asked Her Majesty's Government:

My Lords, the major cost to the Home Office will be the recruitment of up to 10 press officers. The majority are likely to be employed at Information Officer grade, for which the salary band is £17,000 to £28,000 per annum. As with all Civil Service posts, there will be employment costs of superannuation and national insurance amounting to approximately 20 per cent of salary. We estimate that the total cost of staff will be up to £400,000 per annum. There will be some accommodation and information technology costs which are not yet finalised.

My Lords, I am grateful to the noble Lord for that full Answer. Can he confirm, as the Home Secretary suggested in another place earlier this month, that at present there are still 11 press officers and three trainees in the Home Office press office? Can the Minister confirm that the extra 10 press officers—to be appointed specifically, as the advertisement said, "to react to breaking news", of which, admittedly, there is plenty at the Home Office—are to be paid at least up to half as much again as a London police constable? Can he further confirm that these press officers will be in addition to 10 extra internal communications advisers in the Home Office, who are to be paid twice as much as a London police constable?

My Lords, I am happy to confirm the figures and statistics upon which the noble Lord has based his interesting point. To try to compare the pay of police officers with that of press officers working in the Home Office rather misses the point. Perhaps I may remind the noble Lord that when he was in another place as a Minister at the Department of Employment, his departmental advertising budget shot up between 1985–86 and 1986–87—I draw attention to that year in particular—from £100,000 to £12.7 million. No doubt the noble Lord thought that was very good value for money and a good investment.

In another place on 13th March 1989, in reply to my right honourable friend Frank Dobson, the noble Lord, while still a Minister, said that his department (the Department of Employment) employed 68 members of staff in the press and public relations office.

My Lords, many of us on these Benches fully understand that both sides are as bad as each other. Can the Minister say why we need these new people?

My Lords, the noble Lord makes a very interesting contribution. It is most important to focus on the real issue behind this. When the external consultants looked at press and communications within the Home Office they found that we received 150,000 calls per annum; that we were missing 20 per cent of those calls; that the number of incoming calls to the Home Office had increased by 50 per cent over a period of five years; and that the service was designed for a time when very few news outlets and communications demands were being made on the Home Office. That situation has changed and we have to respond. There are now 24-hour news broadcasts, sometimes at hourly intervals; there is a fifth channel; there is Sky Digital; there is On-Line; there is the Internet; and the media is growing exponentially. For that reason we need an effective service to offer to those journalists who, quite frankly, have been complaining that they cannot get through and make contact with the Home Office press office.

My Lords, I speak as a former working journalist who has spent many of the most fruitless hours of his life trying to get a reply from the Home Office press office. Does my noble friend agree that this increase in staff will be justified if it brings about a proper response rate—although I do not think that my former colleagues will be any more satisfied with the answers that they receive more quickly than they were with the ones that they failed before to get at all?

My Lords, the noble Lord makes his point well, with his customary wit and charm.

My Lords, can the noble Lord say why it was necessary to employ external consultants to look into this matter and what was the cost?

My Lords, I am more than happy to confirm that the cost of the external consultants was £50,000, paid for from the Home Office budget. I should remind the noble Lord that during his party's time in government, the bill for consultants' work grew massively. I have the figures in front of me which demonstrate the full value of that work. We believe that we should make effective use of consultants in advising the Government how best to manage their business. I thought that the noble Lord and his party colleagues opposite shared that view.

My Lords, how many of the extra staff will be needed to identify Ministers' jokes?

My Lords, I was going to speculate on the number of jokes that Ministers tell, but that would be unfair to the House.

My Lords, will this new team—with its specialist services, access to the media and so on—be restrained from the knee-jerk reaction of saying that, whenever this House decides something, it will be reversed?

My Lords, I am grateful to the noble Lord for his advice. No doubt the press officers will seek to advise their masters and their officials wisely on all occasions.

My Lords, is the Minister aware that part of the answer he gave earlier will cause considerable concern? He seemed to imply that more than twice as many press officers are to be employed because there are so many news items these days? Is he not aware that many of them repeat the same things over and over again? It should not be necessary to double the number of press officers to deal with repetition.

My Lords, the Home Office is an extremely busy department as regards news. Many Members of your Lordships' House try very hard to put us on the front pages of newspapers and in broadcasts. Business coming into the Home Office is increasing, as it is in many other departments. We want to offer a first-rate service in the Home Office and in all government departments.

My Lords, in his role as spokesman for the Government, will the Minister kindly ask his colleagues in this House and in another place to ensure that, when documents are sent out for public consultation, these press officers—no doubt his department is not the only one to have an increase in staff—use some of their time to publicise the issue of them? For instance, the review of the Mental Health Act was issued in November and it has only now become public knowledge when consultation ceases at the end of this month. It is most important, not only in his department but right across the board, that consultation documents are made public.

My Lords, I agree with the noble Baroness. It is important that such documents should remain in the public domain and that people have full and proper access to them.

asked Her Majesty's Government:

My Lords, the Government see little merit in this proposal, which would only lead to a decrease in the number of MEPs representing local, regional and national interests in the European Parliament. Nor is it an idea which has so far attracted any serious support from other member states in the IGC.

My Lords, I thank the Minister for that surprisingly welcome reply regarding a suggestion that was put forward by the Commission. Does she agree that, given the deep gulf between the man and woman in the street and European institutions, it would further increase alienation were we to have European-wide lists of candidates unrelated to countries or constituencies—Greeks standing in Italy, Fins in Luxembourg, Portuguese in Spain, Swedes in France? While it is utterly unobjectionable if an individual decides to stand, as the noble Lord, Lord Steel, did, in another country, it is wholly different if that is forced upon the European public by treaty and by European-wide parties financed by Brussels. Does the Minister agree that that idea is wholly incompatible with a Europe of nation states and that it is designed simply to further the idea of a European political entity?

My Lords, I do not agree with all that the noble Lord says. So far as we are concerned, this idea is wholly unworkable. It is not something that we would promote or agree with, and we do not believe that it would be endorsed by other member states. This issue is a matter for the member states to decide. Of course, it is always useful and interesting to hear ideas promoted by the Commission.

My Lords, will my noble friend make it quite clear to the Commission that the member states are not yet ready for any further self-initiated proposals from the Commission; and that it is high time that, before making any proposals to anyone, it starts putting its own house in order?

My Lords, the Commission is of course in the process of putting its own house in order. It is right and proper that the Commission should make its recommendations, and that those recommendations should be listened to. Only when member states feel that they are pertinent and cogent should they be given any due weight.

My Lords, is the Minister aware that her Answer will bring a great deal of satisfaction to many of us who thought that this was quite the craziest idea we had heard? Does she recollect that we changed our voting system, because we were forced to do so by our European partners, to a list system, indeed to a closed list system—which must be about the most iniquitous method of allowing the electorate to elect representatives? Does she further recollect that that caused a drastic decline in turnout at the European elections, contrary to what the Government and our friends on the Liberal Democrat Benches said? Will the Minister give an absolute guarantee that the Government will stick by the Answer that she has just given and will not back down in the face of pressure from our continental friends?

My Lords, first, I do not agree with the noble Lord's analysis as to why there was a low turn-out. That is still a matter of some dispute. I have just outlined the Government's stance. That is our position; it will not change. This IGC will concentrate, as it properly should, on the institutional reforms necessary for enlargement, and this proposal is not central to that process.

asked Her Majesty's Government:

My Lords, we aim to publish the consultation paper on the management of radioactive waste during the spring of this year. Copies will be placed in the Library, and copies will also be sent to the noble Lord and to members of the Select Committee on Science and Technology.

My Lords, I thank the Minister for that reply, which is a repetition of his closing speech in the debate last October. I seek an undertaking that the promise made, the undertaking then given, will in fact be met. I should be grateful if the Minister could be more specific about the expected date of publication.

My Lords, in this House we always have some difficulty defining the seasons. I am afraid that I cannot be more precise than "spring". Spring comes before summer.

My Lords, does my noble friend agree that the Select Committee report carries matters of great importance which have frequently been shelved by previous governments and that it is in the country's interest to receive a proper answer to the report as soon as possible?

Yes, my Lords, I agree that there are some profound and long-term issues involved in the treatment of nuclear waste. It is also important, as the Select Committee underlined, that some of the mistakes made in earlier phases as regards not taking the public along with the decisions are also addressed in our approach to deciding these matters. That is why the basis for the consultation paper must be carefully thought through and the consultation process itself very thorough.

My Lords, will the Minister confirm that at the consensus conference held shortly after publication of the Select Committee report, Mr Meacher said that the Government hoped to have the consultation paper by the end of last year. During the debate mentioned by the noble Lord, Lord Tombs, it was stated that publication had been put off until the spring. Is the Minister aware that my consultations with the industry have evoked the response that the date is becoming increasingly hazy? Does he agree that the request for more specific information is justified by a growing feeling that the Government will kick the issue into the long grass before the next election?

My Lords, I entirely refute the noble Lord's last point. It is important that we get the basis of the consultation right. I am indicating today the same timescale as that indicated in the debate mentioned by the noble Lord, Lord Tombs. It is true that, at an earlier stage, we thought we might be able to get the consultations started by the end of last year. But now we are talking about the spring, and spring it will be.

My Lords, does my noble friend agree that the difficulty with the management of nuclear waste is that it is almost impossible to get rid of it? In those circumstances, does he accept that the right solution is to produce as little nuclear waste as possible—and eventually none at all?

My Lords, my noble friend tempts me into a discussion of the long-term future use of nuclear power, on which I am sure varying views are held within this House, as they are outside. The future contribution of nuclear power to our energy mix is an emotive as well as a technical issue. However, were we from now not to have any more nuclear power, there is already a significant waste disposal issue. That is what the Select Committee addressed and it will be the subject of the consultation paper, irrespective of any future positive decisions or otherwise on the use of nuclear fuel.

My Lords, in view of the recent lamentable events at Sellafield and the implications for employment in Cumbria, will the Minister say that, regardless of a response to the Select Committee report, the Government will take urgent steps, do their best to retrieve the situation and install more competent management at Sellafield?

My Lords, it is true that the recent identification of falsification of records in BNFL has been very unfortunate in relation to the credibility of the operation of Sellafield and BNFL more generally. The reports from the Nuclear Inspectorate have identified very serious problems. BNFL has a couple of months to put those right. Thereafter, it is important that BNFL works hard to restore the confidence of its customers and potential customers, and the Government will support it in doing so. As the House will know, a number of changes have already taken place in BNFL's management structure.

My Lords, may I tempt the Minister to reveal part of the report's contents? Will the Government's position be that they rule out indefinite surface storage as one way of managing nuclear waste over the longer term?

My Lords, "indefinite" is perhaps an inappropriate word here. Clearly, long-term decisions must be taken. It is probable that the high level waste will be surface stored for 50 years. As to what happens to it thereafter, at present it appears that deep level storage is appropriate but other technologies may be developed in that period. The important point is what we do now and, in particular, what we commit ourselves to doing with the high level waste thereafter.

My Lords, does the Minister agree that if we are to meet, and in future do better than, the Kyoto emission standards, we must have a nuclear industry? If so, does the Minister agree that we must deal with the question of the management of waste? Does the noble Lord also agree that one of the real problems that faces the present Government, as it did the previous one, is that the pressure groups which oppose nuclear energy will put out all kinds of scare stories that can be countered only by government and industry being open and frank about what they are doing?

My Lords, I do not believe that the noble Lord is correct to say that we need additional nuclear capacity in order to meet the target for 2010. In a sense, the question is what happens beyond 2010 and whether nuclear power or alternative non-fossil fuel-based energy sources can be developed. Those are very serious long-term issues both for our own energy mix and that of the world. It is certainly the position of the Government that nuclear technology should remain available for those medium and long-term decisions. It is also the Government's position that one of the problems with nuclear power has been misinformation by both its opponents and, unfortunately, those who have had responsibility for managing it. That distorts the debate, but the Government are determined that BNFL will put the matter right.

My Lords, further to the Minister's response to my noble friend Lord Jopling, can he say whether the falsification of the safety records of the items which were attempted to be exported represented a danger only to the importing countries or to the citizens of this country? Does the noble Lord agree that this is a matter of considerable concern and another reason why the report should be published very soon?

My Lords, I believe that the findings of the Nuclear Inspectorate are that the falsification did not of itself present a danger to safety. The problem is the credibility and robustness of the safety regime within Sellafield and the transport of nuclear fuel both here and, potentially, within the customer countries to which the fuel may be returned. Understandably, those customer countries are alarmed. We must reassure them that in future the safety regime will be robust and that there will be no further falsification.

asked Her Majesty's Government:

My Lords, all Members of Parliament are invited to nominate candidates for appointment to those NHS bodies which serve their constituents. The people they nominate are expected to complete application forms and, if considered suitable, are interviewed in the same way as all other applicants. In addition, for chair appointments local MPs are invited by NHS Executive regional chairs to comment on the candidates that they recommend to Ministers.

My Lords, I thank the Minister for that reply. We all look forward to the report next week by Dame Rennie Fritchie on appointments to NHS trusts. From earlier reports it appears that that paints a rather different picture from that presented today by the Minister. If those reports are true they suggest massive hypocrisy on the part of this Government, particularly when they were so vociferous in their opposition to the previous government for doing exactly the same thing. Can the noble Lord categorically deny that Labour MPs have no influence over the appointment of those trust members? Furthermore, can he give a definitive answer as to whether it is political affiliation or skill and experience which determines a person's appointment to an NHS trust?

My Lords, I am unable to comment on the report of the Commissioner for Public Appointments before it has been published. However, I can tell the House that we have adopted a vigorous approach to the appointment of non-executive directors and chairs of NHS bodies. These are very important positions which must be filled by the best quality people, and we believe that the procedures that we have adopted enable us to do that.

My Lords, can the Minister inform the House what percentage of such appointments arises from applications in response to advertisements placed in newspapers and whether that approach brings in a sufficient number of suitable candidates?

My Lords, I do not believe that an exact breakdown of the numbers in the different categories is available, but I am happy to see whether I can provide that information. We believe that national advertisement is an important part of the process of receiving nominations. But all nominations, whether they come from MPs or through national advertisements, are dealt with in the same way; namely, through a sifting process and panel interview where an independent person is always present.

My Lords, is my noble friend aware that in Oldham the Government reappointed as chairman of the NHS trust a prominent member of the local Conservative Party who, in my experience, is one of the few people from the party opposite with any real commitment to or knowledge of the health service?

My Lords, even I have appointed Conservatives to positions in health authorities and trusts, because at the end of the day we are concerned to appoint the best possible people. We appoint people who have affiliations to all political parties and to none. The key is to get high quality people.

My Lords, is the Minister aware that about six months after the present Government came to power I asked a Question and was informed that about 15 Conservative and well over 100 Labour councillors had been appointed? As to the appointments procedure, can the Minister say whether there is still an obligation to interview all those who certify themselves as disabled? Is he aware that I sat on an interviewing panel which came to the unanimous view that some of those who had certified themselves as disabled were not disabled? How does the Minister suggest that a more objective assessment can be made of those who are entitled to claim an interview as of right because of a supposed disability?

My Lords, my understanding is that the procedure is as the noble Baroness describes. However, we need to be very cautious before we change it. Although I accept that there may be instances in which the system is abused, nevertheless it enables people, particularly those with disabilities, to be considered for appointment, which is very important. As to the appointment of councillors, I suspect the answer is that there are very few who belong to the Conservative Party.

My Lords, does the Minister share the reported concern of the Commissioner for Public Appointments that political criteria should not take precedence over other experience? If the noble Lord shares that view, is it merely a coincidence that 546 Labour activists compared with 149 Conservatives have been appointed?

My Lords, I cannot agree with the noble Baroness. I have already said that we make the appointment on the basis of the quality of the applicant without regard to political affiliation. I pray in aid that in 1999, 76 per cent of the people we appointed declared no political activity.

My Lords, does the Minister agree that the figures make it fairly clear that both the present Government and the previous one have been stuffing NHS trusts with their own supporters?

My Lords, the noble Lord is certainly right about the previous government. One can only describe the approach of the previous government as the packing of boards with Conservative supporters and so-called independents who, none the less, could always be called upon to vote with the Conservatives.

My Lords, is the Minister aware that in my area the balance is reasonable and proper? However, a few years ago, I was so horrified by the multitude of Conservative appointments and scarcity of Labour appointments that when I discovered that the Wentworth constituency Conservative Party had not shared in that loot I offered a strong protest at its being disregarded by its own government.

My Lords, the Nolan Committee, which considered these matters early in the decade, received more complaints about the process of appointments to NHS bodies by the party opposite than on any other issue.

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

moved Amendment No. 1:

Page 216, line 15, leave out paragraph (b).

Does the Minister know whether the concept of a legislative function is used in an Act establishing any other public authority in this country?

I am sure that it is not an original concept since many regulatory bodies have to work via rules, statements of principle or policy, and issuing codes. I shall write to the noble Lord about the detail of which other legislative examples occur.

I ask because it seems strange that we have a non-parliamentary body with a legislative function but with no obligation to lay its legislative rules before the legislature.

"Legislative function" is perhaps shorthand. We are talking here about functions which are laid on the Financial Services Authority by statute.

Shorthand is not the language for legislation. If the Minister means that he is referring to the authority's rule-making or regulation-making powers, the Bill should say so. To call them "legislative powers" calls into question the function of this Chamber.

I used the phrase "legislative powers" in introducing them in order to provide a collective description of those functions described in the legislation as rules, statements of principle or policy, codes of conduct, codes of practice and so on. I attempted to help the Committee by giving a collective noun to describe them all. "Legislative functions" does not appear in the Bill.

It does. At lines 12 and 13 on page 216, the Bill states:

"For the purposes of this Schedule, the following are the Authority's legislative functions".

I am happy for the noble Lord to be free with his language. I am not happy for the statute to be free with its language if it does not mean what it says. It is a fairly important matter as to whether Parliament is the only authority in this country which can make legislation.

I am happy to accept the noble Lord's correction about what appears in the Bill. The Bill is trying to be helpful, as I am. But it is not new; it is not an innovation. I can respond to the noble Lord, Lord Kingsland, that the phrase "legislative functions", used in the same way, occurs in the Financial Services Act 1986.

moved Amendments Nos. 2 to 6:

moved Amendment No. 7:

I thank the noble Lord for giving way. In the case of other countries, how many international regulatory organisations are represented by more than one individual? Is it not the case that, for example, the international, European and world bodies are represented by full-time executive chairmen in exactly the same way as is ours?

I believe that that is the case. However, the FSA is a unique creature and has greater powers and scope than virtually any other similar regulatory body. That is at the heart of our reason for proposing the amendment.

The non-executive directors argue that the model that we are proposing is inappropriate because it is different from that of the Director-General of Fair Trading and various other regulatory bodies. However, the core of what we are saying is that this body has greater and broader powers. Therefore, again we do not believe that that is a strong argument.

The non-executives also argue that the essence of the role is to lead the organisation as a whole; if the role were split, there would be a lack of leadership. Again, I simply do not believe that. Therefore, having given considerable consideration to the arguments that they have made, I do not find those arguments compelling.

The final argument which they make—it is often made in the corridors, as it were, but rarely made formally—is that Howard Davies would vehemently oppose a move to a different model, and that that in itself is a strong argument for not doing so. I believe that on these Benches we share the view of everyone who has spoken at all stages of the discussions on this issue; namely, that so far Howard Davies has done an extraordinary job with the FSA and that he is a highly impressive chief executive and chairman. Many of the doubts that people, including ourselves, express about these powers do not flow from a view about how Howard Davies would exercise them. However, this is not a piece of ad hominem legislation. It is a piece of legislation that must last for a considerable period and see through a number of generations of leading members of the FSA executive. Again, I do not find that a convincing argument against the model which we propose. Having considered all the models, we are not persuaded by those arguments. Therefore, we retain our belief that a body with the powers and role of the FSA, as proposed in the Bill, requires both a chairman and a chief executive. I beg to move.

Perhaps I may ask a question on this matter. It seems rather curious that the noble Lord. Lord Newby, did not refer to the governing body. The governing body of the authority is provided for in Schedule 1, which states that the majority of members will be non-executive members. It follows logically that the minority will be executive members. Presumably, if we take that as the plural, one of them could be regarded as the chief executive.

In other words, I suggest that the provision in Schedule 1, which at the moment provides for a governing body as well as for a chairman, is sufficiently flexible to take into account all kinds of possibilities that might develop in the future, to which the noble Lord, Lord Newby, referred. In years to come, it may be desirable for there to be a chairman and, separately, a chief executive. Another possibility is that one person should hold both roles. That is provided for in Schedule 1. Therefore, why do we need this amendment?

Because we believe that there should be a chairman and a chief executive and because, as is evidently the case, the Bill as drafted does not envisage that that will happen, although that may change at some point in the future. That has been made clear throughout the discussions on this matter by the Government and by the FSA. Therefore, we believe that if it is wished that the two roles remain separate, that should be specified in the legislation. Unless it is, it simply will not happen, in the short term at least.

I rise not to respond to this group of amendments on behalf of the Opposition—that will be the task of my noble friend Lord Saatchi—but to speak to my own amendment in this group, Amendment No. 9A. That I can do very briefly.

Amendment No. 9A requires that the appointments of the chairman, the chief executive and the non-executive deputy chairman shall not take effect until they are confirmed by the House of Commons Treasury Select Committee following a public hearing. The reasons for tabling this amendment flow from my earlier intervention in this debate. As the Minister conceded, the authority will have legislative powers to make rules which are binding on certain persons. Your Lordships' House and another place will not have the opportunity to be consulted on these rules. Therefore, the leaders of the FSA will be in an extremely powerful position. In those circumstances, I believe it only right that their appointment should be confirmed by your Lordships' House and another place.

When the noble Lord, Lord Newby, introduced his amendment, he said that he believed that everyone at Second Reading had been in support of the proposition which he was putting forward. I must say that I clearly recall having expressed some reservations about this matter myself. I should like to explain again why I believe that it is not at all self-evident that his proposed solution is the right one. I do not believe that one can necessarily transfer the format of corporate governance from the private sector to a public sector body of this most unusual kind.

The Financial Services Authority will have huge powers which will impact not only on a very large number of practitioners and professionals in the markets which are regulated, but also in relation to consumer interests over a wide front. Under those circumstances, I believe that the authority must have the structure which is most suitable to it. Equally, I do not believe that that is necessarily to be determined by reference to the Bank of England. I agree with the noble Lord, Lord Newby, about that. It seems to me that the functions and powers of the two bodies are so different that one cannot suggest automatically transferring from one to the other.

I believe that a large part of the problem has arisen because of the sloppy use of the term "chief executive" in the private sector. Many public companies and other large organisations have a chairman and a chief executive. However, in many of them from time to time the role of the chairman will undoubtedly impinge on executive matters. In my view, the implication is that there is no higher executive authority within a body than the person who is described as "chief executive".

Therefore, let us suppose that in the statute in relation to a particular organisation such as this authority, one says that "A" will be the chairman and "B" the chief executive. I am not a lawyer so I cannot judge what the legal force would be. However, the natural interpretation of the language would be that there would be at least an implication that the executive authority stops with "B" and that "A" is not authorised to determine matters of policy, strategy or other executive decisions and certainly would not be the best person to answer for them in the wider forum in which the head of this body must perform.

Therefore, I am doubtful about the proposal of the noble Lord, Lord Newby. I do not know whether he is considering pressing it to a Division, but I would have considerable reservations about whether or not to support him. I believe that there is an essential truth in what he says, which is that those who are chairmen of bodies—whether they are companies or public bodies of this kind—and those who are the principal executives have separate functions. However, normally those functions are worked out between the two individuals concerned in the light of the structure, role and functions of that body. There is no hard and fast dividing line between the two. There is likely to be an overlap, and therefore it would be misleading to have someone described as chief executive, with the implication that the chairman was not able to become involved in executive matters.

There is another aspect whereby the functioning of the board could be affected by a decision of this kind. It points rather in the other direction. It is difficult for the chairman of any board, particularly of a public body of such importance, to have to chair it as well as being the principal proponent of its policies. It is always easier for the chairman to be more detached from direct involvement in managerial decisions.

When my noble friend, Lord Alexander, and I were members of the board, mostly in its previous guise as the Securities and Investments Board, the non-executive directors, I am glad to say, were robust in their comments. We often questioned and challenged the executives. Occasionally, that might cause them discomfort, as it might the chairman, the person most fully responsible for the board's actions. However, it is not an insuperable problem.

We must look at the problem pragmatically. We are to establish one of the most powerful bodies in the land outside the system of government. It will have a very important influence internally, within our economy, markets and society, and it will have an important role internationally.

I do not see—here I am perhaps picking up something that the non-executive directors of the authority have said—that the chairman could act effectively as chairman, bearing in mind his accountability for that body's overall presentation and performance, in a completely non-executive role. Therefore, although I think this goes back to a problem of language, I have some reservations about the amendment.

I feel quite confused after the intervention of my noble friend Lord Stewartby. On the one hand, he said that the chairman and chief executive were as one and that—to put it in my own words—in normal corporate parlance, this was the way it was and it was extremely difficult for them to be separate. On the other hand, he said that the chairman was the person who had to monitor the role of the chief executive. How can the chairman monitor himself if he is chairman and chief executive combined?

I have no experience at all of public bodies, but my experience within public limited companies has been that the separation of roles gives a great deal of confidence to the shareholders. They can be confident that the chairman is really looking after their interests in so far as he or she can and does, together with the board, appoint the chief executive, monitor the chief executive and make sure that everything the chief executive does is in accordance with the policies of the company as a whole.

I have examined, in anticipation of this set of amendments, what I would call semi-public bodies. I reiterate that I have no experience of dealing with public bodies. I was going through the last annual report of the Personal Investment Authority ombudsman council. I see the noble Baroness, Lady Turner, in her place. She used to be the non-executive chairman of that body. It had a deputy chairman, a council of five members and a clerk. The ombudsman—that is, the person who ran the ombudsman function—reported in, as I understand it. I should have thought that that gave the ombudsman some feeling of security, knowing that if he or she made a bit of a mistake about something there was a strong non-executive chairman with a strong council to say "Do you really think this is the way to do this?".

The real purpose of setting up the Financial Services Authority is to try to make the general public confident about the workings of their investments and enable them to feel assured that they will not be sold a bad bill of goods on investments and pensions where there was all the mis-selling. And now we are talking about mortgages.

Most of the population is pretty financially illiterate. A great deal of confidence would be built up if the public knew that all the power in running this body was not vested in one man. If there are on the board a chairman and chief executive in combined roles, plus other, non-executive, directors, one can bet one's bottom dollar that the power will be vested in one man, and the people around him will not spend a lot of time trying to second-guess or query him. I am afraid that that is the way life works.

Therefore, I have grave doubts. My doubts are not at all about Howard Davies. He is a spectacularly brilliant person. I have been very impressed by the presentations he has given. We are not talking about Howard Davies; we are talking about the future of the Financial Services Authority. God forbid that he should ever fall under the proverbial No. 11 bus. There might be a real problem if we then had someone who was nothing like as brilliant, and perhaps did not have the same level of integrity, if the roles were combined. Therefore, we must give the matter a great deal more thought.

I should like to say a few words in support of the amendment moved by my noble friend Lord Newby, particularly in relation to public confidence, a matter touched on by the noble Baroness, Lady O'Cathain. Public confidence will be absolutely crucial to the Financial Services Authority. Even more important than general public confidence is the confidence of the sector over which it will have total—some might say totalitarian—powers under the Bill. That confidence is more likely to be achieved by having a chairman and chief executive. If the chief executive's title is director general, I do not mind.

One can only speculate about these things, but I am sure that there will be much more likelihood of general confidence in the carrying out of the FSA's difficult tasks if the roles are split. It is a quasi-judicial body. It is not one that requires the supreme brilliance to which the noble Baroness referred; it needs steadiness, fairness, balance and prudence. I believe that they will all be better delivered if the amendment is passed, together with the amendment in the name of the noble Lord, Lord Kingsland.

I have some sympathy with the amendment. I am reminded from time to time that what we are discussing is outside the Cadbury rules which apply to commercial companies. I believe it appropriate that the rules that guided Cadbury should also guide this body, which will be a very significant organisation.

It is very important that there should be a separation between the chief executive and the chairman. I like the suggestion in a later amendment, Amendment No. 12, that the chief executive should be called the director general, which would be fitting.

The chairman's role is quite distinct from that of the chief executive in any organisation. The chief executive is the hands-on man, and the chairman, whether or not he is called non-executive—I imagine it will be a whole-time job in any case—has to deal with other issues: shareholders, the public purse, which is paying, and so on. It would be most unfortunate if these two roles were combined. There is also the position of the non-executive directors, who have to form the majority of the board. Under the Bill, it is rightly intended that they should have very considerable powers in looking after things, seeing what is happening and eventually giving guidance. The non-executive directors would be able from time to time to discuss with the chairman their satisfaction or any worries they might have about the running of the business. That would be a very difficult task for them to fulfil if the chairman was also the active chief executive.

When the noble Lord, Lord Newby, read out the views of the independent directors to a combination role, I found his criticism of them quite valid. A very weak case was put forward for combining the two roles. I know that there is concern about the position of the chairman/chief executive, Howard Davies, who has done brilliantly. It is generally acknowledged that he has done a first-class job. However, I believe that he would be helped if there were a chairman to deal with external matters while he continued his magnificent job with a title, however it may be described. Therefore, this amendment has some attractions to.

The noble Baroness opposite referred to my role as chairman of the PIA Ombudsman Council. That was a very different sort of body from the FSA and I do not believe that one can make a relevant or appropriate comparison.

One must take on board the fact that the present FSA non-executive directors feel very strongly—and I have met them and had discussions with them—that the present arrangements work extremely well. If the set-up is working well, particularly if arrangements are made so that the structure is flexible enough to be amended in the future if it needs to be, it would be very disturbing and not a good idea at all to alter the structure now in the way that is proposed this afternoon. There is a need to look very carefully before one starts disturbing a structure where everybody is happy with it and feels that it is working extremely well.

The non-executive directors say—and I agree with them—that the analogy with company governance is not appropriate. There the objective is to represent the interests of shareholders, as the noble Baroness said, rather than, as here, accountability through government to Parliament in the public interest. We must bear that in mind. Therefore, I am not in favour of the amendment which has been moved this afternoon.

I share the view of the noble Baroness that, so far, the Financial Services Authority has done a remarkable job, not least because it has done it without any statutory underpinning whatever. But I feel that when we are giving it statutory underpinning which should last well into the future, we should address the matter not merely as a matter of whether it has worked under a remarkable chairman but we should consider also what is the right form of governance as it goes ahead.

What concerns me about this issue principally is that it is a very strong body. It has a rule-making power which is not to be subject to control by Parliament. As has been said, it is the financial services authority with the most wide-ranging responsibility and powers of any such body in any country in the world. As such, I believe that it should have both a chairman and chief executive in normal circumstances.

I accept entirely that there should be flexibility for situations when the roles are held by the same person. With my noble friend Lord Stewartby, I sat on the board of the Securities and Investments Board, and for three years I was its deputy chairman. The Securities and Investments Board then had a chairman and a chief executive. The chairman was responsible for strategy, its external role, key on-going issues and overseeing the activities of the chief executive. I totally share the view that the role of the chairman of a financial services authority cannot sensibly be non-executive. Such a chairman, if non-executive, would not be in a position to have enough influence within, nor, indeed, knowledge of the working of, the authority. Nor, in my view, would such a chairman have the ability to represent the organisation in international organisations with effective standing.

I know that it is easy to jest about the issue of the precise standing of a person in those international gatherings, but in those gatherings people accumulate, almost osmotically, a particular influence which goes with, to a considerable extent, the power of their role in their organisation. I have no doubt that the chairman of the FSA should be executive and should have the authority to represent the FSA abroad.

But at the SIB I saw two things. First, undoubtedly a chief executive was necessary to carry out those functions which even the most tireless chairman could not sensibly carry out across the board—as my noble friend Lord Boardman said, to be responsible principally for operational issues within the organisation itself. I believe that it is somewhat esoteric to suggest that where one has a combined chairman and chief executive, the non-executives can easily act as a total counterpoise to a strong person holding that authority.

I believe also that the organisation should have, among the non-executives, a vice-chairman. I have no doubt that those organisations which have pressures on them in relation to their standing and authority need, as well as their fully internal officers, outside non-executives with the stature and the clout to stand back from the issues in order to avoid the organisation being in too much danger of internalising or looking to its own position. He can stand somewhat at a distance to comment on what the organisation does. That is not in any sense to multiply employment. I believe that the FSA, as such a powerful body, should have what many large companies have—a separate executive chairman, chief executive (called "director-general", if you will, if there is some semantic reason for doing so) and an independent vice-chairman leading the non-executives. I really should like to see a combination along those lines in the Bill.

On Second Reading, the Minister said that the Bill did not preclude the appointment of a separate chief executive. The noble Lord, Lord Borrie, in his intervention, somewhat teased—I hope I know him well enough to put it that way—the noble Lord, Lord Newby, along those lines. He said that this is an unnecessary amendment. I do not believe that that is right. It is not enough to say that the Bill does not preclude the appointment of a separate chief executive. The need for a separate chief executive, granted that the posts may occasionally be held by the same person, should be made explicit so that it should be seen as the norm. I strongly support a package of amendments which would, as the noble Lord, Lord Phillips, said, give very considerable confidence and comfort to the balance of powers in this very important organisation.

The noble Lords, Lord Newby and Lord Alexander, have made speeches which I found very convincing. They convinced me that they were both wrong.

I want to leave aside the issues of the particular characteristics of corporate governance and even the issue of the significant powers which the Financial Services Authority will have because the main issue is the characteristics of this organisation as a financial regulator.

The key role of financial regulation is the management of risk—risk which can escalate in a matter of minutes or hours, not over days or weeks. Such risks can pose great dangers to the financial system of this country and, therefore, to the economy as a whole. In those circumstances, there is a peculiar need for extreme clarity in the positions taken by the leadership of the financial regulator.

The noble Lord, Lord Newby, referred to a committee meeting; the committee consisting of the Chancellor of the Exchequer, the Governor of the Bank of England and someone representing the Financial Services Authority. One presumes that he had in mind the memorandum of understanding between the three organisations which establishes the relationship between them for the management of the economy when it is in extreme peril. But the noble Lord, Lord Newby, would not leave our three leading figures to manage the economy in a period of extreme difficulty. He would happily dilute that committee. He would include the chairman and the chief executive. He would have the Chancellor of the Exchequer bring along someone else to back him up.

It is in precisely those circumstances that a decision-making body needs to be clearly defined as having the real authority to make crucial decisions at the time. That cannot be a chairman who has only a strategic role; nor a chief executive who has only an operational role. It must be someone who has strategic and operational roles at the same time and who can make decisions in times of extreme difficulty; the decisions which the committee comprising the Chancellor, the Governor of the Bank of England and the chairman or chief executive of the FSA will have to make.

I hope that the noble Lord will excuse me for intervening. Is he really saying that in a time of extreme difficulty, the Chancellor will take a political decision and execute it, without the Permanent Secretary of the Treasury being in the room? Is he saying that decisions—including those relating to how decisions may be executed—will be taken literally by the three people he mentioned and that no one else with expertise in how such decisions are carried out will be present when the decisions are taken?

The noble Lord should take a lesson from a statement made by the noble Baroness, Lady Thatcher, when she was Prime Minister. She pointed out that advisers advise and politicians decide. At such times, it is vital that the leaders make the decisions. They may have people around them with the skill to advise them, but that is not the point. We need someone who understands the strategy and the operating characteristics of the FSA to be making decisions in times of financial turbulence.

I have been extremely puzzled by the reluctance of the noble Lords advancing the amendment to apply it to the current regime. They have said that they do not want the Bill to be ad hominem, but in fact they do wish it to be ad hominem, because it is not to apply to Mr Davies. If they really believe in what they are arguing, they should argue that there should be a separation now of the chairman and chief executive roles. It is clear that they do not believe in their argument. They are putting forward the amendment as a general attempt to make mischief with the Bill. If they really believed in what they were saying, they would present the argument in relation to the current circumstances.

Is the noble Lord aware of the situation which exists within corporate governance, where it is the norm in the majority of cases for a company to have a chairman and a chief executive, but in some cases, those roles can be held by the same person? If he is aware of that situation, why does he believe that those who take the view that it should apply to the FSA are simply making mischief?

If he really wishes to persist in the position which he has taken so far, the noble Lord will have to answer the following question: can he identify a major financial regulator in the world which is organised in the way he proposes?

Those of us who have experience of operating at a fairly high level in corporate governance would find the situation extraordinary. The FSA is now in a strange position. It is actually operating although it has not been given the power to operate. That has been agreed to try to ensure that there is a safeguard for investors and that there is financial regulation. The reality is that the FSA is up and running, despite the fact that it does not have the power to be up and running. Therefore, to cause a problem now may not necessarily be the best thing. I do not believe for one moment that the combined roles should be operating now. I said that there could perhaps be a problem in the future. I believe that I used the phrase, "The spectacular success of Howard Davies". It is quite wrong to keep those roles together.

The noble Lord, Lord Eatwell, has taken part in many previous proceedings of this House. It is perhaps a little unfortunate that he should describe simply as "making mischief" an idea which has been debated at great length in another place and put forward here with considerable force from the Liberal Democrat Benches. I hope that he may perhaps feel able to withdraw that comment.

Yes, I shall gladly withdraw that comment. It was just a frivolous comment at the end of what I hoped was a series of serious remarks. I hope that it does not devalue the serious remarks I made earlier. I thank the noble Lord for giving me the opportunity to withdraw the comment.

I am sure that your Lordships will forgive the noble Lord his frivolity.

I find this a quite difficult issue. I have read a number of the papers written on the subject by the authority itself and by others and some of the comments in the newspapers. I have listened with great care to the speeches so far. It seems to me that one begins from the proposition that, although this is a private company, in the sense that it is not a statutory corporation, it is in fact a hybrid. It is that curious hybrid: a private company exercising public functions. There are other examples, but nothing with the power, scope and authority that the FSA will have.

The FSA will be the most powerful institution created in peacetime Britain. It is in many respects legislator, investigator, prosecutor, judge, jury and executioner. If one begins with that proposition, one must then examine how one can hold such a body accountable for its actions. How can it operate effectively? I accept the case which has been made that there will be times when that body will have to act swiftly and perhaps quite condignly, if it is to maintain stability. We shall debate later the issue of how to maintain stability in the financial system. I begin from the proposition that one cannot consider the head of the body in isolation. That is only one aspect.

There are a number of later amendments on the Marshalled List relating to the question of a deputy chairman, as my noble friend Lord Alexander mentioned; and to the question of a strong non-executive committee. In my early days, when I moved from politics into one or two commercial posts, I was brought up to believe that the phrase "non-executive" was not liked. One was either a full-time director or a part-time director. Nevertheless, I accept that it has become so much a part of the language of the Bill that I shall use the phrase "non-executive directors". I must say that I like the phrase "director-general"; there is an amendment which deals with that point. It is not just semantics, as we shall see. I like the idea of a powerful committee of non-executive directors, headed by someone—call him the "deputy chairman" if you like—as a body whose authority must oversee the whole of the activities of the FSA. That is not provided for in the Bill as it is worded at present. They are the housekeeping committee, if I may put it bluntly. With the greatest respect to the Front Bench opposite, I do not think we can let that pass. What is the point of having an authoritative, powerful body of non-executive directors if it looks only to see whether it is getting value for money and at matters of that sort? It must have a responsibility across all the functional roles of the authority. We shall come to that. My point is that the chairman and chief executive argument must be fitted into that; it is not a separate, single issue on its own.

I shall listen to my noble friends on the Front Bench and the Minister. However, in looking at the Bill I had come to the provisional view that in the end this must be a split responsibility. Like other noble Lords, I heard with great interest the demolition by the noble Lord, Lord Newby, of the case made by the existing non-executive directors. When a body has such a wide sweep of authority and power to ruin individuals and destroy companies, it must be held firmly to account.

To my mind, splitting the function of chief executive (or director-general) and having perhaps a part-time or "most time" chairman who reports to the hoard seems the best solution. However, having said that, I side with those who say, "It will be sufficient if the Bill makes that possible". I could not take part in the Second Reading debate but I have read it. I understand the noble Lord on the Front Bench said that the Bill does just that. Perhaps I may say that it does so silently, by implication. It is not express. There should in my view be an amendment which makes express the fact that that will be an option.

Another factor is the question of review. When one sets up a body with such a huge scope of powers—it is not only the Bill which is immense but the powers—it should be subject to fairly early review. I believe an amendment on the Marshalled List states that that should be considered externally after three years. Whether three years is right, I do not know. One could embark on one form of governance; that is a single chairman and chief executive. I yield to none in my admiration of Mr Davies; I know his personal view on the matter. One has to take account of that. With the greatest respect to the noble Lord, Lord Eatwell, we are not legislating ad hominem; we are dealing with a body in medias res. I am told that the legal opinions to justify setting up the FSA using existing legislation—the 1986 Acts and others—stand as a high pile indeed. Clearly, a great deal of legal confidence was required before that could be done. However, the FSA is doing its job and working. It has an outstanding leader in Mr Davies.

I therefore tend to the view that the right answer is for the combined post to be allowed to continue. It should be subject to review. Whether that is after three, four, or five years is obviously a matter for argument. The Bill should make express provision that the job can later be split. We shall need to look carefully at the powers of the non-executive directors. As I indicated, I believe they are much too circumscribed as they stand in the Bill. We need to consider also the question of procedures for enforcement and the independent investigator. One of the problems of the present structure is that although there may be an investigator, he is still far too much under the thumb of the authority. The whole range of institutions and the features of this institution need to be balanced.

I shall reserve my position until I have heard further speeches. In the end I shall probably come down in favour of keeping Mr Davies as chairman and chief executive, having a much stronger executive board, separating out the investigative function and having a full review by an independent reviewing body, whether or not that is the Comptroller and Auditor General. I believe and support my noble friend in the idea that appointments should be subject to more parliamentary scrutiny, and we shall consider that. The Bill should have an express provision that the function should be split later. One cannot write into a Bill—or it would be difficult—the presumption that it would be split later. We simply cannot guarantee that we would have somebody with the remarkable talents of Mr Davies to take his place.

That would be a balanced package which I would support. I hope that that may commend itself to the Committee.

There are those who subscribe to the view that there is no such thing as a free lunch. I should, perhaps, disclose the fact that I was entertained to lunch by the FSA in February. As far as I was concerned, it was a free lunch.

This is a classic debate about form versus substance. I believe that substance is invariably the more important of the two. In relation to the question of form, I make five bullet points. I intend to be brief. First, the Cadbury approach would no doubt be more appropriate if the FSA was a public company with a body of shareholders. It is not a company but a statutory corporate body. It has no shareholders. The Cadbury analogy is completely irrelevant.

Secondly, the FSA is structured in a way which will ensure a clear line of responsibility and accountability from the FSA chairman to the Treasury. That is unlike any public or private company structure that we ordinarily find in our law. The mischief aimed at by the Cadbury code is simply not appropriate in these circumstances.

Thirdly, Schedule 1 to the Bill provides that the majority of the members of the governing body must be non-executive. The schedule also provides for a committee of non-executives. They will have a chairman appointed by the Treasury. My understanding is that the chairman of the non-executive group will be the vice-chairman of the FSA; and, indeed, he is a distinguished Queen's Counsel experienced in commercial matters. It goes without saying that the chairman and his vice-chairman will inevitably consult together on a regular basis. The idea that this whole enterprise will be run by Mr Howard Davies as some sort of private fiefdom is ridiculous.

I thank the noble Lord for giving way. It is wholly unfortunate that an individual should be constantly named in this debate. We are trying to build something to last possibly 50 years. We should look at the problem and not the people.

I entirely agree, although why I should be picked on as the target for that point I do not know. I agree with the noble Lord and I shall refrain from mentioning the gentleman's name again.

The non-executive committee will have wide ranging statutory functions and duties which are also provided for in the first schedule. These arrangements are novel and substantial. As I said, they render the debate about Cadbury irrelevant.

Fourthly, there is nothing in the Bill, still less in Schedule 1, which would prevent the authority at some future time adopting a split function of chairman and chief executive if, in the light of developing experience, it were thought necessary to do that. In my view, that is the short answer to a great deal of the formalistic debate which arises on these proposed amendments.

I thank the noble Lord for giving way. Is it his impression that that paragraph of the schedule was drafted with that in mind, or is it only that the words used happen to be able to be relied on to answer the arguments? If it was intended, why was it not stated explicitly?

One thing I have learnt over many years as a lawyer is never to speculate over what was in the mind of the draftsman of a document. He probably would not know the answer himself. However, I suggest that the language of the schedule is sufficiently flexible to permit the structure which, in effect, these amendments are seeking. Nothing in the schedule would inhibit or prevent that structure from being introduced at some time in the future without the need for primary legislation.

My next point is that, under the proposed structure, it is important to appreciate that the executive chairman, whoever he may be, will have no role to perform in the disposal of enforcement cases. There will be a separate enforcement committee which will be chaired by a legally qualified person. The committee will decide the key questions, such as the charges to be laid and, in due course, the penalties to be imposed and other matters of that kind. Noble Lords must not assume that the executive chairman will be bogged down with all kinds of detailed matters which, if that were the case, would inevitably impede his ability to exercise his judgment in relation to strategic matters and leadership issues, which noble Lords on both sides of the debate regard as being of overriding importance.

I have said a few words about the form of these arrangements. However, as I have already indicated, what really matters is their substance. What really matters is the calibre of the people who will run and staff the FSA. Since everyone agrees that the chief executive is the right person for the job, I suggest that we should let him get on with it without more ado.

Like other noble Lords, I was somewhat taken aback by the black-and-white terms in which the noble Lord, Lord Eatwell, addressed this difficult issue. It certainly does not reflect either the evidence or the debates that we had in the Joint Committee under the noble Lord, Lord Burns, either in public or in private. I believe that this is a difficult issue and one that needs to be understood in relation to the variety of models about which we have heard. On the one hand, we have had the Cadbury proposal. I am bound to say that, given the structure that is required for the FSA as a company under the Companies Act, to dismiss Cadbury out of hand seems to me to verge on the cavalier.

On the other hand, we appreciate the arrangements within the Bank of England. I do not believe that there is anyone on this side of the argument—and not necessarily only those on this side of the House—who does not want to see those at the head of the FSA enjoying powerful responsibilities and positions in the country. I would trust that in the future they would be more than confident that they could take on the Chancellor of the Exchequer or the Governor of the Bank of England. For that reason, I believe that we need to look at this very carefully indeed.

Furthermore, I do not believe that there is a good argument for saying that, if we were persuaded of the desirability of separation, we should be arguing the case in relation to Howard Davies himself. I hold him in very high regard, but that is not any part of my argument. As I recollect our discussions and what is contained in our report, we had an objectively valid reason to advance for retaining Howard Davies in a combined role at this time. Indeed, as the Explanatory Notes to the Bill dictate, no fewer than six bodies are to be drawn together into this one authority, setting aside a number of SROs that are also to be included within it. It seems to me that there is a different function to be performed when such bodies are to be melded together into a single organisation. For anyone who knows anything about the FSA at the present time, it must be clearly recognised that that has indeed proved to be a difficult task and one that I hope is now being accomplished successfully. I do not believe that it can be said that we are being inconsistent in our approach.

Without inviting the Minister to respond to me immediately, I should like to pursue one separate line of inquiry because it would tip my personal opinion one way or the other. As I understand it, it would be either a matter of expectation or requirement on the part of the FSA, as it looked at the recognised investment authorities in the City, that that separation between chairman and chief executive should be maintained. If it is the expectation or requirement that such a division is to be pursued, because such RIAs have responsibility for much of the regulatory functions of the FSA in a devolved fashion, it strikes me as rather startling that the "super-regulator" would not have such a separation of responsibilities, but would require all those at the second level to maintain such a distinction, whether they were mutualised or demutualised organisations. If I am wrong about that, I hope that the Minister will either say so now; alternatively, perhaps he will write to me. That would be helpful because if there is such an expectation or requirement, that would seem to me to be a compelling reason for requiring the same kind of separation within the FSA itself.

I find myself in considerable agreement with what has been said by the noble Lord, Lord Jenkin of Roding. As the noble and learned Lord, Lord Fraser of Carmyllie, has pointed out, this is not a black-and-white issue; rather, it is quite a difficult issue. We spent a good deal of time debating it in the Joint Committee.

As a number of noble Lords have pointed out, the FSA is a big and powerful organisation. I happen to believe that that is right and appropriate, given its responsibilities. Furthermore, I believe that it is right that we should have a single regulator. However, it means that we must think carefully about the governance arrangements. The noble Lord, Lord Fraser, also pointed out that the Joint Committee came to the view—although many different opinions were expressed in the course of our debates—that, on balance, it understood why the roles of chairman and chief executive had been combined in the early stages of the existence of the FSA. Indeed, that was helped by the appointment of a senior non-executive director as deputy chairman. However, in the end we decided that, in the longer term, it would probably be sensible for the posts to be separated so that there would be both a chairman and a chief executive.

It was a difficult balancing act and we were concerned that we did not wish to do anything to undermine the position of Howard Davies. In this case I make no apology for mentioning his name because we were in the early stages of setting up an important organisation and it was vital that nothing was done to destabilise that position. However, we also accepted the argument that it was right not to limit the power and focus on a single individual and that, if possible, moves should be made to enhance the position of the non-executive directors.

For various reasons the Government did not accept that recommendation—it was one of the few recommendations that they did not accept. They stated that they were happy with the present arrangements and did not wish to change them. They also put forward their argument on the importance of establishing a direct line of accountability to Treasury Ministers from the senior executive of the regulator. I can understand their concerns here, because even it' in the longer term they do see the merits of splitting the post, it would be highly disruptive to make an issue of it at the moment. It would then hang over the organisation at the point when we are trying to specify what the position should be, either after Howard Davies or at some later stage. I would be worried, not only in terms of the individual concerned but also because of the danger of giving the impression that we now have in place an organisation which is in some sense wrong, inappropriate or deficient. That would not broadcast a good message to the world.

So, while I continue to come down on the side that in the longer term a different organisation would be sensible, I question whether we need to include this in the legislation and to be quite so specific at this stage. Perhaps the situation could be left as one where a variety of different organisational structures might be possible.

Apart from the conventional corporate governance arguments, it is also a question of the type of individuals available to do the job. Although I am a great admirer of Howard Davies, I do not want to fall into the trap of concluding that he is irreplaceable. Nevertheless it is important to recognise that sometimes one must design organisations in terms of the responsibilities to be placed on the people who are available.

My preference remains, in the longer term, for the job to be split. But I do not want to create a situation where the present arrangements are deemed inadequate or flawed. That leads me to feel that we should not legislate in the detail being put forward for the alternative model. We should have a situation where the Bill leaves open whether or not the chairman should also be the chief executive. The noble Lord, Lord Borrie, pointed out that the Bill does that. The noble Lord, Lord Jenkin, pointed out that it may need to be slightly tailored to give a clearer indication that other arrangements are possible. One can then look at this in the longer term, both in relation to the responsibilities and how the organisation develops, to see what is the right organisation.

This has been an interesting debate on a difficult issue. I have come to the view that we do not need the detail of the organisational structure contained within the legislation. I should prefer the Government to indicate that they feel other arrangements can work and that they are not wedded to this model for all time; that they are willing to look at changing the way it is run according to the circumstances. Perhaps they can give an indication that over the longer term we shall have something which involves more of a division of responsibilities. However, we could get ourselves into a great deal of trouble if we try to design in detail an organisational structure which may have to face circumstances we cannot envisage at this point.

I am grateful to the noble Lord for giving way. Perhaps I can ask him this. The non-executives on the FSA board published a response to the excellent report of his Joint Committee. Would the view of the Joint Committee have been different, given that he described how finely balanced the debate was on whether or not the two posts should be split, if it had had the benefit of the non-executives' advice during its consideration of this issue?

My view would not have changed. The response might have been, "They would say that, wouldn't they?" I am not sure that that is necessarily the group of people from whom at this stage one would be wanting to take advice in relation to the organisation in the longer term. I do not want to give the impression that the debate was that finely balanced. We came down clearly on the side that in the longer term this was probably not the right organisation. Moreover, I have some doubts, as the noble Lord, Lord Newby, pointed out, in relation to the specific response we had from the non-executives.

I did not speak at Second Reading on this matter, not for my usual reason—namely, that there was an important football match to be watched—but simply because I felt that this was a Bill that was substantially correct in all its forms and I did not see the point of wasting 15 minutes of your Lordships' time in saying that. However, I intervene now because we are getting down to the detail.

I too admonish my noble friend Lord Eatwell for suggesting that these amendments are mischief-making. He dealt with the matter admirably by pointing out that the immense benefit of the amendments is to demonstrate without any doubt how right the Bill is as drafted and how wrong the amendments are. It is not mischief-making; it is immensely helpful for these amendments to be tabled so that they can be demolished in the excellent way that they have been so far.

My noble friend Lord Borrie called into question certain issues—it sounded more like a demolition of the amendments—but said that the Bill is very clear. A majority of non-executives will meet as a committee. Unless they meet as your Lordships' House meets, they will have a chairman. I should have thought my noble friend would pursue the role that several Members of the Committee said they would like to see.

I am not as enamoured with modern theories of corporate governance as are many other Members of the Committee. Having been the kind of chairman whose main role was to act as psychiatric adviser to the chief executive or to organise dinner parties, I am not persuaded that chairmen have such a marvellous role. I am also a good deal less enamoured, having been one on more than one occasion, of the merits of the non-executives. That thinking is out of fashion these days and people emphasise that what we need in running firms is someone to actually run them.

But as this will be an enormously powerful body—it is right, as my noble friend said, that it should be powerful—we need at the top a powerful executive figure with full responsibility; one who shows leadership and does exactly the job set out in the Bill. The benefit of the amendments is that we are able to elucidate that. The noble Baroness, Lady O'Cathain, raised the matter and for once I am puzzled by what she said. Normally in these areas she says things with which I totally agree. However, she said, "Suppose we appoint the wrong person". That is always a problem. The answer is, first, do not appoint the wrong person; secondly, have a mechanism for getting rid of the wrong person, but do not have two posts solely because one of them might be filled by the wrong person.

I thank the noble Lord for giving way. That is not the sole reason for having two posts. He knows that perfectly well. He is just trying to goad me, as is his normal role. Perhaps I can add, as an aside, that I happen to serve in an organisation of which he is chairman, and he does not act as a psychiatrist; he acts as an autocrat. I know that he will take that in the best possible way.

The reality is that one of the roles of a chairman is to appoint the chief executive and to make sure that the chief executive carries out the wishes of the board. The chief executive is, of course, on the board, but it is a useful stopgap for the board to have on it somebody who is appointed by the board for the benefit of all the stakeholders. I take this brief opportunity to say that I am not saying that company boards—corporate governance is the in-thing at the moment—are there solely to look after the interests of shareholders; they have a lot of other "stakeholders", such as the staff, the general public and the good of the country. The noble Lord is trying to simplify what I said and perhaps I used too much shorthand.

I apologise to the noble Baroness. I should never have provoked her; her intervention has been longer than the whole of my speech.

I believe that the Bill is right. I remind the Committee also that my noble friend Lord Eatwell emphasised what no other speaker emphasised; that is, that the FSA exists for a reason. That reason involves the serious problems of management of risk and fundamental underlying economic problems. We are not discussing an academic issue of corporate governance; we are discussing a body which must have the power to deal with—we hope that it will not happen—a potentially major, catastrophic, risk-like event hitting our economy.

Finally, I turn to the amendment of the noble Lord, Lord Kingsland—

I am grateful to the noble Lord for giving way. I simply wanted to ask: is it not the basic duty of a board to decide how it will deal with those emergencies? Boards decide that every day of every week of every year. Why does the noble Lord feel that if we have a chairman and a director-general, they will be incapable of arriving at a clear line of authority to deal with emergencies?

I know of no organisation in this country, particularly within the private sector, that will remotely face a potential catastrophe, which we hope will not happen, such as that which the FSA may have to face. We require a single person at the top to show the leadership, the control, and of course to have the organisation organised to cope with such an event. But we are dealing with a specialist issue, which is why I quoted my noble friend.

Perhaps I may now turn to the amendment of the noble Lord, Lord Kingsland, unless he has decided that he does not want it debated with this group.

Before the noble Lord turns to me, I want to turn to him with respect to the remark that he just made about the FSA facing a "catastrophe". It is very interesting that the one responsibility that does not feature in the objectives of the FSA is that of dealing with systemic risk. So if the authority were faced with the catastrophe that the noble Lord talked about, it would not be entitled to deal with it.

As I understand it, this is a matter that will emerge during the course of this Committee stage precisely in terms of an amendment. That is why it is there. I know that it is incredibly boring of the one or two of us who are economists to raise economic matters when the rest of the Committee would much rather discuss things like corporate governance and non-executive directors, but the organisation exists for an economic purpose, not for its own sake. That is the point I am trying to make.

Finally, I hope that it is still in order for me to turn to Amendment No. 9A. I shall simply say that I disagree with it. My disagreement starts with the problem that the noble Lord, Lord Kingsland, obviously had. The noble Lord referred to the House of Commons Treasury Select Committee and your Lordships' House, but the amendment does not mention the latter. It does not do so for a very good reason; namely, that we do not have a committee—though some of us hope one day we will—that could do the job in the first place.

However, that is not my main objection. I accept the remarks made by many noble Lords—certainly those speaking from the Opposition Front Benches—about the problem of parliamentary accountability. Indeed, I am very concerned about that. But, in my judgment, the amendment is not about parliamentary accountability; it is about how to make a mess of the process of appointment. If we consider, not ad hominem but purely hypothetically, the sort of people about whom we are talking and do so entirely within the context of how we normally make such appointments in our country, the notion that those people of standing who we hope will come forward would not merely be sent for by the Commons Select Committee to be queried and interrogated but would also have their appointments confirmed by such a committee seems to me preposterous in the highest degree.

I am able to think of other possible heads of this body; indeed, it is not a case of only one entering into my mind. The sort of people of the standing I have in mind would, of course, be honoured to come before your Lordships' House, but that is another matter. However, to go before the Commons Select Committee with a view to one's appointment being confirmed—meaning, of course, that it may not be confirmed if members of that committee decided that the person was not good enough—seems to me a completely mistaken idea.

I am not for one moment suggesting that the noble Lord is wrong to raise the question of accountability of this body, as his noble friend did on Second Reading. Indeed, that does intrigue me. However, I do not believe that this proposal would give us accountability; it would just mess up the whole question of how we can get first-class people to work in quasi-judicial bodies. You just do not do it in this way.

I do not have a hymn sheet, so I shall disagree with many of my noble friends. I had intended to speak only on Amendment No. 9A because I very much welcome the proposal. It is a profound defect of the constitution that it is very undemocratic. Whenever one tries to introduce democratic accountability, everyone says, "Nobody who is any good would appear to be scrutinised by a public body because it is simply beneath his dignity to do so". But it happens in the United States all the time. Alan Greenspan, who probably has more to do with "financial catastrophe" than anyone else, has to appear in order to be confirmed in his appointment.

I am sure that the whole debate on this point will be absolutely fantastic. Clearly, as there is only one Howard Davies, it will be difficult to clone him. Indeed, whoever appears the next time will be equally "unclonable" and will be too valuable to lose just by rude questioning from MPs, or even from members of a committee of this place.

If this is an important issue, it will touch the lives of many people. In that case, it is very important that the person occupying that office should be publicly scrutinised. Everything that people say about the importance of the FSA and its head convinces me that we now have a chance to make a real constitutional innovation. I wish that happened on every appointment, including that of the Governor of the Bank of England, and so on. The noble Lord, Lord Kingsland, and I have had other democratic outbreaks like this, but they have been firmly put down, as no doubt this proposal will be. Indeed, we shall probably be "sent off" and put into a corner.

As regards the big question, I do not see why we cannot, in principle, give the person concerned two titles. The transition problem would therefore be solved. We could call Mr Howard Davies "chairman and chief executive". I do not know what he is called at present, but that title means that it would be possible in the future for those two offices to be occupied either by two separate people or by one person. It would depend upon whom we get.

That is what the Bill does.

It does not say so explicitly; otherwise we would not be having this discussion.

I am aware of the "Borrie" solution, which I believe to be very subtle. However, as I read Schedule 1, I do not see why we cannot put this in writing and make our law slightly more readable and understandable by normally intelligent people, like myself, rather than leaving it obscure. I am sure that the answer will be, "It is all there, if you only look for it"—just as accountability is there, if one looks for it. Some people may say, "You are just ignorant; you are not part of the club. If you were on the inside you would know this, but you are outside. Therefore, you should not be here". I very much dislike that. Let us be explicit; let us be open and flexible. If it is necessary to have one person occupying two offices, that is fine, but it is possible that we will have to have two people occupying them. I do not really understand the problem.

I believe it is my lack of qualification that qualifies me to speak in this debate. I have less experience of the financial industry than almost anyone else in this Chamber. Therefore, as a member of the public, I think that I should remind the Committee that we ought to be considering the nature of the animal that we are creating and trying to control. It is hugely important and powerful. It is subsuming large parts of the power both of Parliament and, I have to say, of the judiciary. It can extinguish the financial lives not just of individuals but also of large companies. Moreover, it can pry into the most intimate affairs of any organisation under its purview. Indeed, we shall discuss later the powers with which it can follow up what it has discovered—

It is my recollection that, for a brief and somewhat turbulent period in its life, my noble friend was chairman of FIMBRA. I cannot remember what those initials stand for, but my noble friend has actually had personal experience in this matter upon which he should be able to draw.

I shall be able to draw on that small experience a little later. However, from the outside, this leviathan is a fearsome creature. While controlling the whole of our financial industry, which is responsible for a great deal of the wealth and well-being of this country, it will also be capable of changing the circumstances under which the rest of us will live as a result of the decisions that it makes. So the decisions that we are now making are not unimportant. The concern of the average man and of the average—dare I say it?—voter is that it should not be an uncontrolled power unto itself and that it should not have duties that are beyond its ability to discharge.

I now turn to my brief and "turbulent" time as the chair of the Financial Intermediaries, Managers and Brokers Regulatory Association. I am not at all surprised that my noble friend could not remember the full name. I recall being a chairman with a chief executive. It seemed to me then that my experience as a Minister of the Crown was being duplicated and that anyone working under the pressures that will apply to those people whom we are now considering will, to some extent, be polarised. Those concerned will either be looking down at the regulated or out at the affected; in other words, they will either be looking at the enforcement of policy or at the effects of policy. If the policy is not properly enforced, the system will break down, the public will be let down, and the administration will have no result.

It seems to me that from a human point of view one normally needs to have two people to occupy those two positions and to hold them in tension with each other on the same board and with mutual regard. That works. It is not a recipe for disaster when catastrophe threatens. No Secretary of State is shy of having his Permanent Secretary with him in a moment of crisis, and no chairman need be shy of having his director-general with him in a crisis. But those outside need to see something which they believe can work, and not merely something that the Committee has been persuaded can work. The institution provided for giving public reassurance is Parliament itself.

Like the noble Lord, Lord Desai, whom I shall hasten to pick up if he is put down, or bring from his corner if he is put into it, I feel that Amendment No. 9A is an important one. I am not quite sure that my noble friend has it right, but I do not want to see Parliament push this great "Titanic" out with the danger that we shall all sink in it because we then have no control whatsoever over where it goes. The noble Lord who has introduced the amendment we are discussing has done us a service in drawing attention to where the true stresses lie. I was encouraged to hear that the noble Lord, Lord Burns, was, on the whole, of the same mind, until he answered a hypothetical question. That was a lesson in not answering hypothetical questions in debate! However, until that point he appeared to be on the side of those who favour these amendments. He introduced the idea of a change at a later date. I think that the noble Lord, Lord Desai, has put his finger on the matter. There is no reason why there should not be a change now and yet the present circumstances be left undisturbed. The Committee is anxious that the transitional body should not be fatally disturbed. All we are doing is asking one person to carry two names; that should not result in schizophrenia.

I had not intended to say anything and I shall be extremely brief. I have listened to the whole of this argument but, the longer it has gone on, the less I have understood it. I thought that I understood it when the noble Lord, Lord Newby, started it. I thought that I understood it when one or two people opposed it. However, having listened to the noble Lords, Lord Jenkin and Lord Burns, and then having listened to what the noble Lord, Lord Elton, has just said, I find myself totally confused. The proposition seems to be that the post ought to be split and that there ought to be a chairman and a chief executive, except for now when it is important that the two posts should be operated by one individual. If I think about that for a moment, that seems to me to be saying that the ideal structure when things really matter is the existing one, where the post comprises one person, but that for normal working, the posts should be separated. I do not understand that.

I ask the proposers of these amendments two questions. First, does the noble Lord, Lord Newby, accept that if his amendment is passed, it will not be possible to do what the noble Lords, Lord Alexander and Lord Elton, suggest; namely, sometimes having the post comprising one person and sometimes having two separate posts comprising two people? Secondly, if his amendment is passed, it will be necessary always to have a separate chairman and a separate chief executive, except at such times as there is a temporary vacancy. However, one could not say that for the next five years "X" is to be chairman and chief executive. I suggest to the noble Lord, Lord Newby, that that is the true position and that the compromise of the noble Lord, Lord Alexander, may be a wonderful one, but it is not an argument in favour of this amendment.

I now address the noble Lord, Lord Kingsland, and ask him the question that he asked the Minister earlier. Is there any precedent—and, if so, what—for the idea that posts of this kind will be subject to the appalling American practice of confirmation by the legislature, which has meant that in America only third-rate people are prepared to take jobs of this kind?

If I may say so, in the FSA we are creating a kind of monster. As has been reiterated many times, it has powers far beyond anything which we have seen before in the financial services industry. Most of the powers of the Bank of England, the Department of Trade and Industry, and other units of enforcement, have been removed and directed to the FSA. When the crisis arises—as it inevitably will—in the years ahead, how will the FSA maintain the greatest credibility? The FSA will be a new instrument, a new body, in the eyes of people in this country. It will also be watched carefully internationally. My noble friend Lord Kingsland mentioned the word "systemic". If there is a systemic breakdown, it is important that everyone should consider that the FSA has the power and the wisdom to control the situation. I should have thought therefore that initially it is important that the position of the chief executive and that of the chairman—whoever they may be in the future—should be separated.

The Committee owes a debt of gratitude to the noble Lord, Lord Newby, because he has introduced what is obviously an important issue on which many Members of the Committee have expressed important thoughts. It is, after all, an issue on which the committee of the noble Lord, Lord Burns, spent many hours and on which it made a specific recommendation which the noble Lord, Lord Newby, has tried to address in his group of amendments.

I hope that I may explain why many of my noble friends have concerns about this aspect of the Bill. The issue that those outside the Chamber have brought to my attention and on which they have expressed concern is the very issue that we are discussing. Many practitioners in the City are deeply concerned that the first step that is being taken is to create a powerful body and that the second step will be to create a powerful executive at the head of that body. I hope that my noble friend Lord Elton will allow me to mention the name of the present incumbent again. As the noble Baroness, Lady Turner, said, it is no part of our aim to create disruption in a body which has worked well. Some of us have said that it has worked spectacularly well. It is a minor miracle that the FSA has been able to operate without the underpinning of this legislation. That is a great tribute to its board and to its present chairman. As I say, we believe that it is important not to cause disruption.

However, I reiterate what many of my noble friends have said; namely, that it must be the object of this Chamber to look ahead and to prepare legislation to underpin the working of the FSA for 15, 20 or 50 years. If Howard Davies is listening to, or watching, the debate, or will read the debate in Hansard, I should like him to know that I and all my noble friends have great respect for him. We do not fear him, but rather his potential heirs and successors.

I had difficulty with some of the Government's arguments—many of which the noble Lord, Lord Newby, reiterated—against splitting the two jobs. The first argument that the Government put forward was that having a separate chairman and chief executive would create confusion as regards who would attend certain meetings. It has been raised as an issue that it would not be clear who would attend the tripartite committee on financial stability, a very important body on which the FSA is represented along with the Bank of England and the Chancellor of the Exchequer. The Government have also said that there would be other uncertainty about who would attend certain meetings. There are apparently regular meetings of regulators from different countries and the Government are concerned that people would not know who to send. I must agree with the noble Lord, Lord Newby, that it ought to be possible for sensible people to decide who would attend such a meeting. For example, it may be possible to agree that the chief executive in a split role would be the appropriate person to attend these meetings. He is obviously the executive with operational control. Certainly that would be the case in a private company. The chief executive would attend those types of meetings.

That brings us to the heart of the Government objections to splitting these roles. The Government say that the FSA is not a private company. That is why the Government say it is not appropriate to apply the Cadbury or combined code guidelines of corporate governance to the FSA. That is the heart of their argument. I quote the Government in saying they are,

"mindful of the fact that parallels with other models of corporate governance are not exact".

What they mean by that is that the FSA is not a private company. It does not have shareholders.

It is certainly true that the FSA is odd in form, as the noble Lords, Lord Grabiner and Lord Jenkin, have said. Despite the fact that it exercises public power on behalf of these Houses of Parliament, it takes the form of a private company limited by guarantee. Tim Herrington of the City law firm Clifford Chance explained to the committee of the noble Lord, Lord Burns, that:

"The legal structure chosen for the FSA creates challenges in establishing clear accountability arrangements. It is a hybrid; a private body exercising public functions".

It is true that in any normal private company accountability of those in power—in other words, the executive directors—is achieved because the board of directors reports to shareholders who can remove them. The FSA, as the Government say in this argument, has no shareholders. Therefore, how is accountability of the executives to be achieved, and to whom?

This question has led to the wide and consistent calls, which the noble Lord, Lord Newby, has reflected with this group of amendments, for the role to be split in order that an independent chairman can provide a dispassionate view of the performance of the executives. What the critics of the present set-up are driving at is what they see as the advantage in principle in any organisation of having a chief executive, however good he is, who also has a chairman to whom he must answer. They say that the advantage of having the two is a general advantage of good governance and would apply to any type of organisation, especially so when setting up a very large and complex organisation such as the FSA.

The City—those regulated by it and those outside it—would then have in the chairman, as they see it, someone whom they can approach with their anxieties but who, if he is not instantly responsible for the issues, can take them up with the chief executive in order that the whole system can be seen to work better. Those noble Lords who have expressed anxiety about what this would mean in terms of the running of the FSA might consider this point.

A good example of how this works in practice is the BBC. I am sorry to see that the noble Lord, Lord Birt, is not in the Chamber. However, I think I know his views. This is exactly the type of situation that the critics of the present set-up are concerned about. If, for example, the BBC were accused of political bias of a serious nature, or if it were accused of some gross invasion of privacy, or if it were accused of not meeting its programming obligations in a major way, then it would be clear that someone other than the executive responsible for the allegedly offending decisions would become the court of appeal. That person is the chairman of the BBC. The structure works perfectly well and we all believe that the BBC is an icon of how organisations should be run with the public interest in mind.

Is it not the task of the practitioner panel to bring it to the attention of the chairman or the directors of the FSA if the City has concerns about some of its activities?

Yes, it is. Unfortunately—and we shall come to this in other amendments—the status of a practitioner panel is nowhere near adequate for the type of issue that I am describing here. It would only be able to make representations and that would be all, whereas the position of chairman is that of the person who is in command of the board and therefore can take responsible decisions.

It is also worth bearing in mind that IMRO, the SIB and the SFA, which were three of the FSA's regulatory predecessors, and three very important ones, all operated on a system which split the functions of the chairman and the chief executive.

I shall close by saying, only half seriously, that one of my honourable friends in another place researched quangos to see how many of them operated on a similar basis to what is proposed in this Bill. He found only two: the Central Laboratory for Research Councils and the Trinity Lighthouse Service.

Before the noble Lord sits down, did that research also include regulators? The FSA is a regulatory body. For example, the Director-General of Fair Trading is a single individual and the railway regulator is a single individual. Is that not a rather closer parallel than the kind of organisation to which the noble Lord has referred, including the BBC?

I am glad to deal with that point. One of the arguments that the Minister, if I have learnt to anticipate his arguments at all well, will reflect is what has just been said. Why are we complaining about this when other regulators in other countries and other regulators in Britain too are single individuals—they are usually called "director-general"? I think the Minister reacted enthusiastically when it was said that other financial regulators in other countries have a single individual at the top. I am sure he will deploy that argument. I am pleased to be able to respond to that in advance. The point is that it is not necessarily the case that because all one's friends decide to build their house on a frozen lake in winter that one is obliged to do the same. To take another example which comes to mind, if 11 countries decide that they want to merge their currencies into one, it is not necessarily the case that Britain has to do the same.

I reiterate that one of the points that underpins our great concern about this Bill in so many key areas is that the financial services industry is unique in Britain. Britain has a miraculous thing in the financial services industry, an industry which is a world leader. Our share of the sectors of the financial services industry is much, much bigger than we would deserve on any pro rata basis of our share of world GDP. There are particular reasons for not wanting to disturb what is an extraordinary success story.

The noble Lord has put his finger on something which I realise now is central. I take it that his argument in reply to my noble friend Lord Faulkner is that the industry being regulated is different from all other industries in this country. That is the essence of the position as he sees it. I must admit that, until he said it, I had not heard any other argument as to why this industry is different from all other industries. It seems a little late, if I may say so, since he has only just raised it, that we should now be having to think about it. None of us has had a chance to say that we are not convinced. I take it that he is going to say yes; that is the essence of his position. This industry is completely different from the whole of the rest of the British economy.

Yes, I am going to put that argument very clearly. It is a unique situation in that the industry itself is a jewel. The reason that the question of the chairman and chief executive is so puzzling to practitioners in the industry is that the FSA is the body that supervises the very companies which themselves are obliged to supervise the application of the combined code to their clients. Reasonable people are mystified as to why the rules of governance that they are expected to apply to their clients should not be applied to the body which regulates them.

A long time ago the noble Lord, Lord Newby, said that this is the most contentious issue that will be considered in the Committee stage of the Bill. I hope that the noble Lord is right. It would be very agreeable if we could be amicable about all other matters.

I have to say—I am sure that I will be misunderstood in saying it—that my starting point here is that of Pope:

"For forms of government let fools contest"—

oh, no, your Lordships are not fools—

"Whate'er is best administered is best".

Frankly, as far as I am concerned, the sooner we get on to the content of what the Financial Services Agency does rather than what it is, the better for the debate.

I recognise that this is an issue on which strong views are held and the Government recognise the sincerity and force with which those have been expressed. I have to say that those view have been expressed from all sides of the Committee with considerably less unanimity on the side of the amendment than might have been expected from the trailers to these debates which have been conducted in the broadsheet newspapers over the past few days. So it is necessary that I should restate the Government's position.

Like all those who have spoken, we want the governance structure which best enables the FSA to achieve its objectives. In our considered view, the arrangements we have—a single person as chairman and chief executive with a non-executive deputy chairman—are the best way of meeting the objectives. My speaking notes say that I know that all noble Lords agree that Howard Davies has been doing a very good job indeed. But I am not allowed to say that, so I have not said it! The present arrangements have been working well, and we see no need to change them.

There are a number of reasons for that. First, there is the question of accountability. This point will be dealt with in many later amendments. We believe that there is great advantage in having a single public face of the FSA; a single chief point of contact who is accountable to the Treasury and who can be called before parliamentary committees; a single person with whom the buck stops within the FSA. Separating the roles would risk confusing that very clear chain of accountability, blurring the lines as to who is responsible for what, and creating doubt as to the authority of any one person to represent the FSA, and, ultimately, to carry the can. The earlier remarks of the noble Lord, Lord Stewartby, were pertinent to that point.

Secondly, we need to ensure that there is a person with the authority to lead the FSA both in its daily business and in the international arena. My noble friend Lord Eatwell referred to daily business. Daily business may well be urgent business. My noble friend said that it is something where there has to be a quick reaction to a crisis, but it could be to any event which requires top-level decision making. In those circumstances, a single person is more fit to do that. In the international arena—what I am going to say has been anticipated so many times that I am almost afraid to say it, but it is my duty—we are anticipating that the FSA will continue to be a major player on the international regulatory stage. Virtually all other major international financial regulators are represented by full-time executive board chairmen. They are the public representatives of those organisations, and it is important that the FSA is represented by a person of appropriate, and equivalent, stature.

Thirdly, the nature of the authority and its business means that there is a very real need for an executive office holder to have the full authority to take difficult decisions and to commit the FSA. If, for example—I refer again to the point made by my noble friend Lord Eatwell—the FSA needed to take urgent action to deal with a systemic issue, that decision would need to be taken by a person at the very highest level, with a full-time commitment and a real involvement in the issues. For more everyday matters, there is undoubtedly benefit in having a single individual providing a recognisable public face for the organisation.

It has been suggested by some that the roles of chairman and chief executive should be split in order to reflect the current thinking on corporate governance best practice. The noble Lord, Lord Boardman, made that point about the Cadbury rules, although I doubt whether they are the most recent thinking on current good practice. My noble friend Lord Grabiner answered that point anyway. Although we understand that line of thinking, the parallels with ordinary companies are not exact. The combined code is designed for companies with shareholders, and who do not benefit from the various accountability checks and balances provided for by the Bill. The spirit of the combined code is that there should be a strong non-executive element on the board.

We have more than provided for this. There will be a majority of non-executives. The non-executives will form a committee to keep under review whether the FSA is discharging its functions in the most efficient and economic way; to review the FSA's financial controls; and to determine remuneration. The committee will be chaired by the non-executive deputy chairman. We intend that the deputy chairman should be a key and influential member of the board, leading the non-executive majority in board discussions, in providing an independent perspective to the overall running of the FSA, scrutinising the approach of the executives, and the FSA's overall performance. The noble Lord, Lord Jenkin, described this as "housekeeping". It is a good deal more than that and it covers all of the points raised by the noble Lord, Lord Boardman, and more.

On top of that there are a range of other accountability measures which a "normal" company will not have. The board will be appointed by the Treasury and be subject to transparent appointment procedures. There will be an annual report to Parliament, the contents of which have been agreed with the Treasury. There will be an annual open meeting where stakeholders can air their concerns. Practitioner and consumer panels will be consulted on the FSA's general policies and practices and will make their own annual reports; and of course there are the principles and objectives, guiding the way in which the FSA—and hence its governing body—acts. Those are on the face of the Bill and will be debated later. So the FSA is not really a company of the kind to which the main corporate governance reports apply. To the extent that it is, the functions of the board are the fiduciary responsibility of all members. I have to say to the noble Baroness, Lady O'Cathain, that this means that all power is not invested in one person, as I think she was suggesting.

Having said that, we recognise that there is room for more than one view on these matters. It is in recognition of this that the Bill has not been drafted in a way that sets the current arrangements in stone. I shall not become involved in the discussion between the noble Lord, Lord Jenkin, and my noble friend Lord Grabiner, as to whether is was intended that way. I am simply recording it as a matter of fact. The Bill allows flexibility for future administrations to review whether a different governance structure may be appropriate when different individuals are in charge—for example, a non-executive chairman with a chief executive; or indeed, as the noble Lord, Lord Alexander, wants, an executive chairman, although it is not at all clear to me whether that is provided for in the amendments under discussion. Indeed, it is not at all clear to me whether the amendments under discussion are clear as to whether, under certain circumstances, the roles of chairman and of chief executive could be combined in one person, as some noble Lords seem to want.

We do not therefore believe that any amendments need to be made. We think that amendments might make the current position, which I believe has general support, more difficult to sustain. We would risk losing authority in international discussions; for example, Howard Davies is the UK representative on the governing bodies of IOSCO and FESCO, the global and European organisations of securities regulation. As the noble Lord, Lord Haskel, pointed out, all his international colleagues on these bodies are full-time executive chairmen.

Many analogies have been made with other bodies. I do not have time to go into them all. But the FSA is not the only regulator with such a structure. This is the model used with many UK regulators—the Director-General of Fair Trading, the Director-General of Telecommunications and the rail regulator. Incidentally, I should say to the noble and learned Lord, Lord Fraser of Carmyllie, that the Bill does not require investment exchanges to have a separate chairman and chief executive.

I did not suggest that it did or, indeed, that it should. I am trying to ascertain from the Minister, now or at some future point, whether there will be an expectation on RIEs that they should in future have that separation. It would seem anomalous if, as the noble Lord is advancing, there should be only one chairman for the FSA.

That is a hypothetical situation. The Bill does not say so and the Government are not proposing to introduce amendments which would make the Bill say so.

The FSA has made clear that it will have a separate enforcement committee, which will not include executive board members, which will decide both on bringing charges and on appropriate sanctions. The FSA structure does not envisage a role for the chairman in the disposal of enforcement cases.

I shall not go over the views of the non-executives; they have been roundly criticised. The noble Lord, Lord Newby, spoke of the paucity of their case. Without going over the arguments, they did point out that the Government's model for the FSA is based on the model put in place for the Bank of England in the Bank of England Act, which we approved here in 1998. As the Minister who took the Bill through this House, I do not recall any objection to this element of its governance.

I turn now to Amendment No. 9A, which is grouped with this amendment, to which the noble Lord, Lord Kingsland, and others have spoken. As we have indicated in our response to the Joint Committee report, we do not consider that an extended role for Parliament would sit comfortably with the principle of ministerial accountability for appointments endorsed by the Nolan Committee for Standards in Public Life in its first report.

The appointments of the chairman and chief executive, like the appointments of all members of the governing body, are made by the Treasury, and therefore will be an issue on which Treasury Ministers will be accountable to Parliament. It is important that a clear line of accountability is maintained. If the appointments were subject to the approval of a Select Committee, we believe that that would interfere with ministerial responsibility. As my noble friend Lord Peston said, the prospect of a public hearing and the possibility of being turned down may deter suitable candidates from coming forward. These are non-remunerative posts which are enormously important because they represent the financial community. We want the very best people to do those jobs.

I should say to my noble friend Lord Desai that I am not against constitutional innovation, but it would seem rather strange to introduce this one constitutional innovation—confirmation by a legislative committee—when we are dealing with the FSA. If we are going to take a major step in constitutional innovation, surely we should do it in a deliberate and considered way rather than almost accidentally in one amendment to this Bill.

I have made it clear that we do not believe the amendments are necessary or desirable. It is up to the noble Lord, Lord Newby, what he does with them, but if he decides to divide the Committee I shall advise my noble friends to vote against them.

Before the Minister sits down, perhaps I may ask a question about Amendment No. 9A. Sharing, as I do, his doubts as to whether an amendment of this kind should be introduced in regard to one particular body, is it right that if we had to consider the issue of principle, we would have to consider it across the board? We would have to consider it as applying to a whole range of prospective posts, such as Chairman of the BBC and even possibly to the appointment of judges. The issue would have somewhat wide-ranging implications that we would need to look at very carefully as a whole.

Does the Minister also agree that, if we were considering this issue, we would have to look at whether the control mechanism should be simply a committee of the House Commons or a committee of both Houses of Parliament?

The noble Lord has said much more ably what I said rather falteringly and briefly. I am sure that he is right.

I do not know whether this will be the most contentious debate on the Bill, but I certainly hope that it is the longest. I am extremely grateful to all noble Lords who have taken part. I hope that they will forgive me if I do not go through all their contributions and comment on them. I want to make only two brief, specific comments in regard to questions that have been asked.

My first point relates to a question which was asked initially by the noble Viscount, Lord Bledisloe, and which was followed up by the noble Lord, Lord McIntosh. The noble Lord asked whether the amendment would mean that one would necessarily have a separate chairman and chief executive. On first reading, that is what it means. That was in our minds when we tabled the amendment; as we have discovered, how it may be interpreted in the future is a different matter. On a straight reading of it, there would be two people with two distinctive roles. That was in our minds when we drafted the amendment and is what I tried to say when I opened the debate.

My second point is in response to the noble Lord, Lord Peston, who asked whether we on this side of the debate were arguing that there was something different about the financial services industry from the other regulated industries. It was a lacuna in my argument that I did not make the point that there clearly is. The circumstances are completely different. A 300 year-old industry which has been in the private sector throughout—which is fiercely competitive and which has many, many practitioners—is completely different from a privatised public body. In terms of the regulatory tasks faced by a regulator, it is almost self-evident that the financial services sector is of a different order to the railways, the water, the gas and the electricity industries.

I am pleased that the noble Lord has been forthright in his statement. I do not want to try and influence what he now decides to do about voting or not voting, but, on reflection, does he not think that as we have not debated precisely what I certainly regard, and what I think other noble Lords regard, as the essence of the subject—it may be that the industry is different—it would be rather foolish to divide on the issue? I do not want to stop him dividing the Committee; I merely want him to reflect on it for 10 seconds.

Let me proceed and all will become clear.

This has been an extremely thoughtful debate. As a number of noble Lords have said, the matter is not completely black and white. I set out the arguments as forcefully as I could because I thought they needed to be put at the start of the debate. A reason for such a degree of greyness about some of these matters is that the FSA is up and running. If it were not, there would be even wider support than there has been for the arguments we have advanced. I accept that.

As to what we intend to do next, we on these Benches have always—perhaps not always, but during my time in your Lordships' House—as a matter of principle chosen not to divide at Committee stage, specifically because we like to grapple with issues. We like to hear what people say and to decide whether our mind has been changed. We shall return to this matter at Report stage. We never intended to force a vote at this stage and I beg leave to withdraw the amendment.

moved Amendment No. 9A:

Before my noble friend—

The noble Lord has spoken to the amendment and I must therefore assume that he meant to say that he moved it. Amendment proposed—

I am giving way to the noble Lord, Lord Alexander.

The noble Lord cannot give way to the noble Lord, Lord Alexander; he must give way to me, unfortunately. As the noble Lord has spoken at some length to his amendment, an opportunity must be given for others to respond to it. The amendment proposed is at page 216, line 28, insert the words as printed in the supplementary Marshalled List.

My Lords, after that exchange, I rise with a certain amount of diffidence. Having heard—this has happened to me before—the persuasive way in which my noble friend Lord Kingsland has moved his amendment, I find the arguments, if they could be addressed in a general context as to which authorities should be subject (in the context of appointments to senior positions) to parliamentary control, highly understandable. If any were to be subject to parliamentary control, the noble Lord makes a very strong case that the FSA should be.

Perhaps I may ask the noble Lord, at whatever would be the appropriate stage for him to deal with this, to indicate whether he thinks it would be more appropriate for an appointment of such importance to be considered by a Joint Committee of both Houses of Parliament.

The noble Lord, Lord Kingsland, used his opportunity to move the amendment. It had to be moved, and it was moved—even if only by the words of the Deputy Chairman.

Perhaps I may interrupt my noble friend. I could have sworn that I heard the noble Lord, Lord Kingsland, move his amendment two hours ago. I understood that he had withdrawn it. I am totally at a loss to know why we are debating it now.

It could not have been moved two hours ago. There can only be one amendment before the Committee at a time.

Perhaps the Committee will excuse my brevity if I say that I think the arguments against this amendment in particular were made most effectively by the noble Lord, Lord Alexander, in considering Amendment No. 7. I shall be glad to address the extraneous points raised by the noble Lord, Lord Kingsland, about accountability and parliamentary scrutiny when we come to the appropriate amendments in due course.

As the opportunity has been provided, will the noble Lord explain to me a little more clearly the status of the body that we are creating? It is described on page 16 of the Explanatory Notes as,

"an existing company limited by guarantee".

As it was rather differently described in our debate and no one was corrected in so doing, I thought, therefore, that it had lost that status. Then I see, in paragraph 14 of Schedule 1, that,

"The Authority is to continue to be exempt from the requirements of the 1985 Act relating to the use of 'limited' as part of its name"—

which seems to mean that it is indeed a limited company. I should like to know which view is correct.

The Explanatory Notes are correct. It is a company limited by guarantee which is not required to use the word "limited" in its name.

It was my intention in speaking after the noble Lord, Lord Newby, to respond, as the noble Lord did in respect of his amendments, to those noble Lords who spoke to my amendment, and then to withdraw it. The reason I did not complete the procedure was that I felt a frosty wind from behind me and my noble friend Lord Alexander got to his feet. Therefore, before I could say the fatal words, he was up and I was down. I now beg leave to withdraw the amendment.

moved Amendment No. 12:

In the light of the withdrawal of the amendment moved by the noble Lord, Lord Newby, this amendment seems quite inappropriate. I should have thought that the noble Lord, Lord Saatchi, would have chosen not to move it. What we have now is the position as described in Schedule 1; namely, a chairman and a governing body where there will be executive and non-executive members who can be called whatever the authority wishes to call them, and I should have thought that it was best left to them. I say that despite the fact that I have a certain affection for the title "director-general". However, I do not think that it is appropriate or necessary to have this amendment in the Bill as it now stands.

If I felt the same way, I should certainly seek to withdraw the amendment right away, but first perhaps I may hear what views there are.

I shall speak only briefly to the amendment because the arguments have been deployed in relation to the previous group. My particular concern regarding the amendment of the noble Lord, Lord Newby, was the introduction of the term "chief executive", because it carries with it the implication that there can be no higher executive authority. If there were to be a director-general, I should be much happier. My main concern is that we should not introduce the term "chief executive". If the roles are separated, I hope that the authority will not use the term "chief executive", with its implication that there is a chairman who is not executive in any sense.

I honestly do not see the point of this amendment. It does not imply a splitting of the roles of the chairman and chief executive, which is what we debated for two hours—quite properly and quite rightly. But the question of the actual title, whether it is "chairman" or "director-general", seems to me irrelevant. If there is no implication for the nature of the role, I would say that Pope is doubly right:

"For forms of government let fools contest;

Whate'er is best administered is best"

I hope that the noble Lord will not pursue his amendment. There is no evidence of any dissatisfaction with the existing title. I believe that the amendment would be change for change's sake.

I moved the amendment in the context of seeking to deal with the general structure at the top of the FSA. I am sure that this is an issue to which we shall return on Report. At this stage, I beg leave to withdraw the moment.

moved Amendment No. 13:

I listened to the noble Lord, Lord Sharman, with much interest. I believe that there should be a much clearer duty placed on the FSA, together with the Governor of the Bank of England, and so on, to have regard to the problem of systemic risk. My interest stems from the fact that at about three o'clock on a Friday afternoon in 1970, not long after my appointment as Financial Secretary to the Treasury, I was beginning to think of travelling to my constituency for my weekly surgery when officials told me that there was a problem. They said that the Mersey Docks and Harbour Board would be unable to pay the wages that weekend. I asked them why the board could not appoint a receiver and they replied that under its Act of Parliament it was a statutory port authority and had no power to do so. From the point of view of Merseyside, in particular a large number of widows and orphans, it was a very serious matter and became something of a cause célêbre.

It was perfectly clear to me that in that case the Treasury was unable to give advice. Obviously, the bank was involved. Clearly, we did not intend to bale out the board; we had come into office on the clear understanding that we would not assist companies in that way. We had turned our back on what our predecessors had done. It was an isolated matter. However, the following week I had lunch in the City as a guest of Samuel Montagu where the reaction of the large number of bankers around the table was one of total horror. How on earth could we have allowed an organisation of that kind to go into liquidation? After some discussion my reaction was to say that what they needed was a spectacular bankruptcy to understand the philosophy of the new government. A few weeks later we were greeted by the problems of Rolls-Royce.

The lesson I draw is that there must be a clear responsibility. Obviously, a trust port is nothing like BCCI or the failure of the German bank where there was a risk of a domino effect. However, this is an issue of considerable importance. Although my experience of some 30 years ago may not be entirely relevant, it left the searing memory in my mind that there was nothing we could do except shell out large sums of public money, which was not what we were about.

I support the amendment in this group proposed by my Front Bench. We need to ensure that the Bill is clearer on this issue.

I speak with some trepidation having been generally admonished on the last occasion I spoke. I promise noble Lords that from now on my speeches will contain no colourful language, will be irredeemably dull and will concentrate on technical matters.

I speak to Amendment No. 54, which stands in my name and is grouped with Amendment No. 13 relating to the definition of market confidence and systemic risk. At Second Reading I argued that one of the most important tasks of the FSA is the management of systemic risks; that is, the risks that the actions of individual firms may create for the stability of the financial system as a whole. I argued then that this task is even more important than the protection of the consumer. What is the point of protecting consumers' rights if at the end of the day the consumers' savings are consumed in a general financial crisis?

In managing risk and ensuring stability, the role of the regulator is paramount. In the face of a general collapse, the central bank—in our case the Bank of England—may step in as lender of last resort to prop up the markets. But by the time things have gone that far the financial system will already be in extreme jeopardy. Just as important—in many ways more important—are the day-to-day activities of the regulator which seek to limit the risk to which society is exposed: for example, by requiring firms to maintain prudential capital; promotion of effective risk management practices; ensuring that participants in the market are fit and proper; identifying and enforcing best practice, and so on, through the wide range of regulatory procedures. There can surely be little doubt that a core objective of the FSA is the management of systemic risk; that is, the maintenance of stability and—it is crucial in financial markets—the expectation of future stability.

The Joint Committee, chaired by the noble Lord, Lord Burns, recommended that the Government acknowledge on the face of the Bill that a fundamental objective of the FSA must be the control of systemic risk. In one of the most puzzling actions of the Government to date, they rejected that recommendation of the Joint Committee. The Government's argument, which was paraphrased by my noble friend Lord McIntosh at Second Reading, was that to define the objective of market confidence—that was the committee's proposal—as,

"maintaining confidence in the soundness of the financial system",

would somehow throw doubt on the role of the FSA in (I quote the Government's response),

"maintaining confidence in the effective prudential supervision of individual institutions".

They seem to be contrasting the soundness of the system as a whole with individual institutions.

This is a peculiar argument. In fact it is an argument that, in politest terms, contains very little sense. (Your Lordships will note that I am maintaining polite language.) How could the Government maintain confidence in the soundness of the financial system other than by "effective prudential supervision of individual institutions"? That is how it is done; there is no other way. The first goal must embody the second. I do not believe that my noble friend could give me even one example of effective prudential supervision of an individual institution that does not contribute to the maintenance of confidence in the soundness of the financial system as a whole.

Why is the issue of systemic risk so important? Why am I so concerned about spelling out the management of systemic risk as an objective of the FSA? It is because in doing so we would establish beyond all reasonable doubt the central role of the FSA in this area. That is essential for two reasons. First the tripartite agreement between the FSA, the Bank of England and the Treasury—it has been referred to today—clearly establishes the responsibilities of the three bodies in securing the stability of the financial system, and acknowledges the overall role of the Bank of England. Clearly defining the role of the FSA in maintaining stability would add significantly to the clarity of that document.

Secondly, clarifying the role of the regulator is vital for the FSA's international relationships. In the modern world, many of the threats to this country's financial stability derive from international financial markets. It is, therefore, in the international arena that risks must be managed as a co-operative venture between national regulators. The FSA is our national regulator. It should be crystal clear that the British Government have full confidence in the FSA to do that job. My amendment would make crystal clear the Government's commitment and confidence.

In Committee in another place, my honourable friend Ms Patricia Hewitt acknowledged that the term market confidence did mean the regulation of systemic risk, but also stated that it went wider. I have searched for a definition that would capture what Ms Hewitt said. I think that I have managed to find one; help was at hand. My amendment is taken word for word from the FSA's document, A New Regulator for the Nets' Millennium. In other words, my amendment contains the words of Mr Howard Davies. On page 5 of that document, the FSA states that the objective of maintaining confidence,

"involves, in our view, preserving both actual stability in the financial system and the reasonable expectation that it will remain stable. This is achieved through … preventing material damage to the soundness of the UK financial system"—

that sounds like the Joint Committee—

"caused by the conduct of, or collapse of, firms, markets or financial infrastructures".

They are the individual institutions that the Treasury wanted to have referred to. It is achieved also by,

"explaining on what basis confidence in the UK financial system is justified: this includes stating explicitly what the regulator can and cannot achieve".

I cannot imagine a better characterisation of that wider approach to the definition of systemic risk that Ms Hewitt sought. That is why I have used the FSA's own words in my amendment. I am sure that my noble friend would not want to repudiate Mr Davies's own document and will accordingly be happy to accept the FSA's definition of market confidence as a welcome clarification to the Bill.

The noble Lord, Lord Eatwell, indicated that he was much chastened by some earlier remarks. I hope that it does not upset him more if I say how much I agree with him on the amendment. I am sure that the noble Lord is right. That is not just because I agreed with him in the Joint Committee: we should have some indication of the importance of dealing with systemic risk on the face of the Bill. I like the wording that he has lifted from the FSA report.

The other publication which seemed to back much of what he said was the Treasury's own paper, the Draft Recognition Requirements for Investment Exchanges and Clearing Houses, published in February of last year. Page 3 explains that the requirements for these bodies are expressed at a fairly high level. It continues:

"The additional requirements concerning default rules are more detailed in nature. This is because if the high degree of systemic risk that can arise from a default on market contracts".

It seems to me desirable to have that on the face of the Bill. The draft statutory instrument which accompanied that 1999 document indicated the extent to which there would be requirements for greater information to be provided from RIEs and others.

That series of requests for further information tends to be regarded by practitioners as the most excessive and intrusive. If there is to be greater understanding of the relationship between the FSA and individual practitioners as regards requests for further information, the City should understand that they arise because of concern about the control of systemic risk. In all the circumstances, it seems desirable to expand the definition in the Bill along the lines the noble Lord indicated. If that were done, I believe that there would be a greater understanding of what the FSA will be required to do.

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.

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.

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:

"We recommend that the market confidence objective should refer to 'maintaining confidence in the soundness of the financial system', and should be expanded to include a reference to the management of systemic risk, in collaboration with the Treasury and the Bank of England".

In responding to that recommendation, the Government noted,

"that public and market confidence in the financial system clearly requires confidence in the soundness of the system as a whole".

They went on to state, in words quoted by my noble friend Lord Eatwell;

"other aspects arc also relevant, notably maintaining confidence in the effective prudential supervision of individual institutions. Singling out one aspect could throw doubt on the FSA's role in this area and narrow its remit".

My noble friend Lord Eatwell, in the politest possible way, poured scorn on that response. He asked me specifically whether I could give an example of the prudential supervision of an individual institution not affecting confidence in the soundness of the financial system. The collapse of an insurance company could undermine confidence in the insurance market and discourage foreign customers from insuring in the London market, but that would not necessarily amount to a lack of confidence in the financial system. There is a distinction still to be made between effective prudential supervision of individual institutions and confidence in the soundness of the whole system. It is applicable to these amendments.

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 Committee, the Treasury and the Bank of England also have essential roles to play. There must be cooperation between them and the FSA.

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.

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.

moved Amendment No. 14:

I rise to support the amendments as set out and to speak briefly to Amendment No. 15. As the noble Lord, Lord Saatchi, said, these amendments aim to clarify on the face of the Bill the functions already performed by the non-executive members of the putative FSA. I feel that the authority should be required to meet the principles of good corporate governance.

I am much troubled by the way in which some Members of the Committee have waived the application of corporate governance. I have spent a career trying to persuade people to exercise that. It would be helpful to have some support. All we have are the Cadbury recommendations; there is nothing else. This has been arrived at through a considerable body of opinion, a considerable amount of work, and through much time spent looking at what goes on around the world and deciding what is best. I feel that we should take it into account.

As non-executive members of the corporate body, they should be responsible for advising the FSA executive regarding the management of the authority. More importantly, if they are properly to discharge their functions as directors of a company, they must be involved in establishing policy and reviewing its application.

At present, the executive restricts the role largely to budgetary items and efficiency. Although my professional background would lead Members of the Committee to believe that I consider this to be very important, I recognise that the issues of strategy and of overall supervision are equally important. It is interesting to compare this with the model of the responsibilities for the Bank of England's Court of Directors. The Bank of England Act 1998 provides for a sub-committee of directors of the Bank. It provides for them to keep under review the Bank's performance in relation to the objectives and strategy determined by the Court of Directors of the Bank. That is what we propose in these amendments.

There seems to me to be considerable merit in the amendments tabled by both the noble Lords, Lord Saatchi and Lord Sharman. In particular, I believed that there was considerable logic in the amendment of the noble Lord, Lord Saatchi. Bearing in mind that the Treasury will appoint, the Treasury should secure that the majority of the members of the governing board are non-executive members. Indeed, I believe that it would be impossible for the Treasury to do its appointing job without ensuring that. It is impossible for the authority to do so on its own. Therefore, I believe that the Treasury must do so through its appointment.

I say that there is considerable merit in relation to the amendments as a whole, but I am less certain as to whether the other amendments should be embodied in legislation. After all, the company governance rules which are, in a sense, followed here are not themselves embodied in companies legislation. I do not believe that the Government intend that they should be embodied in the companies Bill which they will bring forward in due course. That remains to be seen. However, the fact is that they are not in legislation at the moment. There are certain difficulties in having them embodied in legislation for a public authority. Some provisions of the Fair Trading Act 1973, to which the Office of Fair Trading is subject, were very dated after a number of years. They are still there, because they have never been amended, and I suppose there is never parliamentary time to amend them.

There are serious risks in putting into primary legislation detail relating to current mantras of what is desirable—in this instance, in corporate governance. However we may think the legislation is amendable, in practice it is not easily amendable. The fact that we have a Financial Services and Markets Bill in 2000, 14 years after the last one, is not bad; it usually takes 20 years or more to have substantial legislation changed again. It might be undesirable to put all this precise wording about the functions of non-executive members rigidly into the legislation before us.

I hope that the Minister can make it plain when he responds whether the fact that some non-executive functions are listed in the schedule is meant to imply that they are the only non-executive functions. I am very sympathetic to what my noble friend Lord Saatchi and the noble Lord, Lord Sharman, said. Clearly, one would expect the non-executive directors to perform much the same kind of role as good, efficient, active, energetic non-executive directors of any public corporation or body in the private sector would. But the wording of paragraph 4 is such that it could be read to imply that what is expected of them is only what is defined there. If that is so, it is not satisfactory. I hope that the noble Lord can assure us otherwise.

I wish to tell the noble Lord, Lord Borrie, that it seems to me that the point in question has been picked up and that Amendment No. 14 is correct. I am at a loss to understand how the authority can secure that a majority of the members are non-executive. What happens if the Treasury fails to appoint a sufficient number of non-executive members, or if it decides to dismiss some of those non-executive members, so that the non-executives are in a minority, even though the authority has understood that? I see no provision in the schedule that enables it to return to a majority. I do not think it can even sack the executive members of the governing body, because they are also appointed by the Treasury.

My other point concerns the matter raised by my noble friend Lord Stewartby. The functions of the non-executive committee—essentially housekeeping operations—are spelt out in some detail in paragraph 4, because that is the one committee that is to be wholly non-executive in character. The rest of the schedule indicates that the non-executives are to be in a majority on the body, and we see in paragraph 5 that any of its functions—other than those in relation to legislation, so described—may be,

"discharged by a committee, sub-committee, officer or member of staff of the Authority",

and doubtless it could have a committee of any character doing that.

That would seem to me to follow, but I should be grateful if the Minister would confirm it.

There seems to be a rather curious imbalance here, in that so much detail is spelt out as to what the non-executive committee is to do, with so little indication of what the majority of non-executive members might do in discharge otherwise of the authority's functions.

The detail is disturbing, because there is a well established principle in law expressed as inclusio unius est exclusio alterius. If we mention various members' tasks but not others, the assumption is that only those mentioned are to be referred to. Therefore, if the schedule is to be as prescriptive as it is, there should be a paragraph saying "Such further functions as may be", and so on, to permit other things to be done, because clearly there are other things to be done by the non-executive directors that are not mentioned in the Bill.

I hope that the Minister will enlighten us further about the policy on appointments. Whatever its demerits, one of the merits of the self-regulation system was that it brought out of the industry people who were very well steeped in its practices and understood it well. That process has now been interrupted. I wonder what steps the Government intend to take, through the Treasury, to see that those appointed to the board between them cover the very wide range of expertise that the very wide range of the powers of the board require it to have.

I rise to speak to my Amendments Nos. 22 to 24. They are precisely on the point raised by my noble and learned friend Lord Fraser of Carmyllie and my noble friend Lord Stewartby.

Sub-paragraphs (a), (b) and (c) of paragraph 4(3) all stipulate rather minor activities of the committee. They are important to certain individuals, but in terms of the overall responsibilities they are in a minor key. That is why Amendment No. 22 stipulates that an additional sub-paragraph (d) should be added, requiring the non-executive directors to keep

"under review the question of whether in discharging its general functions the Authority is acting in the way required by sections 2(l) and 2(3)",

which define the FSA's broad statutory duties. That would remove any doubt that the non-executive directors were indeed able to range over the authority's full responsibilities.

Furthermore, with regard to my noble and learned friend's observations about paragraph 5, Amendments Nos. 23 and 24 seek to remove any doubt. They make it clear, I hope, that the FSA may discharge all its functions acting through its governing body. However, it is recognised that the FSA will want to make arrangements for many of its functions to be discharged by committees, sub-committees, officers and members of staff of the FSA. Although arguably it is implied that the FSA can discharge all its functions by acting through its governing body, the amendments make the position absolutely clear.

I am grateful to noble Lords for the way in which they have introduced the amendments. Perhaps I may say a few words in general about the non-executive members of the FSA's board before I turn to the specific amendments.

First, I apologise to the Committee for having said in response to an earlier amendment that the non-executive directors are not paid. They are in fact paid a fee. That fits in with my being able to say that in the Government's view the non-executives have a key role to play in the governance of the FSA.

The fundamental point here is that the role of the non-executive committee is set out in paragraph 4. The non-executive committee is made up of the non-executive directors and not the executive directors. They review whether the FSA is using its resources in the most efficient and economic way; review its internal financial controls; and determine the remuneration of the chairman and executive members of the board. In that case I acknowledge that they are largely housekeeping functions.

But, of course, the role of the non-executive directors is not confined to their role as members of the non-executive committee. They are also members of the board and they have all the functions of full members of the board, which do not need to be provided for in the Bill, because one does not specify every single thing. We believe that the amendments specify a little too much. For example, making rules, which is one of the fundamental legislative activities of the FSA, is the responsibility of the whole board, including the executive and non-executive directors.

Before I turn to the individual amendments, a further general point is the need for the FSA to decide for itself how it should organise itself to meet its objectives. Schedule 1 sets out a framework. We do not believe that it is for the Bill to prescribe the FSA's governance too precisely beyond ensuring that proper structures and procedures are in place to ensure accountability.

These amendments are intended to and would achieve a number of differences from the Bill as currently drafted so I want to explain why, in our view, these amendments would either be too prescriptive, which is the normal case, or would make little difference to the Bill as currently drafted.

I turn first to Amendment No. 15, which was spoken to by the noble Lord, Lord Sharman. The two main effects of Amendment No. 15 would be, first, to limit the term of the non-executive members of the board to four years. That is a good illustration of my point about not being over-prescriptive. The existence and duration of such limits is for the Treasury to decide. The power of the Treasury to decide removes the temptation, however unlikely, that the executive members might weaken the non-executives by offering only short-term contracts.

The second effect would be to make a function of the non-executives,

"the question of whether the Authority is discharging its functions in accordance with the general duties under this Act".

That should be the responsibility of the board as a whole, executives and non-executives, and not just the non-executives.

The main effect of Amendment No. 14 would be that the Treasury, rather than the FSA, would have to secure that a majority of the members of the FSA's governing body were non-executive. I appreciate the thinking behind it but I do not believe, with respect, that it would add very much. The Bill is quite clear in specifying that the FSA must have a majority of non-executive members of its governing body. The suggestion that the Treasury would somehow inhibit that and make it impossible to do that is a little fanciful.

The Bill as drafted is telling the authority to do something that it does not have the power to do.

I concede that it could be interpreted in that way, and if it could be interpreted in that way it ought not to be because it is certainly the intention of the Bill to ensure that that happens.

Will the noble Lord think a little further about that because I believe that there is only one way of interpreting it, in fact?

I thought that I had indicated that I would think about it further. I shall come back to the noble Lord on that. If amendments are required, then we must make those amendments. But I am sure that there is some devilishly clever reason why the authority has the ability to do what the Bill says it is going to do.

As I said, the Bill is quite clear in specifying that the authority must have a majority and, indeed, it has a majority of non-executives at the moment.

A further effect of Amendment No. 14 would be to specify that the non-executive committee, specified in paragraph 3(b) of Schedule 1, would discharge the functions of the non-executive committee specified in paragraph 4. Paragraph 3(1)(b) refers to functions conferred on the non-executive committee under Schedule 1 and paragraph 4 is, of course, part of Schedule I and is therefore covered.

The next point of difference would be to specify, as Amendment No. 18 does, that the FSA board may also set up and maintain a committee comprised mainly or solely of non-executive members for purposes other than those specified in paragraph 4. Again, there is nothing in the Bill to make that impossible. We do not see any reason to change it. As has been said, paragraph 5(1) allows the FSA's functions to be discharged inter alia by a committee. There is nothing to stop such a committee comprising non-executives and, indeed, only non-executives.

Another impact of Amendment No. 18 would be for the authority to be required to make arrangements, at its cost, for non-executive members to obtain independent legal advice in relation to their responsibilities and the performance of their duties. I appreciate that that is a recommendation both of the Cadbury report—and it is all we have—and of the Combined Code, Principles of Good Governance and Code of Best Practice.

We have no objection to that principle but we believe that it is something for the non-executives to decide between themselves rather than it being prescribed in legislation. I should add that the FSA is quite content in principle to finance independent legal advice to the non-executive members of the FSA board. Indeed, I can go further and report that the FSA board resolved on 15th April 1999 that:

"Any director who requires professional advice on a matter relating exclusively to the duties of a director may … have direct access to the Authority's professional advisers; and, if the director considers it essential to receive independent professional advice on such a matter, this may be obtained at the Authority's expense within reasonable financial limits after reference to the Chairman or the Deputy Chairman".

I apologise for not being here at the beginning of the debate. What the Minister has read out seem to me to be fairly limited circumstances. Let us suppose—and I hasten to say that I do not believe that it has ever arisen in relation to anything in which I have been involved—that a director says to his colleagues, "Look, I do not think we have power to do that. I do not think that the authority has power to do that", and that is then challenged by the executives who produce their legal advice, and the non-executive director then says, "Well, I believe that we should have independent legal advice". That is nothing to do with his functions as a director. He is challenging the legal advice that has been given to the authority.

I had always understood that that recommendation of the Cadbury committee sought to address the problem where one or more directors of the board felt that they were being asked to do something which is not proper and who felt that they should have independent advice on the matter. That is much wider than the phrase the Minister read out.

My immediate response is that I do not think so. I believe that if a director is challenging the legal advice that has been given, he is challenging it as a director and that the resolution of the board on 15th April which says that he may receive independent professional advice at the authority's expense is a full answer to that challenge. If I am wrong, I shall write to the noble Lord and to other noble Lords who have taken part.

I support my noble friend on this matter. It needs to be looked at. At the moment, it is incomplete and leaves the non-executive directors very exposed.

I must include the noble Lord, Lord Boardman, on the list of recipients of any such letter. But my immediate understanding is that the example which the noble Lord, Lord Jenkin, gave of a non-executive director challenging the legal advice would be a proper exercise of his functions as a director and would therefore come within the scope of the resolution I quoted.

Amendment No. 22 would require the non-executives to keep under review adherence to the board's general duties in Clause 2(1) and the principles of efficiency, competitiveness and so on to which it must have regard. Again, I suggest that those are duties of the whole board and not just the non-executives.

Amendment No. 23 would specify that the governing body, as well as those below the level of the governing body, may discharge the FSA's functions. That is not ruled out by the Bill as currently drafted and the amendment is not necessary.

I should say to my noble friend Lord Borrie that he is right that the Treasury has a role because it determines who is appointed as a non-executive director but the authority has a role because it could, in the absence of a provision such as paragraph 3 of Schedule 1, assign roles to the directors which were incompatible with their being non-executive. That is why we have that provision in the Bill.

I repeat as a general argument on what I consider to be these well-intentioned amendments that there is no reason why the role of non-executive directors, quite apart from their responsibilities as a non-executive committee, should not be as wide as those of any other directors of the FSA. That is provided in Schedule 1. We expect the non-executives, led by the deputy chairman, to play a full role in the board, providing an independent perspective on the scrutiny of the executives and the FSA's overall performance.

I am grateful to the Minister. I noticed that he did not reach Amendment No. 24, which concerns the word "but". I was going to say to the Minister that it would not be the most radical act of revision in your Lordships' House were that "but" to be deleted, but it seems a quite redundant word in that context. Its excision would have a marginal effect in reducing the length of the Bill.

Allow me to defend parliamentary counsel. The "but" is absolutely essential. It is critical to the whole understanding of this part of the Bill. Paragraph 5(1) states that,

"The Authority may make arrangements for",

the discharge of its functions,

"by a committee, sub-committee, officer or member of staff … But"—

it must be said—

"in exercising its legislative functions, the Authority must act through its governing body";

otherwise, the authority could delegate without reference to the governing body and the governing body would be entirely bypassed. If the word "but" was not used, there would not be that protection.

I greatly protest. I find that a thoroughly mischievous argument. Of course I understand the sense of what the Minister is saying, but the "but" would be appropriate if the two subparagraphs were one and ran straight into one another; then it would make sense. Otherwise, through the way in which they have been drafted, they are two paratactic sub-paragraphs. With the greatest respect to the Minister—I have a huge respect for his learning on such matters—"but" is not good English in that context.

It means what it is intended to mean. If the noble Lord can find in Fowler or Sir Ernest Gowers a prohibition on the use of the word "but" at the beginning of a sentence, I shall gladly talk to him about it afterwards. But certainly, the Bill as drafted means what it means.

However—may I ask the Minister one more question? I am grateful for his assurance that there is nothing here which implies that non-executive directors' functions are limited, but will he reconsider the phrase, "the non-executive functions"? They are not defined in Clause 392 and therefore they do not have a special meaning within the Bill. The normal English language meaning of "the non-executive functions" in such a context would be all the non-executive functions. It is not a major point, but it implies that what is listed thereafter is the full list of what non-executives may do. If the phrase "the non-executive committee functions" was used instead, it would put the matter beyond doubt, because the whole paragraph relates to the committee. The way in which the phrase is used implies that the full range of non-executive functions are thereafter listed.

I do not see that. Paragraph 4(1) states that,

"'the committee' means the non-executive committee".

Paragraph 4(2) states that,

"The non-executive functions are functions of the Authority",

which—

"but must be discharged by the committee".

Paragraph 4(3) lists the non-executive functions. It is a finite list; it is intended to be. It is what was rudely called "housekeeping". It does not restrict the role of non-executive directors in their capacity as members of the board. It restricts their functions only as members of the non-executive committee.

The Minister's slip of the tongue opens the door for me to be a broker between my noble friend and him. He said, "functions of the Authority which", but then corrected it to "but". If there is to be a definition in that sub-paragraph of the functions only of the committee and not of the non-executive members of the board, the substitution of that word would have that effect. I do not want to detain your Lordships on the matter. The Minister apparently is not going to use this opportunity to tell us how the Treasury, in trawling for members of the non-executive committee, will bring a sufficient range of practitioner experience on to the board. But will he be able to do so at some later stage?

I am sorry to have neglected that point. If I inadvertently paraphrased the Bill rather than reading it out, the Bill is right and I am wrong.

On the more substantive issue of how the non-executive directors can be expected to embody the wide range of disciplines regulated by the Financial Services Authority, the answer is clearly that, with 11 non-executive directors, it would be impossible to secure that every single part of financial markets' existence and development should be covered within the personal experience of the members of the non-executive committee. They are people who have a wisdom in financial markets in general and who cover a wide range of financial markets, but they cannot be expected to cover every nook and cranny. That is why there is a practitioner panel as well.

Yet again, I find that I must agree with the amendments tabled by the noble Lord, Lord Sharman. I should like to ask the Minister to clarify a point. If the FSA itself feels it necessary to spell out the functions of non-executive directors as it sees them, why would the Government not feel it necessary to spell out the functions of the non-executive members of the FSA, which is what Amendment No. 15 seeks to do?

The Government feel that it is unnecessary to spell out all the functions of non-executive directors, but it is necessary to spell out the functions of the non-executive committee, which is a subset of the board of the FSA as a whole and which is charged with certain housekeeping functions necessary as a control on the executives. In all other respects, non-executive directors have equal weight and equal fiduciary responsibilities with the executive directors and they act as members of the board as a whole. I do not see the difficulty with that.

Would it then be acceptable to the Government if the words used in FSA consultation paper No. 35 were used to describe the general role of non-executive directors of the FSA?

Without having the consultation paper in front of me, I am not able to answer that question with the precision that I should like. I shall write to the noble Lord about the matter.

I should know the answer to this question, but the Minister said that the number of non-executive directors was limited to 11—

I said that it is 11 at present.

One answer to my question could be a vast, and probably too large, expansion of the number of non-executive directors. That is not an area of policy. Does the answer to my question lie in the practitioner panel and not in the constitution of the non-executive members of the executive? It is an important question when it comes to how the body will actually work.

Without giving an unequivocal undertaking that the practitioner panel will include every single sector within the broad range of financial markets—I do not want to be trapped into doing that—the answer is that the representative function is the responsibility of the practitioner panel. The non-executive directors of the FSA are not there as representatives of individual disciplines within financial markets, but as wise persons with knowledge of a wide range of financial markets, able to contribute to the work of the authority.

As I understand the Minister I grow more uncomfortable; more so than when I first entered the Chamber. I must explain the thrust of our amendments and why this is such an important point. The Minister tells us that a restricted description of the role of the non-executive directors of the FSA is contained in the Bill—

I am sorry, but I am not saying that at all. I am saying that there is a finite description in paragraph 4 of Schedule 1 of the responsibilities of non-executive directors in their capacity as members of the non-executive committee and only in their capacity as members of the non-executive committee, which is set up as a counterbalance, deliberately excluding the executive directors. There is no such limitation on the role of non-executive directors in their capacity as members of the board.

Except that that leaves open and unstated the role of the non-executive directors. This is causing difficulty to me and, I believe, some of my noble friends and the Liberal Democrat Front Bench. I am sure that the thrust of our amendments is becoming clear to the Government. Our basic concern is that this unique body is very powerful indeed. The question to which we are trying to obtain a better answer is: who guards the guardians?

We had a long debate about whether or not a key guardian figure might be the chairman. The Minister said no. We are now asking whether the guardian role might be performed by the non-executive directors. The Minister is again saying no. He is stating that he does not want to define the role, even though the FSA wants definition. That is the problem.

I thought that what I said was that the responsibilities of the non-executive directors encompass all the responsibilities of the members of the board, including the executive directors. If I failed to say that, I apologise to the Committee. Any attempt, as in these amendments, to be prescriptive about those functions can only restrict the functions of the non-executive directors rather than add to them.

I do not want to detain the Committee. However, perhaps it is possible for a total outsider, in the most helpful spirit, to join in what appears to be a private fight. If one inserts inverted commas in paragraph 4(2) around the words "non-executive functions", I believe the functions would then be confined to those which have to be performed by the committee. That would cast no doubt upon other functions of non-executive directors, but one need not turn it into a term of art.

I shall, with great trepidation, put that matter, through legal advisers, to parliamentary counsel.

I thank the noble Lord for that intervention. We are unhappy with the outcome of this discussion and shall want to return to it on Report. Meanwhile, I beg leave to withdraw the amendment.

I must inform the Committee that if Amendment No. 15 is agreed to, I cannot call Amendments Nos. 16 to 22.

moved Amendment No. 25:

Page 218, line 40, leave out ("Authority") and insert ("investigator").

I am doubtful of the value of the amendments. It seems to me clear that the investigator is independent. The Bill not only states specifically that he is independent, but, most important, if the authority decides not to investigate a complaint, it must notify the investigator. Schedule 1, paragraph 8(4), states:

"If the investigator considers that a complaint of which he has been notified … ought to be investigated, he may proceed as if the complaint had been referred to him under the complaints scheme".

He has complete independence and freedom to investigate even if the authority has not submitted the complaint to him under the complaints scheme. Therefore, I do not see that there is any doubt about the reality of the independence of the investigator.

I can see the reason for the remarks of the noble Lord, Lord Borrie. However, the reality would be a rather tortuous procedure. Would it not be better for all complaints to go to the investigator in the first place rather than having them looked at by the authority and passed to the investigator? It seems that there should be two bites of the cherry. In the interests of complaints being dealt with and finalised to the satisfaction of the FSA or the complainant, as soon as possible, I believe that that is how it should be done.

Perhaps I may respond briefly. I took it for granted that the complaints should go to the authority. It is surely in everyone's interest that the authority should be told that a complaint has been made against it. It may need to respond. In any case, it may determine the matter rapidly and favourably towards the complainant without the matter needing to go further.

Perhaps I may pursue the matter. If someone makes a complaint about the Financial Services Authority, it might be easier for that person to go through an independent investigator. I take the point that if it was a silly complaint, the authority could say, "Sorry, there has been a misunderstanding. This is the way it should be done". However, I believe the complainant would have more confidence if he or she went straight to the investigator rather than just to the authority. Experience shows that if the complaint goes to the people who are supposed to have done wrong, it is better to have an independent investigator. A complainant would feel better about that.

Perhaps I may refer to the banking ombudsman scheme which I used to know quite a lot about. In that scheme, as in the insurance ombudsman scheme and no doubt other schemes, the complainant is first required to exhaust his remedies with the authority. There is good reason for that. As has been said, there may be a misunderstanding or a "slip-up" by somebody down the chain. The matter can then be speedily put right, perhaps by ex gratia compensation or by recantation on a ruling. It would not do any harm and, as the noble Lord, Lord Borrie, pointed out, the complainant must be kept informed.

I believe that there are respectable precedents for suggesting, indeed requiring, that complaints go first to those being complained against.