Financial Services and Markets Bill [HL]
House of Lords · Grand Committee · 29 Jun 2026 · 166 speeches · Official Report
Committee (3rd Day)
Northern Ireland and Scottish legislative consent sought . Relevant document: 2nd Report from the Delegated Powers Committee .
Clause 17: Requirements to have regard to the regulatory principles
Amendment 80
Moved by
80: Clause 17, page 21, line 34, leave out subsections (2) to (11) and insert- “(2) In section 3B (regulatory principles to be applied to both regulators), in subsection (1), at end insert-“(i) the need to consider climate risk;(j) the desirability of sustainable growth in the economy of the United Kingdom in the medium or long term.””
My Lords, in moving Amendment 80 I shall also speak to Amendment 103. My name is also on Amendment 140, and I have no doubt that the noble Baroness, Lady Hayman, will expertly present that. I also support the other amendments in this group. We experienced, of course, the most extraordinary heatwave last week, made so much more intense because our climate has already changed. It is now anticipated that we will never return to pre-industrial levels, yet, we have gone backwards on climate change and climate risk in this Bill. The Government may say that they have not, and that they want to ensure that the regulators are flexible in how they can tackle this challenge, but Clause 17 strips out all sorts of accountability arrangements in a number of areas. My noble friend Lady Bowles rightly argues that it simply should not stand part of the Bill. The noble Baroness, Lady Noakes, said on day one in Committee that she concluded that in the Financial Services Act 2023, we failed to understand what the lack of EU oversight, as passed into UK law, “meant for democratic oversight of what the regulators do with the powers that they acquire. We also failed to appreciate the scale of the task of holding the regulators to account.” ”.-[ Official Report , 22/6/26; cols. GC 193-4.] This has to be a major cause for concern to us across the broad range of powers we are passing to the regulators, especially as we do not even know what new rules will be drawn up for them. As my noble friend Lady...
Baroness Bennett of Manor Castle
My Lords, I rise to speak to Amendments 83B and 86A, which appear in my name. It is a pleasure to follow the noble Baroness, Lady Northover, and to agree with a great deal of what she said. It is almost as if in the past week or so, the planet itself has been speaking to us and sending us a message that should direct the Committee’s deliberations on this Bill. I will restrict myself to my two amendments, in the interests of time. I have been asked to table them by people who are gravely concerned about issues of corruption, dirty money, the “London laundromat” and associated security concerns. These are issues on which I do a considerable amount of work, and that is why I have this focus on this group. These amendments are related. They seek to add both climate risk and the laundering of criminal gains causing environmental harms to the regulatory principles to which the FCA and PRA must have regard. I can pretty well hear the concerns about to be expressed some time soon about “have regard” amendments, but surely these are things that we have to think about. We have to make sure that we direct the regulators to think about climate and the laundering of criminal proceeds through the City and associated institutions. I note that the Financial Action Task Force recognises environmental crimes as predicate offences for money laundering. The European Union has strengthened its criminal law framework through the environmental crime directive, requiring member states to publish a...
My Lords, it is a pleasure to follow the noble Baroness, Lady Bennett, and to say that I broadly support the action that she is suggesting in Amendment 83B. Organised environmental crime, including illegal deforestation and wildlife crime, is increasingly acknowledged as a major source of illicit finance and money laundering. It is therefore important that the FCA and the PRA have the ability properly to take account of these risks within their existing anti-money laundering framework. I hope that we will get a positive response from the Government on that. This group of amendments deals with the gaping hole, frankly, in the Bill on nature and climate considerations. I was going to speak more broadly about the importance of taking these into account-I may still do so in our stand part debate on Clause 17-but the noble Baroness, Lay Northover, did the Committee a great service in setting out very clearly, in her opening speech, the issues that we need to address with some urgency.
This feels rather depressing for those of us who were in this Room three years ago trying to make the argument that we needed to embed into financial regulation the recognition of the risks inherent in climate change and the need to remember that it will be impossible to achieve the economic growth that we are concerned about unless we also look to the medium and long term on climate. That is depressing.
Frankly, it fills me with sadness that we have lost the cross-party consensus we had three, four and five years ago on climate issues. It is not that we agreed on everything-there were differences on the speed of transition and the need for transitional measures-but we seem to be continuing to lose our understanding of the framework on which we were working in a non-partisan way. I very much appreciate and support what the noble Baroness, Lady Northover, said.
In this group, I have Amendment 140, and I am grateful to the noble Baronesses, Lady Northover, Lady Penn and Lady Griffin, for adding their names to it. At Second Reading, the Minister reaffirmed the Government’s
“ambition to position the UK as the leading hub for sustainable investment, leveraging our sustainable finance expertise to support transition and drive growth ”.-[ Official Report , 8/6/26; col. 1215.]
The Government have placed a huge amount of importance on achieving this aim through plans for mandating
“UK-regulated financial institutions (including banks, asset managers, pension funds and insurers) and FTSE 100 companies to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement”.
That aim was repeated and included in the Government’s manifesto. However, we are now almost one year on from a consultation on this matter and remain no clearer as to what the next steps will entail or the timeframe that is envisaged. I have therefore tabled Amendment 140, which has received cross-party support, as I say, to help the Government to achieve that central objective, which the Minister says is at the heart of the Bill, by providing a mechanism to deliver this commitment in full within a given period.
If we are to achieve any of the objectives that the Government have set for unlocking the potential of the financial sector for green growth, we have to find a way to combine both the goals of growth and addressing climate change. The Government also identify that putting in place a transition plan would give them the ability to secure that win-win. The consultation itself described transition plans as
“a vital part of our commitment to secure Britain’s position as the green finance capital of the world. This offers a significant growth opportunity for the UK’s financial services sector”.
My concern-the reason I tabled this amendment-is whether we can afford to wait indefinitely for implementation, as seems to be the situation at the moment, because delaying a decision is not cost-free. Investors wanting to make decisions need visibility and certainty on how firms in the UK plan to manage climate-related risks, and to adapt their business models over the long term so that they are resilient to those risks. Lloyds Bank found that the majority of investors-68%-believe that a company’s transition plan is “important” or “very important” when considering an investment. The UK Sustainable Investment and Finance Association found that 95% of UK large financial firms would increase investment into the UK if regulatory changes, such as transition plans and sustainability standards, were implemented.
My Amendment 140 would give the Government an opportunity on transition plans. It would ensure that we avoid a scenario of protracted uncertainty for the private sector around whether implementation may be so piecemeal or partial that it does not bring about the level of transparency and consistency that investors need. I very much hope that the Minister will be able to say in his response that the Government will use the Bill to implement their given commitments on transition plans.
My Lords, first, I apologise for being unable to take part at Second Reading due to other commitments. However, my interest in nature and climate-related issues in previous Bills on financial services and markets is a matter of record. Two amendments in this group are in my name. I thank my co-signatories, the noble Baronesses, Lady Boycott, Lady Young of Old Scone and Lady Coffey, for their support because cross-party support sends an unequivocal message to government that this is not ideological but concerns the health of our environment and the future of our natural world. I will speak first to Amendment 142 on the Taskforce on Nature-related Financial Disclosures. In essence, it seeks to insert a duty into the Financial Services and Markets Act 2000-FSMA-so that regulators must “make rules requiring such regulated persons as they consider appropriate to disclose information relating to nature-related dependencies, impacts, risks and opportunities”. Nature-related dependencies are things from nature on which businesses rely, such as water, soil, pollination and healthy ecosystems. Nature-related impacts are harms or pressures that companies themselves put on nature, such as through land use change, pollution or deforestation. Clearly, nature is financially material, and nature is under threat. Investors are demanding comparable information on how nature loss, biodiversity, water, land use and similar issues could affect companies and profits. This amendment would deliver...
Before closing, I add that I support all amendments in this group, in particular Amendments 103 and 140. I give notice that I lend strong support to the Clause 17 stand part notice in the name of my noble friend Lady Bowles of Berkhamsted. Her Second Reading speech was outstandingly clear and compelling.
My Lords, I, too, support all the amendments in this group, but I will limit my remarks to Amendment 80, to which I have added my name. I note that I appear to be the only man to have signed any of the amendments in this group. I hope that does not mean that climate concern is now becoming divided on gender lines; climate risks are not sex specific. Perhaps I might encourage some other men to rise and support amendments in this group. We have heard that Clause 17 will remove the requirement that the FCA and the PRA have regard to certain regulatory principles, including those relating to environmental obligations. As the climate crisis grows and public services are forced to adapt to a growing range of climate-related challenges, weakening such regulations is neither environmentally nor economically sustainable. The regulatory principles of the previous Financial Services and Markets Act 2023 were intended to ensure that climate risks were incorporated into regulators’ day-to-day decision-making. I am afraid that the evidence is not very good that they have been sufficiently incorporated in practice. We have just heard from the noble Baroness, Lady Sheehan, about deforestation. In 2022, a report from the Make My Money Matter campaign found that over 30% of UK pension fund public equity and corporate bond investments were in institutions with a high risk of causing deforestation. When I was chair of the board of the Church Commissioners, I was very proud that it was one of...
My Lords, I will speak to Amendment 142, which I have signed, and Amendment 172, which I strongly support. The whole concept of the TNFD follows on from the TCFD, but it has been driven and particularly supported by Defra over the past several years. As such, David Craig, who has been tremendous in promoting the TNFD, has started, just after another session of London Climate Action Week, to share the frustration of many that we already have the ISSB, which has made progress: at its April meeting, I think it agreed a way forward for its IFRS practice statement to start to be included automatically in accounting standards around the world. Indeed, we know that investors are now asking boards what they are doing about understanding their risk if certain things in nature start to change. That is, in effect, what the TNFD is about: it is not saying that you cannot do this, that or the other but about making sure that you think ahead. Why does it matter? Well, nature is at the very heart of the food we eat and pretty much every pharmaceutical we use. That is why it matters to start having this as a regular, ongoing way for the board of every business in this country to think about it. I appreciate that there have been various difficulties over recent years when it comes to the subject of Amendment 172. I nearly got the regulations through, but then it was held up because of the issue involving Northern Ireland having to follow EU law and the then Administration finally deciding...
My Lords, I will speak very briefly to Amendment 140 on transition plans and Amendment 172 on forest risk commodities, to which I have added my name. On transition plans, I do not think it is really an interest to declare, but a reason I signed that amendment is that I was a Treasury Minister-in some ways a similar position to that of the Minister now fielding friendly questions from noble Lords-on the previous Financial Services and Markets Bill, in particular on parliamentary accountability. At the same time, I was also acting as co-chair of the Transition Plan Taskforce that worked collaboratively with businesses as well as NGOs and academics to produce the transition plan disclosure framework now hosted by the ISSB. I would like to emphasise the collaborative nature of that work and those involved in it. This was not government writing a framework for business. The task force was co-chaired by Amanda Blanc of Aviva. Its membership included the London Stock Exchange Group, NatWest, Diageo and many other businesses-and, I think, the Church of England Pensions Board-all working together to develop the content of a framework that worked for business. I also reiterate my commitment to the importance of climate risk and nature risk to our financial institutions and our financial regulation, and the importance of finding a way to incorporate that into our approach. I believe that disclosure has been important in driving change and will continue to be so. However, it is one of...
If I might talk on this point, I have huge sympathy with the overall direction of where people want to go on this. Climate risk is clearly relevant for any financial manager managing the assets-the cash-of any ordinary citizen, be they a vicar of the Church of England or simply a worker setting money aside, and that needs to be taken into account. Even if you do not buy that argument, there are financial risks that go with climate that need to be recognised-for example, assets that will become stranded if we responded to the climate crisis, which should not be recognised as being valuable today. By the way, if I were to find an institution that is a mile ahead of the regulation in trying to make this take place, the Church of England pension fund is exemplary of what it is that we want to do. As I look at this, I find it rather ironic that we are focusing on the FCA. In the past five years, if there is a financial regulator that has taken steps forward on this, it is the FCA rather than the others. I think-I have tried to check on the internet-the UK now has the highest number of transition plans by companies, and the highest standard of transition plans by companies, of any country in the world. I want to celebrate the companies doing that and the senior appointments that the FCA put in place to make these sorts of things happen. It might be a good idea for us to scratch our heads about those regulators that, even where there are clear rules on reporting on financially...
I shall be exceedingly brief because the position of my party has been so well-voiced by my noble friends Lady Northover and Lady Sheehan, and there is a great deal more to say in the clause stand part debate in today’s fourth group. My party has made it very clear that it has a deep commitment to the climate, nature and sustainability agenda. I am conscious that it has become quite fashionable in financial circles to say that this agenda should not be the concern of the Bank of England or of any of the regulators. Perhaps the noble Lord, Lord Pitt-Watson, can indicate to me where in the five-year strategy of the FCA he can find any reference to it, because I cannot.
For five years, there has been a director of ESG at the Financial Conduct Authority who has specifically taken responsibility for ensuring that, where relevant, it is embedded in what the FCA is doing. Most of the feedback I get from the FCA and financial practitioners suggests that he is called Sacha Sadan, and that he had a senior role in financial services beforehand and has had considerable success in being able to do that. Is it perfect? No, I am sure it is absolutely not perfect. We have a long way to go, but I want to do something that says, “Let us celebrate some success when we have it”.
I always join in celebrating success but, from our perspective, this is a pivot moment away from what has been the practice and emphasis over the past several years. Indeed, as the noble Baroness, Lady Hayman, said, there was consensus across the parties, with perhaps different strategies, but this appears to be a time when much of this has changed, or is about to change or is changing. I have to say that it makes absolutely no sense. Climate risk is so obviously a financial and economic stability risk, as indeed is the loss of nature and the issue of sustainable growth; surely “sustainable” belongs in growth programmes that we put in front of us. I am also very conscious that the City and others, which have tended to have very short-term perspectives-typically the next quarter’s results-have voiced opposition to the inclusion of climate and nature in the financial regulators’ remit and that it should have the significance it has had to date, and I am very afraid that the Government are now responding to that particular set of views. Moving these regulatory principles from the Bill-from primary legislation-into a “have regard” for the five-year strategy strikes me as an acquiescence with those voices we are hearing from the City. To me, there is some confirmation in not finding a firm strand in the FCA’s own five-year strategy; that is its forward look, not its historic look backwards. In a few minutes the Conservative Party will speak, and it will make its own position...
My Lords, I first declare that I own some shares in JP Morgan, where I used to work, and some energy shares, as set out in the register. It will probably come as no surprise to the Committee that we broadly disagree with the approach taken in this group of amendments. Climate change is, of course, an important issue, but the question before us is not whether climate change matters but whether the answer is to place still more statutory duties, reporting requirements, disclosures and regulatory obligations on businesses and financial institutions in this country. I am not persuaded that it is. Each of these amendments is no doubt well intentioned, but they point towards a model in which ever more public policy objectives are loaded on to regulators and then passed through into more paperwork, compliance, board time, legal advice and cost for firms. At a time when every week, the London Stock Exchange loses companies that decide to list in the US, is this really what we want to do? Many of the businesses and organisations that would be affected by this kind of regulatory layering make very limited direct contribution to global emissions. Yet they may find themselves spending more and more time demonstrating compliance, producing reports, revising governance documents and satisfying regulatory expectations. That all has a cost. It takes resource away from investment, innovation, productivity and growth. It makes us all poorer. We should also keep a sense of proportion. The...
My Lords, I am thankful to noble Lords for their contributions. I specifically welcome the noble Lord, Lord Reay, who is making his first contribution on the Bill from the Front Bench. There is absolutely no denying that this is a critical issue. As set out by the Chancellor in her Mais Lecture, sustainable growth depends on resilient foundations. Action on climate, adaptation and resilience can help reduce exposure to future shocks and support long-term economic stability. At the 2025 spending review, this Government committed £65 billion in capital funding for clean energy, climate and nature, including nuclear, and an additional £3.6 billion in capital funding for flood defences. The National Wealth Fund has been capitalised with over £27 billion and plays a central role in mobilising private investment into priority sectors, including clean energy, and supporting the transition to a low-carbon economy, while contributing to growth and energy security objectives. Before I turn to the amendments, I stress that sustainable finance is a core priority for the Government. It is also a key opportunity within the financial services growth and competitiveness strategy. The UK is one of the world’s leading sustainable finance centres, with London ranking first in the Z/Yen global green finance index. Our focus now is on how to evolve and expand.
We are leveraging the UK’s sustainable finance expertise to mobilise capital in order to support the Government’s growth and clean energy missions. This strategy sets out how the Government will build on the UK’s world-leading strengths to support transition and drive growth. More than £100 billion of clean energy investment has been secured since the Government came into office. We are prioritising changes that will make the greatest impact, boost investor protection and UK competitiveness, enabling the sector to innovate and adapt. This will support the UK’s ambition to position itself as a leading hub for sustainable investment. Many of my responses will be framed in these terms: trying to find the right interventions at the right time to further this agenda.
Turning to the amendments, I thank the noble Baroness, Lady Northover, for Amendments 80 and 103, which seek to require the FCA and the PRA to have regard to climate risk and sustainable growth and to introduce annual reporting on those principles. As I have said before, the regulatory principles are not having the desired effect; that is the reason behind Clause 17, which we will debate shortly. I do not want to pre-empt that debate, but I think that many noble Lords will agree with me that we should not add further regulatory principles to what is already a complex landscape. Clause 17 is not designed to weaken the “have regard” that was introduced in 2023. It is meant to help the regulators to focus on strategic interventions. I say in response to the question from my noble friend Lord Pitt-Watson that the Government always keep all aspects of the framework, including parliamentary oversight, under review. I expect that we will discuss that oversight in more detail today in our debate on a later group.
I assure noble Lords that regulators are already required to take into account many aspects of climate policy. First, they are required by law to have regard to the UK’s net-zero and environmental targets, where relevant to their functions, and they are taking substantial action as a result. Secondly, the Government have sent remit letters to the Financial Policy Committee, the Prudential Regulation Committee and the FCA to make it clear that they should support the transition to a climate-resilient, nature-positive and net-zero economy. Thirdly, the Financial Policy Committee must also consider climate-related risks, where they are relevant to financial stability, as well as proactively identifying and assessing climate-related risks to UK financial stability, as set out in the framework published in its Financial Stability Report of November 2024.
All this has resulted in some significant actions. The PRA has issued pioneering supervisory expectations to enhance firms’ management of climate-related risk-this includes insurance firms, of course-and has, together with the FCA, convened the Climate Financial Risk Forum. The FCA has consulted on aligning listed companies’ sustainability disclosures with the internationally aligned UK sustainability reporting standards, which the UK recently published. The Government have legislated to regulate ESG ratings providers, and the FCA will publish its final rules later this year. This will improve transparency, reduce conflicts of interest and strengthen investor confidence. I hope that this response clarifies why we believe that the current framework is the right one.
Amendment 103 would further require the PRA and the FCA to report on their work in implementing the principles in Amendment 80. The regulators already report on all their objectives and principles through their annual reports. In addition, they must respond to HM Treasury’s remit letter once a year to set out what actions they have taken. As I have said, the Government have ensured that that remit letter asks them to support the transition to a climate-resilient, nature-positive and net-zero economy.
Let me ask a direct question of the Minister. He referred to the actions that he expects from the FCA. I take it at its word, with its five-year strategy, but I cannot find any reference to anything to do with the climate, nature or even sustainability anywhere in there. Have I missed a page? It is a bit difficult to do that when there are only 20 pages, with very little written language, but it seems to me that, if this matter were of any significance, it would have been somewhere in that document. Is the FCA just anticipating what it believes to be the direction that it is getting from the Government, as reflected in the actions that are being taken in the Bill?
We believe that the “have regards” give them the current position, which is that they should consult on the nature considerations. As my noble friend Lord Pitt-Watson mentioned, there is a substantial amount of work going on. There is room for improvement in the governance of that process, but we believe that the next five-year plan should be the place to review that even further. Amendment 140 would require the FCA and the PRA to make rules mandating transition plans aligned with the Paris Agreement. The Government have committed to mandate UK-regulated financial institutions and large companies to develop and implement credible transition plans that align with the 1.5 degrees goal of the Paris Agreement, and we remain committed to that. We are reviewing responses to the Government’s consultation on the topic from a wide range of respondents and we will set out those next steps in due course. I make it clear that we are mindful that firms do not approach transition planning in isolation, as this is closely linked to how firms identify, assess and manage climate-related risks. Any requirements must reflect this and sit within a coherent sustainability reporting framework. This policy is not confined to financial services alone; it must be done across the wider corporate landscape. We are therefore considering transition plan requirements alongside the wider modernising corporate reporting programme and discussions on what role the UK sustainability reporting standards should...
I hear what the noble Lord says, but that terrible leaden phrase “in due course” was used. He says that there is a way of looking at this in the context of many other issues. Can he give me a little bit of comfort? We are one year into the consultation. Will we have another consultation that takes in all the wider issues that he discussed? How long is this grass?
I cannot pre-empt the timing of that report, but I will come back to the noble Baroness and have a follow-up meeting to get the specific details. I do not want to give her the wrong information today. This is important to this Government, as set out in the wider consultation and actions that we are taking. I might have to have a separate meeting to get a specific answer to that. On Amendment 142, it is important that nature-related risks are properly understood and managed, given the material risks that they can pose to the financial system and wider economy, and we have already made significant progress in this area. As I mentioned, the Government have now finalised the UK sustainability reporting standards, and the FCA has consulted on aligning listed company disclosures with this framework. These standards, based on the International Sustainability Standards Board’s well-established global baseline of sustainability disclosures, require companies to disclose material sustainability-related risks, including nature-related risks where relevant. The Government recognise the important work of the Taskforce on Nature-related Financial Disclosures in this area and we welcome ISSB’s decision to advance further work on nature-related disclosures, building on TNFD’s recommendations. We will continue to ensure that the UK framework evolves in line with international best practice and we therefore do not support this amendment. Amendment 172, on deforestation, seeks to require the...
I too thank everybody who has contributed to this debate. It is concerning, as my noble friend Lady Kramer anticipated, to hear the Conservative contribution, given the obvious risk to the financial sector of climate change and the devastating effects of ignoring risk, which led to the 2008 financial crash. That said, the Minister will have heard the concern about Clause 17. I note that he has given a speech saying that the Government are doing this, that and the other in all sorts of different areas, and therefore this is not needed, which is a very familiar argument. I think he is about to discover, if he stops reading his note, that this area will come back on Report, because there is widespread concern right across the House about climate change, climate risk and nature loss. We will come back to this on Report. In the meantime, I beg leave to withdraw the amendment.
Amendment 80 withdrawn.
Amendment 81
Moved by
81: Clause 17, page 21, line 34, leave out subsection (2) to (11) and insert- “(2) In Section 3B(1) (regulatory principles to be applied by both regulators), in paragraph (b), for the words from “considered” to the end of that paragraph substitute “taking into consideration the nature of the service or product being delivered, the nature of risk to the consumer, whether the cost of implementation is proportionate to that level of risk and whether the burden or restriction enhances UK international competitiveness;””Member's explanatory statement This amendment seeks to amend the existing regulatory principle for the FCA and PRA and require that the nature of, and risk to, the consumer and the service or product being delivered must be considered when imposing a new burden or restriction.
My Lords, it is a pleasure to open on this second group of amendments, to move Amendment 81, which is in my name, and to speak to Amendment 87. I thank the noble Baroness, Lady Altmann, and my noble friend Lord Hunt of Wirral for variously co-signing the amendments. We ask a lot of our financial regulators-not least in recent times, with international competitiveness and the growth objective, and with the Chancellor calling all regulators, including financial regulators, into No. 11 to seek their commitments as to what they will do to advance the Government’s stated growth objective. My Amendments 81 and 87 seek to assist the regulator in bringing some clarity to how to approach these matters. Amendment 81 looks to the nature of the financial product and of the risk to the consumer, and how the proposed regulatory intervention sits against those factors and the need to promote international competitiveness. It is entirely possible for our financial regulators to balance their objectives and to do right by consumers and by growth, but they need to consider those objectives alongside one another rather, than having a broad-brush, non-specific approach. This brings me to Amendment 87, which seeks to put in the Bill the nature of the response the regulators could make in their supervisory activity and interventions. It sets out the difference between retail consumers and professional market participants, not least in wholesale markets. I have no doubt that the regulators are...
My Lords, I have Amendments 83, 84, 85 and 86 in this group, and I thank my noble friend Lady Neville-Rolfe for adding her name to the first three of them. We are continuing our examination of the role of the regulatory principles, which we debated to some extent on previous Committee days. To recap, Clause 17 proposes to downgrade the regulatory principles in Section 3B of FSMA so that instead of guiding the everyday work of the regulators, they will now feature in only an element of the regulators’ new five-year plans. Some of us have tried, but so far failed, to convince the Minister that this represents a constitutional assault on the effectiveness of your Lordships’ Financial Services and Regulation Committee. I am pleased that a meeting has now been arranged for the committee to discuss this in more detail with the Minister, together with the Financial Secretary, and I hope we can make some progress there. On the previous day in Committee, I moved an amendment which called for the Treasury to undertake a review of the regulatory principles, because they are a mixture of important things concerning how regulations should be conducted, some duplicated areas and some special interest items. The Government resisted my amendment, with the Minister saying that they had already reviewed them and found them to be fine, which was a completely bizarre judgment. My Amendments 83, 84 and 85 take a different approach. If Clause 17 is to remain in its present form-that is to say,...
Baroness Bowles of Berkhamsted
My Lords, before turning directly to proportionality, I will touch briefly on sustainable growth, because its meaning has drifted over time. Sustainable growth was not part of FSMA 2000. It was introduced later, in the post-crisis reforms, as a macroeconomic guardrail. Its purpose was to ensure that regulators did not focus solely on narrow consumer protection or market integrity but had regard to the wider economy. It was intended to counteract over-regulation, pro-cyclical rule-making and, in effect, to avoid killing the golden goose of financial services. It was, in fact, a pro-growth statement. Later, maybe since 2018-19, sustainability has expanded in understanding to include environmental concerns, although, of course, they now have their own place and, as debated earlier, will maybe have some further places in legislation. I do not want the original macroeconomic point to be lost. It was designed as a counterpart to proportionality, a reminder that regulation must support durable long-term economic stability, not contribute to boom-and-bust cycles. In that sense, both proportionality and macroeconomic sustainable growth sit in the same family of “have regards”. They are deregulatory principles intended to prevent unnecessary burden and to ensure that regulation does not itself become a source of economic harm. Of course, climate change has macroeconomic effects, but they are of a different character and should not obscure the original boom-and-bust prevention purpose...
My Lords, I declare my interest as an employee of Marsh, the insurance broker regulated by the FCA. A number of amendments in this group discuss the downgrading of the “have regard to” requirement for proportionality, which would be a backward step. At a time of intense global competition, the Bill should strengthen proportionality, not weaken it. These amendments do that by replacing Clause 17’s downgrading provisions with a clearer, more robust and more meaningful principle, based on the distinction between wholesale and retail markets. There remains a clear need for a better balance between these two sectors. Evidence supports this. A survey of chief risk officers conducted by the City of London Corporation identified simplification of regulation as the single most important step that regulators could take to foster growth and innovation. Similarly, a recent Prudential Regulation Authority survey showed that fewer than 60% of respondents believe that its current approach to proportionality makes the UK a more attractive place to do business, with most of the remainder expressing neutrality. That is hardly a vote of confidence. In practice, the current one-size-fits-all approach is flawed. London’s world-leading wholesale insurance market is increasingly subject to rules designed for retail consumers. These regimes impose additional compliance burdens and costs, yet offer little meaningful benefit to sophisticated corporate clients, who require flexibility to negotiate...
I very much support the two amendments of my noble friend Lady Bowles. There is often an assumption that those of us who feel that regulation plays an important role have no instinct or desire to see proportionality in place, which could not be more untrue. My history is as a commercial banker, back in the days when we used to participate intensively in writing the loan documents and creating the covenants associated with our lending, whether to small companies or to some of the largest on the globe. Frankly, covenants that were off the shelf were completely inappropriate for providing the protection we needed in many cases. They were just useless exercises in paperwork for the companies involved. We used to reshape the loan agreements on that basis and, frankly, it worked exceedingly well. When I look at the amendments, I am glad that proportionality is being recovered from the scrapheap that would result from Clause 17. That is important, and the way that my noble friend Lady Bowles, framed it is particularly significant. Both for the PRA and the SRA, the focus is proportionate to the benefits expected to result from the imposition of the burden or restriction, recognising the difference in size, nature and objectives. I agree with her that this really needs to be considered through the lens of genuinely sustainable-as in durable as well as environmental-growth. That is a very important addition to the discussion. I am disturbed by Amendment 81. I am not disturbed by most...
My Lords, I am grateful to my noble friend Lord Holmes and other noble Lords for bringing forward their amendments in this group. I was glad to hear that the Minister will meet the Financial Services Regulation Committee to discuss this part of the Bill. I am sure he will be as disturbed as I was to hear about the widespread fear of regulated businesses in expressing any criticism of the regulators-the most important regulators in the land, to quote my noble friend Lady Noakes. We certainly rely on financial services and good regulators for growth in this country. The central theme of this group is the proportionality of regulation. That is an absolutely fundamental requirement for all regulation; it is particularly so when we are talking about small and medium-sized enterprises, which are less able to afford the costs of regulation-in terms of diversion of time, regulatory fees and legal fees-and are the most held back by excess regulation. There were 5.6 million small businesses in the UK at the start of 2025. They account for three-fifths of employment and around half of turnover in the UK private sector. Total employment in SMEs was 16.9 million-60% of the total-with turnover estimated at £2.8 trillion, or 51% of the total. Having financial services that operate with proportionality and common sense is important to them; indeed, almost every single one of these firms will access and use financial services through the course of their operations. It is even more important...
My Lords, this will be the first of many groups where we discuss the frameworks that the regulators operate under, so I will say a few words about that framework before turning to the amendments. Many of these amendments, and those in other groups we will take today, focus on the regulators and their accountability to Parliament. Parliament has enshrined the principle of regulatory independence into primary legislation through the Financial Services and Markets Act 2000, which obviously everyone in the Room knows as FSMA. The Government continue to believe that this model best serves the UK’s long-term interests by delivering effective regulation, informed by evidence and free of political interference. It is absolutely right that financial services markets, firms and activities are overseen by operationally independent, expert regulators. The FSMA model sets out clear roles and responsibilities for Parliament, the Government and the regulators. Parliament sets the objectives for the regulators and holds them to account for how they further those objectives when discharging the statutory functions that Parliament has given them. The Government and Parliament must be able to scrutinise the work of the regulators to evaluate how effective they are and the impact that their rules are having. It is important that the regulators remain independent and accountable for their actions. The regulators are directly accountability to Parliament, and there are a range of mechanisms...
I am afraid the noble Lord is going to be assailed from all sides. I was glad to hear the Minister refer to the work that the committee did in relation to the enforcement proposals, otherwise known as naming and shaming. Is he aware that if the proposals in Clause 17 go through, we will be unable to interrogate the FCA, in this case, on the proportionality of particular examples of what they are doing, in this case to change the enforcement rules? Proportionality there related very specifically to a set of proposals. For example, those proposals, which were to name people much earlier in the enforcement process, could have had the effect of wrecking the businesses of very small players in the financial services market. That is something that we were very keen to draw the attention to.
I understand this theory about looking at the five-year plans and holding them strategically to account for achieving high-level aims. That is not in practice how regulation affects individual operators in the financial services market, or sectors of the financial services market, and that is what we are seeking to protect. Does the Minister understand that difference?
I understand it, and I think I have demonstrated in the debate today and outside-I am looking forward to the meeting next week-that we remain open-minded. We are trying to achieve the balance between the regulatory oversight that we believe already exists and the feedback that we have had from the committee. I remain open to those conversations. We believe that the framework tries to keep that balance between the oversight that exists in Parliament and the independence of the regulators, but we genuinely look forward to that constructive discussion. I turn to Amendment 87, which seeks to expand the regulatory principles and make them more detailed and directive. The Government’s view is that FSMA should provide a principled framework within which the regulators exercise expert judgment. This amendment goes far beyond refining the existing principles and would, instead, replace them with a highly prescriptive set of instructions that risks legal complexity, rigidity and dispute over interpretation. The concepts highlighted in the amendment are important, but the Government do not believe they should be hardwired into primary legislation in this level of detail via the regulatory principles. The issue is not whether compliance costs, innovation, competition or post-implementation review matter-they clearly do-but whether it is right to place these requirements in primary legislation. The Government’s view is that it is not. It is not a sensible approach to grant the regulators...
Baroness Bowles of Berkhamsted
The Minister keeps saying that these things should not be in primary legislation, but they are in primary legislation, and they stay in primary legislation. Even if you try to take the effectiveness away by Clause 17, everything that I referred to in my speech, and that the noble Baroness, Lady Noakes, referred to in hers, is about the existing regulatory principles that are in the Act already. Therefore, I do not understand saying that they should not be in primary legislation-they are.
Let me get back to the noble Baroness on that. I believe the amendments were trying to change and streamline the regulation, but I want to make sure I give a precise answer rather than a quick judgment on that. Let me turn to Amendment 86, which seeks to bring the regulatory principles of the Legislative and Regulatory Reform Act 2006 into FSMA. The Government recognise the importance of certainty in the regulators’ framework. FSMA already contains its own carefully developed set of duties, objectives and principles, designed specifically for financial services regulation. The Legislative and Regulatory Reform Act is very broad in scope, and the principles it contains are important ones. But there is significant overlap between these principles and those already in FSMA, so adding them here would bring duplication and legal complexity, rather than clarity. These will now be considered at a strategic level as a result of Clause 16. In some way, the Government agree that proportionality matters, that unnecessary burdens should be avoided, and that the regulators must be held properly to account for how they exercise the significant powers Parliament gives them, but they should not be overly constrained in how they approach their work. We should have confidence in their expertise and regulatory judgment, and confidence in the mechanisms in place that allow us to ensure that they are performing as they should do so. Ultimately, an overly prescriptive approach that ties the...
Perhaps I might press the Minister on the subject of smaller businesses and the Bowles amendment to the proportionality proposal, which takes account of differences in the size, nature and objectives of businesses when the regulators are plying their trade. I am not quite clear what the Minister feels about these smaller businesses and whether he agrees that it is necessary to deal with them in a slightly different way.
My business insured a million small businesses, so I think they are vital to the UK economy. Let me come back to the noble Baroness with a full answer on that. It is critical that we make sure that they are protected.
To return to the question of the 2006 Act, the Minister said that FSMA’s regulatory principles have been specially crafted for financial services. They have, over a period of time; they have changed rather a lot since they were first put into FSMA. However, when the 2006 Act was passed, there was a specific decision, by the Government, to include the FSA within its scope. They were all brought within scope by secondary legislation, just as the Government now propose to take them out by secondary legislation. Why do the Government take a different view from the Labour Government in 2006-who decided that those regulatory principles have, as I have explained, some important additional elements to those within Section 3B-and think that those additional principles are not now relevant?
It goes without saying that there are many things on which I do not agree with the Labour Government of 2006, but we will leave that for another day. We believe that this is already covered. I do not want to allow the noble Baroness’s expertise to be undermined by my relative inexpertise, so let me come back in writing on that. The advice I am getting is that we believe that it is already covered, but let me come back in writing before our meeting next week.
I paused there in case somebody else wanted to make another point-I did not want to jump in. I thank all noble Lords who participated in this excellent, informed and important debate. I would never seek to offer a Minister of the Crown advice, but, having said that, when the noble Baronesses, Lady Bowles and Lady Noakes, speak on these matters, it is worth paying attention, reflecting, reading Hansard and reflecting again. I thank the noble Baroness, Lady Noakes, for all the work she has done as chair of the FSR committee. It has produced excellent reports that always cut to the heart of an issue. At a time when, as she rightly identifies, more and more is coming before Parliament as regulation which, on the Floor of the House, we have so little role in which to play or influence to bring to bear, the role of her committee is even more significant and important. My noble friend Lady Neville-Rolfe summed up with her usual brevity and precision. This is all about proportionality and common sense. The only tiny addition I would bring to that is specificity. In essence, all the amendments in this group have been tabled for the same reason that we debated these subjects on previous committee days. Strategies and frameworks are important, but events do not happen in strategies and frameworks. Events happen: they impact individuals and businesses, particularly small businesses, minute by minute, hour by hour-or, to quote a phrase apropos of nothing in particular, events happen on a...
Amendment 81 withdrawn.
Amendment 82
Moved by
82: Clause 17, page 21, line 34, leave out subsections (2) to (11) and insert- “(2) In section 3B(1) (regulatory principles to be applied by both regulators), after paragraph (h), insert-“(i) the need to consider financial inclusion.””
My Lords, I rise to speak to three amendments I have in this group: Amendments 82, 95 and 97. This group is all about financial inclusion. It is a very important group. I am also very sympathetic to the amendments in the name of the noble Lord, Lord Holmes, and my noble friend Lady Kramer. Amendment 82 would place financial inclusion where I believe it firmly belongs: among the regulatory principles set out in this legislation which the regulators must consider in carrying out their functions. This is not a novel idea. When I had the privilege to chair this House’s Financial Exclusion Committee back in 2017, we recommended that financial inclusion be given a firmer footing in the regulators’ duties. Indeed, when this House last legislated on these matters, in the 2023 Act, I am sorry to say that financial inclusion was not included as part of the regulatory principles. Despite a concerted effort at the time to put it on a statutory footing, we did not succeed, and my amendment would simply correct that. Financial inclusion, which determines whether millions of people can access the essentials of modern economic life, surely belongs in legislation. However, the Bill as drafted moves in the opposite direction, confining the regulatory principles to strategic activities only, thus removing them from day-to-day decisions that impact the lives of millions of people, particularly those who are financially excluded. My amendment would ensure that financial inclusion remains a live...
I anticipate the Minister saying to me that the consumer duty already provides for this, but, with respect, it does not. This is the central point, which I emphasise: the consumer duty is a significant and welcome protection, but it protects people who are already customers of financial service firms. It says nothing about, and does nothing for, people who cannot get through the door in the first place: those who are declined credit, those who cannot open an account and those who are priced out of insurance altogether. The people with whom these amendments are most concerned are, almost by definition, the very people the consumer duty cannot reach. If our reporting on financial inclusion relies on the consumer duty alone, the millions of people excluded from financial services will remain invisible in the data-unseen, uncounted and unaddressed. An annual report that explicitly covers what work has been done to improve their situation is, I believe, how we can make them more visible.
Can the Minister respond to a few specific questions? First, does he accept that the consumer duty, however valuable, applies only to existing customers and offers no protection to those excluded from financial services altogether, and that there is, therefore, a real gap in how regulators are expected to monitor and improve the financial lives of all? Secondly, if the Minister does not support this amendment, can he set out precisely how Parliament will be able to scrutinise the FCA’s efforts to improve financial inclusion, given the Bill’s proposal to confine the “have regard” duty to regulators’ strategic activity only? Thirdly-I really hope the answer to this one is yes-will the Minister agree to meet me and other interested Peers before Report to discuss how a meaningful financial inclusion reporting agenda might be given effect?
Lastly, I also anticipate the Minister saying that this amendment is unnecessary because the Government have published a financial inclusion strategy. It is a good document, but I must politely disagree: a strategy is a policy document that any Government may revise or set aside; it reports on the Government’s own programme, rather than on the regulators’ impact. Indeed, I have asked His Majesty’s Government which metrics exist to evaluate the strategy’s implementation and impact.
These amendments are, I believe, modest, proportionate and constructive. They ask only that this country keeps a clear and honest annual account of how well-or how badly-our financial system serves those who are most at risk of being left behind. I beg to move.
My Lords, it is a pleasure to follow the noble Baroness, Lady Tyler. I had the equal pleasure of serving alongside her during her excellent chairing of the Financial Exclusion Committee. As the noble Baroness rightly identified, since we published our report, financial exclusion-or a lack of financial inclusion-has persisted. She rightly identified the Government’s financial inclusion strategy. There are a number of good things in it, but I ask the Minister: why was it so light on the potential role that fintech, as well as broader technologies, could play in addressing some of the elements of financial exclusion? It was largely silent on those issues. I shall speak to Amendment 104 and all the other amendments in my name in this group. Similarly, I suggest having a financial inclusion objective and detailed reporting requirements therein. We have the Financial Inclusion Commission, which has some excellent members, but financial exclusion persists. It is right to have our financial services regulator further empowered to be the lightning rod and the focus for this whole question of financial inclusion. To talk about the principles again, the Government are keen on growth, but financial inclusion does not run counter to that growth or the international competitiveness objective. Financial inclusion is essential to it: enabling people to have financial services and be financially included is likely to increase digital inclusion and social inclusion, as employees become...
This is an important and interesting debate. I want to draw attention to and base my remarks on Amendment 95, which refers specifically to the poverty premium in insurance. This is a theme that runs across financial services. It perhaps does not get the attention it deserves, because one of the main reasons for financial exclusion is of course poverty, and poverty is clearly an issue where the Government have a clear and central responsibility. In practice, the approach taken by the FCA has been to use the obligation for the consumer duty as the primary vehicle for dealing with the poverty premium. The FCA has directly linked the consumer duty to the poverty premium, with the argument that firms are required to deliver good outcomes for retail customers and ensure that products and services offer fair value. The FCA has not itself specifically tackled the poverty premium head on; in effect it has passed the responsibility to providers. The most obvious manifestation of the poverty premium arises with premium finance, whereby people have to pay premiums by instalments over the year instead of paying a lump sum at the beginning of the year. The terms on which they are financed have been open to significant criticism. People think they are paying the contributions monthly but, in practice, someone lends them the money to pay the initial contribution and they repay that loan over the year. There is a widespread lack of understanding that, in fact, they have two contracts: the...
Essentially, in summary, we can say that the process of relying on the consumer duty and firm, level, fair-value assessments rather than any form of structural intervention has led to concerns that, while the regulatory tools exist, they are not being deployed forcefully enough.
I am pleased to say that the Institute and Faculty of Actuaries has done some work alongside Fair by Design in this area. The issue of the poverty premium does not only affect the issue of premium finance, but it is where the FCA has the clearest responsibility and where the proposals made in Amendment 95 most clearly apply.
However, there is a more general problem. I conclude by just pointing out that in fact there is a responsibility on the Government to ensure that all sectors of society can obtain a minimum desirable level of protection, including those on low incomes, that will enable them to remain financially resilient to shocks, and unexpected shocks, which would typically be insured.
My Lords, I will speak briefly in general across this set of amendments and specifically to Amendment 141 in my name, supported by the noble Baroness, Lady Altmann. In the general remarks, I say to the noble Lord, Lord Holmes, that I am excited and thrilled by his amendments in this group and I support every one of them-I would even open champagne; I am that pleased. I say to my noble friend Lady Tyler that I totally support the amendments that she has introduced here. I share with both of them the perception that financial inclusion is absolutely at the core of the requirement that we must place on our financial services sector and on the regulators that deal with it. To pick up on a point that my noble friend Lady Tyler made, the consumer duty does not deal with financial inclusion, and that is exactly right. The consumer duty is very much a protection against mis-selling. It is not a duty of care, which could indeed have required that gaps left in the market are filled and the regulator take steps to fill them; the regulator was absolutely determined not to have that responsibility when this House attempted to make it address the issue, and the Government of the day were also very determined that the regulator should not play that role. We cannot look to the regulator to be a key player in financial inclusion. In the five-year strategy of the FCA-I really have read that document-there is reference to financial inclusion; in fact, it is in big, black, bold letters. The...
My Lords, if I might add to this debate, I begin by noting the huge cross-party agreement we have on lots of the issues the Bill raises, most particularly on this issue of ensuring access to financial services for everyone. That is what is behind so many of the amendments here. It is also the issue that was raised in the debate about affordable credit by the noble Baroness, Lady Kramer, and the right reverend Prelate the Bishop of Manchester, and at Second Reading by the noble Baroness, Lady Hyde, and the noble Lord, Lord Kamall. We all, from all parties, want to know that such services are available to everyone. The question is simply how we can make sure that that takes place and that the industry that has to be there to deliver it buys in to making sure that those services take place. We need to be sure that our actions as rule-makers are helpful in that regard. At Second Reading, I heard a number of speeches about excessive regulation, all doubtless intending to encourage financial services to do their job better. But there is an issue with regulation and how much of it there is. If there is any concern about this amendment, that is absolutely not its objective. Critically, we need financial services to be available to everyone; the question is whether, by regulating them, that gets us to where we want to be. Maybe it will, but we might argue that, unless we have persuaded those whom we wish to influence that they will strive to improve performance in this regard, the...
I am quite taken by the suggestion of the noble Lord, Lord Holmes, for a financial inclusion unit: whether that should sit with the FCA or somewhere else, I do not know. He mentioned know your customer being used as an excuse for financial exclusion. In Bangladesh, children can open a bank account if they have 10 cents. I asked the governor of the Bangladesh Bank, “How do you manage to deal with drug dealers who are going to come in and open bank accounts?” He said, “You know, David, I’ve rarely come across a drug dealer who was putting 10 cents through their account every week. If they were, they were very unsuccessful”.
We will have many debates on this Bill, and I hope we will get the Bill right and lay a strong foundation. I am sure we recognise that the Bill alone will not create the purposeful industry we seek, but I wonder whether it can be the start and a catalyst for a better industry of the sort that we have all been talking about. Whether this amendment is pursued or not, I hope that, as part of discussions, we can send that message.
On the issue of access, as with so many other issues, the ultimate aim is not a report by the regulator, though that may be a necessary part; still less is it to place costs on the industry. Our goal goes beyond that and beyond the Bill. We want a financial services system that allows every system and business to connect to and access financial services. That will require partnership between Parliament, Government, regulator, customers-and potential customers-and the providers of financial services to know that the services we so clearly need are delivered and, where there are gaps, to set in place actions to improve things. If our debates on the Bill begin to catalyse that, to hold to account what the financial services industry of Scotland said it could do for the whole country, wow, we would be making progress.
My Lords, we understand the reasoning behind these amendments. Financial inclusion is, of course, an important objective, as the noble Baroness, Lady Tyler, explained so clearly. Indeed, that is precisely why we have tabled amendments on financial education, to be discussed at a later stage. We believe that one of the most effective ways to improve financial inclusion is to ensure that from a young age, people have the knowledge, confidence and capability to understand how to manage their money to avoid harmful financial decisions and to access the products and services that are right for them-and, I should add, to understand new technology, data and digital inclusion, as my noble friend Lord Holmes explained. However, we are not persuaded that the mechanism proposed in these amendments is the right one. In particular, when it comes to proposals such as expanding the scope of Section 3B of FSMA and adding further regulatory principles, we encounter the same problem that I raised in previous groups: every time Parliament adds another principal duty, reporting requirement or objective to the regulator’s framework, it may sound reasonable in isolation but, cumulatively, these duties feed through into more process, more internal assessment, more reporting and more consultation paragraphs. That is more compliance requirements, more boxes to tick and less overall efficiency for financial services. We should be careful not to assume that every social or economic objective is best...
My Lords, I am grateful to the noble Lord, Lord Holmes of Richmond, the noble Baronesses, Lady Tyler of Enfield and Lady Kramer, of Richmond Park, and other Peers for drawing attention to the important issue of financial inclusion. As someone who grew up in poverty, it is not an abstract concept to me and the community I come from. The noble Baroness, Lady Tyler of Enfield, asked if I would meet her to discuss this agenda further. I would of course be happy to meet her and any other noble Lords who would like to discuss the topic. I will write to her ahead of that meeting on the FCA’s consumer duty and what it means for financial inclusion, but I assure noble Lords that the Government are not relying on the FCA’s consumer duty as a catch-all solution. The Government agree that people should be able to access the financial services they need-that is an important objective-but we think that these amendments are not necessary to achieve that. Amendments 124, 128 and 104 would give the Financial Conduct Authority a new statutory financial inclusion objective and require it to establish an independent financial inclusion unit. These amendments focus on action and measurement. Financial inclusion requires all parts of the system to work together. That is why it is important for the Government to lead this agenda, not the FCA. To secure action, we have published a Financial Inclusion Strategy , setting out an ambitious package of measures to improve access to financial services....
My Lords, I thank the Minister for his response and all noble Lords who have spoken on this group of amendments. The debate has been very thoughtful, and I very much appreciated the collaborative tone of the contributions. I thank the Minister very much for agreeing to meet me and other interested Peers, and I very much look forward to that happening before Report. I was also grateful to the Minister for emphasising the point that the consumer duty cannot be the be-all and end-all. As my noble friend Lady Kramer very clearly put it, it is not a duty of care.
Many of the responses I had from the Minister were pretty much what I was expecting: that the intention of many of these amendments is fine but we do not really need them because we have existing mechanisms. My response to that is, yes, I acknowledge that in some areas there have been some improvements, and I welcome them-the Minister just mentioned the number of people with access to bank accounts-but in other areas, progress has been really stubborn or virtually non-existent. Therefore, I do not think that the mechanisms we have in place at the moment are sufficient for us to feel confident that financial inclusion is, as I think my noble friend Lady Kramer put it, at the very core of the requirements being placed on the sector and the regulator.
I am sure we will return to this issue on Report, so I very much hope that before then, we can all think long and hard about what would make a difference and would move the dial so that we have more improvements in this area. I also hope that before Report we might hear from the consumer panel, who the Minister referred to, to see what they think in these areas.
Finally, I was very taken by the comments from the noble Lord, Lord Pitt-Watson, that this Bill, apart from being a good piece of legislation, also needs to be a catalyst for a better industry. I am sure that is something that we can all agree on. I beg leave to withdraw the amendment.
Amendment 82 withdrawn.
Amendments 83 to 87 not moved.
Debate on whether Clause 17 should stand part of the Bill.
Baroness Scott of Needham Market
I remind the Committee that when a group is led by a clause stand part debate, after the noble Baroness, Lady Bowles, has spoken, there is no second intervention from me at that point.
Baroness Bowles of Berkhamsted
My Lords, oppose Clause 17 standing part of the Bill. Before turning to the detail, I will explain how Clauses 16, 17 and 18 fit together. They are not independent clauses. They operate as a single, interlocking structural package-an unholy trinity. Clause 16, which we have already debated, starts the move of day-to-day statutory principles out of operational decision-making and into a five-year strategy document. Clause 17 is the moment where it cuts. It removes the operational duty to apply the principles and the duty to explain how they have been applied. The principles remain in the abstract, but the visibility of their application disappears. Clause 18 then seals the trio by removing the remaining statutory mechanisms through which Parliament once saw how those principles were applied. I said in Committee last week that deregulation of regulators inherently increases the regulation of markets. A regulator’s default setting is caution, not proportionality. That is precisely why Nikhil Rathi asked Parliament for political cover to take on more risk, because he knows that the system will not shift itself. However, removing the operational “have regards” does not reduce that institutional caution. It simply removes the focus that keeps it directed at the right things. It removes accountability and removes Parliament from the role or possibility of providing support or cover with its eyes open, a direction of travel that Clause 18 then completes. The result is that...
My Lords, I have added my name to the Clause 17 stand part notice. As has been explained so clearly, the Government’s intention appears to be to put most of the consideration of the regulatory principles and “have regards” into the five-year strategy created by Clause 16. They believe that, having done that and thereby provided long-term clarity as to how those principles and “have regards” will be met at a strategic level, it is no longer necessary to apply them to the nitty-gritty of individual rule-making, which is why Clause 17 effectively removes them from that process. Rightly, the Government consider the secondary competitiveness and growth objective to be extremely important, so they have singled that one out for special treatment in Clause 20, and it alone must be reported on annually. That, at least, is to be welcomed but does have the somewhat odd effect of making the secondary objective more important than even the primary objectives, or any other principles which are not subject to specific reporting. As we have heard, there are very real problems with this overall approach in terms of the impact on the ability of Parliament to scrutinise the activities of the regulators, including the committees that have been established for that purpose. As the Minister is aware, the Financial Services Regulation Committee of this House, of which I and a number of others in this Grand Committee are members, has taken the unusual step of writing to the Minister to set out our...
My Lords, I want to follow on from the noble Lord, Lord Vaux, who commented that the committee was unanimous in its letter to the Minister. It was indeed: Conservative, Liberal Democrat, Labour and Cross-Bench Members were unanimous in rejecting Clause 17. The reason is that Clause 17 embodies the requirement to remove the principles from consideration by the committee. But those principles are the essential toolkit of the committee. This actually neuters the committee and leaves it just examining five-year strategies and annual reports, and without the ability to deal with specific proposals, which is the reason why the committee was established in the first place. By removing that ability, the Bill also weakens the regulators. I am sure there are regulators in some office who thought that that was a neat way of getting rid of a very awkward committee. But it weakens, because, as the noble Baroness, Lady Bowles, pointed out, of the need for political cover-the need for a relationship between the political decisions and regulatory decisions. At the moment there exists this “proposal, accountability, critique” relationship between the regulators and the Financial Services Regulation Committee of your Lordships’ House. Remove that and the regulators are exposed to significant issues in a way they would not have been before. I cannot see how in any way this measure improves a regulatory system that was built on the principles relationship established in FSMA at the beginning....
My Lords, I will speak very briefly on this. I declare my interests as employee adviser to Banco Santander in Madrid and a shareholder in Santander. I also apologise to noble Lords, as I was unable to speak at Second Reading. I will follow on from the noble Lord, Lord Eatwell. I think he and I may disagree on certain aspects of the regulatory and supervisory approach, but I fundamentally agree with every single syllable he has just said. I am very queasy about aspects of the Bill. Many of us spent some time in this Room several years ago trying to ensure that we can hold to account in Parliament, both in this House and the other place, the regulators and supervisors, who hold immense power. That was absolutely right. We put in place a number of measures, including the establishment of the new committee, so ably chaired by my noble friend Lady Noakes, to enable us to do that-just one measure. This clause goes very much in the wrong direction. I read the letter, for which I am very grateful, from the noble Lord, Lord Stockwood, and I have to say that I am somewhat perplexed by it. My wife says that I have a very little brain, so I very much look forward to the noble Lord telling me that I am wrong-I am very used to it. Let me try to understand what it is saying. It starts by saying-or, rather, several paragraphs in it says: “Considering separate rules in isolation is not effective for assessing the cumulative effect of the regulators’ actions-both the benefits in terms of...
My Lords, I will be brief because much of what needs to be said on this topic has already been said. I will not detain the Committee for long but, as I have added my name to the clause stand part notice, I thought that it was worth me reiterating my strong opposition to Clause 17. Picking up on what the noble Lord, Lord Eatwell, spoke about, in our debate on the first group, the Minister reiterated that the Government think that the FSMA model is the correct model. I do not think that any of us is seriously disputing that as a broad proposition. What we are focusing on is the detail of how the FSMA model can continue to work. When we left the EU, the huge amount of EU law that became assimilated law changed the name of the game around how financial services regulation is lived out in this country. As we have heard, the 2023 Act tried to deal with that in part by increasing parliamentary accountability through the committees of each House, including the requirement for individual rules proposed by the PRA or the FCA to be accompanied by explanations of how the regulatory principles had been applied. I do not think that any of us clearly understood the scale of the problem back in 2022, when we were considering the Bill, but we thought that these were sensible moves in the right direction. The only thing that has changed is that, now, the Government are coming along and putting even more into the FCA by way of the consumer credit legislation, which is a good idea. But this has...
My Lords, I am tempted to say, “What she said” and sit down, but I want to emphasise the unanimity of the Committee on this crucial issue. Some of us think that the FCA has too much to do anyway. Some of us-probably fewer-think that successive Governments have used the regulators as a heat shield and that perhaps the balance has gone the wrong way. Not to repeat the examples that have been given, the noble Baroness, Lady Kramer, mentioned the five-year strategic plan of the FCA. For some of us it was a glossy PR exercise. Examples have been given, naming and shaming. It took at least two meetings and several bits of correspondence before the FCA even hinted that it might have done it slightly differently had it given some consideration to what it did. In that case, you might argue that it was about a deregulatory issue, trying to hold companies to account. Our committee thought that it had gone too far. One final example is the issue of cost-benefit analysis, which the Minister used on the first day in Committee. We tried very hard to pin down how the FCA conducted cost-benefit analysis and what was happening to the panels. We heard that they were work in progress. Had the panels met? No, they had not met. What approach did the organisation have to analysing cost-benefit analysis? I am sorry that the noble Lord, Lord Sharkey, is not here as he is the expert on the granularity of analysing cost-benefit analysis. It was a poor show. I am sure that it is working to improve, as...
What she just said. As the final representative of the committee in this Committee, I agree with what the other members of the Financial Services Regulation Committee have said. It is important. I remember sitting across the Room some years ago when the idea was being discussed. It is worth recalling that the original idea was, I think, a Joint Committee of both Houses but, for whatever reason, the Commons decided that it did not want to adopt that approach. I think there are rules about criticising what the other House does, but there is no doubt that the only effective manifestation of the belief that this sort of work is required has been the work of that committee. It is particularly important that we do not lose something that we achieved through cross-party agreement.
My Lords, I declare an interest as chair of Norton Rose Fulbright. Some of my firm’s clients are regulated by the FCA and the PRA. I am not a member of the Financial Services Regulation Committee, which is why I am probably breaking what I have heard as unanimity by speaking in favour of Clause 17 remaining part of the Bill. I note that the current accountability framework, including the role of the committee, was created only three years ago, pursuant to the Financial Services and Markets Act 2023 following Brexit. Before that, we have to remember that we were content with what was probably pretty limited oversight by the European Parliament, so hearing about the importance of very detailed parliamentary oversight when it comes to looking at every proposal that the regulators might have is a relatively new innovation for us. I do not think it unreasonable for the Government now to consider how well that post-Brexit system has been working and to propose changes to a regime that the committee itself has criticised as overly complex and difficult to navigate. I note that the noble Baroness, Lady Noakes, commented at Second Reading how difficult it had been to hold the regulators to account under the current system. I am therefore curious about why noble Lords are keen to preserve a status quo that is far from ideal. There has been significant opposition to Clause 17 and concern about the effect it could have on parliamentary oversight, but I am not convinced that that...
My Lords, I did not intend to speak in this debate because the case has been put so well. However, having heard the noble Baroness, Lady Bi, I want to join the conversation because I think she has a very different perception of the role of Parliament from that of many others here. We have a responsibility as Parliament collectively-we are not the elected House but the appointed House-directly to the people of this country. The regulators are servants of that responsibility, not masters of it. What the noble Baroness described is the ability for Parliament to intervene only at the very highest level in a very limited way and to pass huge authority over the financial sector, our financial stability and the economy to the regulators and then walk away. If we were to do that, we would be absenting ourselves from the very requirements that are at the core of a parliamentary system. She dismissed the pretty five-year strategy plan that we have from the FCA for 2025 to 2030, but it is exactly what is envisaged in this legislation: fairly high-level, simplistic comments of the kind that were probably developed by the public relations department. The committee we put in place in 2023 was put in place not at the proposal of the Government or the regulators but by a Parliament utterly frustrated in not being able to carry out the responsibilities that it has as a Parliament. I have to say that the Labour Party was in a completely different place in 2023-it has now switched; I do not...
I am not sure that we disagree very much on what the purpose of Parliament is and its relationship with the people of Britain, but the FCA asked for a risk metric from Parliament and did not get one. I have heard a lot about the obligations to the people but, if Parliament is so crucial to what the regulators need to do, why was no guidance given to the regulators about the extent of risk they should take in their operations?
I am not on the committee, so I cannot answer that particular question-I am sure others would be able to consider this issue. However, if the noble Baroness thinks that, because Parliament did not, in her words, provide political cover for activity that the regulators wanted to carry out, Parliament should then be removed so that the regulators would somehow be exposed, who would they be exposed to? They would not be exposed to a committee. The public does not have the ability. I do not see the regulators going around the country talking to ordinary people in regular communities about what they are doing; they do not engage at that level. Many APPGs in this House have asked the regulators to come and talk to them. They are nearly always refused or somebody junior is sent, so it is only through a limited committee structure that this Parliament has been able to hold the regulators to account at all. I give huge credit to the committee that sits under the chairmanship of the noble Baroness, Lady Noakes, which was created against the resistance of the regulators and the Government. This, now, is their attempt to try to unravel what is turning out to be a very effective committee that is raising really important issues, creating a requirement for proper answers and initiating real investigation. That is what lies at the heart of this: an attempt to negate the effectiveness of a committee that has been making its mark, and which leaves the regulator feeling uncomfortable because...
I shall make a brief comment on why Parliament has not offered any guidance on risk metric. The committee was well aware that the FCA sought to get clarity about the risk appetite that it was taking. The PRA had not made that request; it regards it as its responsibility to judge the balance of risk. There is no unanimity in the regulator community on this, but we reported the issues as we found them in one of our reports. The noble Baroness asks why Parliament has not given its answer. The straightforward answer is that the Government have not brought forward anything. Parliament gives an answer only when it approves something that the Government bring forward. When we asked the Financial Secretary to the Treasury whether she intended to operationalise the giving of a more specific risk appetite to the FCA, she said pretty clearly that she thought that the Government would not do that. If the Government do not bring forward something for Parliament to approve, it is not going to happen. Parliament does not act in the way that the noble Baroness seemed to think that we would act, which is that a committee would somehow produce an answer on risk appetite. The committee can comment on the issue of risk appetite and has done so, but it is fundamentally for the Government to take any action that is to change the way in which the risk appetite is specified for any regulator.
My Lords, this is an important clause, and I understand why noble Lords wish to probe the Government’s approach to Clause 17. It is always right that we scrutinise carefully any change to the statutory framework governing our financial regulators, and the sponsors have set out their case well. I note that they were introduced into the 2023 Act for good reason: to try to ensure that financial regulation in the UK is proportionate, accountable, flexible and aligned with economic and market objectives. As I said earlier, I am glad that a meeting with the Financial Services Regulation Committee will take place next week. Certainly, I would like to get to the bottom of whether the change neuters the committee, as has been suggested by the noble Lord, Lord Eatwell, and my noble friend Lady Noakes; indeed, I think that committee was unanimous that there was a problem. I thought it was interesting that my noble friend Lord Bridges echoed concerns that key, case-by-case analysis by the committee would disappear, and that the noble Baroness, Lady Donaghy, expressed concern about the way that her questions about cost-benefit analysis had been answered, presumably under the existing system. These are all very legitimate questions, but there are other considerations-the noble Baroness, Lady Bi, touched on some of them. Our position is that we do not want to perpetuate overburdensome regulation. In discussions with industry, we have heard repeatedly that the regulatory principles in...
My Lords, it is clear that the Committee places a strong emphasis on getting the regulatory principles right. The Government also take this matter very seriously and genuinely value the contributions made in this debate. Before I start, it is important to remember that the regulators have both principles and objectives. The regulators need to advance these objectives-regulatory principles are something that they consider only when doing so-and the Bill does not change that. The noble Lord, Lord Vaux, asked me whether the regulators will be required to report on the long-term strategy. Clause 16(6) amends Schedule 1ZA to FSMA so that the FCA must explain, in its annual report, the extent to which it has implemented its long-term strategy. Clause 16(7) does the same for the PRA. The Government agree that the regulatory principles are an important part of the statutory framework. They are also aware that each of these principles has strong support, so, while there may be a view that some could be removed, there is no consensus on which ones it would be suitable to remove. This is why, when the Government reviewed the principles, they concluded that none of the individual principles should be removed from legislation. Instead, the Government concluded that the regulatory principles must continue to play a significant part and a central role in the work of the regulators through new long-term strategies. The regulators will be required to have regard to those principles when...
Clause 17 agreed.
Amendment 88
Moved by
88: After Clause 17, insert the following new Clause- “Treasury statement of concern(1) Where the Treasury considers that rules or guidance made by the Financial Conduct Authority or the Prudential Regulation Authority are inconsistent with primary legislation or statutory objectives, the Treasury may publish a statement of concern.(2) Where a statement of concern is published under subsection (1), the Financial Conduct Authority or the Prudential Regulation Authority must, within 60 days, publish a response explaining-(a) whether it agrees with the concern, and(b) what action it proposes to take.(3) The Treasury must lay before Parliament any statement of concern published under this section, together with any response received from the Financial Conduct Authority or the Prudential Regulation Authority.”Member’s explanatory statement This new Clause would enable the Treasury to publish a statement of concern where regulator rules or guidance appear inconsistent with primary legislation or statutory objectives, requiring a published response and Parliamentary transparency.
Baroness Bowles of Berkhamsted
In a way, it is a pity that I tabled this amendment, because it would probably be a whole lot more informative for us to go straight on to Clause 18. However, Amendment 88 would introduce a new mechanism that was suggested to me: a formal Treasury statement of concern. The idea is that it would fill a gap that has always existed-one that becomes all the more glaring alongside the opacity created by the Bill. The FSMA 2000 settlement imagined a world in which Ministers were hands off and regulators were left to get on with it. That world has long gone. The Government are now highly interventionist in the name of growth. More generally, they signal priorities, express expectations and raise concerns, but almost all of that happens privately or through speeches and press releases that are approximate and not subject to parliamentary scrutiny. My amendment would formally put the record straight. If the Treasury considers that “rules or guidance … are inconsistent with primary legislation or statutory objectives, the Treasury may publish a statement of concern” and the regulators must respond publicly within 60 days. That is all. It is not a direction, and it is not interference; it is a constitutional signalling mechanism. It would simply show that the Government have taken action on a concern, which otherwise might be unknown. The Government may say that they do not wish for such a mechanism-they do not have to use it-but legislation is not written for the preferences of a...
My Lords, I will speak briefly in support of Amendment 88 in the name of the noble Baroness, Lady Bowles. It would be a useful addition to FSMA to have a specific power for the Treasury to issue a statement of concern; I particularly like the fact that it could be used without the full parliamentary process of regulations. As the noble Baroness may recall, when we debated the then Bill in 2023, the Treasury took a power to tell regulators to make rules. However, that power has to be exercised via regulation, so it needs to go through the whole statutory instrument procedure. It has not yet been used, as far as I am aware, but it is a useful backstop that the Treasury has if it wants to direct the work of the regulators, which is a perfectly reasonable thing for it to do in certain important areas. The existence of the Treasury’s ability to issue a statement of concern would be particularly useful when interested parties were trying to get a point about things that were not working heard by the regulators. The ability to engage the Treasury in that would be very helpful, although I am sure that it would be used more as a background factor in the relationship than as an active part of the Treasury’s relationship with the regulators. I applaud the noble Baroness on her ingenuity in bringing this amendment forward.
My Lords, I am grateful to the noble Baroness, Lady Bowles, for bringing forward these amendments. They raise two very salient points about the accountability of the financial regulators and the mechanisms by which Parliament, the Treasury and the public can scrutinise how those regulators use their powers. One of the core functions of the Bill is to increase the power and scope of the remit of the regulators, in particular the FCA. Across the Bill, more responsibility is being transferred, more detail is being left to rules and more of the practical operation of the regime will depend on regulatory judgment, rather than primary legislation. My concern is that although the Bill increases the power of the regulators, it does not always provide a corresponding increase in oversight or scrutiny of them; as an ex-Treasury Minister, I am slightly surprised that the Treasury is entirely happy with that. To me, Amendment 88 seems a sensible and proportionate form of challenge. It would create a formal and transparent way for the Treasury to say that, in effect, a regulator may have gone beyond what Parliament intended or may have acted in a way that is not consistent with its statutory remit. This matters because the Treasury is directly accountable to Parliament in a way that independent regulators are not. If regulators are to exercise substantial powers delegated by Parliament, there must be some meaningful mechanism by which Ministers can challenge, explain and account for how...
My Lords, the accountability of our financial regulators is a serious matter, and Parliament rightly takes a close interest in how the FCA and PRA exercise their powers. We have extensively discussed the FSMA model of regulation today. It is the foundation of a system of regulation under which Parliament sets the regulators’ objectives, invests them with the powers that they need to further those objectives and sets out a clear system of governance and accountability under which the regulators are required to account for their actions and effectiveness in furthering the objectives that Parliament has set for them. As I said before, the Government remain of the view that this is the most appropriate and effective model of regulation available. It has served us well and is internationally respected. The difficulty with this amendment, therefore, is that it would cut across the foundational principle of our regulatory architecture. The FCA and PRA are operationally independent bodies. That independence is not incidental; it is the source of their authority and credibility and, ultimately, their value to the consumers and markets they serve. Under the FSMA model, it is the responsibility of the regulators to interpret their statutory objectives. It is not the role of HM Treasury to do so. This amendment would, over time, erode precisely the independence that makes those regulators effective. Markets, firms and consumers need to know that regulatory decisions are made on the...
Baroness Bowles of Berkhamsted
My Lords, I still think that there is a missing link here, but I heard what the Minister said and it is what I was expecting: the Government are frightened that this would look as if they were going to undermine independence in some way. I fully understand that. There are other regulatory interventions that Ministers make with other regulators, so it is not an entirely off-the-wall idea. It certainly was not meant to be part of the routine kind of application of day-to-day accountability. A “very rare or never” kind of application is what was envisaged, but we have given it an airing. It is not going anywhere. With that, I beg leave to withdraw the amendment.
Amendment 88 withdrawn.
Clause 18: FCA and PRA reporting and consultation requirements
Amendment 89
Moved by
89: Clause 18, page 22, line 32, leave out subsections (2) and (3) Member’s explanatory statement This amendment, together with another in the name of Baroness Noakes, ensures that the FCA and the PRA continue to give guidance about how they intend to advance their objectives.
My Lords, we now come on to a bit of a ragbag group of amendments, which I should probably have split into more than one group. In moving Amendment 89, I shall also speak to Amendments 92, 93, 94, 96 and 98. I will start with the FCA’s guidance. At present, the FCA has a power under Section 139A of FSMA to give guidance on, for example, the operation of specific parts of FSMA or its rules. Section 1K says that the guidance must-that is, must- “include guidance about how it intends to advance its operational objectives … in relation to different categories of authorised person or regulated activity”, and, inter alia, it has to consult on that guidance. What does this Bill do? Predictably, it eviscerates the provisions. Clause 18(2) removes Section 1K from FSMA, and Clause 18(8) takes all the substance out of Section 139A. This is part of the insidious pattern of this Bill, removing information that regulated persons might find useful-removing guidance about how a regulator would advance its objectives-and removing the requirement to consult on what is left of Section 139A. This is a Bill solely for the regulators’ convenience, regardless of the needs of those subject to regulation. Similarly, Section 2L of FSMA currently requires the PRA to consult those it regulates about how its general policies and practices are consistent with its general duties, and Clause 18(3) removes this. My Amendments 89 and 92 would remove these retrograde provisions from the Bill. Amendments 96...
My Lords, before we continue the debate, we have started group 6 and we have one more complete group to do. We are going to finish at 8.45 pm and I would hate to think that we would finish mid-group, but I am in your Lordships’ hands as to whether we do that.
Baroness Bowles of Berkhamsted
My Lords, this is the third of the trio. Clause 18 is a deletion clause, the final clause in the trio that removes consideration of the regulatory principles from the context of actual rule-making. It strips out the guidance duties, reporting duties and consultation hooks that once gave Parliament visibility into how the regulators applied their objectives and principles. Let us look at what is being systematically dismantled here. There is some overlap here with some of the things that the noble Baroness, Lady Noakes, has addressed. Clauses 18(1) and (2) delete the FCA’s and PRA’s guidance about their objectives-the very provisions which, as the Explanatory Notes admit, required the regulators to explain how they advanced those objectives. It is not a question that they still have to explain now; that has gone. Clauses 18(3) and (4) remove the explanations required on directions on consolidated supervision and authorised decisions. Clause 18(7) removes the FCA’s obligation to notify, consult or explain when issuing guidance relating to its objectives. Clauses 18(9) and (10) delete large parts of the FCA’s and PRA’s annual reporting requirements, one of the most sensible and accessible ways for Parliament to understand how objectives were dealt with in practice and would ideally be built upon. Clauses 18(12) to (14) remove linkages to other Acts of Parliament, including the auditor engagement duties that once provided an additional source of supervisory insight. What is...
My Lords, I will speak to Amendments 93 and 94. I have not audited a bank or sat on a bank board, but I was a member of the Sharman committee that looked at the problems with auditing following the global financial crisis. I sat on the board of one of the big four auditors, chairing its public interest committee, and I talked to a number of partners who audited the banks. I think that we agree that audit is absolutely a foundation stone for the integrity of the capital markets. For those who are interested, it was part of the settlement following the collapse of the City of Glasgow Bank in 1878 that we would have audits of limited liability banks. It is particularly critical where entities are highly geared or where there is a considerable element of judgment in determining their value. If we look at the banks, they are hugely geared. People like to talk about the common equity tier 1 ratio, but if we look at the gearing that most companies use, it is the equity versus the liabilities. For a typical bank, equity is about 6%: on the back of that, you can borrow £94 and lend £100. That means that, if you have overvalued your assets by 3% and undervalued your liabilities by 3%, you end up with no equity whatever. This is a really sensitive calculation and, historically, it would have been made with a degree of prudence and conservatism. Prudence and conservatism have now gone as guiding principles, and valuations are done neutrally. For example, this would allow a bank to...
My Lords, we are sympathetic to the concerns raised by noble Lords across this group. I was glad to add my name to several amendments tabled by my noble friend Lady Noakes. I entirely agree with her and with the noble Lord, Lord Vaux, that the role of the relatively new and very effective Lords Financial Services Regulation Committee should be added to the 2023 Act. We are lucky to have such an assembly of experts and effective questioners, as well as Lords clerks, to help with the enormous task of scrutiny in the financial services sector. We have just been discussing the accountability of the regulators, the importance of scrutiny and the need to ensure that the FCA and PRA exercise their considerable powers in a way that is transparent, proportionate and properly justified. This group raises those same issues in the more specific context of guidance, consultation, cost-benefit analysis and the way regulators explain the impact of what they do. I look forward to the Minister’s response to the noble Baroness, Lady Bowles. Our Amendment 90 asks a serious question about cost determination. The cost-benefit analysis panels within the regulators are an existing mechanism of accountability. They are designed to provide scrutiny of the costs and benefits of regulatory proposals and to help ensure that regulators properly consider the burden that their rules impose. But there is a significant limitation. As I understand it, the cost-benefit analysis panels are engaged only where...
My Lords, I begin by explaining the Government’s purpose behind Clause 18 and why it should stand part of the Bill. Over time many reporting and procedural requirements have been placed on the FCA and the PRA, increasing burdens, introducing duplication and in some cases complicating oversight, scrutiny and accountability. There is broad agreement that this dynamic is true for firms subject to regulation. I ask noble Lords to reflect on whether it might also be true for the regulators and on whether that is slowing them down and ultimately having a negative impact on firms and consumers. These burdens are not without consequences. The regulators must follow the letter of these requirements, diverting time and resources away from other work. Ultimately the cost of that work is passed on to firms through the levy they pay and through their engagement with the asks of the regulator. The Government’s view is that there is scope to rationalise parts of this approach to enhance the effect of scrutiny and to help regulators become more agile and ultimately better support innovation and growth. The Government sought feedback on which regulator publications stakeholders found most useful and then worked closely with the regulators to consider this feedback and further assess the range of requirements placed on them. Feedback to the regulatory environment consultation indicated very low engagement with certain types of regulator publications, and the regulators’ data confirms this. In...
Before the Minister moves on, can I just press him on the evidence of stakeholders that has been relied upon to sweep away so much stuff in Clause 18? Did the stakeholders specifically say they were not interested in guidance that was issued by the regulators or in the consultation on that guidance?
Unfortunately, the precise question was not asked in the consultation.
So on what basis are the Government making the decision to remove the requirement under FSMA to issue the guidance, and obviously, therefore, to consult on it?
I will have to come back to the noble Baroness. The broader requirement is that we are trying to streamline the process to take the regulatory burdens away. We recognise that we need to give a precise answer on that.
Baroness Bowles of Berkhamsted
The Minister mentioned taking away regulatory burdens, but the Government are actually taking away regulator burdens. They are not the same thing.
They are not the same thing. The approach we are trying to take is to streamline duplication while not in any way detracting from the overall process. That is the principle we are trying to follow here. Amendment 89 would preserve the statutory requirements on the FCA and the PRA to give guidance about how they intend to advance their objectives. This requirement was introduced by the Financial Services Act 2012, and since it came into force, both the FCA and the PRA have published guidance fulfilling this requirement, which is updated when necessary. For example, most recently the PRA updated this approach to policy statements in February 2025. Removing these statutory requirements will not prevent the regulators giving such guidance where they consider it beneficial to do so. These requirements would also be duplicative with the new long-term strategies, which will set out the regulators’ approach and priorities for advancing their objectives, as well as other statutory publications, such as the regulators’ annual reports.
Is the Minister suggesting that, in dealing with the long-term strategy, there will be the same level of detail as is normally provided in guidance? I am somewhat confused when he explains that one is a substitute for the other.
Could you repeat the question?
If I understood the Minister correctly-do correct me if I am wrong-the FCA or the PRA will have the opportunity to provide guidance if they deem it necessary. But if they choose not to, that should not be worrying, because the equivalent statement will occur either in the five-year strategy or in a report on how the FCA is achieving its five-year strategy. Is he suggesting that that will be at the same level of detail as the guidance that is required today? That is what I am trying to understand.
I believe that they still have to publish the full guidance, but let me come back with a written response on that. Turning to Amendments 90 and 92, the Government recognise the impact that changes in rules and guidance can have on firms, particularly smaller firms and regulated persons trying to understand what is expected of them. The government reforms are intended to avoid imposing full consultation and cost-benefit analysis requirements where proposals are genuinely minor or low impact, while preserving the wider consultation framework for substantive changes. Minor changes to rules include corrections, clarifications or minor technical updates, and it will be for the regulators themselves to determine whether a rule change meets this definition, as they are best placed to assess the impact of such changes. For example, last year, the FCA consulted on reducing late filing charges from £250 to £100. Under this provision, the FCA would not be obliged to consult and could make these changes faster.
What if the change had been in the other direction and had added an additional £100 pounds? Would the FCA have been in a position to decide that that was not material for consultation?
I think there is a broad principle: we are trying to give the FCA the power to make those small changes in both directions.
Where does that power begin and end? I can understand it when we are talking about hundreds of pounds; I am not sure I understand how much flexibility is now being given to the regulators to do things. We can probably recognise, at one end of the spectrum, something that is very significant, but who is the arbiter of what is so unimportant that it does not have to be consulted on? The regulator. Are the regulators the right people to make that decision? No, they are not, because they are not the people affected by the change.
Our overarching principle is that we are trying to show trust in the regulators while recognising the significant feedback from the debate today. We are hoping that minor changes will be in their gift and their expertise. I will come back to my notes here. The measure is about giving the regulators the flexibility to gather industry input in more efficient ways. It is not about bypassing industry, but rather about recognising that the industry’s time is valuable and should be focused on engaging with consultations that genuinely have impact. Other channels, such as round tables with firms, supervisor interactions, meeting with trade bodies and engagement with statutory panels, can provide a more efficient route to understand industry’s issues on what are minor or technical changes. The Government’s view is that retaining these specific requirements in all cases would preserve unnecessary process, even where it adds little value in practice, and that the Bill preserves consultation requirements in most cases and where there is genuine value for the sector, as well as regulatory oversight. Amendments 93 and 94 seek to remove all requirements on the PRA to meet the auditors or PRA-authorised persons. As the noble Baroness, Lady Noakes, noted, the Bill removes the requirement for the FCA to meet at least once a year with the auditor of any PRA-authorised firm that has been designated as important to the stability of the UK financial system. Requiring both the FCA and the PRA to...
Turning now to Amendments 96 and 98, the Financial Services Regulation Committee plays an important role in scrutinising the financial services regulators and holding them to account. The Government recognise this and thanks the committee for its work. However, the existing references in Schedules 1ZA and 1ZB already operate effectively and are clearly capable of covering the Financial Services Regulation Committee. In other words, there is no legal gap here that requires correction for the scrutiny framework to function. I note that a comparison has been drawn with more recent legislation, but the fact that express drafting was used in a later Act after the committee had been established does not mean that the current provisions are defective or unworkable in FSMA. For those reasons, the Government do not think these amendments are necessary.
I hope that I have reassured noble Lords about the importance the Government place on accountability, transparency and Parliament’s access to useful information. The Government’s view is that these amendments or the removal of Clause 18 would not improve the Bill. Clause 18 removes the targeted subset of lower value requirements while preserving the broader transparency framework and complementing the new report in a strategic accountability measure elsewhere in the Bill. In the interests of time, I will respond in writing to the five questions from the noble Baroness, Lady Neville-Rolfe, and I therefore ask the noble Baroness to withdraw her amendment.
My Lords, I thank all noble Lords who have taken part in this debate. Clause 18, guidance, consultation and whether regulators can be trusted is unfinished business as far as this Committee is concerned. I look forward to getting the answers on questions that have been put, but my instinct is that the Government’s approach is going too far in favour of letting the regulators determine what their interactions will be with the regulated community. On the one hand, there are independent regulators which need forms of oversight, and this Bill is just chipping away all the time at those points at which there can be some interaction between those charged with the oversight of them. By constantly removing these points at which there can be some intervention, we end up with a weaker situation overall. I will need to think very carefully about what we do about Clause 18 in general when we get to Report. I think it is part of the issues that we have been developing. Clauses 16, 17 and 18 are all part of one picture that we need a more satisfactory answer to. Turning to the auditors. I was not trying to stop auditor meetings-
I mentioned at the beginning of this afternoon that when an amendment is being pressed, noble Lords have to be short. The withdrawal of amendments is starting to take longer and longer, which eats into the time for the other groups.
I hear what the noble Lord has said. I think it is important that we have the opportunity to comment before withdrawing amendments. It is not simply a case of getting up and saying, “I withdraw”.
I just say to the noble Baroness that it is clear in paragraph 8.82 of the Companion that noble Lords should “be brief and need not respond to all the points made during the debate”.
My Lords, I had no intention of responding to all points made in the debate. There are a number of different amendments in this group. They could have been degrouped into four or five separate groups, and we could have had a short winding-up on each one of them. We have effectively four groups here, so we are going to be talking about all of them. On auditors, I was not trying to suggest that auditor meetings should not take place: of course, there is value in those meetings, which have taken place for decades. They were not invented when FSMA was being drafted; they were already part of the thing. The amendments are not that important; I was simply trying to give the PRA the same flexibility that the FCA has. On the nomenclature in the Act and the Financial Services Regulation Committee, I give notice that I will return to that matter in Committee. My committee will think that it is important that, now that it exists, it is reflected in statute. I beg leave to withdraw my amendment.
Amendment 89 withdrawn.
Amendments 90 to 98 not moved.
Clause 18 agreed.
Clause 19 agreed.
Amendment 99
Moved by
99: After Clause 19, insert the following new Clause- “FCA and PRA secondary competitiveness and growth objectivesThe Financial Services and Markets Act 2000 is amended as follows-(a) in section 1EB (competitiveness and growth objective) for “aligning with” substitute “consideration of”;(b) in section 2H (secondary objectives and duty to have regard to regulatory principles) for “aligning with” substitute “consideration of”.”Member’s explanatory statement This amendment modifies the secondary competitiveness and growth objectives of the FCA and the PRA by requiring international standards to be considered rather than aligned with.
My Lords, I will speak also to Amendments 100 and 102 in this group. I thank my noble friend Lady Neville-Rolfe for adding her name to Amendments 99 and 102, and I thank the noble Lord, Lord Vaux of Harrowden, for adding his name to Amendments 99 and 100. My noble friend Lord Hunt of Wirral is unable to be with us today, as he is on our Front Bench in the Chamber dealing with the Steel Industry (Nationalisation) Bill, so I shall also speak briefly to his Amendment 101. Amendment 99 concerns the secondary competitiveness and growth objective, which applies to both the FCA and the PRA. When it was introduced in the 2023 Act, it was no secret that the regulators were less than enthusiastic. Our regulators have always been heavily involved with the international financial institution community. They often act as chairmen, as is currently the case with the Governor of the Bank of England and the Financial Stability Board. They are members of as many committees as they can get on, and they are completely embedded in the international standards infrastructure. It was unsurprising, therefore, when they managed to convince the Treasury that it should make the secondary competitive and growth objective subject to alignment with international standards. During the passage of the 2023 Act, I tried to get this watered down, because I had a real concern that the PRA and the FCA would hide behind international standards when making rules, in a way that does not optimise UK competitiveness...
I am afraid that the noble Lord, Lord Hunt of Wirral, was not here at the start as he came into the Room two minutes late, so the noble Baroness may go ahead.
I thank the noble Lord for telling me about my noble friend’s disqualification from speaking; I will now speak to his Amendment 101. I find that it would be a useful addition to Clause 20, by imposing some modest requirements such as making the reports comparable with previous reports and covering things such as the cumulative cost of regulation and an explanation of how proportionality has been applied, including for SMEs. I do not think that any part of this amendment should be controversial, and I hope that the Minister will be able to accept it.
I thank my noble friend.
My last amendment in this group, Amendment 102, is also about the secondary competitiveness and growth objective, but, this time, for the Financial Market Infrastructure Committee of the Bank of England. The FMIC was set up with a secondary innovation objective, and there is clearly a link between innovation and growth and competitiveness-but they are not synonymous. I am not sure why the FMIC was set up with innovation objectives rather than full competitiveness and growth objectives, and I do not recall a substantive debate on that during the passage of the 2023 Act.
Again, the work of the Financial Services Regulation Committee has highlighted the disparity between the Bank of England and the FCA. We recently concluded our report on stablecoins. The regulation of stablecoins is split between the Bank and the FCA, with the FCA regulating both prudentially and for conduct for all stablecoins other than those designated as systemic by the Treasury. Once a stablecoin has been designated as systemic, prudential regulation shifts to the Bank and the FCA confines itself to conduct regulations.
Stablecoins are an example of how the financial services world is rapidly reshaping itself. Regulation clearly needs to ensure that these new services operate safely in all dimensions but also in a way that allows the financial services sector to maximise its commercial potential. Our system of regulation clearly has to support the competitiveness of the UK in this new digital world. I do not think that it is sensible for the biggest players, which are likely to be designated as systemic, to be regulated primarily by the Bank of England, which does not have a secondary competitiveness and growth objective, but for the smaller players to be regulated by the FCA, which does. That is what my Amendment 102 seeks to change.
I beg to move.
My Lords, I agree with all the amendments to which my noble friend Lady Noakes just spoke, but Amendment 99 merits attention. I will speak to it very briefly, as I get a sense that everyone is wanting to get out of this lovely Room to eat something. This amendment asks an interesting question; perhaps the Minister can answer it when he winds up. I am interested in what is more important. Is it the alignment with global international standards, or is it the competitiveness and growth objective? When one is thinking about these international standards, do we think that it is more important to align with those standards than it is to improve the competitiveness and growth of the financial services sector? I ask this as a genuine question. I can see an argument for saying that alignment with international standards adds to competitiveness and growth, but, if we believe that those international standards undermine growth, what is more important? I ask that because-once again, I draw your Lordships’ attention to my entry in the register-every day, I am seeing, as my noble friend Lady Noakes alluded to, the fragmenting of international standards. Noble Lords may take very different views on that, but it is undeniably the case that the overall approach of the large financial sectors to adhering to those standards, if they ever really existed, is now under enormous pressure. Therefore, if we want to retain the competitiveness of the City and its contribution to the growth of this...
Baroness Bennett of Manor Castle
My Lords, I rise briefly to speak against all of these amendments, but the noble Lord, Lord Bridges, has asked an interesting question here: are we making this legislation for the City or for the country? My question to the Minister, therefore, is: does aligning with international standards mean that we can actually set higher standards? That is certainly what I would like us to do in terms of money laundering and the other issues that I raised earlier, but I think that the assumption in this amendment is that we might set lower standards. One of the things that aligning with international standards would do is improve our international standing in this uncertain geopolitical age. Undercutting standards would be severely damaging to our international standing in the world. That is a much broader question than just the City. I will cover all these amendments collectively. It is no secret that throughout all the previous financial services Bills I have worked on, I have opposed competitiveness and growth objectives. I am sure the noble Lord, Lord Vaux, will be delighted to know that it was his earlier contribution to the clause stand part debate that helped me to see clearly that what we are doing here is singling out the growth and competitiveness objectives from everything else. One of the ways in which noble Lords tried to deal with that in earlier groups was by adding crucial issues such as climate. The other way of approaching the problem, which I may well be tempted to...
My Lords, we have come to the end of the time available for Grand Committee today. Although it is unusual, I beg to move that the debate on this amendment be adjourned. We will return to this debate on the next day in Committee. Only those noble Lords present at the start of this group can speak when the group resumes. I have asked the clerk to circulate a list of those present in the usual channels.
Debate on Amendment 99 adjourned.
Committee adjourned at 8.37 pm.