Lords rebel over financial watchdog

The Bill would transfer powers to the FSA

The government has been defeated in the House of Lords over elements of its plan to transfer powers from nine different regulators to the Financial Services Authority (FSA).

Peers voted to push through two amendments to the Bill, against the government's wishes, before the Financial Services and Markets Bill's received its third reading.

The amendment defeats came despite government reassurances to the City that the legislation would not undermine the role of the Takeover Panel in monitoring mergers and hostile bids.

Opposition peers had argued that the Takeover Panel would work better if it continued as a self-regulatory City body.

They said this would be less bureaucratic and less likely to be subject to legal challenge.

"The Government has always been mistaken to compromise and confuse the status of the Takeover Panel's Code," said Lord Saatchi.

The House of Lords has resoundingly rejected the Government's approach. Common sense has prevailed."

'Virtue destroyed'

The Conservative, Lord Boardman, said the government compromise would "destroy the virtue that has made the Takeover Panel so effective".

He added: "It will give rise to lawyers being consulted which didn't happen in the past."

Lord McIntosh of Haringey, for Treasury ministers, argued that an Opposition amendment would have the effect of putting into statute the self-regulation system of the City's Takeover Panel.

He said: "It provides a statutory carve-out for a non-statutory body. That cannot be acceptable."

But he offered to consider, when the bill returns to the Commons, whether to clarify the extent to which the FSA should observe the City Code.

City fears

The Financial Services Bill, which aims to shake up the system of regulation in London's financial centre, has provoked a number of criticisms from the City.

There are concerns that the move from self-regulation would overburden the new regulator, the Financial Services Authority.

And there are fears that the some of the new powers are draconian and an attack on personal liberty.

But the debate over the Takeover Panel centred on the worry that London's predominance as a world financial centre could be put at risk.

Because the Takeover Panel is only an advisory body with no formal legal powers, it was feared that companies would appeal to the law if their takeover plans were blocked, tying up matters in the courts for months or years.

Peers were not impressed by the government's assurances that it would ensure that companies who had "taken regard" of the Takeover Panel's advice would have a defence in law.