Compensation Bill [HL]

moved Amendment No. 36:"Page 2, line 35, leave out ““may”” and insert ““shall””" The noble Lord said: We now move to the regulator. This is the first amendment which deals with the broad issue of the regulator. I recognise that the noble Lord, Lord Goodhart, has a number of important amendments later. As drafted, the regulatory trumpet in this clause sounds a very uncertain note, which must significantly reduce the chances of anyone preparing themselves unto battle. The amendment requires the Lord Chancellor to designate a regulator rather than it being a permissive power. Throughout the Bill the powers vested in the Lord Chancellor appear to be discretionary rather than mandatory—and this will be a recurring theme. The amendment in itself is particularly important. I would contend that unless the Lord Chancellor is going to regulate the industry himself—we have already had some discussion about that and no doubt the issue will appear in subsequent debates—he really does have to designate a regulator. I do not see any scope for discretion at this point. It seems to me that we are considering two basic contrasting models here. I will call one the FSA model and the other the CSC model. The FSA is an independent, non-governmental body given statutory powers under the Financial Services and Markets Act 2000. It is a company limited by guarantee, financed by the financial services industry, but accountable to Treasury Ministers and, through them, to Parliament. As the Minister will be aware, the Treasury appoints the FSA board, which sets the overall policy of the FSA, while day-to-day decisions and management of the staff are the responsibility of the executive. We debated the FSA model at great length. The only real difference of view I had with the Government was on the need for a separate chairman and chief executive. I was delighted when the Government eventually accepted that principle and I think that the present system works very well. But it is a regulator. However strongly one may feel about its individual or collective decisions, at least we know that it is independent and that it was set up under an Act of Parliament. Much more than that, however, is that it is seen to be a much respected regulator. We then move to what I referred to as the CSC model. In contrast to the FSA model, the Claims Standards Council is a membership organisation. Perhaps the only thing it has in common with the Financial Services Authority is that it is currently said to be financed by the private sector. It has a draft code of conduct entitled ““Members’ Rules””. In setting out the members’ rules and describing itself, the Claims Standards Council says that the council,"““is a Not for Profit organisation created in 2004 specifically to act as a regulatory body for those organisations and individuals that volunteer to be regulated””." What that does not make clear is that the Claims Standards Council is a membership organisation. Although the CSC has this draft code of conduct and seeks to provide a kitemark of sorts to its members, ultimately it is a representative, not a regulatory organisation. I suppose in the world of financial services the parallel would perhaps be with the Association of British Insurers rather than the FSA. No one would expect the ABI to take on regulatory functions in this respect, and, indeed, it has never done so. So I hope that in the debate we can focus first on what sort of model we have in mind. We will have later debates about the status of the regulator, the nature and type of regulator, but I think we must be clear about the kind of regulatory model we need to establish for claims farmers. It is worth saying that I believe strongly that the FSA model is broadly the better one. I believe that we should import most, or even all, of its key features across as we decide exactly how we are going to regulate claims farmers. The Minister knows that if I had my way I would want the FSA to regulate claims management companies. Indeed, I wanted the FSA to regulate mortgage providers and all providers of travel insurance. But there is always a limit to the extent of the remit that can be given the Financial Services Authority. I have on several occasions spoken to senior members of the FSA and they say, ““Please don’t give us any more responsibility while we concentrate on getting right the responsibilities we have now””. As the Minister will recall, I have made available my correspondence with the FSA in which I sought to persuade it perhaps to clip the wings of those who seek to make unfair profits out of those who have valid endowment mis-selling claims, in particular when a free service is available from the ombudsman. But I have not succeeded yet in that, although I am grateful to the Minister for giving me an opportunity to raise some of my concerns with the economics Secretary. I look forward to doing that. My conclusion is very much to prefer the FSA model. The key features to which I refer are that the FSA is a totally independent body whose powers are based in statute rather than contract. The FSA has the power to make rules as to the authorisation of specific firms and, in addition, for approved persons within those firms. That allows for a situation where a company must be authorised before it can carry out specific types of business. The key personnel in that firm must also be approved for that specific role within the firm and will have individual liability for compliance with the rules. Of course, there is a central register for authorised firms and approved individuals. There is continuing assessment on compliance with the rules. I should declare an interest as chairman of the Professional Standards Board of the Chartered Insurance Institute. I work closely with the regulator in upholding the highest possible professional standards in the insurance industry. But I detect that the situation I describe is very far from what could happen—I repeat, could happen—because I sense that the noble Baroness is not yet persuaded that the CSC model is the right one to take forward. I have not, of course, seen the report of the eminent consultant, Mr Boleat, but I know that I speak for Members of the Committee when I say that we look forward to hearing from the noble Baroness as and when she is able to make available those sections of the report which can more easily be disclosed. I accept that it is right to ask the CSC to comment on the report before it reads any of it through any other avenue, which is only fair and right. As continuing assessment across the board would be almost impossible for any regulator to enforce, the FSA also has the power to assess risk and to focus its intentions on those sectors or individual firms where it considers that such assessment is most needed, which is really what attracts me about the FSA model and why I would like to see it extended to this arena—although I recognise that it would be difficult to persuade it to do so. Ministers have already accepted that self regulation has been an abject failure. While the industry was being given an opportunity to sort itself out, some of the more glaring examples of abuse have emerged. I am very concerned about the way in which unfortunate and vulnerable people have to deliver up to a number of people making profit key parts of their damages or compensation under the existing system. I know that the noble Baroness shares the view that it would be good if one could just transform the situation overnight, but one cannot. One has to recognise that the situation is getting worse. Self regulation has failed and every day the situation deteriorates. It does not make sense to try to create some sort of hybrid embodying substantial aspects of the existing discredited system. In considering the CSC model, one must ask who created that organisation, who finances it and to whom it is accountable. I am sure that the organisation would like to give us more information. If the Minister is ever tempted to go down that route, we would press her for much more information but, for the moment, we are unaware of the finance and support that that organisation receives. However, there is no doubt that it was originally—and to some extent remains—a membership organisation. A membership organisation will look for what is in the best interests of its membership. Undoubtedly, at some stage, its members decided that the best way forward, faced with a statutory regulator, was to create a regulator that could become that statutory regulator—to create a regulator which could impose, service and administer a system of self-regulation. That has gone by the board. They have now been told that it must be statutory regulation. Lo and behold, we are presented with a possible regulator. I hope that the Minister will not be misled in any way by some of the claims made; indeed, I know that she is just the sort of person who will not be misled by such claims. We must get this right and the system must endure for many years to come. We do not want to have to revisit this. My noble friend Lord Eccles has said that this is the sort of area where people will find some way through and that it is therefore impossible to cover all eventualities. Either one presents legislation that is so all-encompassing that it becomes completely unenforceable and burdensome on the free enterprise system; or one seeks to target and to focus on the worst excesses. I agree with my noble friend that to do that, it is necessary to have a regulator based on the FSA model. We shall debate a little later whether that is possible. I have suggested that the regulator should be the noble and learned Lord the Lord Chancellor—this is probably one of the few occasions on which I have expressed such a degree of confidence in him. However, he is the sort of person, with the full panoply of the Government, who could take on the role. At some stage it would be necessary to try to hand over to a future body. It may well be that, as the noble learned Lord the Lord Chancellor said, it should be the Legal Services Board. We have heard him talk about that and we have a lot of sympathy with the proposal. Whatever is to be the ultimate regulator, we must get from here to there. I far prefer the FSA model to the CSC model. I shall be interested to hear what the noble Baroness has to say. I beg to move.