Compensation Bill [HL]

My Lords, in this case I have to depart from my brief just to prove that it is not dangerous in my case, which is exactly what I am going to do. I shall deal first with the specific point that the noble Lord raised in his amendment. I am sure that the noble Lord, Lord Goodhart, will agree too that there should be individual accountability for the actions of claims management companies. It is vitally important for effective regulation. When we get to Amendment No. 35 we are confident that the requirement we are proposing to add is sufficient. Regulations will require applicant companies or partnerships to provide information about the controlling individuals—the chief executive, the directors or the partners—including information about criminal records, involvement in civil proceedings, disqualification from directorships and so on. That will ensure that only those considered suitable by the regulator can control an authorised company. More information is contained in the policy statement, which I know that the noble Lords, Lord Hunt and Lord Goodhart, have seen—a copy of it is in the Library. We will return to the issue on Amendment No. 35. While we accept that the concept of ““approved persons”” is well established in relation to the FSA, while specifying 27 separate controlled functions and requiring an approved person to carry out each is entirely appropriate in relation to financial services organisations, many of those are large organisations involving hundreds if not thousands of employees. I am not sure I accept that a similar scheme would be other than unnecessarily complex. We suspect that the majority of companies left in the market will be relatively modest organisations. Where companies re-invent themselves it is likely that those who are deliberately trying to evade authorisation will be directors of the company, and could probably be shown as ““controlling minds””, which is captured by what we have sought in the Bill. I know that the noble Lord, Lord Hunt, was particularly concerned about the difficulty with prosecuting the individuals who are behind companies that commit offences under the Act. An approved person regime would not help with that, so we hope that what we have done in Amendment No. 35 will achieve that, because under the approved person regime the offences apply only to unauthorised persons. If that person was an ““approved person”” they could be employed only by an authorised claims management company and so could not have committed the offences in any case. It does not achieve what the noble Lord wants, but we hope to convince him that we have captured the issue, because we agree with the noble Lord, and have reflected that in Amendment No. 35. Perhaps I may now digress from my brief. I hope that I have addressed, one way or another, all of the issues that I promised to in Grand Committee. I have spoken about the budget that the Government have put in place—£750,000 a year for two years—the ambition that this should be self-financing, which is always our ambition in relation to regulation, that I reckoned that there were presently 500 companies in the market, and I spelled out in great detail, which I shall not repeat, the assumptions that we have made that where there have been other forms of regulation, the market generally shrinks. There is no suggestion that that would not happen in this case. That has huge implications for what we do in relation to regulation, which the noble Lord, Lord Hunt, will recognise. I put, as I promised, copies of Mr Boleat’s report on the Claims Standards Council into the Library of the House with a copy of the CSC’s response. I sent personal letters to noble Lords who were particularly interested in that, not least on the Front Benches. Noble Lords will know that I only held back information that either the CSC or Mr Boleat requested, because it was commercially sensitive. Everything else is in the public domain, despite the original intention that the report should not be in the public domain. So I hope that noble Lords will feel that I made my commitment absolutely clear. The report is a comprehensive assessment and analysis of the current position of the Claims Standards Council and the enormous task required for the organisation to get itself into a position for me to consider it as a potential regulator. The report identified a number of key areas where the CSC would need to make demonstrably good progress or have robust plans to that effect to remain in contention for designation as a regulator. While the CSC has considerable expertise of the claims management market, I have to be sure, as noble Lords would expect me to be, that it could be an effective statutory regulator. It is a very young organisation, and if it was designated as a regulator it seems to me that it would be designated a task beyond its current capabilities or near future potential. Becoming a statutory regulator would be a big leap and would not be achieved easily. I do not believe that the CSC would be able in a quick timescale to take on the great responsibilities that statutory regulation brings with it. I am not seeking to criticise the CSC; far from it. It has done a remarkable job in highlighting bad practices, trying to tackle poor services and developing a starting point for model rules to be recognised by the Better Regulation Task Force as a body worth giving the chance to try to make self-regulation work. As the Constitutional Affairs Select Committee commented in its recent report:"““Although the existing Claims Standards Council might seem a credible candidate as an organisation to be named as regulator . . . a more professional solution is required if regulation is to be effective””." I would encourage the CSC to consider options for continuing involvement, and to continue to contribute to identifying abuses, raising standards and helping to shape the implementation of the legislation, and we need a strong trade body to provide that crucial representation for the claims management sector—a body that we can work with to ensure that regulation is applied effectively and sensibly. The CSC could provide that role, although it is up to the industry to decide. So we have determined that the CSC will not be the regulator on the basis of the report and the response. I hope that noble Lords who have had opportunities to look at the report will be able to see and understand what is behind that.