yardley)Taylor, Rt Hon Mrs Ann (Dewsbury)
Mountford, KaliTaylor, Ms Dari (Stockton S)
Mudie, GeorgeTaylor, David (NW Leics)
Mullin, ChrisTemple-Morris, Peter
Murphy, Denis (Wansbeck)Thomas, Gareth R (Harrow W)
Murphy, Jim (Eastwood)Thomas, Simon (Ceredigion)
O'Brien, Mike (N Warks)Timms, Stephen
O'Hara, EddieTipping, Paddy
Öpik, LembitTodd, Mark
Organ, Mrs DianaTouhig, Don
Osborne, Ms SandraTrickett, Jon
Pearson, IanTruswell, Paul
Pendry, TomTurner, Dennis (Wolverh'ton SE)
Pickthall, ColinTurner, Dr Desmond (Kemptown)
Pike, Peter LTurner, Neil (Wigan)
Plaskitt, JamesTwigg, Derek (Halton)
Pollard, KerryTyler, Paul
Pond, ChrisTynan, Bill
Pope, GregVis, Dr Rudi
Pound, StephenWalley, Ms Joan
Powell, Sir RaymondWard, Ms Claire
Prentice, Ms Bridget (Lewisham E)Wareing, Robert N
Prentice, Gordon (Pendle)Watts, David
Prescott, Rt Hon JohnWelsh, Andrew
Primarolo, DawnWhite, Brian
Prosser, GwynWhitehead, Dr Alan
Purchase, KenWilliams, Rt Hon Alan (Swansea W)
Quin, Rt Hon Ms Joyce
Quinn, LawrieWilliams, Alan W (E Carmarthen)
Williams, Mrs Betty (Conwy)Woodward, Shaun
Willis, PhilWoolas, Phil
Wills MichaelWorthington, Tony
Wright, Anthony D (Gt Yarmouth)
Wilson, BrainWright, Dr Tony (Cannock)
Winnick, David
Winterton, Ms Rosie (Doncaster C)Tellers for the Ayes:
Wise, AudreyMrs. Anne McGuire and
Wood, MikeMr. Gerry Sutcliffe.
Ainsworth, Peter (E Surrey)Key, Robert
Amess, DavidKing, Rt Hon Tom (Bridgwater)
Ancram, Rt Hon MichaelKirkbride, Miss Julie
Arbuthnot, Rt Hon JamesLait, Mrs Jacqui
Atkinson, David (Bour'mth E)Lansley, Andrew
Baldry, TonyLeigh, Edward
Bercow, JohnLetwin, Oliver
Beresford, Sir PaulLewis, Dr Julian (New Forest E)
Blunt, CrispinLidington, David
Body, Sir RichardLloyd, Rt Hon Sir Peter (Fareham)
Boswell, TimLoughton, Tim
Bottomley, Peter (Worthing W)Luff, Peter
Bottomley, Rt Hon Mrs VirginiaMacGregor, Rt Hon John
Brady, GrahamMcIntosh, Miss Anne
Brazier, JulianMacKay, Rt Hon Andrew
Brooke, Rt Hon PeterMaclean, Rt Hon David
Browning, Mrs AngelaMcLoughlin, Patrick
Bruce, Ian (S Dorset)Mawhinney, Rt Hon Sir Brian
Burns, SimonMay, Mrs Theresa
Chapman, Sir Sydney (Chipping Barnet)Moss, Malcolm
Nicholls, Patrick
Clark, Dr Michael (Rayleigh)Norman, Archie
Clifton-Brown, GeoffreyO'Brien, Stephen (Eddisbury)
Collins, TimOttaway, Richard
Colvin, MichaelPage, Richard
Cormack, Sir PatrickPaice, James
Cran, JamesPaterson, Owen
Curry, Rt Hon DavidPickles, Eric
Davies, Quentin (Grantham)Portillo, Rt Hon Michael
Davis, Rt Hon David (Haltemprice)Prior, David
Day, StephenRandall, John
Dorrell, Rt Hon StephenRedwood, Rt Hon John
Duncan Smith, IainRobathan, Andrew
Evans, NigelRobertson, Laurence
Faber, DavidRoe, Mrs Marion (Broxboume)
Fabricant, MichaelRowe, Andrew (Faversham)
Fallon, MichaelRuffley, David
Flight, HowardSt Aubyn, Nick
Forth, Rt Hon EricSayeed, Jonathan
Fowler, Rt Hon Sir NormanShephard, Rt Hon Mrs Gillian
Garnier, EdwardShepherd, Richard
Gibb, NickSpelman, Mrs Caroline
Gill, ChristopherSpteer, Sir Michael
Gillan, Mrs CherylSteen, Anthony
Gorman, Mrs TeresaStreeter, Gary
Green, DamianSwayne, Desmond
Greenway, JohnSyms, Robert
Grieve, DominicTapsell, Sir Peter
Gummer, Rt Hon JohnTaylor, Ian (Esher & Walton)
Hamilton, Rt Hon Sir ArchieTaylor, John M (Solihull)
Hammond, PhilipTaylor, Sir Teddy
Hayes, JohnTownend, John
Heathcoat-Amory, Rt Hon DavidTredinnick, David
Hogg, Rt Hon DouglasTrend, Michael
Horam, JohnTyrie, Andrew
Howard, Rt Hon MichaelViggers, Peter
Howarth, Gerald (Aldershot)Walter, Robert
Hunter, AndrewWardle, Charles
Jack, Rt Hon MichaelWells, Bowen
Jackson, Robert (Wantage)Whitney, Sir Raymond
Jenkin, BemardWhittingdale, John
Johnson Smith, Rt Hon Sir GeoffreyWiddecombe, Rt Hon Miss Ann
Wilkinson, John
Winterton, Mrs Ann (Congleton)Tellers for the Noes:
Winterton, Nicholas (Macclesfield)
Yeo, TimMr. Keith Simpson and
Young, Rt Hon Sir GeorgeMrs. Eleanor Laing.

Question accordingly agreed to.

Bill read the Third time, and passed.