My Lords, this is a probing amendment directed at the same clause as Amendments 48H and 48G from the noble Lord, Lord Stevenson. It is about the performance report of the regulators. The amendment seeks to add a requirement that the report should contain information relating to work undertaken on behalf of the regulator in the execution and performance of the regulatory duties.
It is obvious that the activities of a regulator come at a cost: there is the cost to the regulator itself in terms of its own budget and the cost to those that it regulates, either the direct costs or the hidden costs, having set up systems to ensure compliance. Obviously all this can be a considerable economic burden, and it is therefore extremely welcome that the Government have emphasised in the Explanatory Memorandum, and indeed in the Bill, the importance of regulators having to have regard to the promotion of economic growth and to report thereupon.
One of the ways in which it happens that regulators are kept under control is that they have a budget within which they have to live. This forces a degree of focus by the regulator on the essential aspects of its duties; in effect, it concentrates them on the must-haves rather than the nice-to-haves. I am concerned that there may be ways for regulators to avoid these budgetary constraints and instead end up with a great deal of nice-to-haves that may not have a commensurate cost/benefit relationship.
I have explained this to the Bill team because it is quite a specialist point: in the Financial Services and Markets Act, which I am using as a practical example, Section 166 is called “Reports by skilled persons”. Section 166(1) says,
“The Authority may, by notice in writing given to a person … require him to provide the Authority with a report on any matter about which the Authority has required or could require the provision of information or production of documents”.
That is very widely drawn section, and Section 166 inquiries have become very prolific in the financial services area. There are organisations that have several of these running. The regulator comes along and says, “We’re not satisfied about this aspect of your operation, and under Section 166 we instruct you to get a skilled person to provide an independent report on it”. The skilled person will be an accounting firm or maybe a lawyer. The regulator continues: “The report is to be sent to us and the bill is to be sent to you, the firm”. These reports will cost probably a couple of hundred thousand pounds by the time they have reached the end of the road.
This means that there is no financial constraint on the regulator because the regulator can pursue issues without concern as to the operational impact of their own organisation. I accept that the wording is almost certainly imperfect, but the amendment is designed to require regulators to disclose when they are subcontracting regulation so that we can have an independent idea of what they are spending outside their own budgets. I am not saying that the regulator should not be able to do that, but I am anxious to make sure that proper disclosure takes place. I am not sure whether other regulators—I have given the financial services sector as an example—are engaged in the same practice. Of course, it is challenging to get the drafting right because these additional costs are invoiced to the regulated firms, not to the regulator.
There is an issue here that needs addressing if the Government are to achieve fully their welcome objective of getting a regulatory system that is focused and effective but run with regard to the costs being incurred. I beg to move.
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