Financial Services and Markets Bill [HL]
House of Lords · Grand Committee · 24 Jun 2026 · 156 speeches · Official Report
Committee (2nd Day)
Northern Ireland and Scottish legislative consent sought . Relevant document: 2nd Report from the Delegated Powers Committee .
My Lords, before we start, I ask noble Lords, as I did on Monday, to declare their interests before they speak. If they did not do that on Monday, they need to do it today. In addition, as per paragraph 8.82 of the Companion , when it comes to pressing or withdrawing amendments at the end of the debate, I ask noble Lords to keep that debate short. We are not supposed to rehash and repeat the whole debate, so please keep it succinct. Schedule 2: Payment systems regulation Amendment 47A
Moved by
47A: Schedule 2, page 72, line 11, at end insert- “6A After section 1QA insert-“1QB The Payment Systems Panel(1) Arrangements under section 1M must include the establishment and maintenance of a panel of persons (to be known as “the Payments System Panel”) to represent the interests of-(a) participants in regulated payment systems, and(b) those who use, or are likely to use, services provided by regulated payment systems.(2) The FCA must appoint one of the members of the Payments System Panel to be its chair.(3) The Treasury’s approval is required for the appointment or dismissal of the chair.(4) The FCA must appoint to the Payments System Panel such persons to represent interests and expertise relevant to the FCA’s payment systems objectives.””Member’s explanatory statement Schedule 2, paragraph 6 removes the Payment System Regulator from the FCA’s statutory panel composition provisions and does not replace it with any payments-specific representation. This amendment and another in the name of Lord Holmes of Richmond seek to provide such representation.
My Lords, it is a pleasure to open day two of Committee on the Financial Services and Markets Bill. As it is the first time I have spoken in Committee, I declare my interests as set out in the register around technology, as an adviser variously to the Crown Estate, Endava plc, Simmons & Simmons LLP, and as non-exec director of Avalanche BVI Inc and the Avalanche Foundation. I had hoped to take part in day one of your Lordships’ deliberations on the Bill, but unfortunately there was a direct clash with the Sporting Events Bill in the Chamber. I was hoping to be able to perform some kind of Bill biathlon but, sadly, time clearly caught up with me and I found myself stuck on the track in there. However, it is a pleasure to open day two of the Bill. I will move Amendment 47A and speak to the other amendments in this group in my name. I give more than a nod to the other amendments in this group and I thank my noble friend Lady Neville-Rolfe for co-signing two of my amendments. In essence, these amendments can be seen as a connected group. The intention set out in the Bill is clear that the PSR is no more and its functions are to move over to the FCA. That is a defensible and clear objective and it has been communicated. The difficulty is that it is not what the Bill currently achieves. In many ways, these amendments could be summed up by “Lost in Translation”, because key elements of the functions of the PSR, not least those critical elements around competition and innovation,...
Baroness Bowles of Berkhamsted
My Lords, I shall speak to my Amendment 48. It addresses a simple but important point: the quality of regulation depends on the quality of consultation. At present, consultation periods vary unpredictably. Some run for many weeks; others, even on significant policy shifts, have been compressed into days. That inconsistency makes a system difficult for firms to plan around, inaccessible for consumer groups and individuals, and challenging for Parliament to scrutinise. I am a serial responder to consultations-I have been for over 20 years, not just on financial services-and I have experienced this difficulty myself. The Lords Financial Services Regulation Committee, on which I serve, along with several other Members who are present in this Committee, heard extensive evidence on this. In our report Growing Pains , we concluded that the FCA and PRA need a better understanding of the lived experience of regulated firms in coping with consultations, policy statements, “Dear CEO” letters and the plethora of regulatory tools now used. That is a polite way of saying that the system is overloaded and fragmented. My amendment would introduce proportionate, predictable windows: four to six weeks for minor changes and six to eight weeks for material ones. I seem to recall that, in Brussels, the time allowed was two months and for more complicated things an extension was available of three months. It would also be in line with that, so not out of line with international thinking. The...
My Lords, I have a number of amendments in this group that relate to the PSR. Before I run through those, I want to comment on Amendment 47A, moved by the noble Lord, Lord Holmes of Richmond. I must say that I am attracted by the idea of a payment systems panel. Payment systems are such a critical part of our financial services structure. They are used more often by more people and more businesses than any other financial service. If they go wrong, or become too expensive, or fail to prevent fraud or error effectively, the impact on individuals and businesses would be very significant. The abolition of the PSR risks dilution of attention to payment systems, so the creation of a panel has very real merit, and I will listen to the Minister’s answer with interest. I will also be interested to hear why the payment systems competition objective in the Bill is missing elements originally included in the Financial Services (Banking Reform) Act 2013, as the noble Lord, Lord Holmes, has pointed out. I move on to my Amendment 49, which is simply a request for clarification and understanding. I have read new subsection 131Z3(2)(d)(ii), inserted by Schedule 2, a number of times, but have been struggling to understand the double negative in it. I think I now understand that it means that any system that includes any arrangements using digital settlement assets may be a payment system even if that system’s primary purpose is not that of enabling persons to transfer funds. Is that correct?...
My Lords, I will make a few comments on amendments in this group and speak particularly to my Amendments 54 and 57. I say very gently that I agree with the other amendments in this group. My noble friend Lady Bowles is looking for consistency in the consultation period. Unless someone has been on the other side of a consultation period-not setting it but trying to respond to it-they may not know that the real-life difficulties of the inconsistency, frankly, are often a barrier, not just an annoyance. Amendment 47A is in the name of the noble Lord, Lord Holmes, and yes, it makes sense to have a payment systems panel on an issue such as this: we need to make sure that a full range of views and experience is taking a look at such a crucial piece of the financial plumbing. On Amendment 55, I could not understand why ease of use should have been removed from the competition objective. That made no sense if we are thinking about people and consumers. I do not know whether the Government could explain that. I very much support the noble Lord, Lord Vaux. It had struck me but I did not do anything about it and I should have. His Amendment 49 deals with this capacity to exclude digital payment assets from definitions in payment systems, which just seems fundamentally wrong. We are moving in the direction of digital, these are coherent parts of the payment system and it is going to be relevant to the two amendments that I am about to discuss. My Amendment 54 recognises that we are in a...
My Lords, I am grateful to noble Lords for bringing forward this group of amendments, which raises several important questions around the future shape of payments regulation once the Payment Systems Regulator is brought within the FCA. I am particularly grateful to my noble friend Lord Holmes for introducing Amendments 47A and 101A with simplicity and clarity; I note the support from the noble Lord, Lord Vaux, and the noble Baroness, Lady Kramer. Despite the arguments of the noble Baroness, Lady Kramer, I do not favour extending the FCA’s service user objective to include consumer redress or access to cash; indeed, I am against a levy for such purposes. In any event, payment system operators do not deal with customers. That is done by financial services firms. I am more receptive to the amendment from the noble Lord, Lord Vaux, on applying the secondary growth and competitiveness objective to the regulation of payment systems. Does the Minister intend to do this? If so, can it be done by the proposed regulations or does it need to go into the Bill? I should add that, as with so much in the Bill, the framework is broad while the substance is left to later regulations. That is a real concern, as it leaves a lacuna in parliamentary accountability. We have been through the arguments on consumer credit and in-person banking, but I log them again for good order. I want also to address two central themes running through this group: first, the need for proper industry engagement and...
My Lords, I am grateful to the noble Lords, Lord Holmes and Lord Vaux, and the noble Baronesses, Lady Kramer and Lady Bowles, for tabling these amendments, and to the noble Lords who have spoken in this debate. I will speak first to the amendments concerning the regulation of payment systems and then turn to Amendment 48 tabled by the noble Baroness, Lady Bowles, which raises a separate issue concerning the consultation processes of the FCA and PRA. There is no doubt that payment systems are critical economic infrastructure. They must be secure and resilient, but also support competition, innovation and good outcomes for the households and businesses that rely on them. That is the purpose of the Bill. It consolidates the Payment Systems Regulator’s functions within the FCA to create a more coherent framework. This is an institutional reform and should not be seen as weakening consumer protection, competition regulation or regulatory standards. The PSR has been effective in driving competition and innovation among payments firms, but the current framework is too fragmented. The Bill will reduce the number of regulators with which firms need to engage. It is worth stating that the Government have not rushed into this. We consulted on this proposal almost a year ago, in September 2025, and have been working on the details ever since. We published a detailed response in April this year. Throughout this process, the Government have been clear: the intention is not to...
Amendment 54 concerns the service-user objective. I recognise the importance of inclusion, redress, access to cash, choice and interoperability. However, the Bill gives the FCA a broad service-user objective, alongside innovation and competition objectives equivalent in substance to those held by the PSR. Listing specific matters in statute risks narrowing that objective and limiting future flexibility.
On the issues the amendment raises, action is already being taken. The FCA has statutory responsibilities on access to cash. APP fraud reimbursement protections will be preserved and taken up by the FCA. Wider payments reform, including progressing open banking and next-generation retail payments infrastructure, will support greater choice, interoperability and better outcomes for end users.
Amendment 55 concerns the FCA’s objectives. The Government consider this amendment unnecessary. I reassure the noble Lord that the Bill already applies the FCA’s strategic objective, competition duty, and secondary international competitiveness and growth objective to payment systems regulation. The FCA’s payment system objectives are based on the PSR’s existing objectives and remain the right basis for payment systems regulation, ensuring that the FCA can promote competition and innovation while acting in the interests of service users.
Amendments 55A, 55B and 55C seek to amend the FCA’s payment systems competition objective. I agree that the FCA must be able to consider user access and market entry by infrastructure-
I am not sure I fully understood the Minister’s response to Amendment 55. Does the FCA’s secondary growth and competitiveness objective apply to payment service systems under the Bill? That was the clarity I sought.
It does indeed. Returning to Amendments 55A, 55B and 55C, I agree that the FCA must be able to consider user access and market entry by infrastructure and payment service providers. The Bill already achieves that. The FCA’s payment systems objectives are intended to be equivalent in substance and scope to the PSR’s existing objectives. The noble Lords, Lord Holmes and Lord Vaux, asked about drafting differences between the FCA and the PSR objectives. Changes in drafting of the FCA’s payment systems objectives are for simplification only. The FCA’s payment systems objectives retain the substance of the PSR’s objectives. Turning to Amendment 57, the Government are committed to improving financial inclusion, but a new levy on payment system participants is not the right mechanism. The better course is targeted and proportionate action, including through the Government’s financial inclusion strategy and the recent allocation of £132.5 million in dormant assets funding to Fair4All Finance. On Amendment 101A, the Bill already provides for the secondary competitiveness and growth objective to apply to the payment systems’ general functions. Any reporting on that secondary objective would include its application to payment systems’ regulation, as appropriate. Therefore, the Government consider the amendment unnecessary and are satisfied that the Bill already gives the FCA the right objectives to support innovation, competition and growth. Finally, Amendment 48 seeks to introduce...
Before the Minister sits down, may I come back to the question of consultation? We are being asked to have a high degree of delegation with this change of governance for the Payment Systems Regulator. The Minister seems sure that the regulator will meaningfully consult the right people at the right time. It seems extraordinary to leave so much discretion with the regulators, particularly, as I explained, when they are moving into very new areas. He has rejected the idea of a panel, which would be one way of getting expertise into the system, and I wonder if he will think further about this.
To come back on that, we have heard the criticism of the FCA loud and clear. The intention is for further debates to come back to what we believe is the current state of oversight and governance, and we are open to the conversations that the debates will lead to.
I thank all noble Lords who have taken part in this important debate. One of the key themes that ran through it and the Minister’s response is the question of clarity, or the lack thereof. Certainly, as a consequence of these changes as currently drafted, there is less clarity on payment systems regulation and on how the competition and innovation requirements will be satisfied in a broader context. I fully support the comments of the noble Lord, Lord Vaux, on his amendments, and I will come to the important amendment of the noble Baroness, Lady Bowles. I am disappointed that the Minister did not take the opportunity to offer a consultation about consultations. The reality is that the Minister could take this opportunity to bring clarity to increasing and varying levels of opacity and unnecessary levels of control in the hands of the regulator, where they currently exist. We have seen this in financial services in recent Bills that we have considered; it goes beyond financial services to this sense of leaving regulators with greater powers as a consequence of significant statutes passed, as opposed to Parliament debating and determining these decisions, which in no sense would tie the regulators’ hands. In fact, the amendment of the noble Baroness, Lady Bowles, would assist the regulators, because it would bring clarity on how to operate these consultations. There is a significant issue with consultations in financial services, and a significant issue with government...
Amendment 47A withdrawn.
Amendments 48 to 55C not moved.
Amendment 56
Moved by
56: Schedule 2, page 78, leave out lines 27 to 30 Member’s explanatory statement This amendment would remove a subsection which duplicates section 131Z19 of the Financial Services and Markets Act 2000 (inserted by paragraph 18 of Schedule 2).
My Lords, the purpose of the government amendments in this group is to ensure that the relevant provisions of the Bill operate clearly, consistently and in line with the Government’s original policy intent. They are technical and corrective in nature and do not change the underlying policy of the Bill. However, it is important that noble Lords understand the purpose of the amendments so that they can agree that they are minor and technical, so I will explain them briefly. Amendments 56, 60 and 63 make minor, technical corrections to Schedule 2, which, taken with Clause 13, abolishes the Payment Systems Regulator and gives broadly equivalent functions to the FCA. Amendment 56 removes a duplicative provision from new Section 131Z9 to the Financial Services and Markets Act 2000 that is already covered by new Section 131Z19. Amendment 60 corrects a cross-reference so that the Bill refers to the correct FCA payment system powers when setting out how the Competition and Markets Authority is to determine an appeal. Amendments 61, 62 and 63 ensure that references to the chair of the PSR, which will be obsolete after the PSR is abolished, are deleted in the correct places in Schedule 1ZA to the Financial Services and Markets Act 2000, which concerns the FCA’s constitution and governance. Amendments 143 to 145 are also minor and technical amendments. Amendment 143 and 144 ensure that Section 66A of FSMA is amended in a coherent and orderly way, regardless of whether the amendments to...
My Lords, I have given the Minister notice that I intend to object to these amendments, so if he presses them, I will object and therefore they will not pass. It has been the custom of our House that when the Government table amendments to Bills, they notify all Members of the House-because the Government cannot determine which Peers might be interested in which amendments-and explain the amendments. It may well be that some of these amendments are technical and mean simply the correction of errors, but Members of your Lordships’ House should have the opportunity to consider them properly. I became aware of this only late last week, when I suddenly realised that several government amendments had been put down-these and others-and that I had had no letter. I do not believe that anybody else has had a letter. Because of that, we ought to maintain the customary practices of your Lordships’ House. As I said, I will object to these amendments if they are put.
My Lords, I will speak briefly to the government amendments in this group and declare my interest as a director of South Molton Street Capital, which is regulated by the FCA. I thank the Minister for explaining so clearly these amendments. He has described them as minor technical amendments and as descriptions around making language consistent with FSMA. Notwithstanding that, at the outset, we welcome these amendments in so far as they are intended to make the Bill clearer, correct cross-references, remove duplications and ensure that the legislation works as intended. The amendments before us are technical in character and, where they improve the coherence and operability of the Bill, we do not object to them. However, following the words of my noble friend Lady Noakes, I want to raise a broader procedural point, because I think it matters for how this Committee is able to scrutinise the Bill properly. We understand that not all noble Lords who have taken a close interest in the Bill were engaged by the department on these government amendments. That is a concern. I would be grateful if the Minister could give us a clear commitment that, ahead of future stages, the Government will make every effort to engage with not only the Opposition Front Bench but noble Lords across the Committee who have raised substantive concerns, and to provide timely, written explanations of any further government amendments. I understand that my noble friend Lady Noakes will be writing to the...
My Lords, I am happy to apologise to the noble Baroness for any mix-up. It was my understanding that it was not necessary to do an all-Peers letter for only a handful of technical amendments. With that in mind, we believe that the amendments we have proposed are minor and technical in nature and were tabled in good time before the Committee’s first debate. They are on drafting errors and remove duplicate and obsolete provisions, ensuring that the relevant provisions in the Bill and FSMA operate clearly and consistently. I trust that my explanation has given the noble Baroness the information she needs, but I will withdraw the amendment for now and bring it back on Report.
Amendment 56 withdrawn.
Amendments 57 to 64 not moved.
Schedule 2 agreed.
Clause 14: Anti-money laundering and counter-terrorist financing supervision
Amendment 64A
Moved by
64A: Clause 14, page 16, line 35, at end insert- “(1C) Regulations made under subsection (1A) may make provision in relation to- (a) the Financial Conduct Authority, in respect of its functions under the Financial Services and Markets Act 2000;(b) the Financial Conduct Authority, in respect of its functions relating to payment services or electronic money;(c) Ofcom;(d) the National Crime Agency;(e) the National Economic Crime Centre;(f) law enforcement agencies.”Member's explanatory statement The amendment seeks to require more effective intelligence sharing between supervisory authorities.
My Lords, it is a pleasure to open on this group of amendments, which in many ways builds on the first group. This Bill is light on the use of technology and on the use of intelligence between the regulators which are spread across the financial services landscape. As my noble friend Lady Neville-Rolfe said in responding to the first group, in many ways the Bill feels as if it is written for a time which is already rapidly evaporating. There are new payment mechanisms and new financial instruments. In fact, there are new products which are already dominating key parts of the market. It would seem to make sense to have provision for more intelligence-sharing across the regulators, and indeed the broader landscape. Modern technologies are deployed by both participants and bad actors in this arena. Thus, it would seem to make sense to have combined activity, connected action and shared intelligence among the regulators and, within that, to bring technologies such as AI and others to bear in achieving it. I look forward to the debate on this amendment and others in this group, and to the Minister’s response.
My Lords, I should like to speak to Amendments 64B and 69AA in this group, which are in my name. They direct attention to matters arising from the provisions in Clause 14 that are of great concern to the Law Society and the Law Society of Scotland. I apologise to the Minister for their late arrival; they are based on draft amendments that were not sent to me until Monday of this week. I am grateful to the Table Office for its help in drafting them at short notice. The background to these amendments is as follows. The Law Society and the Law Society of Scotland are both regulatory authorities. Their current regulatory roles include responsibility for supervising compliance by solicitors, in their respective jurisdictions, with the UK’s anti-money laundering and counterterrorism financing frameworks. They are, therefore, supervisory authorities of the kind referred to in the amendment to Section 49 of the Sanctions and Anti-Money Laundering Act 2018, as set out in Clause 14(2). However, the regulation of anti-money laundering and counterterrorism financing is only part of the responsibilities that these two societies exercise as regulators. Solicitors play an important role in tackling economic crime. The societies’ roles as AML supervisory bodies are a key component of their functions as regulators of the solicitor profession. This is a task that both societies take very seriously. I am told that the Law Society of Scotland employs a team of dedicated specialists with...
My Lords, I add some comments to what the noble and learned Lord, Lord Hope, has said and what he is trying to achieve. I put on record my interests in the register as a chartered accounts and chartered tax adviser-I am very well versed in the burdens, I suppose, of the AML regulations in smaller practice. These are burdens that we all suffer almost daily if attempting to move money between one very regulated institution in the UK to another very regulated institution in the UK. We have all suffered it: you transfer funds from one to another, yet the receiving institution asks the same questions all over again, including proofs of source of funds, as the original organisation, in the UK, asked when you put those funds into that institution. Frankly, the AML regulations have got out of control. We could do it in this Bill, and I think it is time to streamline what has become a real blockage in the UK. I had a quite ridiculous situation recently in purchasing a property: they wanted proof of funds for a transaction that I conducted in 1992. I struggled to find it, because it had long gone through the shredder, as one might imagine.
Closer to home, we have a network of 22 professional bodies which are registered for AML and that whole ambit of requirements. The firm that I am still associated with-I am no longer a partner but one of those consultants that one becomes afterwards, when one is busy in the House of Lords-is registered with the ICAEW. The beauty of that regulation is that the ICAEW, the Chartered Institute of Taxation and, as the noble and learned Lord, Lord Hope, said, the legal institutions know the risks of the sector that those institutions are working in. More than that, when an accountancy practice has a regular review and visit from the institute to make sure that everything is working well in terms of audit regulation and general practice management, that ICAEW inspector also examines our AML and what are we doing. Are we doing it properly and adequately?
The worry here is that, with one of those visits-it may happen in the legal services industry, chartered accountancy, tax advisers and maybe trust-providing bodies-will the bodies that they are professionally subscribed to be doing that check, and then the institution will wait for yet another knock on the door from the FCA to do a similar check? I would have hoped that this legislation would give us the opportunity to cut through a bit of the nonsense and strengthen what the professional bodies are doing very well.
This whole legislation is full of acronyms, such as the OPBAS. I tried to find out what it actually meant-it is the Office for Professional Body Anti-Money Laundering Supervision under the FCA. I have to say that, before this legislation, I was unaware that the OPBAS existed. We already have a body within the FCA charged to look at the whole issue of anti-money laundering and anti-terrorist financing rules, yet it has been proven not to have done a lot. I assume that that FCA sub-institution will now be withdrawn and the FCA will do its function through legislative procedure, and we hope that there will be a better outcome. I find that a little peculiar.
I think this will develop as we get to Report, but my request is that we look at this all over again and say that professional bodies have been doing this very adequately for a long time. It goes along with the maxim, “If it ain’t broke, why are we trying to fix it?”.
My Lords, I will make some comments on the amendments that have been discussed and then speak to the amendments in my name. I have some sympathy with the issues raised by the noble and learned Lord, Lord Hope, and I very much hope that the Minister can clear up this issue of professional privilege and client confidentiality, because it seems to me that it is not in any way interpretable from the legislation or the Explanatory Notes, and it is key. I also see that the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, have tabled Amendment 69A to require a report on the transfer process, which seems very sensible. The noble and learned Lord, Lord Hope, has an amendment calling for a review of anti-money laundering and counter- terrorism financing supervision within three years. All those make some sense to me. I will look particularly at Amendment 64A from the noble Lord, Lord Holmes of Richmond, because it hits part of the problem on the head. It seeks to require more effective intelligence sharing between supervisory authorities. It is that failure of intelligence sharing that many people consider to be the fundamental underlying cause of many of the problems we have today. It is not very clear that the proposals the Government are bringing forward are the easiest way to remedy that. I will say more on that later. For my amendments in this group, I thank the Chartered Institute of Taxation and the Association of Taxation Technicians for both clarifying...
My Lords, I will speak to the stand part notice on Clause 14 and Amendment 69A in my name and that of my noble friend Lord Altrincham. I am also grateful to my noble friend Lord Holmes, to the noble and learned Lord, Lord Hope of Craighead-whom it is a particular pleasure to welcome to the Committee on this Bill-and to the noble Baroness, Lady Kramer, for bringing forward a number of useful amendments in this group. My noble friend Lord Mackinlay of Richborough is right to summarise the concerns about and nonsenses of the money laundering regulations in general, which we should try to address as part of reform. We certainly support that. The question we have to ask is whether the Government’s chosen mechanism is sufficiently clear, proportionate and workable. At present, I am concerned that it is not. Clause 14 represents a major structural change, moving front-line AML supervision for professional services from the existing professional body supervisors to the FCA. The Bill will allow FCA supervision of money laundering to be extended to several new areas-to 22 bodies in all, as we have heard, including solicitors, law firms, accountants, trust and company service providers and, in practice, estate agents. Yet, as with so much in this Bill, the framework is broad while the substance is left to later regulations. That is a real concern. My Amendment 69A seeks to address that in part by requiring the Treasury to report to Parliament on the process for transferring...
The wider concern behind our stand part notice on Clause 14 and Amendment 69A is that Parliament is being asked to legislate now for powers whose practical effect will become clear only later. I have already challenged this approach elsewhere in the Bill. The industry is telling us that the lack of certainty is leading to pre-emptive behaviour, which is negatively affecting the sector. Firms are trying to plan for a regime whose shape they do not yet know and are having to make difficult assumptions.
The Minister has presented this as a deregulatory Bill, and we have been very supportive on that basis. However, I fear that that will be reversed once the compliance costs of this change are added, since the costs will be spread across the country and into big and, even more importantly, smaller organisations and firms. My fear is that this move could kill vital service sector growth as those affected struggle with change.
The noble and learned Lord, Lord Hope, had a very powerful list of questions. I also have some questions, some of which overlap. I would very much appreciate an answer before Report, perhaps in a letter. First, how will the Government ensure that the transfer of responsibilities does not lead to duplication between the FCA, existing regulators and professional bodies? Secondly, what assessment has been made of the likely cost impact of this change on firms-particularly small and high street practices such as estate agents and accountants and so on? Thirdly, how will the FCA acquire and retain the necessary sector expertise? Fourthly, when will the Government set out a clear timetable for implementation? People need to know when these new rules are likely to come in. Fifthly, how will the Government ensure that professional obligations, legal professional privilege, client confidentiality and this distinct framework of legal practice are properly protected? Sixthly, how will the Government address the concerns raised in Scotland and ensure that the new regime does not cut across devolved or existing statutory arrangements?
I have spoken at length because the Government need to show that this reform will be proportionate, sector sensitive and practical. Clause 14 is too vague. Too much is being left to later regulation. The sector is being asked to prepare for a regime whose shape remains unclear in an industry that is rapidly changing, as we heard from my noble friend Lord Holmes. We will need to return to this area on Report, but some helpful answers would make that process easier.
My Lords, I am grateful to the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, the noble Lords, Lord Altrincham and Lord Holmes of Richmond, and the noble and learned Lord, Lord Hope of Craighead, for tabling these amendments relating to the implementation of anti-money laundering and counterterrorism financing supervision reform. I would be more than happy to meet the noble and learned Lord to discuss his points in detail before Report. I thank him for that kind offer. I am also more than happy to write to the noble Baroness, Lady Neville- Rolfe, on her questions, although I will cover professional privilege in my response. I recognise the broad concerns that sit behind these amendments. We all want to get this right. However, the Government do not believe that these additional statutory requirements are necessary. I will start by setting out why Clause 14 should stand part of the Bill. Because the UK is a global financial hub, we face heightened vulnerability to illicit finance, as has already been mentioned. The UK has a robust set of anti-money laundering rules, but the supervision of those rules is simply not consistent. The Government understand the burden of compliance, but their recent statutory instrument made money laundering regulation more proportionate by ensuring that requirements are enforced when and where the risks are highest, and reduced where they are not. In October 2025, the Government announced their intention to reform the supervision framework,...
Amendment 69A would require the Treasury to lay before Parliament a report on the implementation of supervision reform before the Act comes into force. The Government fully recognise the importance of transparency and effective implementation. The issues identified in the amendment, including transition arrangements, the proportionality of burdens on firms, support for the supervised population and stakeholder engagement are important considerations that are already being addressed through implementation planning. As I have already set out, implementation planning has been a priority throughout the development of these reforms.
The Government are working closely with the FCA, HMRC, existing supervisors and representative bodies to ensure that transition arrangements are effective and that firms have sufficient clarity and time to prepare for change. However, we do not believe that requiring a further statutory report before commencement is necessary. These reforms will be implemented through secondary legislation, which will provide appropriate parliamentary scrutiny while preserving the flexibility needed to manage a complex transition programme effectively. The Government therefore do not consider this amendment necessary.
Amendment 68 seeks greater certainty regarding supervisory fees and the impact of reform on firms, especially small firms. The Government recognise the importance of ensuring that the future supervisory framework remains proportionate, particularly for smaller firms. However, detailed fee arrangements will necessarily be developed alongside implementation planning and stakeholder engagement. The future supervisory model will be funded through supervisory fees, as is standard for regulatory practice, but the Government have also committed to substantial start-up and transition funding through the economic crime levy to facilitate implementation and support the development of the new regime, which will be achieved via the funding authority in Clause 48. The Government remain committed to engaging closely with all stakeholders as implementation develops and to ensuring that the future framework is proportionate and sustainable. We therefore do not consider this additional statutory requirement necessary.
Amendment 64A seeks to expand the power to make regulations providing for co-operation and information sharing to cover the FCA, Ofcom, the National Crime Agency, the National Economic Crime Centre and other law enforcement agencies. The Government fully recognise the importance of effective co-operation across the UK’s economic crime framework. AML/CTF supervision relies on close co-ordination between supervisors, law enforcement agencies and other parties responsible for tackling illicit finance. The money laundering regulations-the relevant secondary legislation in this place-already provide for extensive information-sharing powers between AML/CTF supervisors, including the FCA, the Treasury, law enforcement agencies and Companies House. These powers may be used to tackle money laundering or terrorist financing, to preserve the integrity of the international financial system for law enforcement purposes or otherwise to fulfil the relevant bodies’ regulatory functions under the money laundering regulations.
Clause 14 ensures that the FCA will be able to co-operate fully and effectively with the professional bodies after they cease to have AML/CTF supervisory functions, following the implementation of AML/CTF supervision reform. However, provision about wider co-operation between the FCA and law enforcement bodies is not needed, since this is already provided for in the money laundering regulations. Therefore, while the Government agree that appropriate arrangements for information sharing and operational co-operation are important to successful implementation, we do not consider this amendment necessary.
I hope I have explained the purposes behind Clause 14 and responded to the amendments to the Committee’s satisfaction. I ask the noble Lord, Lord Holmes, to withdraw his amendment.
Since it is Committee, I have a couple of points to raise with the Minister before we finish this important section. First, I think the industry needs some idea of the timeframe for these reviews and for the implementation of these changes. That may already exist in ministerial statements, but it would be extremely helpful if the Minister could look into that and let us know. We have had the experience of the defence investment plan, and the uncertainty that can be created when you do not know when major changes are being made is bad for the sector. Secondly, on parliamentary privilege, a very niche point, do the plans to protect it apply to in-house counsel as well as external legal counsel? Small companies, such as estate agents, would not want to have to employ expensive solicitors and lawyers if they do not need to.
I will have to write to the noble Baroness on those points, to make sure that my answers are correct.
My Lords, as the noble Lord, Lord Holmes, is not here to withdraw his amendment, I will take it that his amendment is withdrawn.
Amendment 64A withdrawn.
Amendment 64B not moved.
Clause 14 agreed.
Amendments 65 to 69AA not moved.
Clause 15 agreed.
Clause 16: FCA and PRA long-term strategies and recommendations
Amendment 69B
Moved by
69B: Clause 16, page 18, line 33, leave out “5” and insert “3”
My Lords, unfortunately, I was unable to speak at Second Reading-like the noble Lord, Lord Vaux of Harrowden, as he mentioned on Monday-but I am delighted to be back in time to speak in Committee. I declare my interest as an employee of Marsh, an FCA-regulated firm. The amendment in my name in this group, Amendments 69B and 73A, propose that our financial regulators move from a five-year to a three-year strategic planning cycle. At its heart, this is a straightforward proposition: regulators must keep pace with the world they regulate. In financial services, the rate of change has accelerated to such an extent that a five-year strategy can quickly become outdated. When the FCA and the PRA last set their strategies, few could have anticipated the speed and scale of the developments that followed. The volatility seen in digital assets, the rapid emergence of artificial intelligence in financial decision-making, the growing importance of cyber resilience to financial stability and the impact of geopolitical tensions on global markets have all evolved far more quickly than expected. Yet regulators remain bound by frameworks conceived for a very different environment. A three-year cycle offers a more realistic and proportionate approach. It is not an arbitrary shift. It better reflects the pace of change in financial services, aligns more closely with the Treasury’s spending review cycle and mirrors the planning horizons adopted by many firms. It also corresponds more closely to...
My Lords, I will speak to Amendments 70, 71, 73, 74 and 76 in my name. I thank the noble Lord, Lord Vaux of Harrowden, for adding his name to Amendments 70, 73 and 76. At first sight, Clause 16 looks like a bit of “motherhood and apple pie” legislation. After all, what is not to like about five-year strategies, which are what most businesses do in the UK and internationally? A closer look at Clause 16, however, reveals a bit of a mess. The position we have at the moment is that the PRA is required to determine a strategy, and it does this by way of annual business plans. There is no requirement in statute for the FCA to do anything but it has routinely issued annual plans; last year, it issued a five-year strategy as well. So this is clearly a slightly messy area, and the Government are right to try to tidy it up. I fear, however, that the solution in Clause 16 will make things worse. First, the requirement for a strategy seems to be a static one, requiring a five-year strategy to be set and then replaced when the five years have nearly run out. The subsections of new Sections 1JZA and 2E, to be inserted by Clause 16, envisage that the strategies can be revised or replaced, but it is unclear what the trigger for that is other than when the Treasury issues new recommendations in a remit letter. In the business world, strategies are kept under review and are often revisited annually-certainly more often than every five years. I believe that Clause 16 needs a positive...
Amendments 71 and 74 would amend new Clauses 1JZA and 2E so that the FCA and the PRA are required to consult persons affected by the strategy, including of course the firms that they regulate. One of the apparent aims of the Bill is to eliminate or reduce consultation by the regulators, and we will come on to that later. In Clause 16, consultation is simply ignored. This would be bad practice for any regulator but it is incredibly bad practice when the regulators have such a big impact on the firms which together comprise the largest sector in our economy.
I am sure that the regulators have been whispering in the ears of Ministers that they would love to do all the things that Ministers want them to do, if only they did not have so many pesky requirements to do boring things such as consultation with the wealth creators in the economy. Shame on Ministers if they are taken in by that. Public bodies, especially unaccountable ones such as the FCA and the PRA, have to accept that they have positive responsibilities to engage with the sector that they regulate. My amendments also include consultation with anyone else affected by the strategies, not only those they regulate. This should be non-negotiable.
My Amendments 73 and 76 concern the Treasury’s recommendations to the FCA and the PRA. Under Section 1JA of FSMA, the Treasury has the power to make recommendations to the FCA on a lot of things, including how to advance its operational objectives, how to discharge its competitive and growth objectives, and the application of the regulatory principles. There is a slightly shorter list for the PRA in Section 30B of the Banking Act 2009. Clause 16 eviscerates these provisions so that the Treasury’s power of recommendation now extends only to the flimsy five-year strategies required by Clause 16.
When I tabled those amendments, I described them as probing because I thought it would be interesting to hear why the Treasury, which had previously carefully specified the areas in which it could make recommendations to the regulators, has decided that it only wants to do these high-level things now. If I were being uncharitable-which of course I am not-I would suspect the Treasury of wanting to ensure that no blame for anything that happens in the regulators can ever be pinned at the Treasury’s door.
This clause also appears to run against the grain of recent developments, such as the half-yearly so-called performance review meetings between the Economic Secretary and the regulators. What is the purpose of such meetings if the Treasury can take no action, such as making recommendations, once they have had the meeting? This is another reason to oppose Clause 16 standing part of the Bill.
In conclusion, I should also say that I support Amendments 72 and 76 in the name of the noble Baroness, Lady Bowles of Berkhamsted.
Baroness Bowles of Berkhamsted
My Lords, I will speak to Amendments 72 and 75 and to my opposition to Clause 16 standing part of the Bill. I also support the other amendments in this group and their intentions: I think we could talk quite a lot longer about them all. My Amendments 72 and 75 would require the regulators’ long-term strategies to include a review of their rulebooks, with the aim of identifying outdated or unnecessary requirements. That is a sensible and uncontroversial idea. No one disputes that the regulatory rulebook should be kept under review or that unnecessary or duplicative requirements should not be removed. Indeed, the FCA’s own handbook review consultation acknowledges that parts of the rulebook are outdated, unclear or internally inconsistent. I hope that this review idea can be taken up. However, these amendments presently sit within Clause 16, which is where the problem lies. Clause 16 creates a statutory duty for the FCA and the PRA to produce long-term strategies. In principle, that is not objectionable; regulators have produced strategy documents before, and it is entirely proper that Ministers should be able to input as long as it is transparent, but there are other problems that have been elaborated on by the noble Baroness, Lady Noakes, which I do not need to repeat. In practice, however, Clause 16 is the delegation engine for Clause 17. It is part of a process of downgrading the day-to-day requirements, the regulatory principles on rule-making, into a commentary in a...
I have added my name to three of the amendments tabled by the noble Baroness, Lady Noakes, in this group. To be honest, I am not quite sure why I did not add my name to her other two; I should have done, so I apologise. The noble Baroness has already explained those with her usual clarity, so I will try hard not to repeat what she said. Briefly, on Amendment 70, I was going to say that I assumed that the omission from the FCA’s strategic priorities of its secondary objective was an oversight. The noble Baroness, Lady Noakes, has kindly shared with me an email she has received from the Minister that effectively confirms that, and that it will be sorted out at a later stage. Can I very gently say to the Minister that when he writes to noble Lords, it should be copied to all who have signed an amendment? On Amendments 73 and 76, I will listen with interest as to why the Treasury should be able to make recommendations to the FCA and the PRA only in relation to the long-term strategies-that is, every five years. I suspect that the Treasury will come to regret that restriction. I have also added my support to Amendments 72 and 75 in the name of the noble Baroness, Lady Bowles, both of which would require the FCA and PRA to carry out a review of their regulations as part of the five-year strategy process, with a view to eliminating any unnecessary regulations. Rulebooks have a habit of growing-being added to-and scope has a tendency to creep, so a five-year spring clean must be a...
My Lords, the Bill reflects the very substantial transfer of power, as mentioned by my noble friend Lady Neville-Rolfe, from Parliament and from existing regulators, such as the PSR and the 22 professional bodies with specialised knowledge of the sectors, as we discussed earlier. This reflects a high degree of centralisation of regulatory supervision, which may lead to a lack of clarity and, in some cases, as my noble friend Lord Mackinlay mentioned, double regulation for small firms. As the noble Baroness, Lady Bowles, said earlier, the system is also already overloaded. In that context, given the extensive proposed changes and the real possibility of unintended consequences, it seems that the Government should consider the setting of strategy for the future as an important component of the Bill. Although I support all the amendments in this group, I emphasise the need for consultation with regulated firms and the regular review of the rulebooks as provided for in Amendments 71, 72, 74 and 75. The Bill indeed provides for the publication of a document and consultation with one party-the Court of Directors of the Bank of England is specifically mentioned as a party that will be consulted-but seemingly not with any regulated firm, despite the fact that regulated firms could clearly be very helpful in the setting of long-term strategy. Amendments 71 and 74, proposed by my noble friend Lady Noakes, therefore seem essential additions to the Bill, as would Amendments 72 and 75,...
I say a word of support in favour of these amendments. This industry, financial services, is one of the most innovatory and dynamic industries in this country and has led the world in its imaginative, entrepreneurial approach for centuries. What we are seeing-I am glad to follow my noble friend-is the centralisation of regulation in one ever greater regulatory body. This will mean that the slowest ships of the regulatory convoy will determine the pace. For these reasons, it is imperative that the strategic review takes account, much more regularly than every five years, of the updating of business actions, business transactions and the tools used by the sector; and that, as my noble friend Lady Noakes pointed out, it talks to the people who are the wealth creators whom it will regulate. For all the reasons that have been enunciated in the course of this short debate, including those from the noble Baroness, Lady Bowles, I support these amendments.
My Lords, I am going to be exceedingly brief. I support the amendments in this group. My noble friend Lady Bowles has hit on the fundamental reason for my strong opposition, which is the constitutional issue. By chance, I happened to speak to a senior regulator in the financial services sector-I am not going to use their name because it would not be fair to do so-shortly after the Bill came out. We started looking at its clauses, and that person said to me, “Ah, but, in the long-term strategy, we will be able to explain to people in detail why we are doing what we choose to do”. To me, that absolutely summed up the issue as a whole. There was no concept at all that there would be parliamentary insight, parliamentary oversight or engagement; it was simply going to be a much better vehicle to explain to people why certain things that had been identified as necessary were necessary and were going to happen. There was no sense of challenge anywhere at all. That is a really dangerous way for us to move our legislation.
My Lords, I am grateful to all who have taken part in this short debate. We are sympathetic to the broad purpose of requiring regulators to think strategically, but, if the regulatory strategies are to be meaningful, they must not simply become static documents published every few years then left on the shelf. As my noble friend Lady Noakes said, that is not the way we do it in business. Common practice is for five-year strategies, reviewed annually, and annual plans. The amendment tabled by my noble friend Lord Ashcombe would reduce the strategy period from five years to three years. He is right that markets can change very quickly, as we keep hearing. A five-year strategy risks being set in stone for too long, unless the Minister is able to clarify that the plans will be updated regularly. If not, a shorter period, such as three years, would have real benefits. Perhaps the Minister can explain why the period of five years has been chosen and how he believes the strategies will remain agile and flexible. I am delighted that the Minister said that he was prepared to accept Amendment 70 on competitiveness and growth. As I have said several times, the growth of the UK financial services sector is key to growth more generally. Regulation should say how the Government-or the regulator-understand that objective, how they are giving effect to it and how their regulatory approach is supporting growth in the market, because the UK has a large and dynamic financial services sector....
My Lords, I begin by explaining the Government’s purpose behind Clause 16 and why it should stand part of the Bill. The Government have often heard feedback calling for the regulatory system to have an overall long-term strategy with clear goals, where the regulators consider the cumulative impacts of their policies and the interaction between supervision and rule-making. The reforms introduced by Clause 16 are intended to address this feedback and will improve transparency around the regulators’ long-term direction and focus, which the Government consider will support effective oversight and scrutiny of the regulators. Clause 16 requires the FCA and the PRA each to prepare and publish long-term strategies so that stake- holders, including regulated firms, can better understand the regulators’ approach to the sector, and so that the Government and Parliament fully understand the regulators’ priorities and can more effectively hold them to account on how they are translating their objectives into actions and results. When the Government consulted on this proposal, it received strong support: 83% of respondents supported it and agreed that the regulators taking a more strategic and cohesive approach would benefit the sector by helping firms know what to expect. I have listened carefully to the concerns raised by noble Lords. However, the Government remain firmly of the view that Clause 16 will support scrutiny. By requiring a clear long-term strategic overview, Clause 16 will...
I just ask for clarification. The Minister talked about the way in which the Treasury will make recommendations and the regulator must take them into account. I did not hear the word “Parliament” anywhere in that. Where is the capacity for parliamentary recommendations and oversight to make sure that they are taken into account? Or is the purpose of this legislation to make sure that that does not exist?
I think this is part of a broader discussion. I am informed that this takes into account existing practices for how the reviews and overviews take place. Unless we decide, in the following debates, that we need an amendment to provide parliamentary overview, this will apply to the current regulatory framework as the oversight currently exists.
I may be being a bit dumb, but I did not understand that at all.
I do not want to get confused about this. My understanding is that this is already existing practice, but I will take this away and write to the noble Baronesses just to confirm that this is exactly correct. We are trying not to defer from the practice as it exists today, but I will write to clarify that.
I just add that the point of the principles is that they are, in effect, Parliament’s recommendations set in law. I am struggling to see how that fits into the question of who can recommend from this point in time.
I will write to the noble Baroness to clarify that.
Baroness Bowles of Berkhamsted
I do not understand what happens when the strategy is right but the rules are wrong. What happens then? That does happen. We have, as I have called it before, the example that keeps on giving: when the FCA got the motor finance rules wrong. What happens then, when there is no way to correct that? The strategy, to treat customers fairly, might be right, but the rules produce something that is patently unfair. How can that be changed? There is nothing to measure against that now -the principles have gone.
Again, we are trying to stress that the oversight that exists today will not be changed. The Treasury’s annual review should be able to take that into account. We believe that what we are putting forward here should not change the existing profile.
Baroness Bowles of Berkhamsted
I am sorry, but if you change something in primary legislation and rub out what is happening in existing processes, you have changed it. You cannot change something at a higher level than primary legislation.
We will have to come back to these points at a later date. This is a broader conversation on oversight, and points have been made on this subject outside the Room. I hope noble Lords will allow me to come back to these points, as I think this will come up in further debates both during and after Committee. Turning to Amendments 72 and 75, the Government agree that regulation should be proportionate and support the objectives behind these amendments. Indeed, the Bill forms part of the Government’s broader effort to reduce the burden of regulation on businesses, ensuring that the UK has a regulatory environment that supports growth while maintaining high standards. The Government have made a commitment to cutting the administrative burden of regulation by 25% by the end of this Parliament. The financial services regulators are actively contributing to this agenda. For example, the PRA is implementing new insurance reporting requirements that will cut paperwork by one-third, contributing to savings for firms of £66 million per year, and the FCA has proposed removing some transaction reporting that would save firms over £100 million per year. However, the Government do not think it would be appropriate to impose a requirement that every long-term strategy must include a full review of all regulations and a plan for eliminating them. A universal rule review exercise each time a strategy is prepared or revised would not be proportionate and would reduce the regulator’s capacity to...
Can the Minister explain why that is not included in the Bill? The Government expect them to engage with the industry. One would normally write consultation expectations into legislation. That is the normal practice. Why was it not done in this case?
Again, we will have to come back to that point. One of the things we are trying to consider is how we do not overburden by creating more regulation, but we will have to review that point and come back to the noble Baroness.
Baroness Bowles of Berkhamsted
On that point, it seems to me that nothing is being done to challenge the burden of regulation on firms-instead, the obligations on the regulator are being reduced. When you reduce the obligations on the regulator-for example, to be proportionate-the corollary of that is that they are unrestricted in the way that they can then increase the burdens on firms. That may not be the talk, but that is the consequence of the legal construct that we are now looking at.
There is a broad philosophical point being made about trusting the FCA and the regulators. Again, we will come back to this in further debates. It is a view that I understand, and we need to develop this through the process of the debate, but it is definitely not the intention to give them free rein to make laws randomly. I think we will have to come back to that later in Committee, if that is okay.
My Lords, I ask for some clarification on this complex area. Under Clause 16, new Section 1JZA(7) states: “A strategy may be revised by publishing a revised version of the strategy”. Is the Minister confirming that, as it says in the Explanatory Notes, no consultation goes with that revision process?
That is correct. Amendments 71 and 74 seek to require the FCA and the PRA, when preparing or revising their long-term strategies, to consult persons they consider would be affected, including those they regulate. The Government have a clear expectation that the regulators’ strategies will be informed by engagement with industry, consumer representatives and other stakeholders. However, adding a statutory consultation requirement could lead to long delays between a new Government setting direction through a recommendation letter and the regulators putting a strategy in place. The noble Baronesses, Lady Kramer and Lady Noakes, asked how the Government’s remit will work under the new system. The FCA and the PRA will now be required to have regard to their remit letters when producing or updating long-term strategies. The regulators will continue to be required to respond annually to remit letters, setting out the actions to which they will respond. The noble Baroness, Lady Neville-Rolfe, asked about non-executive directors; I will write to her on that as I do not have the answer to hand. The accountability of the financial services regulators is clearly an important matter of huge interest to the Committee. I have heard a range of views today on exactly what this should look like, and we will continue to debate this issue in relation to subsequent clauses. However, regardless of views on the wider matters of transparency and accountability, I am confident that the majority will...
I have some questions for the Minister. Does he believe that the FCA’s five-year plan provides a model for what the Government have in mind for compliance with Clause 16, if it becomes law? I will start with that question.
I apologise. Can the noble Baroness repeat that?
Does the Minister believe that the FCA’s five-year plan, which started last year, is the model on which Clause 16 has been based? Is the Minister expecting that sort of document to be produced in response to Clause 16?
What the clause is trying to represent is that this is the starting point. There is definitely work to do and it needs to be improved.
Can the Minister expand on that?
What we have set out in answer to that question is that there is clearly a need for greater transparency and thinking about what the five-year plan looks like. In terms of the interaction with the Treasury, the hope is that we can get it into a position where it has greater clarity and certainty about long-term planning. It will be an emergent process, to ensure that it is improved on.
I put it to the Minister that this clause has no specificity around it: no ability for the Treasury to agree the format or content of a five-year plan; no requirement for consultation; and no requirement for the involvement of parliamentary committees. We are being asked to give a blank check with these rather vague requirements. There are words in the Explanatory Notes about the Government expecting these to be “high level”, which is why I asked for the Minister’s reflections on what is clearly a very high-level document from the FCA. I am not getting any sense of what is likely to come out as a response to that. Linked to that is my second question. I asked earlier what the Minister’s response would be to the question of whether annual plans were required. At the moment, both regulators produce annual plans for what they will do in the year, which provide a very rich source of information for the regulated community on what they can expect. If we are to have those levels of detail, it may not matter at all if an airy-fairy five-year strategy document is produced, full of drawings, pictures and stuff like that. If, however, we will not have anything else, and if the Bill takes out the one existing requirement on the PRA to produce annual plans, then we have a problem.
I can clarify that an annual plan is required and will still be required. Let me write to the noble Baroness to confirm that.
Can I conclude my remarks with a plea to the Minister? He has taken away a number of issues arising from this debate, on which he will be writing one big letter or several medium-sized ones. It is normal, when something as contentious as this arises, for all Members of the Committee to be copied in on any such letters, not simply the one noble Lord who raised a specific query.
Understood.
May I ask the Minister for a clarification? In his answer to the question about not having consultation in the Bill itself, I think he said that the FCA would engage with firms but that he did not want this in statute. Do I understand that correctly?
That is correct.
Baroness Bowles of Berkhamsted
Why not?
The sense is that it creates an administrative burden. We are trying to cut down on regulation as part of trying to accelerate growth, and we believe that that is the right balance.
Do we not want to reduce regulation on regulated firms, rather than regulators?
They are obviously related.
My Lords, what an interesting debate this turned out to be. There are a number of flaws, which have been extremely well demonstrated by all noble Lords on this side of the Room. I thank the Minister for his answer to my question. I am also extremely grateful to my noble friend Lady Noakes for improving my amendment significantly by talking about annual plans, which is quite correct. However, it is imperative that we continue to have parliamentary oversight of the regulators. From the discussion we have had this afternoon, there is no doubt that this clause still has a number of legs in it, and the horse race will continue for some time. I am sure we look forward to coming back to this on Report but, with that, I beg leave to withdraw my amendment.
Amendment 69B withdrawn.
Amendments 70 to 76 not moved.
Clause 16 agreed.
Amendment 77
Moved by
77: After Clause 16, insert the following new Clause- “Review of regulatory principles(1) Within 12 months of this Act coming into force, the Treasury must carry out a review of the regulatory principles in section 3B(1) of the Financial Services and Markets Act 2000.(2) The review must in particular consider whether-(a) the regulatory principles duplicate other requirements in the Financial Services and Markets Act 2000 or elsewhere, or(b) are no longer required.(3) The review may make recommendations as to whether section 3B(1) needs to be amended or whether there are other mechanisms which can achieve the same result.(4) The review must be laid before each House of Parliament.”Member’s explanatory statement This amendment calls for a review of the regulatory principles in section 3B(1) of FSMA.
My Lords, Amendment 77 calls for a review of the regulatory principles in Section 3B of FSMA 2000. I am grateful to the noble Lord, Lord Vaux, for adding his name to it. My amendment calls for the Treasury to review the regulatory principles and, in particular, identify those that are duplicated or no longer required. As we have already discussed in outline and will discuss further in a later group next week, FSMA currently requires the FCA and PRA to have regard to the regulatory principles in their general functions, but Clause 17 downgrades this by confining them to the new five-year strategy documents. When your Lordships’ Financial Services Regulation Committee reported last year on the secondary competitiveness and growth objectives for the PRA and the FCA, it took eight pages of our report to describe the web of objectives, principles and “have regards” that the regulators have to live with. In fact, the eight pages covered only some of the “have regards”. The FCA told us that it had around 80 “have regards”, on top of the Chancellor’s remit letters and the regulatory principles themselves. The PRA said that its number was 25. My Amendment 77 should probably have required a review of all the “have regards”, and if I bring it back on Report I may well extend it to that. In Committee, my amendment is focused on the regulatory principles, because, via Clause 17, these have become a contentious part of the Bill. There are currently eight regulatory principles in Section...
It is useful to compare and contrast with the regulatory principles set out in the Legislative and Regulatory Reform Act 2006, to which we will also be returning in a later group. That is admirably succinct and says that regulatory activities should be transparent, accountable, proportionate and consistent, and they should also be targeted at cases only in which action is needed. While the 2006 Act does apply to the financial services regulators, several of the requirements in it are duplicated in Section 3B. The regulatory reform Act applies to all regulators, not just the financial services ones; any additional principles or additional wording around principles in FSMA should be justified as being essential for financial services regulation.
The current list includes the desirability of publishing information as a means to advance objectives. The actual wording is much more convoluted than that, but that is the sense. I am sure that the publication of information could be quite a useful tool in regulation, but is it an enduring regulatory principle to which the regulators must have regard? I think not. One of these Section 3B principles is that consumers should take responsibility for their decisions, which would be good-it would be good if the FCA did have regard to that. But the exact same wording is also found in the “have regards” for the consumer protection objective in Section 1C of FSMA, so Section 3B contains duplications.
I do not believe that the climate change principle, which found its way on to the list via the 2023 Act, is a regulatory principle at all in the sense of describing an essential element of how regulation should operate in practice. As drafted, this so-called principle refers to the need to comply with a net-zero target, but only where the regulators think that it is relevant to regulation. This will not necessarily please all those who have been trying to get green objectives into legislation, but it cannot be an essential element of regulation if the regulator has to decide whether or not it is relevant. I could go on in relation to the current regulatory principles, but I will not, for now. I will be challenging all those who have tabled amendments to this Bill that try to add new regulatory principles to justify why and how they are an essential and enduring element of regulation, as opposed to a current object of interest.
I have much sympathy for the regulators who must navigate an array of “have regards” as they do their work. The whole “have regard” area could do with a review, which is what I initially thought the Government’s Leeds reform was going to do. That is clearly outstanding business. My amendment, as I said earlier, starts with the regulatory principles, but that is not by any means the whole of the problem. I beg to move.
My Lords, I hope to keep the noble Lord, Lord Wilson, happy by being very brief. One of the things that came out of the committee’s report was the proliferation of principles and “have regards”, et cetera. It is ripe for a review and an overhaul, and I agree with the noble Baroness, Lady Noakes.
My Lords, I very much suspect that the noble Baroness, Lady Noakes, and I would find significant differences in our ideal list of the regulatory principles in Section 3B(1) of FSMA. I will argue in the next group for a “have regard” to the risks of the private credit market to financial stability. In group 8, my colleagues will argue for a “have regard” on sustainability and in group 10 for a “have regard” on financial inclusion. These are all probing amendments, but they reflect the need for principles to be reviewed, debated and potentially changed by Parliament, so that a review would have input from the regulators and from the Government, but the final decision would rest with Parliament, as it has always done in primary legislation. To pick up one of the issues that the noble Baroness, Lady Noakes, made about durability, constant churn is unacceptable and would leave the regulators and the financial sector in confusion, and none of us wishes for that. But I think that on the whole, we can look back and say that Parliament has behaved responsibly. Not everybody likes all the principles, but the financial system and the regulators have not had difficulty in delivering, or considering and making sure it is having regard to, those particular principles, particularly when financial stability is at stake. To me, what underlies all this is the democratic process. I do not believe that principles can be abdicated to a regulator, which is what happens with the Bill-they go off...
My Lords, this is a welcome amendment because it raises important questions about the structure of our regulatory framework and in particular about whether the regulatory principle set out in Section 3B of FSMA-the eight principles-remain coherent, useful and properly calibrated to the circumstances in which we now find ourselves. Over time, FSMA has accumulated objectives, secondary objectives, regulatory principles, “have regard” duties, reporting requirements and consultation obligations. Some of those are individually sensible and many were introduced for good reasons, but taken together, there is a real risk of regulatory layering. Duties and principles are added and new obligations are placed on regulators, but very little is ever taken away. The result is a framework that is increasingly complex and it is not always clear which duties genuinely drive regulatory behaviour and which simply sit on the statute book without translating into meaningful change. The amendment asks the Treasury to review whether those principles are duplicative or remain necessary, and whether the framework could be simplified or improved. There is also a wider question, which was raised by the Financial Services Regulation Committee in its report last year, about whether these sorts of duties actually translate into anything meaningful in practice. It is one thing for Parliament to place a duty on a regulator to have regard to a particular principle or consideration-as my noble friend Lady...
My Lords, I am grateful to noble Lords for their thoughtful contributions to this debate. This clearly animates a lot of discussion. I particularly acknowledge the noble Baroness, Lady Noakes, and the work of the Financial Services Regulation Committee in effectively scrutinising the work of the regulators. It is important work, and we intend through this process to support that and not diminish it in any way. As was clear from those contributions at Second Reading, noble Lords place a strong emphasis on getting the regulatory principles right. The Government also take this matter very seriously. Amendment 77 would require the Treasury to carry out and lay before Parliament a review of the regulatory principles in Section 3B(1) of FSMA. I am sympathetic to efforts to streamline the process of making regulation and to giving regulators a clear and manageable set of issues on which to focus. However, the Government have already considered this question and have carried out a review of the regulatory principles, as well as the other “have regard” provisions mentioned by the noble Baroness, Lady Noakes. The Government committed to this review in the Regulation Action Plan published in March 2025, and carried out the review with a view to identifying opportunities to rationalise those principles. As a result of that review, the Government concluded that each of the regulatory principles in the Financial Services and Markets Act 2000 is individually important; that they do not...
My Lords, I thank noble Lords for taking part in this brief debate on what is, I think, an important area. The Minister said that the Government have already reviewed the regulatory principles and found them to be absolutely fine. I find that quite remarkable, given that they clearly duplicate other requirements and that some are, frankly, almost incomprehensible; they have grown up over the years in various ways. As the Minister knows, the burden on my remarks was on the proliferation of have regards and not just the regulatory principles, which we will be debating in the context of the Government’s clear desire to downgrade the way in which they operate and to reduce the ability of Parliament to hold the regulators to account. We will return to that issue. This is an important area for the Government to look at again. They say that they have reviewed all the have regards-there are many of them throughout FSMA-but I cannot believe that they have concluded that no change to the legislation is required. It beggars belief, because the have regards clearly overlap in some areas and are restated in others. I continue to believe that a proper review should be undertaken. I will remind myself of what the Government’s so-called review has already found, because I am not sure that I remember the details of it at the moment-I will check up on it between now and Report-but, as I indicated earlier, I may well return to this theme on Report, if not with this specific amendment. With...
Amendment 77 withdrawn.
Clause 17: Requirements to have regard to the regulatory principles
Amendment 78
Moved by
78: Clause 17, page 21, line 34, leave out subsections (2) to (11) and insert- “(2) In section 3B (regulatory principles to be applied by both regulators), in subsection (1), at the end insert-“(i) the need to consider-(i) the interconnections between private credit vehicles and PRA-authorised banks, insurance companies and pension fund, and(ii) the limitations of the FCA’s regulatory perimeter in managing the interconnection between private credit vehicles and non-regulated financial organisations.””Member’s explanatory statement This probing amendment would replace the removal of the regulatory-principles duties in Clause 17 with a new “have regard” to risks to financial stability arising from the interconnection of private credit markets with banks, insurers and pension funds, as well as with non-regulated institutions.
My Lords, this is very much a probing amendment, but I thought that we ought to raise this issue; the Bill seemed an appropriate place to do so. Frankly, it is an issue on which we have hardly touched in Parliament. Private credit markets are a phenomenon that has surged since the crash of 2008. Market-based finance accounts for around half of the UK and global financial sector assets, according to the Bank of England. Global private market assets were estimated at $18 trillion in 2025. As Sarah Breeden, a deputy Governor of the Bank of England, said in a speech made this year: “They have not yet been tested, at that scale and complexity, by a broad based macroeconomic shock in a higher rate environment”. At the same time, public debt is close to post-war highs, not just in the UK but globally, making it more difficult to respond to any financial shocks. People sometimes see the private credit sector as distinct from other parts of finance. In the UK, the banking sector has lent to private credit funds at a scale to provide them with liquidity, with pretty much no transparency to evaluate the quality of funds. There is clearly co-investing and interconnections through derivatives. I cannot find good data to work out where the exposure lies, but there have been enough articles raising warning signs to convince me that there is something serious here that must be looked at. UK pension funds have invested heavily in private assets. The Universities Superannuation Scheme has...
Baroness Bennett of Manor Castle
My Lords, it is a great pleasure to follow the noble Baroness, Lady Kramer, on what may be the most important amendment that we will discuss in Committee, and I hope we might discuss it on Report as well. As she said, there is a huge lack of discussion of this issue in Parliament, whereas if you go to the pages of the Financial Times , for example, you will see, pretty well every day, alarming reports and strong headlines expressing concern about the issue. I am aware that we are operating under heatwave conditions, as is the rest of the nation. As with our credit system, we have all been puffed up by a lot of hot air, much of which has indeed been financed by our financial system, so I will be quite brief, but I want to pick up a couple of points that the noble Baroness made. The powerful argument about a voluntary engagement with the stress test is just laughable-with a sick kind of laugh. We know what voluntary regulation has done in so many different areas of our business sectors, and that is not the way to go forward. The noble Baroness also talked about pension funds, particularly about investing in private credit and the grave concerns that it raises. There is quite a bit of research that indicates that the people profiting from this are the managers and companies, and pension funds are getting the same or lower returns as they are from other investments. The most useful way I thought I could add to this was to go through the Financial Times private credit headlines...
My Lords, the noble Baroness, Lady Kramer, was kind enough to refer to the committee I chair. I will offer a few comments on this area. First, in line with what I said on the previous group of amendments, I do not believe that this is a regulatory principle in any real sense. It is certainly not one directed just at the PRA and the FCA; for example, the system-wide exploratory scenario, which the noble Baroness referred to, is being undertaken by the financial stability arm of the Bank. She referred to Sarah Breeden-that is her area, and she is not in the PRA or the FCA. The noble Baroness, Lady Bennett of Manor Castle, read out some headlines from the Financial Times . She is right that there is a lot of noise around private credit. It is all based in the United States at the moment. It is often said that what starts in America comes to the UK, but there are a lot of differences between what has happened in the US, including what has gone seriously wrong, and what has happened here. It is encouraging that the Bank of England has taken the initiative to carry out the system-wide exploratory stress scenario-it is the only central bank in the world to do so. There was criticism that this was voluntary, and that is because the players in the private credit market are not regulated organisations and so they have no obligation under existing law to provide information. However, it is my understanding that the degree of involvement of the organisations taking part that are not...
My Lords, this amendment raises an important question around private credit and how our regulatory framework should respond to emerging risks in modern financial markets. I look forward to the Minister’s tactful comments on this amendment, given that the noble Baroness, Lady Kramer, spoke so well in favour of private credit in our debate on the fifth group on our first day in Committee. Here we are with the problems of private credit on our second day in Committee. The Minister will be extraordinarily tactful in handling that. We will have a wider debate on Clause 17 and the regulatory principles in future groups, but this amendment touches on some of those broader questions. The specific issue raised here-private credit-is an important and timely one. Private credit has grown considerably as a feature of modern financial markets; it has, in fact, grown partly as a consequence of regulation. We are dealing now with regulation of a consequence of regulation as the markets have evolved. It can provide an important source of finance outside traditional banking channels, supporting businesses that need capital to invest, develop and grow. For that reason, we should be careful not to respond to its expansion in a way that unnecessarily restricts access to safe and productive credit; indeed, the Financial Services Regulation Committee concluded in its report earlier this year that private credit has developed rapidly and plays a useful economic role. That is particularly important...
My Lords, I welcome the focus of the noble Baroness, Lady Kramer, on the vulnerabilities in the private credit system. Although the Government are clear that the growth of private credit has brought benefits to the real economy, we and the financial regulators are very conscious of the potential vulnerabilities in this sector. Just last month, the Chancellor and the Governor of the Bank of England joined their fellow G7 Finance Ministers and European Central Bank governors in agreeing that potential risks in the private credit ecosystem call for continued monitoring, including that of the interconnections with banks and insurers. The amendment from the noble Baroness, Lady Kramer, would require the PRA and the FCA to consider private credit’s interactions with the wider financial system in all cases where the regulatory principles are engaged, or else their decision-making could be unlawful. I assure her that the regulators are already working to understand these vulnerabilities deeply and to address them where necessary. This work does not require placing additional duties on the regulators. I will highlight the existing work of those regulators. First, the Bank of England’s Financial Policy Committee has been focused on the risks of private markets for many years, and the Chancellor’s most recent remit letter to the FPC asks that that work continues. I specifically note the Bank’s system-wide exploratory scenario on private markets, the SWES-as if we needed another...
My Lords, I will of course withdraw this amendment, but I wanted to get this issue on the agenda, and we need to continue to do so. I say to the Government: do not be complacent in this situation. A few weeks before the crash in 2008, everybody in government would have told you how well the financial sector was functioning. Being a cynic can be quite helpful. I am particularly concerned about the impact on small businesses when we run into the next financial shock, because there will be one. That regulatory perimeter is a serious issue that the Government should be looking at. I do not know whether you can get the regulators to look at it voluntarily. As far as they are concerned, you go to Parliament only to explain; it is not where you take instruction. I am concerned about these issues. I look forward to the amendment in the name of the noble Baroness, Lady Noakes, on private credit, which will come later. With that, I beg leave to withdraw my amendment.
Amendment 78 withdrawn.
Amendment 79
Moved by
79: Clause 17, page 21, line 34, leave out subsections (2) to (11) and insert- “(2) In section 3B (regulatory principles to be applied by both regulators), in subsection (1), at the end insert-“(i) the need to assess the impact on the taxpayer of any provision of backstop arrangements by the Bank of England to private stablecoin.””Member’s explanatory statement This probing amendment would replace the removal of the regulatory-principles duties in Clause 17 with a new “have regard” to the risks to taxpayers should the Bank of England provide a liquidity backstop to private stablecoin.
My Lords, here I am again with another issue that I want to raise. It does not necessarily look like it, but this is another constitutional amendment. Digital money and stablecoin are coming. As I have said in the House before, I am not King Cnut but I am concerned that both the industry and the regulators treat stablecoin as merely a change in plumbing in the payments system. I understand the desire for the UK to be an attractive place for stablecoin companies and the need to build a substantial sterling stablecoin sector. What concerns me is that, at scale, it has huge consequences for the taxpayer to carry the liabilities, and it determines who has their hands on the levers of economic power. I will not pursue that last issue; it would take about 10 minutes and the Committee is beyond coping with that. In October, the FCA will publish regulations for the non-systemic stablecoin players but, on Monday, the Bank of England launched its policy statement and draft rules for systemic stablecoin. The document is clearly a loosening of rules previously under discussion, but my attention was grabbed by the Bank’s confirmation that it will introduce a central bank liquidity facility for systemic stablecoin. In other words, if there is a run on stablecoin, the taxpayer is on the hook. It is true that liquidity facilities are offered to the banks but to extend this to stablecoin is a major decision. I am not saying that it is right or wrong, but a decision on this scale, with the...
My Lords, the Financial Services Regulation Committee has also been looking at stablecoin, so I have a few words to say on the topic. I go back to my earlier point: this is not a regulatory principle that can be applied by the FCA and the PRA. It has very little to do with them, as it is the financial stability part of the Bank of England that has issued the policy. The backstop is just one part of the arrangements, as the noble Baroness, Lady Kramer, will be aware. A very significant part of the assets of stablecoin issuers also need to be held in unremunerated form at the Bank of England-30%, which is a significant amount of money. If the noble Baroness is worried about the cost to the taxpayer, she might also reflect on the gain to the taxpayer for all the time that there is not a crisis because the Bank of England has access to free money, which is part of the whole deal. The stablecoin package needs to be looked at as a whole, rather than one small part of it being picked out. The noble Baroness may still disagree with it, but it is a calibrated package which balances the risks, including keeping one-to-one asset backing, which will also go a long way to allaying her concerns.
I agree with the noble Baroness, Lady Kramer, that digital assets are a serious issue and that they deserve proper scrutiny. We come at it from a slightly different perspective. I note the point made by my noble friend Lady Noakes that this is not a matter for regulatory principles. This week, as we have heard, the Bank of England published its final policy statement and draft code of practice for sterling-denominated systemic stablecoins. This may go some way to supporting institutional scale-up, but we are concerned by the general reaction, which has been that the fundamentals have not changed and that the prevailing regime we are left with could still leave UK issuers less attractive internationally. We are very grateful for the work of the Financial Services Regulation Committee, under my noble friend Lady Noakes, with the help of her very distinguished committee. Yet again, it features in almost every part of this Bill. Its report, Stablecoins: W aiting for R egulation , makes it clear that the UK, in its view, is lagging behind the US and EU on stablecoin regulation. Stablecoins and other forms of digital money are no longer simply niche products or theoretical innovations; they have the potential to become part of the wider payments and financial infrastructure. The danger now is that we risk creating, or at least allowing to persist, a regulatory grey zone. Firms need clarity on the duties, expectations and requirements that they will have to meet. That is why we are...
Amendment 79 would require the FCA and PRA to assess the impact on the taxpayer of any provision of backstop arrangements by the Bank of England to private stablecoin when exercising their general functions. I support the noble Baroness’s goal of ensuring that all government and Bank of England activity provides good value for the taxpayer. The Bank of England already has a duty, established in the joint memorandum of understanding with HMT, to “ensure value for money by minimising financial costs and risks to its capital”.
The Bank of England’s proposals for a backstop facility would allow systemic stablecoin issuers to monetise their sterling-denominated UK government debt securities in exceptional scenarios where they might not otherwise be able to do so, helping to mitigate potential financial stability risks. The Bank has also indicated that access to any such backstop lending facility would only be for eligible, solvent and viable systemic stablecoin issuers. The Government are working closely with the Bank of England to ensure that the regime for systemic stablecoin considers a wide range of factors, including value for money for taxpayers, maintaining financial stability and the UK’s international competitiveness.
I also note that, as drafted, the amendment would place requirements on the FCA and PRA to consider the Bank of England’s regulatory regime when making decisions, which would be inappropriate, as the FCA and PRA are independent bodies with their own objectives. That said, effective co-operation between the regulators is, of course, important. I therefore ask the noble Baroness to withdraw the amendment.
At this hour, the only thing to do is to withdraw the amendment. I thank the Committee.
Amendment 79 withdrawn.
Committee adjourned at 7.31 pm.