Lords amendment: No. 437, in page 159, line 11, at end insert—
and the composition of that body must be such as to secure a proper balance between the interests of persons carrying on investment business and the interests of the public.".
§ Mr. Deputy Speaker
With this it will be convenient to take the amendent in the name of the hon. Member for Yeovil (Mr. Ashdown).
§ Mr. Howard
Lords amendment No. 437 is similar to the one concerning the composition of governing bodies of self-regulating organisations, which has already been agreed to. The schedule also provides that the members of the governing body of the designated agency must be drawn from persons having experience in investment business and other persons as described in the schedule. This amendment provides that the composition of the body overall must be sufficient to ensure a proper balance between the interests of those who carry on investment business and those of the public. That has always been our intention. The amendment makes it an express requirement.
§ Mr. Ian Wrigglesworth (Stockton, South)
I beg to move, as an amendment to the Lords amendment, at the end, add'by ensuring that at least one third of the members of the body are independent non-practitioners'.I begin by declaring an interest as an adviser to Barclays bank. These matters involving independent representation on the SIB have been examined at some length in Committee and in the other place. I do not wish to detain the House too long. The final stage of the Bill provided us with another opportunity to be more precise about the representation on the SIB of people independent of City interests, the lay people referred to by various hon. Members. It will help to sustain public confidence in the body if there is a more precise definition of the independent representation on the SIB. We welcome the change that the Government introduced in the other place in amendment No. 437. Clearly, that matches the other position, which we have accepted, of the SROs.
We still believe that this key body, which stands at the pinnacle of the supervision of the new City regime, should have independent representation on it. We should like to pin down the Government and the SIB on the scale of representation. In the amendment, we suggest that at least one third of the members of the SIB should be independent. As there have been debates about the definition of members, we have defined them as independent non-practitioners. I hope that the proposal, which is more precise than the amendment from the other place, will meet with some support in the House, and that 613 the Government will say that their intention is that there should he very strong representation of consumer interests on the SIB.
§ Mr. Gould
I, too, welcome the Lords amendment, as I welcomed the similar amendment concerning self-regulating organisations. I have some sympathy with the amendment moved by the hon. Member for Stockton (Mr. Wrigglesworth). However, the difficulty is that, whenever one specifies a particular number or proportion, there is a tendency to regard it as a maximum rather than a minimum. There are also possible grave difficulties in deciding into which category individuals fall. Although I strongly sympathise with the amendment, I realise that there may be objections to it.
I welcome the notion that the public interest should be directly represented and recognised in this way and that a proper balance should be established. It would be helpful if the Under-Secretary of State would say a little more about exactly how that is to be done. What is his concept of the public interest? How are people to be appointed to represent that interest? Are they, as is sometimes suggested, to be appointed because they represent a range of identifiable interests—professional lobbying interests, as it were—or are they to be selected as being genuinely representative of the public at large, and, if so, on the basis of what qualities?
The Minister suggested in a discussion with a deputation from my union, the Association of Scientific, Technical and Managerial Staffs, that he would be looking to the personal qualities of appointees and, although it may be fairly obvious, I wonder whether he can say what those qualities might be. Will he also say whether he has any intention of recognising the legitimate interests of a body of people whose interests are very often overlooked, especially in the selling of life insurance by way of investment business? We have looked long and hard at many of the questions involved there but few people have spoken on behalf of the sales force on the ground, especially in the case of home service insurance sales. Is there any intention on the part of the Minister to allow for the representation of that sort of group on the SIB?
I also wish to ask the Minister a wider question about the general way in which appointments are to be made by focusing on a specific instance. The Minister will recall that there were some reports during the summer about an appointment which the Minister wished to make but did not make. That was the appointment of John Kay, who is a well-known and well-established reputable economist, who was at that time the director of the Institute for Fiscal Studies. As far as I am aware, he has no obvious political affiliations and, if they do exist, they are certainly not with my party. I should also say that I have never discussed this matter with John Kay and I do not raise it at his instance.
John Kay appeared to commend himself to the Minister. I am not obliged to make any case for him but, as I understand it, the Minister had accepted that there was a good case for appointing him to the SIB. My information is that what then happened was extraordinary. The Minister was summoned to the Treasury by the Chancellor. I do not know what happened at that meeting, whether it took place in the Treasury or in other circumstances. However, as far as we can tell, John Kay has not been, and is not to be, appointed to the SIB.
The House is entitled to some sort of explanation as to why that is so and how it happened. Was it that some deep, 614 dark and dreadful secret was revealed of which the Minister had been unaware and which served to disqualify John Kay, or was it an even more unattractive proposition, that in some sense he was regarded as having been the originator of advice, forecasts and reports that did not please the Chancellor and was being blackballed for political reasons? That would be even more disturbing. In either case it is curious, to say the least, that the Treasury was involved at all. This is a Department of Trade and Industry Bill and appointments are to be made jointly by the Secretary of State and the Governor of the Bank of England. Where does the Treasury come into the matter? We are constantly told that the SIB is a private body and is to be independent of the Treasury. That is the whole point. Indeed it is the only, and flimsy, point for allowing it to retain that status. Yet, if the reports I have received are correct, the Chancellor is intervening in the most direct and negative way in the matter of appointments to the board.
The Minister must confirm that story or deny it. If he cannot do either of those, we are left with a worrying situation. The Bill is not as it has been presented to us until now. It casts not only an adverse light on prospects for the way in which the measure will operate but forecasts a gloomy setting for the way in which the Government do their business.
§ Mr. Anthony Nelson (Chichester)
I regard this as the most important amendment that we will consider today. I do not think that we should let this opportunity pass without probing the Minister and debating the criteria and qualifications of members of the SIB. This amendment is more important than the one that we passed earlier concerning the composition of SROs, for while each SRO will determine its own way and have a variable example in terms of the independent and lay membership, in this instance we are debating the principal supervisory body for the framework of regulation that we are establishing under the Bill.
It is important that we get the right people and the right proportion of people on the SIB to fulfil the best intentions of the legislation. A company, body or institution is only as good as the people in it, and much of the import and effectiveness of the legislation will depend upon the assiduity, integrity and lay composition of the SIB.
In Committee we had an important debate on this subject when I brought into question the role of the Governor of the Bank of England acting jointly with the Secretary of State, or under designation, the chairman of the SIB, to appoint—
§ Mr. Nelson
My hon. Friend is right. That power cannot be designated to the SIB. I brought into question the duty of the Governor of the Bank of England to act jointly with the Secretary of State in appointing the chairman and members of the SIB. I expressed reservations about what I regarded as the continued encroachment—I do not use that word too pejoratively —of the Bank of England outside its area of prudential control of the banking system into supervisory control of the investment markets. Historically, one understands, in the absence of any other body or responsibility, the need for the Governor to do so However, with the new body in 615 place, and the legislation enacted, it should be the right of the Secretary of State alone. I do not say that he should not consult the Governor of the Bank of England, but it should be his right to appoint the chairman and, in consultation with him, to appoint the members of the SIB.
In the extent to which we allow the absolute right of the Secretary of State to be diminished by having to obtain the approval of the Governor of the Bank of England, thereby providing the Governor with a veto over what the Secretary of State might like to do, we are denying ourselves, as democratically elected representatives, and the Government of the day, the opportunity to do what we and they consider to be right. I hope that the Governor and the Secretary of State will always act with a similar outlook. However, there must be a reason for the requirement that the decision should be a joint one. That reason must be that there will be certain instances in which we are prepared to see the Governor of the Bank of England operate a veto.
I still take the view that the Governor should not be able to operate such a veto. We should have the confidence in our legislation to say that whatever changes of Government or changes in the complexion of Government there may be in the future, we must not detract from the right of Secretaries of State who are appointed by the House to make important decisions which affect the overall government and supervision of the City of London. I have that reservation. I am unhappy that under this legislation, as it will undoubtedly go through, the Governor will continue to have a role in deciding how many lay members there should be on the board and what proportion of the total they should comprise.
I have a good deal of sympathy with the amendment moved by the hon. Member for Stockton, South (Mr. Wrigglesworth) in the absence of the hon. Member for Yeovil (Mr. Ashdown). It follows a similar debate in Committee. I understand the point made by the hon. Member for Dagenham (Mr. Gould), that once one prescribes a certain proportion it becomes the maximum rather than the minimum. However, the amendment makes it clear that it is at least a third. The problem is that we may not even get a third if we do not at least have an undertaking or if the amendment is not put into the Bill.
The SIB has announced a good many of its members, including some lay members, representatives from the Consumers Association and some ostensibly lay members. I have my doubts as to how lay they are. Many of them, as with other bodies, are highly institutionalised individuals and will not be there to do what I would like lay members to do, which is to represent the interests of investors in as objective a way as possible.
That is a very important point which we should reiterate, because the whole purpose of the Bill is about investor protection. It is not about making the City run more smoothly or about making the city more profitable. It is not about exclusively trying to deal with some of the worst problems that have been identified in the mechanics of the City in recent years. Its principal objective is to update antiquated legislation on investor protection and ensure that the latter is more adequately safeguarded in the brave new world of finance in which people will operate.
Given that situation, it should be uppermost in our minds, and in the mind of the Governor and of the Secretary of State at every stage in conducting their 616 responsibilities according to the legislation, that they should enhance investor protection. In deciding the composition and individual membership of the SIB, the criterion above all others, the first to be considered, must be whether it will enhance investor protection. I pay tribute to the Wilson committee's report, which gave prominence to the inadequacy of lay representation on City institutions. My criticism, which I have expressed on numerous occasions over the years, has always been that it has not been adequate in ostensibly self-regulating organisations in the past. Even now I am uncertain and remain suspicious about the extent to which, once the Bill passes through Parliament, we shall have incisive, determined objective lay representation on the SIB and, indeed, the SROs underneath it.
Despite the undoubted ability and integrity of our present Governor, I do not have great confidence that, if he acts jointly with the Secretary of State, people of that quality will be imported. That is another reason why I bring into question the right of the Governor to be involved in the decision. After all, I do not think that anyone would seriously suggest that the governorship of the Bank of England or the membership of the board of directors of the Bank of England should be subject to a decision jointly between the chairman of the SIB and the Chancellor. That will not be so. We are talking about the laying down of a pecking order in the City, which the Governor and the officials in the Bank of England wanted to make clear at the outset so that, in the end, the bank remains paramount and retains its supremacy in that and other matters. I am not satisfied that that is necessary or in the interests of investors in general.
As has been mentioned by my hon. and learned Friend the Minister and others in the debate, the critical factor will be the quality of the people on the board and the qualities that the Secretary of State will be looking for in appointing them. I hope that they will be genuinely lay people who have not had too much experience of the investment market, although I understand that some of the decisions in which they will have to be involved will be complex. Nevertheless, I hope and believe that lay representation will be able to engage in and contribute to such decisions, and with some ability.
I also hope that lay representation will not be, as it were, passengers from organisations outside the City, who feel that they represent consumer interests. Obviously there is somebody there from the Consumers Association, and probably that is a good thing, but I do not necessarily believe that individuals who may have a myriad other responsibilities, whether in consumer protection, business or industry, should be appointed just because it looks good. There are too many boards on which there are people with eminent names, who are undoubtedly people of integrity and are respected, but the fact is that they do not have the time to instigate particular areas of inquiry and fulfil the responsibilities that we want from lay membership.
I should like to see a little bit of daring in the appointments. I should like to see the appointment of lay people whom we have never heard of before, who will give of their time and use their ingenuity and imagination to follow up lines of inquiry or suspicion—
§ Mr. Nelson
I do not rule out jobs for the boys. Perhaps we should discuss that openly. I can think of few people who would make better members of the SIB than many hon. Members on both sides of the House who have contributed to the debates. I can mention that with equanimity, because I know that none of us would stand a chance of being appointed, but such is life. There may be life after death after the next election for at least some Opposition Members. I would not want them to be excluded from such considerations.
I, too, was concerned about the case of Mr. John Kay. I implore my hon. and learned Friend the Minister to give a full explanation. I suspect that what I am asking may be echoed by several Conservative as well as Opposition Members. The situation must be cleared up. I have spoken to the Governor of the Bank of England about it, and I am led to believe that no objections were forthcoming from the bank about that appointment. It would be wrong and a dangerous precedent if we were to be left with the impression that other Government Departments were having undue influence over decisions and appointments, the mechanisms for which are clearly laid down in the legislation that we are discussing.
I have every confidence that a Conservative Government and Conservative Ministers would in no way be influenced, in the way that has been suggested by some of the more scurrilous commentaries, by the economic or political complexion of the individual concerned, but there remains a suspicion that, perhaps because of some of his economic policies and attitudes, on balance Mr. Kay was considered, not by the Secretary of State for Trade and Industry, not by the Governor of the Bank of England, not by the chairman of the SIB, but by another Minister or another Department, to be unacceptable.
That must be cleared up. While it may be the way of the world that there is informal consultation at inter-ministerial level before many appointments in public life are made, we are laying down legislation which we want to be properly observed once it is enacted. I hope that we shall have opportunities to speak again in the debate, with the leave of the House, if the matter is not satisfactorily cleared up.
§ Mr. Alan Howarth (Stratford-on-Avon)
The amendment and the amendment to it moved by the hon. Member for Stockton, South (Mr. Wrigglesworth) give us a useful opportunity to debate the important matter of the composition—the membership—of the designated agency, a subject that deserves some reflective consideration by the House. I welcome the fact that several hon. Members wish to speak in this important debate.
The matter of lay representation on the designated agency is inextricably bound up with the accountability of that agency. It is a real problem as to how the designated agency, the SIB, is to be kept under some ultimate control. After all, it will be a big beast in the jungle and, as is the way with big beasts, it will develop its own habits and momentum. Its staff will develop their own culture and they will go their own way. In many ways, that is what they should do because we are implementing a strategy of self-regulation. None the less, it is also the principle of the Bill that the apparatus of supervision of the investment industry should be kept accountable to the Secretary of State, the House and the public. How is that to be achieved? The designated agency is to be accountable to the Secretary of State for Trade and Industry—
§ Mr. Deputy Speaker
Order. I am trying to be as tolerant as I can in approaching the debate, but the hon. Gentleman is going too far beyond the terms of the amendment in discussing accountability. We are talking about the composition of the body.
§ Mr. Howarth
I will certainly heed your warning, Mr. Deputy Speaker.
The appointment of members is a responsibility of the Secretary of State for Trade and Industry. Will the Secretary of State have working within his Department a large bureaucracy, strong enough manned and equipped then to mark the SIB in its various functions? Is that the way in which the public interest will be guarded? It is unlikely that we will have a bureaucracy on that scale. It would be expensive, ineffective and involve duplication. At the same time, we have to he on our guard against the tendency of self-regulatory organisations, and indeed of professions, to look too carefully to their own interests arid too little to the interests of the public. There is a danger in the system that has been established that the SIB, like the SROs, having been given this very important arid dangerous power to exclude membership, may use that power to restrain competition. They would be using their devolved powers to restrict entry, to discipline members and to expel members of the investment community. We must watch that and this is where the question of lay representation arises.
It is a classic observation in economics that businesses which are to be regulated before long embrace their regulators, and we arrive at a state of affairs in which the regulators serve the interests of the businesses they are appointed to regulate. My hon. Friend the Member for Southend, East (Mr. Taylor) will not disagree with me that that is prevalent in other areas such as agriculture, air arid road transport. If the House will allow me to put it in this way, for lack of an equivalent Anglo-Saxon expression, we must be on our guard against "deformation professionelle". I apologise to my hon. Friend the Member for Southend, East for using European jargon. By that expression I mean the tendency for members of a profession to equate the interests of everyone else with their own interest.
We see examples of this among the most respectable and self-respecting professional people. We have seen how the Law Society defended as a manifestation of a supreme and timeless wisdom the solicitors' monopoly of conveyancing—and that happened before my hon. Friend the Member for Stafford (Mr. Cash) became a Member of the House. We have also seen the doctors, vigorously encouraged by the British Medical Association, feeling justified in telling their ailing patients that the National Health Service would be dismantled if we as mere politicians suggested that doctors should not have an unlimited right to prescribe any drugs they saw fit at whatever cost to the taxpayer. We are also witnessing a similar example in the sad case of the National Association of Schoolmasters and Union of Women Teachers, which is arguing that it is in the interests of education that it should pursue a pay claim by dint of disrupting children's schooling.
It would be prudent to suppose that this tendency on the part of professional people to assure that what suits them is in the general interest may manifest itself in the City. That is why the amendment proposed by the hon. 619 Member for Stockton, South is important. There should be adequate lay representation on the designated agency. If we examine the present membership of the agency, we see that it consists of 18 people including the chairman, Sir Kenneth Berrill. Of the 18, 14 are either members of professional investing institutions or members of bodies, firms or partnerships which make their money by advising professional investing institutions. There are three industrialists. They are an important element of what one might term lay representation except I am not sure that the general public would consider that industrialists are so far removed from being professional financiers that they could quite be regarded as lay.
The three industrialists who are members of the SIB are eminent and distinguished people. They are also very senior and busy people, as chairmen and chief executives of companies. It is doubtful whether in practice they will be able to give the personal time and attention which is needed to carry out their function as members of the SIB.
Mrs. Rachel Waterhouse is chairman of the Consumers Association and a member of the SIB. I have not met Mrs. Waterhouse and all that I have heard about her is good. She is an assiduous servant of the consumer interest. But she is very busy in many areas. As the sole Boadicea representing consumers on the SIB, and with so many other duties, there is some doubt as to whether even Mrs. Rachel Waterhouse, singlehanded, can perform the functions required.
My hon. Friend the Member for Chichester (Mr. Nelson) suggested in any event that we have to be a little sceptical about the capacity of professional representatives of the consumer adequately to represent consumer interests. To draw a parallel, as raised in an earlier debate, there is a feeling that the CBI is not the perfect representative of the business man. That is inevitable. Much as I admire the reported work of Mrs. Waterhouse, I find it difficult to believe that she can find time to consume anything but official lunches and papers, considering how much time she spends representing consumer interests.
We must find more genuine "village-Hampdens" and "village Waterhouses". But they will not be so easy to find. I wonder how my hon. and learned Friend the Minister envisages that they will be found. We cannot just take a random sample of applicants for TSB or British Gas shares. We would probably find if we did that they were German or Japanese who, as consumers, perhaps should be represented on the SIB. However, that is perhaps moving too far from the amendment.
The lay representation on the SIB must be strong. I am, however, also concerned that the SIB is too large and that it consists of 18 members. They could too easily be divided and conquered by powerful chairmen. I do not mean to imply in any that Sir Kenneth Berrill, for whom I have genuine admiration, will be other than dedicated to his proper functions as regulator and supervisor. But the SIB is a large body, consisting of many people who will not be full-time members. We must suppose that Sir Kenneth and Mr. Croft will run the show.
It is desirable that there should be genuinely effective and prominent members on the designated agency. I fear that is insufficiently achieved in the present membership. I hope that the Minister will comment on that. It will be difficult to ensure that the SIB adequately represents the 620 interests of consumers which, as a body, it should. It is rather a large body, consisting almost entirely of part-time members. I would rather see a smaller body with more full-time members and more lay members. Like the hon. Member for Dagenham (Mr. Gould), I believe that it is probably a mistake for the alliance parties to be dogmatic as to numbers. I have reservations about the amendment. But I would welcome my hon. and learned Friend's comments on the important issue of principle raised in the debate.
§ Mr. Cash (Stafford)
This is a very important provision. We ought to be extremely glad that the Government have brought forward, in the House of Lords, a provision that goes a considerable way towards ensuring that there is a proper balance between public interests on the one hand and the interests of the SIB on the other.
Lord Reid made it quite clear in the Pharmaceutical Society case that when making a judgment about how people should carry out their functions in a self-regulatory organisation—which in that case was a chartered body— the interests of the public must always prevail over the interests of remuneration — by which, in general terms, he meant self-interest. That is the heart of the matter and, in regard to the conduct of what will be carried out under the Bill, it is the heart of the Bill also.
As my hon. and learned Friend the Minister knows, I have on many occasions tabled amendments and raised questions about the importance of having independent, objective and competent assessments about the activities of the SROs. Indeed, I repeated those points yesterday. Those same questions arise regarding the SIB because it is at the apex of the financial services sector. We are now in the big bang, and I shall judge by whether it becomes a galaxy or a black hole. If the people involved do not carry out their functions properly—and it depends on who they are as to whether they will—the City is in for rather a disappointing time.
I am confident that we shall make the right appointments, and that the appointees will be people of quality, strong-minded, and independent as and when that is required. If they are not, we shall have wasted our time on this Bill. At the end of the day, the SIB will be regulating the SROs, and if they do not function effectively there will be no effective supervision over the City.
Yesterday I mentioned the number of foreign organisations coming into the City, and we must expect that. However, it is incumbent upon us to draw attention to the importance of ensuring that the people on the SROs and the SIB can all be relied upon to act with the independence and quality necessary to ensure that the financial services sector functions effectively.
In many ways it is rather like seeking to have non-executive members on a board—something that is well known in the City—so that we can be sure that when matters crop up that are of direct interest to the people involved in the organisation in question there are people of independent mind who will say, "Wait a minute, should we be doing this or that, or should we not take a second opinion?"
The question of quorum is also important, but there has been no reference to that yet in the debate. Irrespective of the number of people proposed as a minimum by the hon. Member for Stockton, South (Mr. Wrigglesworth), one third of members being independent practitioners could prove to be unwieldy.
621 When I tabled an amendment on the same point in Committee, I had a difference of opinion with other hon. Members. It is essential to have effective independence. The most important thing is to have people of strong character, considerable integrity and high calibre who will be determined to ensure that the system functions and that there will not be a cosy club within a cosy club. The system must be effective so that the big bang works in the interests of this country and ensures that the City stays in the forefront of the affairs of the nation.
§ Mr. Tim Smith
I suspect that the next occasion on which we shall have the opportunity to consider these matters will be early next year, when we shall have to consider the designation order for the SIB. One matter that we shall consider then will he the composition of the board.
I believe that the present composition fails to meet existing criteria in the Bill. There is no provision in the schedule for deputy chairmen, yet the board has two. They are both persons with experience of investment business rather than regular users of investment services. If there are to be two deputy chairmen, one should represent users of investment services.
My hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) mentioned that, of the 18 board members, only four fit into category 3B while 14 fit into category 3A. Of the four, three are industrialists—undoubtedly users on their own account of the services provided by the City—and just one represents the interests of private investors. That is unsatisfactory and there should be at least three persons representing private investors.
If the hon. Member for Stockton, South (Mr. Wrigglesworth) had his way, there would be considerably more than that—
§ Mr. Cash
Does my hon. Friend agree that the designation order will be subject to an affirmative resolution, so there will be a considerable incentive to ensure that the persons included on the list will be representative of the matters that we have discussed today? The order will have to be approved by both Houses of Parliament.
§ Mr. Smith
That is precisely what I said at the beginning of my speech. I said that the next occasion on which we will have the opportunity to consider these matters will be when we discuss the designation order, which is subject to affirmative resolution. We shall then also consider the composition of the board and whether the Government's proposals comply with the schedule.
I am concerned that, because of the preponderance of members being persons with experience of investment business and with a particular experience of a particular part of the City, inevitably it will be difficult for them to be objective. I am not being critical, but they will have a certain bias because they may have made their names by 622 promoting a product that they believe is more in the interests of investors than other products. We must be conscious of that.
My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) and I have been pressing the board to do more to help the investors with a disclosure of charges and the provision of a level playing field. There are different interests between, first, the pure unit trust, secondly, the unit linked policy and, thirdly, the straightforward life assurance policy with major profits.
It is important to have more lay members on the board. I hope that when the final proposals are brought before the House early next year they will include an improved constitution for the board.
§ Mr. Howard
With the leave of the House, Mr. Deputy Speaker, I wish first to deal with the amendment moved by the hon. Member for Stockton, South (Mr. Wrigglesworth), which I invite the House to reject, largely for the reasons given by the hon. Member for Dagenham (Mr. Gould) and by my hon. Friends. I do not think that the rigid formula which is the basis of the amendment would make it easier to arrive at the proper balance that the main amendment before the House would require.
We have had an interesting and important debate. There is unanimity about the significance of the subject and about the importance of achieving a proper balance of membership on the SIB. There might be some differences about the route to be followed, but we are united about the importance of the end.
The hon. Member for Dagenham asked about the criteria which have been and will continue to be used to make appointments to the board and about the circumstances. The first requirement is that appointees should be people of the highest calibre and integrity who can make a valuable personal contribution to the board's work. That requirement militates against the appointment of unknown people as my hon. Friend the Member for Chichester (Mr. Nelson) suggested, or even the "villageHampdens" who were espoused by my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth).
People of the highest calibre and integrity are also fairly busy people, but that does not mean that, if they accept an appointment such as this, they do not discharge the attached obligations with proper effectiveness and thoroughness. I am sure that all members of the board fulfil that requirement and devote the necessary attention to the task.
I should like to make it clear that nobody is appointed in a representative capacity but, if the board is to be effective, it must include people with knowledge and experience relevant to its work. When making appointments, my right hon. Friend the Secretary of State and the Governor of the Bank of England must have regard to the desirability of including people with knowledge of the different investment businesses being regulated, users of financial services and people with a consumer background. They must avoid having too large and unwieldy a board. That would not be desirable or help the board to achieve its purpose. All of those factors must be balanced.
My hon. Friend the Member for Stratford-on-Avon said that the structure which the Bill would put in place should not work in a way detrimental to competition. He will bear in mind the fact that the composition of the board and of SROs does not by any means constitute the only 623 safeguard against any anti-competitive flavour. He will appreciate the role of the Director General of Fair Trading which the Bill provides.
I am sure that, on reflection, my hon. Friend will accept that the users of financial services—the three members of the board to whom he referred with some qualification—would be in an especially advantageous position, as substantial users of financial services, to ensure that the system was not operated in a way which was in any sense detrimental to competition.
Reference has been made to the presence on the SIB of Mrs. Waterhouse and the three industrialist users, as though they were the only non-practitioner members. That overlooks the presence of the chief executive, Mr. Croft, who is not from a practitioner background, and the fact that the chairman is no longer a practitioner. I suggest that that combination provides an effective independent element on the board.
My hon. Friend the Member for Chichester returned to the charge that he has often made before based on his unhappiness about the role of the Governor of the Bank of England in the appointment of members of the board. It is important, as I have no doubt said before— we discussed this matter at some length in Committee—that the agency commands the respect of those it regulates. The Governor's presence does, and will continue to, reassure the business community that the people who are appointed will understand the proper concerns of that community. That will create the right atmosphere for compliance with the rules as a matter of course. It is important that the role of the Governor should be preserved—it provides an important safeguard.
I shall not be drawn into any comment on some of the press speculation about the appointment of any individual to the board. It would be most undesirable were I to do so, for reasons which I think will be obvious to hon. Members. It would create a most undesirable precedent and I shall refrain from any comment on that matter.
§ Mr. Wrigglesworth
With the leave of the House, I should like to comment on what has been said.
This has been a most useful debate and I hope that it has made it quite clear to the Minister and those involved in the appointment of members of the SIB that the House wants a strong—possibly an overwhelming—consumer and user interest on that board.
Not for the first time, the hon. Member for Chichester (Mr. Nelson) spoke strongly and clearly on this matter. I entirely agree with him that the purpose of the Bill must not be lost sight of. Its purpose is to protect the investor and to ensure the interests of the consumer. At times, as a result of ministerial statements and statements by others, one has wondered whether the interests of the City or the interests of consumers were being protected. I hope that, as a result of appointments to the board, the Government's predominant interest will be crystal clear.
Ours is not a rigid amendment. It does not specify a number that should be achieved. Rather it specifies a minimum, and a modest minimum at that—six board members representing consumer interests out of a total of 18. In view of assurances that have been given about consumer interests being represented on the board, I do not believe that we are demanding too much.
624 To judge from what the Minister has said today and previously, there seems to be some concern about finding people to perform the required role on the board. I hope that a good proportion of women will be appointed to represent consumer and other interests. There are many outstanding women who could perform the role of lay representatives extremely effectively. The Citizens Advice Bureaux movement, the Consumers Association—we have one from there already—and journalism spring to mind, but there are many other areas in which excellent people with time could be found to ensure that the consumer interest is satisfactorily represented. Time is important, and we have discussed it previously. Although the most effective people often have heavy commitments, it is vital to have people who can devote time to watching what is going on and taking a close interest in matters that come before the board so that they can make a full rather than a passing contribution to the SIB's work.
The hon. Member for Chichester also mentioned the involvement of the Governor of the Bank of England. He knows that I have considerable sympathy with his general view. I took the view that the bank should have lost its role in banking supervision. I should have liked a separate body to have been responsible for banking supervision, as is the case in the United States and several other countries. The central bank should act as a central bank, and not take on the rather curious role of nanny and spokesman for the City as well. Although the Bill now provides for Government involvement in the appointments, I hope that the Minister and his colleagues have noted the strong feeling of hon. Members on the importance of the responsibilities that the Secretary of State carries out on our behalf. We would not want to see the Bank of England and the Governor blackballing people whom the Government would properly want to see.
This has been a useful debate and I hope that the Minister has received the message loud and clear that we want good, strong, independent and lay representation on the SIB when it is finally established. In due course, as has been said, we shall have the designating order debate and during it we shall raise hell if we do not have the sort of representation that we have been seeking this morning and in previous debates during the Bill's passage. It is with that promise that I am happy to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Lords amendment agreed to.
§ Lords amendment No. 438 agreed to.
Lords amendment: No. 439, in page 160, line 2, at end insert
(2) The arrangements must make provision for the investigation of complaints in respect of authorised persons to be carried out in appropriate cases independently of the agency and those persons.".
§ Mr. Howard
I beg to move, That this House doth agree with the Lords in the said amendment.
The amendment implements the assurance given on Report in another place that the Government would bring forward an amendment requiring a designated agency to have arrangements for the independent investigation of complaints against authorised persons. The amendment requires such independent investigation only "in appropriate cases". As I think Lord Morton recognised when moving a similar amendment concerning SROs on Report in another place, it would not be desirable to 625 require all complaints to be the subject of independent investigation. It may be quicker and easier to resolve some complaints in other ways, but it is right that an investor should normally have recourse to an independent person if his complaint has reached the designated agency—the top supervisory body in the system—and has still not been satisfactorily resolved. I am glad to say that the SIB is in any case planning to set up an ombudsman system. I welcome this move. The amendment will make some such arrangement a requirement if powers are to be transferred to a designated agency. I commend it to the House.
§ Mr. Gould
The use of mandatory language in the amendment is clearly the consequence of pressure put upon the Government in another place. For that reason, it may be appropriate at this stage to pay tribute to their Lordships in that they, like the Standing Committee, have done what they could—it has been a substantial element—to make the Bill a better piece of legislation. The amendment is part of that overall achievement.
The fact that a mandatory requirement has been imposed on the SIB with a permissive requirement applying to the SROs means that we should ask how the Minister envisages those provisions reacting with each other. Does he foresee, as clearly we must, the SIB setting up its ombudsman procedure, in effect removing from the SROs the need to do similarly? In other words, the permissive power seems unlikely to be used, and it would be useful if the Minister would confirm that that is his view.
How does the Minister think that the ombudsman procedure being set up by the SIB will work? Is it, to use the phrase of the insurance ombudsman, whom I had the good fortune to meet yesterday, a powered ombudsman—an ombudsman with the power, conferred presumably with the agreement of the contributing parties —to award sums of money by way of compensation and to apply other remedies? Or is it to be an ombudsman who simply makes recommendations which he hopes will be acted upon?
In the light of the discussions that we have already had on matters such as McDonald Wheeler, how does the Minister see the remedy fitting into what is by now—I make no complaint of this—a proliferation of potential remedies available to aggrieved investors? It would also be welcome if the Minister would say briefly whether there is anything in the work of his Department that would offer some crumb of comfort to investors who may have lost money as a result of the collapse of McDonald Wheeler.
§ Mr. Nelson
Two points cause me some disquiet. The first is the general point that, while I understand the import of what my hon. and learned Friend the Minister said, I remain a little concerned that we may in some way be detracting from the prime responsibility of the SIB to undertake inquiries and investigations. We are setting up the SIB, as we are the SROs, with the clear duty to investigate cases of abuse and dereliction of duty by authorised persons.
If we are to insist, as the amendment does, that arrangements must also be made for the investigation of complaints to be carried out in certain instances by bodies other than the designated agency— the SIB in this instance, or, in the previous amendment, the SROs—are we diluting or circumventing the responsibility of the SIB to investigate?
626 I should be happier if the SIB had that responsibility. I do not see many instances in which there would be a conflict of interest or where the integrity and objectivity of the SIB in making investigations could be brought into question. If it could, something would have to be done about the SIB, its composition, its officials and mechanisms for investigations.
I am not clear in what instances an independent, separate body from the SIB, over which we have no legislative control and which is not established by law, would have a preferential right to conduct an investigation, as opposed to the SIB. I am not convinced of the necessity or wisdom of diluting the investigatory arrangements that we have hitherto granted to the SIB.
Secondly, hon. Members will be aware that in Committee we made some important changes, not only to the status of the SIB, but to its investigative powers and its powers to prosecute offenders. One of the important changes that we made was to ensure that the SIB was able to investigate unauthorised as well as authorised persons. The reason for that is that there is no point in being able to investigate just the good guys, and not the bad guys.
It must be possible to respond to a complaint from a member of the public or a practitioner that somebody is ostensibly carrying on an unauthorised investment business which, remember, under the Bill, is a criminal offence. Before those amendments, the SIB, which, ostensibly, is the overall regulatory body, was not able to undertake an investigation of an unauthorised—criminal—concern which was holding itself out as an investment business and possibly defrauding substantial numbers of the public. The SIB is now able to investigate allegations that a business or individual is carrying on an unauthorised investment concern.
I mention that because schedule 5, paragraph 4, to which the amendment applies, says:The agency must have effective arrangements for the investigation of complaints arising out of the conduct of investment business by authorised persons"—it does not say "and unauthorised persons"—or against any recognised self-regulating organisation, professional body, investment exchange or clearing house.The amendment says:The arrangements must make provision for the investigation of complaints in respect of authorised persons to be carried out in appropriate cases independent of the agency and those persons.So the schedule and the amendment insist that the SIB should have effective mechanisms for investigating authorised concerns.
As we have given—rightly—the SIB the power to investigate authorised concerns, surely it should have as effective mechanisms for investigating unauthorised concerns. If it is proper, as the amendment implies, that that can also be done independently of SIB, such an independent body should also have effective measures and means of investigating unauthorised and criminal concerns.
§ Mr. Butterfill
The hon. Member for Dagenham (Mr. Gould) welcomed the mandatory nature of the amendment, which contrasts with the permissive nature of an earlier matter. However, it seems to me that this is not entirely mandatory, because the mandatory nature is purely that provision should be required to be made, and it depends on what may be an appropriate case. Who will be the judge of what is an appropriate case? Is the SIB to judge whether a case is appropriate for independent 627 machinery or whether it will carry out the investigation itself? Will that responsibility fall on the Secretary of State? Can the complainant decide what is an appropriate case? The matter is not entirely clear, and I would be grateful if my hon. and learned Friend the Minister would clarify it.
§ Mr. Cash
I wish to associate myself with the remarks of my hon. Friend the Member for Chichester (Mr. Nelson) in his extremely interesting and useful intervention, which supported many of the points made in Committee. I should like to add a gloss to them.
The arrangements under Lords amendment No. 439 provide forthe investigation of complaints in respect of authorised persons to be carried out in appropriate cases independently of the agency.That continues the theme which we have, rightly, come back to over and over again during the debate—the importance of an independent assessment.
Paragraph 4 of schedule 5, headed "Investigation of complaints", draws a distinction, which is thatThe agency must have effective arrangements for the investigation of complaintsin respect ofauthorised persons or against any recognised self-regulating organisation, professional body, investment exchange or clearing house.Whereas Lords amendment No. 439 deals with independent arrangements in respect of authorised persons, we do not have independent arrangements in respect of the SROs, professional bodies, investment exchanges or clearing houses in the same terms.
Earlier I referred to the possible problem of blackballing within what could be described as a cosy club. I hope that that will never be the case. That could create severe difficulties and an independent investigation would be required into the activities of an SRO. We touched on that matter earlier, and I had an assurance from my hon. and learned Friend, for which I was extremely grateful. That point has not been included in the Lords amendment to paragraph 4. I fall back on the assurance that my hon. and learned Friend has given to deal with this substantial point. If people are to have the confidence that they should have in the SROs, they should know that the independence will be combined with a determination not to blackball people unreasonably.
§ Mr. Howard
I shall endeavour to deal with the various points raised in this interesting debate. The hon. Member for Dagenham (Mr. Gould) asked about the relationship between this provision and the fact that there is not a similar provision for SROs. The position is, indeed, as he suggested was likely to be the case, that the compulsory requirement for the agency to have an ombudsman system applicable to all authorised persons removes the need for the recognised body to be obliged to set up its own ombudsman system. It is free to do so, if it wishes, as one way of meeting the requirement to have effective arrangements for investigating complaints. The precise way in which the ombudsman scheme would work is a matter for the SIB. It would be for the board to work out the details in relation to the various points that the hon. Gentleman has made.
On the implications of this proposal for the McDonald Wheeler case, I imagine that the hon. Gentleman would, 628 on reflection, agree that the real answer lies in the compensation arrangements rather than in this provision. It may well be that there would be matters of complaint which could be appropriately investigated by an ombudsman, but the important safeguard for the victims of the McDonald Wheeler case when the Bill's regime is in place lies in the compensation provisions.
My hon. Friend the Member for Chichester (Mr. Nelson) asked about the circumstances in which it would be appropriate for complaints of this nature to be made, and he expressed the concern that in some way the SIB's status and functions would be diluted by the provisions of this independent investigation mechanism. With respect, his concern is unfounded. What is here provided is an additional mechanism within the Bill's structure. If a complaint against an authorised person has made its way up the system and has been investigated by the SIB, but not to the satisfaction of the complainant, there may well be an advantage in having the additional facility of an investigation by an independent body of the type that we are discussing. That would maximise the extent to which a complainant could be satisfied that his complaint was being thoroughly and properly investigated.
My hon. Friend's second point is that these particular provisions are restricted to complaints against authorised persons. It is right that they should be so restricted. This provision relates to the scheme at the heart of the Bill. It is appropiate that the independent mechanism should be restricted to complaints against authorised persons. That is not to say that there will not have to be effective mechanisms for the implementation of the provisions, for which my hon. Friend was to some extent responsible during the passage of the legislation and which extended the ability of the SIB to investigate unauthorised persons. That remains and is not in any way impaired by these provisions. It will be necessary for the SIB to provide an effective mechanism for investigating unauthorised persons. That is one of the matters to be taken into account by the Secretary of State at the time of designation. I do not think that it is necessary for there to be this precise form of independent investigation of complaints against unauthorised persons.
§ Mr. Nelson
I am grateful to my hon. and learned Friend the Minister for what he has said. He made an important statement. He has said—it certainly does not say this in the legislation—that the SIB will have to have effective measures for investigating unauthorised persons. That is implicit in the amendment that has been passed. I suspect that the matter may have been overlooked as almost a consequential amendment to that amendment, but we should have added in the schedule the investigation of unauthorised as well as authorised persons. As the legislation stands, there is a duty on the SIB to have a mechanism only for investigating authorised persons. I hope that what my hon. and learned Friend has said will be taken note of by SIB.
§ Mr. Howard
I am not sure that my hon. Friend is correct in that. Clause 92 provides for effective mechanisms to be provided for the investigation of unauthorised persons. That is not dealt with in schedule 5. It is concerned with establishing an independent mechanism for the investigation of authorised persons. 629 That does not detract from the other provisions. I think that clause 92 will provide my hon. Friend with the answer to his point.
My note of the point raised by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) is wholly defective, and its significance has escaped my recollection. However, I should be happy to give way to him.
§ Mr. Howard
I am much obliged to my hon. Friend. The answer is, of course, the SIB. It would be for it to decide what are the appropriate circumstances in which the independent mechanism is to operate, but the Secretary of State will look at the totality of the rules made by the SIB and at the provision made for that independent mechanism when it comes to the designation process.
§ Mr. Butterfill
I am grateful to my hon. and learned Friend for that explanation, but is it not a little extraordinary that there should be a mandatory obligation to set up this mechanism, although it then becomes entirely discretionary as to whether it is implemented?
§ Mr. Howard
That is not an entirely fair construction to make. When the matter was debated in the other place, it was accepted that it would not be desirable to require all complaints to be the subject of such independent investigation. There will be circumstances in which other, equally effective, arrangements can be made. I see no difficulty about leaving it to the SIB, subject to the requirement to satisfy the Secretary of State at the designation stage, to identify those circumstances in which independent investigation is likely to be particularly appropriate and desirable. I hope that I have answered my hon. Friend's point.
§ Question put and agreed to.
§ Lords amendments Nos. 440 to 550 agreed to, one with Special Entry.