Financial Services and Markets Bill [HL]
House of Lords · Grand Committee · 8 Jul 2026 · 187 speeches · Official Report
Committee (6th Day)
Northern Ireland and Scottish legislative consent sought. Relevant document: 2nd Report from the Delegated Powers Committee .
Clause 39: Excluded activities and prohibitions: powers of PRA
Debate on whether Clause 39 should stand part of the Bill.
My Lords, our amendments in this group concern the future of the bank ring-fencing regime. I will start by setting out clearly the position that we have reached as the Official Opposition. Through our diagnostic work, we have found a consensus that the bank ring-fencing regime is no longer fit for purpose. It adds costs to banks and their customers and it has been superseded by other rules since its introduction. A regulatory regime should not be preserved simply because it exists. It must continue to justify itself against present-day risks, tools and costs. In our view, the ring-fencing regime no longer does so. The next Conservative Government would repeal the post-global financial crisis ring-fencing regime, bringing the United Kingdom more closely into line with other international jurisdictions. Amendment 160A reflects that policy. It is worth reminding ourselves what ring-fencing is. The regime was created through the Financial Services (Banking Reform) Act 2013, which amended FSMA 2000. The implementing regulations and orders came into effect in 2019, more than 10 years after the onset of the global financial crisis. At its core, ring-fencing is the structural separation of certain retail banking activities from activities normally conducted by international wholesale investment banks. In practice, that means a separate legal entity, with restrictions on what it can do and how it can interact with the rest of the banking group. Retail and small business...
My Lords, if I may respond to that, I had thought until recently that what we were debating was a response to the Skeoch commission established by the last Government, but we have new amendments now, it seems-Amendment 160A and the abandonment of clauses-that are really throwing ring-fencing out. I guess that they are tabled in response to a speech by the leader of the Conservative Party, Kemi Badenoch-a speech underpinned by a policy document from her party. That speech, the policy document and this amendment are not asking to think things through further from the Skeoch report: they have made their minds up. Kemi Badenoch announced that a future Conservative Government will end ring-fencing-definitive end of discussion. That, I believe, would be a bad idea. So did the review by Keith Skeoch, who was commissioned by the Conservative Government to opine on this and whose recommendations we are now trying to take forward. Worse still, the evidence for Mrs Badenoch’s statement is based on really questionable claims, numbers and Mickey Mouse logic. For example, the claim was that the Skeoch report reckoned that the cost of ring-fencing was £1.5 billion. In fact, the report notes that that figure was presented to the review and that “it has not been possible to draw a strong conclusion based on aggregating these costs”. The report recognises that there are some costs to ring-fencing, but notes that that was expected and acknowledged by the Independent Commission on Banking,...
In Committee, it is normal to address the amendments and not opposition parties’ policy documents.
The amendment has been put to us at the last minute. The points that it relates to have been there for weeks, indeed months, but I would argue that what has triggered the amendment is the speech by the leader of the Conservative Party and the policy document that underpins it. If the noble Baroness thinks, like me, that the policy document is lacking, I would be pleased to hear it because, as she knows, it would abolish the FOS and seek to mandate regulatory changes that come close to invading the independence of the regulator.
There is no balanced discussion about why these rules are there in the first place. My noble friend Lord Davies reminded us of Chesterton’s fence: do you remember why that rule was put there in the first place? I went back to what Mervyn King-the noble Lord, Lord King -said after the global financial crisis:
“don’t try to pretend that regulators can ever be so clever as to stop banks from taking risks that will one day be serious, but try to make sure that if those risks do occur, that the system has firebreaks and firewalls within it so that the parts of the system that you really, really care about and cannot afford to go under - the payment system [and] retail deposits - are completely separated from the things that could go wrong”.
That is why that fence was put there. If we are going to remove it, we need a reason and we need to address the dangers that the noble Lord, Lord King, set out. Those dangers were also summarised by Sir Martin Taylor, the former chief executive of Barclays Bank. He said:
“The investment banking activities of a universal bank were at all times parasitic on the retail bank balance sheet. I used that word carefully”.
That is Chesterton’s fence, but the paper contains no consideration of the real experience of savers and businesses or thought about taxpayers and citizens who now stand behind the financial services industry, behind the ring fence.
To return to the Bill, it should help to lay the foundation for a finance industry that can effectively fulfil its proper purposes to the world. I think that we all agree on that. Although we may not agree on everything, I hope that, as we move forward to Report, we will be using the considerable expertise of your Lordships’ House to get this Bill right, not relitigating on Report the unfortunate policy document published last month.
I shall say one final thing before I finish that I hope we will all agree on. The papers from this document make it sound like the finance industry and the City of London are synonymous, except for what looks like a late edit, which tells the reader that the many references to the City of London mean other places, too. Perhaps in the new spirit of devolution, all parties could note that two-thirds of employment in finance is outside London. It is in Edinburgh, Glasgow, Manchester and Leeds. It is everywhere-the cash point, the local bank manager or the call centre. When we think and publish about the purpose of the industry, we need also to think and acknowledge that it is based in the whole of the country and that it is there to serve the whole country.
I rise to speak to the Motion that Clause 40 does not stand part. As I explained at Second Reading, I have no professional knowledge of the banking industry but, because of circumstances, for more than 14 years I have been in this Room talking about the finance industry and doing my best to pretend to understand at least bits of it. The one thing that I think I bring to this Bill is my long experience of concern about problems of little likelihood, even small likelihood, but with catastrophic results if the risks mature. It is on that theme that I am concerned that we are creating risks. In 2008 we had the crisis. It is now 18 years ago, just long enough for most people to have forgotten it. We had the Vickers review, which we all felt was pretty good, and after that came ring-fencing, and we convinced ourselves that this would solve most of the problems. There were some other things as well. There was the splendid clause that vested criminal responsibility on the boss of a subordinate who committed some criminal offence. Clearly this was too uncomfortable for the City, so it was changed. I led the opposition to the change and failed with a 200-vote tie. Because we were the Opposition not the Government, we failed. The preparation for my consideration of this ring-fencing issue caused me to read through a lot of stuff. I came to the conclusion that the ring-fencing was not nearly as effective as we had felt it would be at the time, but, in a sense, I was reluctant to be...
I support Amendment 160A. I want to start by briefly addressing a couple of issues raised by the noble Lord, Lord Pitt-Watson. Most importantly, I want briefly to quote the conclusions of the Skeoch report. The panel judges that the ring-fence “is worth retaining at present” but adds a number of considerations: “The Panel recognises that the regime’s benefit will likely diminish with time, especially as the resolution regime-designed to ensure the continuation of all critical functions … -is embedded. This is because … UK authorities become comfortable with the viability of the large banking groups’ restructuring capabilities”. I mention this only because the impression was given-
I did indeed talk to senior members of the Skeoch commission before writing my speech, and what I said is completely consistent with the conclusions of the Skeoch commission, which was set up by the previous Conservative Government, as I said.
I am just reading the conclusions from the report, my Lords. They make it very clear that the continuation of ring-fencing made sense at the time the report was written, but the commission clearly envisaged that it might not be needed over the passage of time. I also remind noble Lords that Glass-Steagall was abolished some 25 years ago with no detriment to the American banking system. I say this just to make the point that it is not so obvious.
I find it difficult to believe that someone has told me that the withdrawal of Glass-Steagall, which took place 13 years before the global financial crisis, had no detriment to the American banking system. As I say, I have read the Skeoch report and discussed it with senior members of Skeoch, and I believe that what I said is entirely consistent with the recommendations that they made to the Government and this House, which is recognised in the Bill.
I also draw attention to the abolition of FOS, which the noble Lord mentioned. I draw the Committee’s attention to Amendment 172A, which discusses the changes proposed to FOS. It is to be abolished and replaced with something called the financial adjudication service, which is a broadly similar methodology to give redress to consumers and private clients, in the event of problems with the firms that serve them. While it is a change, it is a reform to FOS with an organisation with a different name, but it is not a straightforward abolition of that very important process. This will be dealt with in that later amendment-not in my name, I might add. Governments, like some businesses, are very good at locking the stable door after the horse has bolted. Our reaction to 2008 was an example of just that. But we are now 18 years on and the banking sector has been solid during that time. However, as we know, growth has flatlined, despite many years of ultra-low interest rates. I am not suggesting that we are an exception here; there has been a similar experience across most of Europe. But we now have a substantial cost of capital for business to bear, with interest rates stuck at 3.75% and sadly not much prospect of a reduction in the near term.
As the Minister understands very well, given his business background, growth will be generated largely through business and, in order to grow, a degree of calibrated risk-taking is essential. I am sure noble Lords would agree with me that we have become a deeply risk-averse society. I recognise that reversing measures that are supposed to reduce risk can be very challenging, but I believe that the Government are missing an opportunity to go further than the measures in this Bill and take more decisive action. The loosening of capital requirements and the ending of the ring-fencing regime could help to kick-start the freedoms that banks need to start lending more to SMEs and others, and this would encourage the sort of business expansion that we all seek.
On the specific question of ring-fencing, the Skeoch review estimated that abolition of the regime would significantly reduce the cost and structural constraints on banks. Four years on, with the resolution regime considerably more mature, we are entitled to ask whether the shelf life of the ring-fencing regime has now expired. The Bill’s impact assessment separately estimates £1.1 billion in admin savings, with a further £550 million in ancillary benefits-some £1.65 billion in total-from the measures already in the Bill. On the Skeoch estimate, which I understand is disputed, abolishing ring-fencing outright would roughly double that figure, while also unlocking incremental lending capacity in the economy. This is not a marginal saving. A report from PwC and TheCityUK estimated the annual regulatory compliance costs for the financial sector at around £34 billion. The combined savings would amount to some 10%, which is an opportunity.
What does ring-fencing really achieve today? We already maintain separate regulation for retail and wholesale banking in any event, without that distinction being enshrined in law. We have separate legal entities, extremely strong cash rules and a retail sector protected by several thousand pages of regulation governing the banking sector. Ending ring-fencing would not change the actual risk that this country is running but would create new freedoms for banks that would remove some structural constraints. The exposure remains, wherever it sits, but this would save the sector an amount potentially in the region of £1.5 billion. It may lead to less business migrating to private credit funds, which, as we know, are themselves partly financed by our own banks. It would remove one more artefact of a regime whose usefulness erodes with every year that passes.
Reform has become hard to distinguish from managed abolition, so I urge the Government to use this opportunity to materially simplify the rules, reduce unnecessary expense and not tinker with the ring-fencing rules but just abolish them.
My Lords, I have some experience of ring-fencing as, in my capacity as the chairman of the risk committee of a major bank, I oversaw the implementation of ring-fencing. At that time, it was a significant risk to the bank that we would not be in compliance with the ring-fencing legislation and therefore this required considerable oversight. I am clear that ring-fencing has been a very expensive element of the post-financial crisis reforms. The Skeoch report, which has been referred to, put the upfront cost at £2.9 billion and the ongoing cost at £1.5 billion, which amounts to about £14 billion to date. The noble Lord, Lord Pitt-Watson, tried to undermine those numbers, but, from my experience, I do not doubt that order of magnitude. More importantly, the implementation, and, to a lesser extent, the ongoing element-
There were two points, one of which is that the Skeoch report says that the numbers given are not its numbers. The report is clear that whatever the cost of ring-fencing, it is not a cost to the economy-this is what the Vickers report said earlier -and that, by removing ring-fencing, it suddenly becomes a cost to the taxpayer rather than to the bank’s investor. That is the key point that Skeoch is bringing to our attention.
My Lords, I understand the point that the noble Lord is trying to make, but I argue that the risk of the taxpayer picking up the tab is now considerably lower, which means that it is reasonable to re-examine whether ring-fencing should be an ongoing part of the regime. I was about to say that, in addition to the cash costs, there was during the implementation, and to some extent on an ongoing basis, considerable diversion of scarce management resource, which will have damaged the banks in a number of ways. My noble friend Lady Neville-Rolfe has registered her opposition to Clauses 39 and 40 standing part of the Bill. I support Clauses 39 and 40 on the grounds that any improvement in the ring-fencing regime is better than none. The flexibility that will come with letting the PRA handle some of the changes via rules is a constructive solution. The PRA is, however, heavily invested in ring-fencing and no one should be under any illusion that the power will be used by the PRA to make significant changes to the regime. That is why I believe that we need to make provision to go further and I support the other amendments in this group. As we have heard, since the implementation of ring-fencing, the parallel and very expensive requirement to maintain and develop resolution plans has been implemented, and the Bank of England has confirmed that the major banks are resolvable. In addition, bank capital levels are significantly above the levels that they were immediately after the...
My Lords, it has been an unusual experience to have had a debate with two sides to it on the Bill; the Minister must be pleased about that. I am afraid that I sit firmly on the fence-indeed, on the ring-fence. I am in two minds on this issue. Ring-fencing requirements were put in place after the financial crisis for very good reasons. You can argue that they went too far and that, to some extent, they have been overtaken by other regulations and that they perhaps overburden and create some restrictions on the banks. But, in the Bill, the Government recognise that. On the other side of the equation, the economy and the banking system are currently facing a whole range of threats, which are arguably greater than have been faced at any time since the financial crisis in 2008. We have the private credit situation and the impacts of AI, to name just a few. Is it really the right time to remove ring-fencing entirely? I am also not entirely convinced by the argument that removing ring-fencing would have that much impact on domestic lending. Domestic lending is inside the ring-fence. In fact, you could argue that it would have the opposite effect, as banks could then use deposits for more risky non-lending activities. Therefore, I confess that I find that argument unconvincing. I am open-minded, but I am more minded to support the government proposals to loosen the ring-fencing rules and introduce some flexibility to them. I do not think I am ready to support complete removal at...
My Lords, I am delighted to have the debate, and I am very grateful to the noble Lord, Lord Pitt-Watson, for raising questions which have encouraged debate, but I support my noble friend Lady Neville-Rolfe’s opposition to Clause 39 standing part of the Bill. I also support her Amendment 160A about ring-fencing. Clause 39 gives the Treasury powers to loosen the ring-fencing scheme. It has been anticipated, as others have said in this debate, by a number of announcements and reports, not least the Skeoch report-I hope I have pronounced it rightly, in the Celtic way-and the announcements this year by the Treasury itself. All of these point to and address a real problem. The question before us today is whether the Government’s solution in their Clauses 39 and 40 is sufficient to deal with the problems raised by reviews and announcements going back to the 1 March 2022 independent review of the working of the scheme. I have a concern. The clause may seem to be the answer to some of the serious questions raised in that review and other concerns, and allow for the mitigation of problems arising from the ring-fencing regime-to allow for “proportionate” changes, to use a word which continues to recur throughout the assessments of how the scheme is working. However, in essence, it protracts the dominance of the regime and the regulators in what should be business decisions under good law, which is the spirit of the common law. It is a law which is permissive of risk-taking rather than...
I wonder whether there might be some confusion here. The thing about the ring-fence is that there are activities within it that the Government are promising to bail out. Those things are being insured. By the way, the move in the ring-fence proposed by the Government will extend these a little, but they include lending to the small businesses that the noble Baroness has talked about. The question is: are we going to be rid of that? Is it the case that the implicit guarantee that the Government are giving can go to any other activity that the bank decides that it wants to undertake? That could include, although Skeoch would say it is not a problem right now, the sort of proprietary trading that brought the American banks down in 2008-of course, they had been allowed to do that because Glass-Steagall had been removed 10 years earlier. What we are talking about here is: how much of bank activity will the Government stand behind? As Mervyn King said, we must make sure that it is just the very most important things.
I thank the noble Lord, but it is about where the line is drawn in law, so that businesses can be certain and have predictability, because activities change day by day.
With respect, that is what Skeoch is recommending and what is being allowed in what we are being asked to accept here-there is an extension of the ring-fence. He is saying, “Look, there are other important activities that go beyond the ring-fence that are administratively complicated for the banks. Please can you move this? Also, can you move this in a way so that it doesn’t need to go to primary legislation any time it needs to change, because all these things are moving?” What we are trying to do here is recognise that the independent commission is run by a senior financial businessperson-he used to run Standard Life-whom we are going to back. He indeed said that, in the long term, you may want to think about how ring-fencing goes together with the resolution regime, but that is not for now. He certainly did not say that we should abandon it.
I thank the noble Lord, but he was speaking about 2022, which was light years away for the financial sector. Things have moved on and have changed. We have different regimes in place now. As my noble friend Lady Noakes has explained, the banks are now resolvable. There are other schemes that will avoid the problems for the taxpayer. That should be borne in mind. I had better finish quickly. That is my objection. It is about who decides for businesses. If you have a ring-fence, ultimately, no matter how much you relax it, the Government are never going to have the knowledge of the sector, and the detailed tactical and strategic ability, to be ahead of the game and make businesses grow. They will always play slightly safe, but maybe they are over-safe. I will finish on why we need to repeal the ring-fence, not just why Clause 39 is not good enough. In a sense, we are seeing the inhibition of risk-taking and a structure that inhibits it. As other noble Lords have pointed out, we do not have parallels in other economies. I know that there is the Volcker rule in the US, but Switzerland has solved its “too big to fail” problem without a ring-fence and it has a very instructive banking sector. France and Germany have it individually but not the EU, which rejected it. Australia reviewed it again in 2019 and rejected it on the grounds that noble Lords have mentioned. It is well worth going back to the famous Skeoch review, which contends that, in the longer term, we will not need the...
My Lords, I support Amendments 159 and 174 in the names of the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham. I would be concerned about abolishing the ring-fence for similar reasons and concerns as those expressed by the noble Lord, Lord Vaux. However, I believe that a review of the workings of the alternative protections, such as the higher capital cushions and the bail-in regimes, would be appropriate. I also think that consultation would be advisable rather than simply removing these clauses. We are talking about taxpayer risk; that is basically what the ring-fencing is designed to mitigate. When it comes to consumer deposits, we have done an awful lot for retail savings to make sure that there is protection. I apologise that I have been unable to participate fully in Committee, but I would like to put on record that there is another risk to the taxpayer in the form of retail pensions. In particular, I have concerns about the lack of any underpinning for the Financial Services Compensation Scheme around annuities, which are assumed to be 100% protected. There is a risk to the taxpayer, which I hope the Minister may consider or take back to the department to ensure that some of those issues are addressed through this Bill. Currently the implicit 100% guarantee can be met only by the taxpayer, and offshore operators of bulk annuities pose a serious risk to the retail pension sector.
My Lords, I thought the Committee might like to be reminded why such a radical step as ring-fencing was taken after the 2008 financial crisis. It was in part because, in a universal bank encompassing both retail and wholesale banking, failure in the investment bank could and did destroy the viability of the retail bank. It was also in part because, as the noble Lords, Lord Tunnicliffe and Lord Pitt-Watson, said, the investment bank, able to access retail deposits at zero interest and protected by deposit interest, could now take risks that it never would have been able to take if it had had to raise that funding in the financial markets. That was a major factor behind the extraordinary and careless risk-taking that led us into the 2008 crash. There was also a further reason: cultural contamination that led to irresponsible lending and funding in the retail banks and the abuse of customers as, under pressure from directors, they sought to catch up with the performance of their investment bank equivalents. We all, as a community, paid a very high price for that. Even at the time when the ring-fence was introduced and the Parliamentary Commission on Banking Standards recommended it as the best way to provide protection for the future, all of us knew that there would at some time in the future be a dangerous complacency. I quote from evidence to the PCBS: “The classic problem for human institutions and for the design of our regulatory structures and our policy is how do we...
My Lords, I have enjoyed this exchange of views today. As the noble Lord, Lord Vaux, pointed out, it is refreshing and a little unsettling to find myself in the middle ground in a debate. Before I turn to the specific amendments and stand part notices, it may be helpful if I briefly set out the Government’s approach to ring-fencing. The Government remain committed to retaining the ring-fencing regime as an important safeguard for financial stability and depositor protection. As the Chancellor set out in her 2025 Mansion House speech, the Government will uphold the regime while delivering meaningful reforms that support growth. Following a review undertaken by the Bank of England, and consistent with the conclusions of the independent Skeoch review, we concluded that aspects of the framework have become unnecessarily rigid and duplicative over time. The measures in the Bill address those issues by making the regime more flexible and proportionate while preserving its core protections. I turn first to the question of whether Clause 39 should stand part of the Bill. Clause 39 addresses a key conclusion of both the Government’s review of ring-fencing and the Skeoch review: too much operational detail is fixed in legislation, meaning that even relatively minor and technical updates can require legislative amendment. Clause 39 therefore allows HMT, by order, to provide for certain detailed aspects of the excluded activities and prohibitions framework to be specified in the PRA...
I am grateful to noble Lords who have contributed to this lively debate, and to the Minister for his response. I am grateful for the support I have received, particularly for my Amendments 159 and 174 and, from some of my noble friends, for Amendments 160A. While I agree with the noble Lord, Lord Pitt-Watson, that this House is admirably expert, he tried to politicise the discussion in a way that I regret. I set out clearly why I think that ring-fencing should go. I want to be absolutely clear that our amendment is not about weakening financial stability or compromising the safety of firms. It is about looking forward, not backwards, as the noble Baroness, Lady Kramer, has done, and recognising that the financial stability framework has changed significantly since ring-fencing was first proposed and introduced. As my noble friend Lord Massey of Hampstead argued, we now have a much more developed resolution regime, stronger prudential supervision, capital and liquidity requirements, recovery and resolution planning, and operational continuity rules. They support financial services and consumers right across the country, as the noble Lord, Lord Pitt-Watson, rightly pointed out. I am also going to quote from the Skeoch review, as I am winding: “It was acknowledged at the outset that the regime would impose direct costs on the banks in setting up new structures and operating within the regime. Based on banks’ submissions, implementing the ring-fencing regime had a one-off cost...
Clause 39 agreed.
Clause 40: Ring-fencing rules etc
Amendment 155
Moved by
155: Clause 40, page 47, line 30, leave out from beginning to line 2 on page 48 and insert- “(1) The appropriate regulator shall consider whether there is sufficient provision to ensure the effective provision to a ring-fenced body of services and facilities that it requires in relation to the carrying on of a core activity.(1A) Subject to subsection (1B), when considering whether there is sufficient provision for the purposes of subsection (1) concerning services and facilities that are provided to a ring-fenced body by another member of its group, the appropriate regulator shall take account of all relevant circumstances, including-(a) the appropriate regulator’s ability to assess and influence the terms on which such services and facilities are made available to a ring-fenced body,(b) the availability, continuity and sufficiency of such services and facilities, including in circumstances where the Bank of England would be entitled to exercise any of the stabilisation powers under the Banking Act 2009, and(c) any assessment that the Bank of England has made of a group of which the ring-fenced body is or proposes to become a member under a statement of policy that the Bank of England has issued pursuant to section 3B (safeguards relating to directions under section 3A) subsection (9) of the Banking Act 2009 and, where applicable, the absence of any such assessment.(1B) The appropriate regulator shall not consider that there is sufficient provision for the purposes of...
My Lords, this group originally preceded the one we just debated. I noticed the change this morning. My points in this group on ring-fencing are quite narrow. I am not particularly happy about the changes in Clauses 39 and 40, but I do not feel strongly enough that we need to change the relevant clauses wholesale. But I have a problem with a narrow area that feels to me like a Trojan horse. In easing ring-fencing in this Bill through giving the regulator greater flexibility to adjust the ring-fence, the Government are still taking greater risk. I find it frustrating that people who remove a protection then say that there is no additional risk. Let us be honest: there is greater risk. I am cautiously relieved that ring-fencing has not been holed below the waterline by the Government. But, in Amendments 155 to 158 and 160, I am trying to address a breach that has been identified in the ring-fence and that potentially has serious unintended consequences. In the Financial Services (Banking Reform) Act 2013 and the SIs under FSMA, which implemented much of it, the structural separation between retail and wholesale banks within the same overarching bank group left few shared operational services. The ring-fencing rules prohibited receiving services or facilities that are regularly required from any entity or company within the group that is not a permitted supplier, so that, in case of failure-for example, the failure of the wholesale bank-the retail bank could continue...
My various amendments would, in effect, require the PRA to take non-UK ownership and control into account when considering the rules that it sets up on these shared services, so that it can, in a crisis, ensure the effective provision of intragroup services to a ring-fenced bank-in other words, so that the retail bank can continue to function without severe disruption. It is relatively minor and quite technical, but it is potentially rather important. I hope the Government will take it away and look at it.
My Lords, I speak briefly to Amendments 155 to 158 and 160 in the name of the noble Baroness, Lady Kramer, and hope that she will forgive me as a former banker with cultural contamination, perhaps. I notice a lot of quite warm language about banking in this debate, with references to the casino and the rest of it. The concern behind these amendments is that a ring-fenced bank may depend on services, systems or facilities provided by other entities within its wider group. Those entities may be based outside the United Kingdom or supervised primarily by an overseas regulator. I very much hear what the noble Baroness says, but the PRA does look at intragroup services in protecting UK domestic businesses. We of course have our own amendments on ring-fencing, which we have just discussed. However, as we have said before, our approach to this Bill is that it will regulate in the immediate term and, therefore, our wider policy ambitions can sit alongside proper scrutiny of the provisions before us. Even where we take a different long-term view of the future of ring-fencing, it is still right to test whether the regime, while it remains in place, operates properly and consistently. That said, I have some concerns about the effect of these amendments, even if they were to impose additional safeguards or burdens specifically on foreign-owned banks, as they could place those banks at a competitive disadvantage. That matters because foreign-owned banks contribute to competition in the...
My Lords, Amendments 155 to 158 and 160 all relate to Clause 40. As I set out in the previous debate, Clause 40 makes the ring-fencing regime more flexible and proportionate by allowing the PRA to take account of protections already delivered elsewhere in the prudential and resolution framework, when considering whether ring-fencing rules are required. The clause is intended to reduce unnecessary duplication, while maintaining the core protections and purposes of the ring-fencing regime. We have already debated this, and it was clear that there were a wide range of views. The noble Baroness’s amendments focus principally on shared services arrangements, operational continuity and cross-border group structures. The Government recognise the importance of these issues and we have spoken to a couple of outside parties on this topic. Ensuring the continuity of critical services and managing operational dependencies are important objectives of the ring-fencing regime. However, I am not persuaded that these amendments are the right route forward. They would introduce detailed statutory tests governing when the PRA may rely on protections delivered elsewhere in the prudential and resolution framework, particularly for shared services arrangements involving cross-border or non-consolidated groups. Their practical effect would be to make it harder for the PRA to rely on equivalent protections elsewhere in the framework, increasing the likelihood of additional ring-fencing rules,...
I am happy to withdraw.
Amendment 155 withdrawn.
Amendments 156 to 158 not moved.
Clause 40 agreed.
Amendments 159 to 160A not moved.
Clause 41: Scope of commercial credit data sharing scheme
Amendment 161 not moved.
Clause 41 agreed.
Clauses 42 and 43 agreed.
Clause 44: Transformer vehicles
Amendment 162
Moved by
162: Clause 44, page 51, line 21, at end insert- “(5) After section 284A insert-“284AA Tax treatment of risk transformation arrangements(1) The Treasury must, after consultation with the Commissioners for His Majesty’s Revenue and Customs, publish guidance concerning the tax treatment of investments issued in connection with risk transformation arrangements within the meaning of section 284A.(2) Guidance under this section must include the circumstances in which a risk transformation arrangement is to be regarded as having been entered into for genuine insurance risk-transfer and capital markets purposes. (3) In exercising functions relating to the assessment, collection and management of taxes, the Commissioners for His Majesty’s Revenue and Customs must ensure that arrangements falling within a description specified by guidance under subsection (2) are treated in a consistent and certain manner.(4) Where-(a) a risk transformation arrangement falls within a description specified in guidance under subsection (2), and(b) the arrangement complies with applicable requirements relating to authorisation and supervision,the arrangement is to be treated for all tax purposes as a commercial arrangement entered into for bona fide insurance risk-transfer and capital markets purposes, and not as having as its main purpose, or one of its main purposes, the obtaining of a tax advantage.(5) The treatment in subsection (4) applies without any requirement to consider the purpose of the...
Baroness Bowles of Berkhamsted
My Lords, this amendment is about insurance-linked securities-ILS-which are the UK’s version of fully funded risk transfer vehicles, which were legislated for in 2017. They include catastrophe bonds, collateralised reinsurance, sidecars and other fully funded mechanisms used by insurers to transfer peak and speciality risks to the capital markets. Catastrophe bonds are the most visible part of the market, but they represent only a portion of a global ILS market now estimated at over $136 billion. The catastrophe bond market alone is estimated at somewhere between $35 billion and $65 billion. When the regime was introduced, the hope was that London, as the world’s leading commercial reinsurance marketplace, would become a major provider but, almost immediately, Singapore copied the PRA’s work and moved faster. I recall hearing evidence about this when I was on the Industry and Regulators Committee before the formation of the Financial Services Regulation Committee. At that time, the PRA was being blamed for sluggishness. However, it is not the problem now. Since then, London has not built a substantial market, and we now have only 2% of the global market that we should have led. Clause 44 on transformer vehicles is part of the reforms to which the Government have committed under the Leeds reform package. Those reforms are welcome. They will improve flexibility and the ease of delivering transactions, including allowing the PRA to widen the scope of permissions. But even with...
The amendment would not exempt ILS vehicles from anti-avoidance rules; it would simply provide that where a vehicle has met all regulatory requirements, and where it is authorised and supervised under FSMA and the Risk Transformation Regulations, HMRC should adopt the presumption that the vehicle is not being used to secure a tax advantage. HMRC would retain full power to act where fraud, misrepresentation or non-compliance is demonstrated. This is not a loophole; it is a clarity mechanism. If Parliament has authorised the vehicle and the PRA has supervised the vehicle, it cannot be right that HMRC treats the same vehicle as presumptively suspect.
Without certainty, the UK will continue to lose market share to jurisdictions that provide it and our growth agenda will continue to be hampered by a clearance culture that is no longer fit for purpose. This amendment would provide a practical and proportionate way forward. It would ensure that genuine risk transfer vehicles are treated consistently and predictably and that the UK can finally compete in a market that it should have led. I beg to move.
My Lords, I remind the House of my interest as an employee of Marsh, an FCA-regulated firm. I wish to speak in support of this amendment in the name of the noble Baroness, Lady Bowles, but before doing so, I would like to pick up briefly on something I said earlier this week about regulatory clarity. I talked about how firms need clear definitions so that they can plan investment with confidence. That principle matters across the Bill, for not just client definitions, but for how we approach emerging markets and new structures. Amendment 162 is a good example of that. The amendment addresses tax clarity on insurance-linked securities. These are important instruments. They attract capital into insurance, help firms manage catastrophic risk and have become a serious part of global risk management practice. Since being created in the 1990s, the global market has grown to about £136 billion, making up close to 20% of the insurance/reinsurance industry. According to Swiss Re, one of the world’s leading providers of reinsurance, insurance and other forms of insurance-based risk transfer, 2025 was the busiest year in its history of this market. The London insurance market is phenomenally well placed to lead here. We are larger than our five closest competitors combined. However, we need to be honest: our ILS regime has been somewhat underwhelming at best. That is not because we lack expertise or capital-we do not-but because the regulatory approach has been disproportionate and the...
My Lords, I will speak to Amendment 162 in the name of the noble Baroness, Lady Bowles-perhaps from the Liberal Democrat risk-transfer derivative desk. This amendment raises what seems to be a sensible and practical point about certainty in the treatment of insurance-linked securities and related risk-transformation arrangements. Insurance-linked securities can play an important role in allowing insurance risk to be transferred into capital markets. Catastrophe bonds and similar structures can help insurers and reinsurers manage exposure to major risks, including natural catastrophes, while providing investors with a different form of capital markets instrument. The United Kingdom has quite rightly sought to develop itself as a competitive centre for these structures, but for that to happen, firms and investors need clarity, as my noble friend just explained. As I understand it, the amendment would require the Treasury, after consulting HMRC, to publish guidance clarifying the tax treatment of these arrangements. It would also provide that where an arrangement falls within that guidance and complies with the relevant regulatory authorisation and supervision requirements, it should be treated as a bona fide commercial insurance and capital markets transaction, rather than as one entered into for tax avoidance purposes. It does not appear to be an attempt to protect fraud, misrepresentation or non-disclosure. HMRC would still be able to challenge arrangements where the...
My Lords, risk transformation is a key element of the UK’s insurance market, and the growth of this market is critical to the Government’s objective of making the UK the location of choice for specialist and complex insurance. The Government’s reforms in Clause 44 aim to support this market by increasing the attractiveness of the UK for establishing the legal vehicles used to undertake risk transformation. I am glad to hear the noble Baroness, Lady Bowles, and the noble Lord, Lord Ashcombe, broadly welcome these reforms. The Government recognise the role that the bespoke tax regime for transformer vehicles plays in ensuring that the UK is competitive in this area. We also recognise, as does this amendment, the role that robust anti-avoidance measures and clear guidance have in ensuring a well-functioning regime for transformer vehicles. These anti-avoidance requirements are set out in the bespoke tax regulations for transformer vehicles, the Risk Transformation (Tax) Regulations 2017. HMRC has worked extensively with industry to produce guidance on how anti-avoidance measures apply to transformer vehicles. I appreciate that some people consider that this guidance could be clearer, but it is important that any guidance does not constrain the Government’s ability to apply anti-avoidance rules. It must be aligned with the broader approach taken by HMRC to anti-avoidance. The current guidance allows HMRC the flexibility effectively to pursue instances where vehicles are...
Baroness Bowles of Berkhamsted
My Lords, I thank all those who have spoken in the debate. I must say that I find the Minister’s response rather disappointing. He is saying that the status quo is all right, but the status quo is not all right, so we will not have the business. I think that is all there is to it. Surely, there must be a way in which you can have something that moves faster when you have to negotiate things faster: otherwise, the door is shut on these transactions. So I ask the Minister to engage with the industry on this and find out more detail, because it is being treated as if it is something dodgy. How will an investor invest in something that has a ticket on it saying, “Careful, I might be slightly dodgy”? That is in effect what is happening. How will we get these things into pension funds if the trustees are thinking, “Whoa, something might happen way down the track”? These are very serious questions. I realise that it is very specialist, but we need to take action: otherwise, we are closing the door on opportunities for good investment and opportunities for pension funds. The fact that the ATCS solves the problem for really big infrastructure shows that the Government know what they are about when they are in the business of having to negotiate contracts, but the smaller people are being left out. That is just not the right way to proceed. So I hope that the Minister will report back to the Treasury and reread my speech and that of the noble Lord and come to a better conclusion. For...
Amendment 162 withdrawn.
Clause 44 agreed.
Clauses 45 and 46 agreed.
Amendment 163
Moved by
163: After Clause 46, insert the following new Clause- “Review of tokenisation in UK wholesale financial markets(1) Within 12 months of the day on which this Act is passed, the Treasury must lay before Parliament a report on the development of tokenisation in UK wholesale financial markets.(2) A report under subsection (1) must consider, in particular-(a) the extent to which the existing legal and regulatory framework supports the safe adoption of tokenisation in UK wholesale financial markets;(b) the extent to which current arrangements provide sufficient legal certainty in relation to the issuance, holding, transfer and settlement of tokenised financial assets;(c) the prudential treatment of tokenised assets and the extent to which such treatment is consistent with equivalent non-tokenised assets, where the underlying risks are equivalent;(d) the availability and suitability of settlement arrangements for tokenised financial market transactions;(e) the progress of the Digital Securities Sandbox and the extent to which it is expected to support the development of any permanent regulatory framework;(f) barriers to interoperability between tokenised and non-tokenised market infrastructure, and between different tokenised market infrastructure arrangements;(g) the effect of the current framework on innovation, investment and the international competitiveness of UK financial markets;(h) any further legislative or regulatory changes which the Treasury considers may be...
My Lords, I will speak also to Amendment 164 and thank my noble friend Lord Ranger of Northwood for his very interesting amendments. This is a really important group. It is clear that digital assets are becoming an accelerating part of our financial and economic landscape, yet the Government, for all their warm words and the work done by the FCA, still lack a clear digital asset strategy. More than one in 10 UK adults now owns a digital asset. Sovereign bonds issued on blockchains, digital settlement systems and collateral, tokenised assets and new payment technologies are all developing fast. They are part of the future of financial services. With financial services changing at extraordinary speed, we have to ask ourselves whether the regulatory framework being created is fit for the future. We raised this point at Second Reading and we return to it today. This is an area where we see a real risk of regulatory grey zones. Firms are innovating, consumers are participating, institutions are exploring tokenisation and market infrastructure providers are looking at distributed ledger technology. Yet, too often, the answer from the UK regulatory system is uncertain, fragmented or slow. Major banks, asset managers and market infrastructure providers are now exploring tokenised bonds, tokenised funds, digital collateral, digital repo markets and blockchain-based settlement systems. These products are increasingly part of the future of wholesale finance.
Amendment 163 would require the Treasury to publish a report on the development of tokenisation in UK wholesale financial markets. The potential benefits are considerable. Tokenisation could reduce settlement times from days to minutes and potentially to near-real time. That could reduce operational risk and free up capital. It could also reduce costs by cutting paperwork, reconciliation intermediaries and manual processing. It could improve transparency and support new forms of capital markets innovation. There may be benefits for capital formation. If tokenised securities and private market instruments can make it easier and cheaper for businesses to raise finance, that could be particularly valuable for SMEs, infrastructure projects and growth companies. However, these benefits require legal certainty around ownership and transfer. They require clarity around potential treatment, and they require workable settlement arrangements. They require interoperability between tokenised and conventional markets.
The Government have repeatedly said that tokenisation is an area in which the UK could become a global leader. I agree, but that is ambition, not strategy. Amendment 164 therefore asks the broader question: what is the UK’s digital asset strategy? At present, too much policy appears to be developing issue by issue, product by product and even regulator by regulator. We need a comprehensive approach covering crypto assets, stablecoins, tokenised securities, digital financial market infrastructure, central bank digital currencies, access to banking and payment services, international developments, future regulatory reforms and consumer protection. Our Financial Services Regulation Committee, with its experts, has made a recent contribution, but that was just on stablecoins: its Waiting for Regulation report.
We also need to deal with the problem some firms have in obtaining appropriate access to banking, banking payments and settlement services. That is the subject of Amendment 164B from my noble friend Lord Ranger. Industry needs to know where the Government are going. Firms have told us that they do not know what the operating environment will be in this country. They do not know how different regulators will approach these assets. They do not know which definitions will be used. Some have even said that there is not yet a coherent definition of a digital asset. Other jurisdictions are moving quickly. The United States, the European Union, Singapore, Switzerland and Hong Kong are all developing digital asset frameworks. If they provide greater clarity, firms will go there, capital will go there, talent will go there, and even innovation will go there. I welcome the amendments from my noble friend. He is an expert in this area, and I much look forward to hearing from him, especially on his proposal for a digital assets industry forum.
Last month, the FCA published some crypto assets regime policy statements: finalised guidance and two further guidance consultations, to which I expect the Minister will refer. We recognise that the Government have not ignored this area, but the broader concern is that digital assets are currently caught between too many regulators, too many overlapping processes and too little strategic clarity. The FCA, the PRA, the Bank of England and the Treasury all have interests in different parts of this landscape, but the industry needs to know who is responsible for what, what rules will apply and what the Government’s overall policy objective is. The confusion works contrary to delivering the sort of clarity that industry and consumers need if this is to become an area where the UK excels.
We want to work with the Minister to ensure that the UK becomes a leader in digital assets. We have the legal system, the markets, the institutions, the expertise and the talent to do so, but at the moment the gap between ambition and delivery is too wide. Our approach would help the Government realise some of the ambitions they set out in their Wholesale Financial Markets Digital Strategy . I would be grateful if the Minister could explain whether the Government plan to publish a comprehensive strategy for digital assets and what specific steps are being taken to make the UK internationally competitive in tokenised wholesale markets.
Digital finance is developing very rapidly and there is a real opportunity for growth that could transform prospects for the City and the wider economy. The question is whether the UK will lead or follow. If we want to lead, we need a clear plan, a coherent framework, proper industry engagement and proportionate regulation. I hope the new Labour Government will look at this. I beg to move.
My Lords, I support my noble friend’s Amendment 164 and will speak to Amendments 164A, 164B and 164C in my name. I declare my interest as a non-executive director of Ecila.Group-an R&D-focused firm in digital assets and payments infrastructure. I am also a member of the UKUS Crypto Alliance and, for completion, the co-chair of the Digital Markets and Digital Money APPG. The amendments in my name go some way towards the underlying point, which is that, if the United Kingdom wants to be a serious global centre for digital assets, tokenisation and digital financial markets, we need a regulatory framework and, as my noble friend Lady Neville-Rolfe mentioned, a strategy that is clear, coherent, proportionate and capable of supporting innovation. We do not have that at the moment. We have a lack of clear regulatory direction, too many overlapping areas of responsibility, regulators with differing priorities and, in some cases, different and changing levels of appetite towards digital assets. We also have firms that are trying to understand whether the UK is genuinely open for innovation or whether it will remain a jurisdiction where uncertainty and delay make it harder to invest, scale and launch new products. I say this because I have heard it directly from industry, particularly over the last 18 months. During that period, I have engaged extensively with businesses in the digital asset arena. I have also travelled to other jurisdictions such as the US-I have been to Washington...
My Lords, it is a pleasure to follow my noble friend Lord Ranger of Northwood. I agree with all the amendments that he has eloquently described. I support my noble friend Lady Neville-Rolfe, and particularly her Amendment 163, to which I have added my name. The Government rightly talk about growth. The reality is that digital assets, tokenisation and market dematerialisation are sources of growth in potentially a shorter time than some other sectors that have had greater focus.
Almost 10 years ago, I began writing a report, Distributed Ledger Technologies for Public Good . I wrote it because I saw the opportunities then and the potential that those opportunities would not be realised by the UK for want of clarity, consistency and a coherent approach. A decade on, we have more clarity. We had some helpful announcements from the Bank and the regulator last week. I suggest, as have colleagues, that we are still lacking a real sense of white-heat mission and the arrowhead of possibilities around digital assets. That would be positive in terms of not only the regulatory framework that would flow from it but the signalling that it would give to UK-based businesses and, indeed, to the rest of the world, because this is a hyper-mobile, hyper-agile ecosystem.
We have rightly heard mention of the MAS in Singapore, HKMA in Hong Kong, ADGM in the UAE, the Swiss regulator and more. The FCA has a proud tradition when it comes to innovation, when we consider the 2016 fintech regulatory sandbox. It is doing tremendous work currently and is continuing that with the digital security sandbox and the fantastic innovation unit, which looks across all these emerging technologies. The great good fortune-it is almost miraculous that this is still the case-is that we are not yet quite behind when it comes to putting in place the right-sized regulatory framework for digital assets. Yes, the EU did MiCA, but the reality is that its prescriptive nature has done as much to constrain as to enable. The GENIUS Act in the United States is rightly much heralded, but when one looks at the timelines for implementation, it is not dramatically dissimilar to the UK.
In supporting these amendments, I ask the Minister what more, in particular, HMT is planning to do to give that sense of a clear, crisp and focused mission statement to coalesce the community-it is a community in this country-around the potential and possibilities. Get that right, then right-sized regulation can flow and the growth will come.
My Lords, we on these Benches in large part support the amendments in this group, with a few caveats. It is important to emphasise the frustration that we do not have today, and do not seem to see in the near future, that comprehensive regulatory framework that will draw together the UK approach to all these assets. It is a disservice to Parliament, because it makes it hard for us to investigate as we attempt to pull together a report from one committee or one regulator and try to mesh it with something that has come from another. The experience of even trying to do that demonstrates a lot of the fragmentation. Many of us thought that the Bill would be one of the mechanisms to create that framework, but it is not here. I very much support the amendments that begin to address that issue. My caveats may seem minor but reflect some fundamental frustrations. For example, subsection (2)(g) proposed by Amendment 164, which is to “have regard” to various factors, puts financial stability and international competitiveness on exactly the same standing. That is an ongoing frustration that I have had through much of the Bill. We have to understand the primacy of financial stability. It is one thing to have a secondary objective but, in general conversation, and over and over again in amendments, we see the two merged as being essentially on a par. That is highly questionable. We have a history of variations on the digital industry forum. In the early days of fintech, it was the...
Sitting suspended for a Division in the House.
My Lords, I thank the noble Baroness, Lady Neville-Rolfe, and the noble Lords, Lord Altrincham, Lord Ranger of Northwood and Lord Holmes of Richmond, for these amendments and their contributions to this debate. It is an important discussion of how technology and finance will play an increasingly important role in global markets. I declare that I have been personally trading cryptocurrency since 2017; none of the gains have gone towards political donations-I think it is worth mentioning that at the moment. Taken together, these amendments seek to support the UK’s focus on innovation, competitiveness and consumer protection in digital asset markets. The Government strongly support the digitisation of financial markets and share many of the objectives that noble Lords have set out today. However, before we turn to the detail of the amendments, it is important to recognise that the UK already has a comprehensive programme of work in train to support the development of digital assets and a tokenised market. First, on the registry framework for crypto assets, the Government have legislated to establish a framework coming into force on 25 October 2027. This will bring a wide range of crypto asset activities within the registry perimeter, providing the legal certainty and consumer protections that noble Lords rightly identify as essential. Secondly, I can assure noble Lords that we have a strategy on wholesale market digitisation and tokenisation and an expert to drive it forward...
My Lords, I am very grateful to my noble friends Lord Ranger of Northwood and Lord Holmes of Richmond for their support and the amendments that they have tabled on this important topic of digital assets. I am very glad to hear of the Woolard review of tokenisation and the progress on crypto assets. I hope that the Minister is right about that solving the debanking issue-we will see. However, I am slightly disappointed in his response, because I know that he comes from a sector where digital progress has underlined success. I think that the industry lacks the clarity it needs. That is what it has been telling us. Firms need to know what the Government’s overall strategy is and how the different regulators will work together-I am sure there are some good examples. There is also the question of what definitions will apply to digital assets, along with how the UK intends to remain competitive internationally. There has been a lot of progress around the world. Therefore, the points that we have raised and those put forward by my noble friend Lord Ranger need to be addressed. I was very struck by the way that he has travelled the world in his international search for success and growth in digital assets. Listening to him, I believe that we can learn from what both Rishi Sunak and the current Government have done together to get behind AI. I also agree with the noble Baroness, Lady Kramer, that we can learn from the successes on fintech-which I remember being involved with probably...
Amendment 163 withdrawn.
Amendments 164 to 164D not moved.
Amendment 164E
Moved by
164E: After Clause 46, insert the following new Clause- “Shared digital identity and compliance utilities(1) The Secretary of State must, within 18 months of the day on which this Act is passed, publish a specification for-(a) a shared digital identity utility (“the identity utility”), providing API-based identity verification services accessible to authorised persons and regulated institutions operating in both legacy and digital markets;(b) a shared anti-money laundering and know your customer compliance utility (“the compliance utility”), providing API-based access to customer due diligence data and screening services.(2) The specification must address- (a) governance arrangements, including whether the utilities are to be publicly owned, privately owned under public specification, or operated as industry utilities;(b) data standards and interoperability requirements;(c) access arrangements for legacy and digital ledger technology-based market participants;(d) privacy and data protection safeguards, including compliance with the UK GDPR;(e) the transition period during which legacy and digital know your customer processes will operate in parallel.(3) The FCA may make rules-(a) requiring regulated institutions to register with and use the identity utility or compliance utility once operational;(b) providing that compliance with compliance utility standards satisfies the customer due diligence requirements of the Money Laundering, Terrorist Financing and Transfer of Funds...
My Lords, it is a pleasure to open this group of amendments in my name. I can only apologise to the Committee that I did not manage to get through the full alphabet and require Roman numerals to be used after some of the amendments -perhaps when we come to Report. I will take Amendment 164E first before moving to the substantive group, which all speak to tokenisation and market demat. Amendment 164E goes to the digital opportunity that we have when it comes to many issues, not least what passes for KYC and AML. In many ways, KYC has failed to deliver for more than quite a long time in the UK. Indeed, as a jurisdiction, we are not alone in that fact. It would be a joke if it was not true that you can avail yourself of financial services and other products by demonstrating what a capital, stand-up character you are because you produce a paper gas bill. We can do better, and we need to do better not only in terms of KYC and AML, but in terms of being able to realise all the opportunities from digital assets, tokenisation and market demat. We need an effective system of digital ID, and that is what Amendment 164E is all about. It is uncontroversial and draws on systems already in place, such as the MyInfo system in Singapore and the EU digital ID wallet framework. I will be interested in the Minister’s response on Amendment 164E and, if he is not in favour of it, his thoughts on the current situation and how it is working in terms of the digital ID framework in the EU and,...
What I seek to do is to ensure that digital and tokenised assets will not be treated in a disfavourable way compared with traditional assets; to consider all the issues for issuers and an issuer council-which will be very helpful; and to look towards standards and how we look at data and tokens, how we conceive of them and bring specificity to them. Crucially-and we will touch on this in the next group as well-we need to look at how we can bring education to all levels in this area, both in the sophisticated market itself and rippling out far beyond that. We need clear definitions. Clarity has already been referred to many times when we have discussed digital assets. Having education, common standards and clarity on the treatment of these assets will further enable the narrative that many noble friends have been talking about when it comes to these broader points.
The opportunity is clear. The Bill is in front of us. It is fabulous that the UK has Christopher Woolard as the Wholesale Digital Markets Champion; he is an excellent appointment. However, I do not believe that it would in any way cut across his work and what he has been asked to do by the Government if we were to put a framework in place to enable, assist and put some pace into his work. The Digital Markets Taskforce has been undertaking excellent work in this area for the past year, and it set out in clear detail what is required if we want to succeed in this space.
That is exactly what I have tried to do with these amendments: to go to the specific points and set out how they could become part of this statute-if you will, tokenised assets, market demat and clauses in a box from this set of amendments. I look forward to the Minister’s response. I beg to move Amendment 164E.
My Lords, I support my noble friend Lord Holmes’s amendments across the alphabet, particularly because he is right about the detail and the need for us to look at the ambition and see whether we are really targeting changes that will help us fulfil the ambition. When it comes to the point about regulation and whether or not it has worked, in terms of KYC, AML and even PEP, we know that these fundamental versions of regulatory burdens do not succeed. We hear constantly of their failings, so how are we going to adopt and adapt as we move into the digital assets universe, as I have been calling it, rather than naming each different type? Fundamentally, one of the elements here is the use cases. These amendments speak to specific points and changes that could be brought through, but we must look at the use cases in which these will apply. We talk about tokenisation or how stablecoins will be used. We must talk about how property and assets might be traded differently. We must look at how services will be adapted and the wholesale settlement that international markets are looking at. We must talk about and consider the use cases around retail e-commerce. With that, I support my noble friend’s amendments.
My Lords, I am going to be brief again: these are very interesting amendments. The breadth of the amendments put before us by the noble Lord, Lord Holmes, gives us a sense of the extensive work that must be done, right across the plumbing of the entire financial services sector, to move and take advantage of the opportunities of the digital world. There is no discussion here of some of the risks, namely about the levers of power shifting to different hands and whether we should be concerned about that or whether there are monetary sovereignty issues. Those are crucial issues, and we cannot walk away from them. Plumbing seems boring, but it is crucial. It seems that every aspect of that plumbing has been raised here, something that I hoped we might hear about in greater detail from the Government. I am particularly focused on the first of the amendments tabled by the noble Lord, Lord Holmes, which is Amendment 164C. I apologise, I have the wrong one.
That was good too, though.
That was very good too. I meant Amendment 164E, which is headed, “Shared digital identity and compliance utilities”. I come from a party that is always very concerned about identity cards, whether they are digital or traditional, old-fashioned cards, and what they do to privacy and independence, so I have those caveats constantly in the back of my mind. It seems to me, however, that a series of fundamental questions are raised by the noble Lord, Lord Holmes, in subsection (2), where he talks about the various specifications, the governance arrangements, the very straightforward things such as whether utilities are to be publicly or privately owned, under public specifications or operated as industry utilities. There are issues of data, access to digital ledgers, privacy, data protection and how to cope with the transition period, which will be very complex and very different for different individuals. Some people will transition completely almost in the blink of an eye, and others will be very late adopters. That creates a whole set of issues around financial inclusion and exclusion. I hope very much that we will get the discussion that we need, particularly around subsection (2), which then sits as a foundation to all the other issues that are raised. These are issues that engage the regulator, of course, but many of them are above the regulatory pay grade, and we need to be engaged on those issues here in this Committee.
My Lords, this group is a snapshot, in a sense, of where we are now in digital regulation for financial services in the UK, as discussed by my noble friend Lord Holmes. This group somewhat dovetails with the amendments that we discussed in the previous group, which sought to probe the Government’s strategy for digital assets, tokenisation, access to banking and payment services and consumer redress. However, I am concerned that this package rather jumps the gun. The issue is more profound than the absence of individual regulatory provisions. As my noble friends Lady Neville-Rolfe and Lord Ranger of Northwood, and the noble Baroness, Lady Kramer, said, we do not yet have the basic architecture in place, and we do not yet have a clear digital assets strategy. We do not yet have a settled framework of engagement with the industry, and we do not have a proper industry forum through which the Government, regulators and market participants can work through these questions in a structured way. That matters because this is a fast-moving area: if we legislate too quickly, or in too much detail, without proper consultation and industry engagement, we risk creating a framework that is either obsolete before it is implemented, or misaligned with how the market is actually developing. The point that we have been making throughout these debates is that the Government need to move from ambition, the Digital Markets Taskforce and their initiatives to strategy. It is not enough to say that...
My Lords, I am grateful to the noble Lord, Lord Holmes of Richmond, for tabling these amendments and for his contributions to this and the previous debate. I will not rehash the arguments I made previously. We believe that we have a strategy, and we believe that that has been executed. These amendments cover a wide range of issues. The noble Lord asked me to respond to all of them; I will try to do so but, if I miss any, we can follow up afterwards. The amendments include proposals on shared digital identity, AML utilities, prudential treatment for tokenised assets, an additional digital financial markets sandbox, education and use-case libraries, issuer governance, common token and data standards, model contractual clauses, custody and bridge infrastructure, issuer pathways and payment rail neutrality. The Government agree that the development of tokenised markets depends on proportionate regulation, legal certainty and effective payment and settlement infrastructure. These are all important issues, and the Government are already taking extensive action to drive forward this agenda, which I set out in the last debate. On Amendments 164E to 164H, the Government recognise the importance of trusted digital identity, effective AML processes, proportionate prudential treatment, testing environments and education. I am happy to assure noble Lords that these matters are already being progressed through existing frameworks, including the UK digital identity and attributes trust...
Amendments 164M and 164Q concern payment rail neutrality and digital settlement assets. Amendment 164M would establish a new regulatory framework for payments that is neutral to technology, while Amendment 164Q would require periodic reviews of this framework. I agree that regulation should support innovation and should not create unjustified asymmetries between technologies that present materially equivalent risks. That is why the Government are already modernising payment services regulation to ensure that it supports new digital payments, and taking forward wider work under the National Payments Vision to support new payment technologies. These reforms are designed to ensure that the UK’s payments framework remains safe, innovative and competitive as markets evolve.
I thank the noble Lord, Lord Holmes, for bringing these matters to our attention. I hope that I have somewhat reassured him and the rest of the Committee that the Government and the regulators have a robust set of work aimed at addressing these points, while acknowledging that this is a fast-paced, moving environment. I therefore ask the noble Lord to withdraw his amendment.
My Lords, I thank all noble Lords who have taken part in this debate. It certainly seems that I am getting more from the Liberal Democrat Front Bench than my own Front Bench at the moment-strange times, but there we are. For the time being, I beg leave to withdraw the amendment.
Amendment 164E withdrawn.
Amendments 164F to 164Q not moved.
Clause 47 agreed.
Amendment 165 not moved.
As Amendment 165 has not been moved, I cannot call Amendment 165A for reasons of pre-emption.
Amendment 165A not moved.
Amendment 166 not moved.
Amendment 167
Moved by
167: After Clause 47, insert the following new Clause- “Duty to promote public understanding of financial services and financial capabilityThe FCA must take such steps as it considers appropriate to promote public understanding of-(a) financial services and markets,(b) personal financial management,(c) saving, borrowing and long-term financial resilience,(d) financial decision-making and financial risk, and(e) pensions.”Member’s explanatory statement This amendment would give the FCA a statutory duty to promote public understanding of financial services and financial capability, and to report annually on the steps it has taken, the groups most at risk of poor financial literacy or exclusion, and the contribution of improved financial capability to consumer resilience, competition and economic growth.
My Lords, in moving Amendment 167, I am grateful for the support of my noble friend Lord Altrincham and the noble Baroness, Lady Altmann. Financial education is incredibly important, but it is unusually weak in the UK compared to, for example, Finland, the Netherlands, Singapore and Australia. The Times rightly has a campaign to improve it. Rishi Sunak has spent time and effort since leaving office trying to do so, citing how much better people do in life if they understand inflation, the magic of compound interest and the importance of diversifying risk. Financial education is an issue on which I have campaigned for a very long time, notably in my 2022 review of the state pension age. I believe it is central to how people live their lives, make decisions, protect themselves and participate responsibly in the economy. It helps them to make sensible decisions about borrowing, mortgages, insurance and pensions, to avoid scams and financial harm, and to understand basic financial and economic statistics. This is a mission that I hope noble Lords of all political perspectives can support. Amendment 167 would give the FCA a new statutory duty to promote public understanding of financial services and financial capability. For example, it could produce succinct basic explanatory material on concepts such as compound interest, basic banking, and portfolio and asset diversification. The amendment would require the FCA to report annually on the actions it has taken to improve...
My Lords, it is an absolute pleasure to follow my noble friend Lady Neville-Rolfe. I support her Amendment 167, which, as she rightly identifies, has many common themes with my Amendment 170. I have been working on financial education and financial capability for a long time. As my noble friend rightly identifies, and as we have mentioned in other groups, the need for a coherent cross-society, cross-economy financial education and financial capability strategy, covering every stage of life, could barely be more needed than it is today. There are two pernicious forces striding our streets, walking hand in hand: financial exclusion and digital exclusion, one often causing and compounding the other. Becky Francis’s review found that it was absolutely key to have financial education and capability within the curriculum, but it is about how that naturally touches on digital capability, media literacy and capability, and AI literacy and capability. These threads all come together, and can do so a positive, additive fashion if they are seen as positive, and are personalised and focused on the individual at every stage of her or his life, to enable all of us to make choices and to be included. With so much in society going digital-to be fair, not much in the Bill is going digital, but that is perhaps an outlier-financial exclusion for want of financial education and capability could dramatically increase and exacerbate the exclusion already felt by those at the most extreme end of...
I cannot but support the desire for greater public understanding of financial matters. The noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Holmes of Richmond, have made a powerful case for better understanding, but I am not convinced that they have made the case for it to be focused in the way that they have set out in their amendments, so I look forward to the response from my noble friend the Minister. I want to make two points about these amendments. The first is that better understanding is not a magic trick. We can be in favour of it but we must never overstate what it can achieve. It certainly does not weaken the case for effective regulation or remove the need for it at all. We need to be clear about that because, sometimes, when the issue is discussed there is a slight-or sometimes more than a slight, perhaps an overt-suggestion that that is what it would achieve. It is worth my quoting a bit from the interim report from the Second Pensions Commission, which is obviously about pensions but gets to the heart of the matter. It says in its report: “As with the principles underlying automatic enrolment, the pensions system needs to work in the interests of savers as they enter retirement and protect those who do not, or cannot, engage”. That is the bottom line: whether people choose to take education or are capable of taking it, they are still entitled to first-class financial services. I am sure everyone here would agree with that, but sometimes it is not...
Just to be clear, is the noble Lord suggesting that in anything that I have set out-I will not speak for my colleagues-financial education and financial capability would then be used to weaken and have lesser regulation? I do not believe that that is what I said.
No, I am not for one moment suggesting that. I am saying that, in other discussions, I have heard it said explicitly or by implication. It is a danger and, given what we are trying to achieve, it is one that we should recognise and take account of. My second point is that both amendments refer to the FCA. The first amendment, from the noble Baroness, Lady Neville-Rolfe, specifically refers to pensions. Let us be clear: the FCA knows little or nothing about pensions. It is the wrong body to undertake any form of public information about pensions. I have heard the discussion on the regulation of pensions and people asking, “Why do we have two regulators?” Well, we do have two: one is the Pensions Regulator and the other is the FCA, but the FCA’s involvement is narrow and we should understand that it is dying. It is going because personal pensions are dead, and the FCA will have little or nothing to do with pensions in the future. The life companies have not quite realised this yet-they are fighting against it-but history will remove them from this market. Clearly, pensions do not fall within the ambit of the FCA for these purposes. It can provide information about life insurance products and annuities, but those are not pensions. The word “pensions” is wrong in Amendment 167.
My Lords, I suspect that nobody in this Room would not speak out very strongly in favour of financial education and that, in this House, we would be really grateful if there were some capacity for it, particularly in the ever-changing world that we are dealing with today, with all its complexity. I sign up totally to that underlying concept, although I think that the noble Lord, Lord Davies, alighted on an important point. I know that my noble friend Lady Tyler speaks a lot on financial inclusion and always talks about financial education as part of that, but she becomes extremely frustrated when people seem to think that, somehow, financial education is a substitute for the other actions that are needed, such as access to cash or to personal services. The noble Lord is completely right that we want financial education, and it is brilliant if we have good financial education, but that does not take away from the need to make sure that our financial services sector delivers proper, safe, first-class services, appropriately regulated. Of all the bodies to choose to provide financial education, the FCA would be right at the bottom of my list. This is a body that has so many responsibilities already, and to take on another absolutely massive task-communicating with the ordinary person on the street, among other things-would be way beyond its capacity. It has plenty to do without this. Also, has anybody read letters from the FCA? It does not write human in its general...
My Lords, I am grateful to noble Peers for raising the important issues of financial education and the right of action for SMEs. On financial education, Amendment 167 would place a statutory duty on the FCA to promote financial capability, and Amendment 170 would require the FCA to publish a national financial education strategy. I am clearly supportive of the motivation, but I do not believe that new statutory duties on the FCA are the right way to achieve it. The noble Baroness has already mentioned some of the good work that is being done by the Government on financial capability as part of their financial inclusion strategy, such as the work the Department for Education is doing in schools. The Government are also taking steps to improve financial education for adults. For example, we have announced the expansion of the Money Guiders programme, which is run by the Money and Pensions Service. This helps front-line workers, such as nurses and social workers, to have conversations about money with those they support. Fair4All Finance is also deploying £50 million funded by dormant assets in England to support financial capability initiatives. I assure the noble Baroness that the Money and Pensions Service already has a statutory function to develop and co-ordinate a national strategy to improve financial capability and education, as set out in the Financial Guidance and Claims Act 2018, and the FCA also carries out substantial work in this space. Helping consumers navigate...
My Lords, I am grateful to all noble Lords who have contributed to this important debate, and to the Minister for his response. I commend the remarks of my noble friend Lord Holmes of Richmond and the work that he has done on financial education, and I support his complementary amendment on that subject. This has been a useful discussion, because it is an area that deserves a great deal of attention. There is clearly broad agreement that financial education is too important to be left to a patchwork of uneven provision. The Minister cited the Money and Pensions Service, which I think is based in the DWP. To date, I have not been terribly impressed by the speed or breadth of the education that it provides. It is not only individual groups that I am worried about. We could get an enormous improvement in growth and performance if financial education were spread much more widely, but I should be happy, if it could be arranged, to talk to the service to understand what it is doing before we get to Report. It may be that some of the plans it has are dealing with this wider problem.
I remain concerned that the FCA does not have a sufficiently clear statutory role because, given its understanding of consumer harm, financial exclusion and market behaviour, its reach and its involvement in consumer-facing finance and digital evolution, it has a lot to bring to this subject. I should like to respond to the noble Lord, Lord Davies of Brixton. This is certainly not an alternative to appropriate regulation; I do not think that anyone is saying that. However, picking up on what he said about pensions, the FCA should be able to refer to pensions as a good investment, which they can be. The asset managers who designed and operated the LDI funds were, of course, engaged with pensions.
That is a long way of saying that this is an important subject. It is wide-ranging and we need to find a way of joining it up, so I hope the Government will reflect further before Report. If we want to have more resilient consumers, stronger competition and better long-term financial outcomes for everyone, improving financial capability needs to be central to our approach. We need to try to find a way to achieve that during the passage of the Bill but, for now, I beg leave to withdraw my amendment.
Amendment 167 withdrawn.
Amendments 168 to 172 not moved.
Amendment 172A
Moved by
172A: After Clause 47, insert the following new Clause- “Reform of financial services dispute resolution(1) The Treasury must, within the period of 12 months beginning with the day on which this Act is passed, publish draft legislation containing provision-(a) replacing the ombudsman scheme established under Part XVI of the Financial Services and Markets Act 2000 with a scheme to be known as the Financial Adjudication Service;(b) removing the requirement in section 228(2) of that Act that complaints be determined by reference to what is fair and reasonable in all the circumstances of the case; (c) requiring complaints within the compulsory jurisdiction of the Financial Adjudication Service to be determined by reference to such statutory requirements as may be specified.(d) providing free access to the Financial Adjudication Service for complainants;(e) providing that the expenses of the Financial Adjudication Service are met by levies or fees imposed on regulated persons;(f) providing that determinations of the Financial Adjudication Service are binding on both parties unless appealed as described in subsection (2);(g) making such amendments to Part XVI and Schedule 17 of the Financial Services and Markets Act 2000, and any other enactment, as the Treasury considers necessary for the purposes of that provision.(2) Draft legislation published under subsection (1) must propose the establishment of a chamber of the First-tier Tribunal to be known as the Financial Services...
My Lords, Amendment 172A is in my name and that of my noble friend Lord Altrincham. It would require the Treasury to publish draft legislation to replace the Financial Ombudsman Service with a new financial adjudication service, and to create a dedicated financial services chamber within the First-tier Tribunal. This is a significant amendment but also a serious and necessary one. As noted earlier, it follows the policy announcement made by the leader of my party, Kemi Badenoch, at TheCityUK’s conference last month. The amendment reflects a wider concern about the way in which the Financial Ombudsman has evolved, and about the need for a consumer redress system that is fast, expert, accessible and legally certain. A little bit of history: the Financial Ombudsman Service was created to provide a low-cost and informal alternative to the courts. That purpose remains important. Consumers and SMEs need an effective way of resolving disputes with financial firms. Going directly to court can be expensive, intimidating and slow. There must, of course, be a route to redress that is accessible and free to use. However, the FOS has moved far beyond a simple dispute-resolution function. It now operates in many respects as a quasi-regulator. Its decisions can set expectations for firms, shape market behaviour and influence the way in which FCA rules are understood. Yet it does not receive the same scrutiny as regulators such as the FCA, nor does it produce binding legal precedent in the...
I have one question for the noble Baroness, as my noble friend Lord Sharkey will speak for us on this. What will the cost be to the individual of going to the tribunal system? I am conscious that an individual needs to raise between £40,000 and £50,000 to get to preliminary hearing at the employment tribunal. Is that the kind of number that she has in mind?
I support this amendment and just raise the point of the First-tier Tribunal. I have experience of dealing with the FOS as a firm. At the moment, if you want to appeal the decision of the FOS, you have to go to judicial review. Therefore, whatever the cost of this First-tier Tribunal, it would be very substantially less than going through a process of judicial review, which firms are reluctant to go through, as noble Lords can imagine, because of its cumbersome nature.
Can I ask the noble Lord to clarify? Judicial review can determine a matter only if there is a matter of law involved, not a matter of adjudication; is that right?
That is right.
My Lords, as the noble Baroness, Lady Neville-Rolfe, remarked earlier in our Committee discussions, we often agree about things, but not, I am afraid, about this amendment. There are three reasons for that: first, the amendment is not necessary; secondly, it probably would not work, although its lack of any real detail makes it quite hard to tell; and, thirdly, it would significantly bypass parliamentary scrutiny mechanisms. For example, proposed new subsection (1)(c) says that the determination of complaints will “be determined by reference to such statutory requirements as may be specified”, without actually specifying them. This does not make for proper scrutiny. How complaints are determined is absolutely critical in how redress is obtained. The amendment tells us nothing about how that would be done, or on what criteria judgments would be made. Proposed new subsection (1)(g) contains what looks suspiciously like a Henry VIII power. None of these provisions is really necessary, and nor is the amendment as a whole. That is because there does not appear to be a convincing evidence base for the radical root-and-branch reform that abolishing the FOS would bring about. The nearest we have to evidence is in the assertion by the Minister that: “The Government’s review found that, in a small but significant minority of cases, the FOS has acted as a quasi-regulator ”.-[ Official Report , 22/6/26; col. GC 260.] That is all the government explanation there is for the proposed...
In his letter of 1 July, the Minister said:
“The FCA and the FOS are operating a trial version of the mechanism currently through their joint Memorandum of Understanding, allowing lessons to be learned during the passage of the Bill and ahead of legislation taking effect.”
The trial is a very good idea. In fact, if the MoU mechanism works properly, this amendment and the Government’s amendments would be unnecessary, or at least the draconian parts of Clause 8-subsections (2) and (3)-would be unnecessary.
We would be grateful if the Minister could say when we will get a chance to discuss the interim findings of this trial which is now nearly a year old. It is important that we see something before Report begins on 7 September, and certainly not after the Bill has left this House, as his letter seems to indicate.
My Lords, I am grateful to the noble Baroness for tabling this amendment and giving the Committee a further opportunity to discuss the FOS. An effective ombudsman service ensures that consumers have quick and easy redress when things go wrong, improving customer confidence in, and engagement with, our financial services system. The FOS largely fulfils that vital role, and the reforms in the Bill will improve that further, ensuring that it provides a quick and informal route for resolving disputes in financial services. The amendment would undermine this vital role entirely. We believe that replacing the FOS with a financial adjudication service alongside the new tribunal appeal structure would create a more formal, legalistic and adversarial system. That approach would move away from Parliament’s intention of providing consumers and firms with an accessible alternative to resolving disputes through the tribunal and courts system. The Government’s view is that this would not be the right outcome for consumers and firms. The Government’s reforms have been developed in response to issues identified through the review and consultation last year to stop the FOS acting like a quasi-regulator, to stop it taking the lead on mass redress events and to deliver a clearer, more consistent and predictable framework. I thank the noble Lord for raising that issue and I apologise for not writing in answer to his question. I promise that I will get back to him as soon as we have that...
Perhaps the Minister could answer it now.
I do not have it to hand. My apologies, I will bring it to the noble Lord. We are confident that the changes will improve trust and confidence that the FOS acts fairly and impartially, while ensuring that decisions are closely aligned with the high standards of conduct and consumer protection set by the FCA where relevant. The right approach is this careful, targeted reform that preserves the core strengths and benefits of the FOS model-quick, informal and accessible dispute resolution-while delivering the necessary changes to improve the overall operation of the framework. I therefore ask the noble Baroness to withdraw her amendment.
My Lords, I thank all noble Lords who have contributed to this debate. I also thank the Minister for his response. I recognise the concern that replacing the Financial Ombudsman Service with a financial adjudication service could make redress more formal, more logistic or less accessible. I understand that concern, but it is not the intention of our amendment. I say this also in response to the noble Baroness, Lady Kramer. The purpose of our amendment is to retain a specialist, accessible and free-to-use route for consumers and SMEs while ensuring that decisions are made clearly, consistently and according to the law. Clearly there will be set-up costs. However, the Treasury could advise on that because part of our proposal is to require the Treasury to look at the issue and publish draft legislation for a new model. I agree with the noble Lord, Lord Sharkey, that parliamentary scrutiny would be important. There are also other questions that he addressed that the Treasury could answer. Indeed, some of the points that he made also apply to the proposal from the Government for the FOS. Like the noble Lord, Lord Sharkey, I would very much appreciate replies on those points before we get to Report, so that we can make sure that we understand what the Government are proposing properly. I remain concerned that the Government’s approach does not go far enough. Recalibrating the existing model may improve some aspects of the system but it does not solve the fundamental problem, as I...
Amendment 172A withdrawn.
Amendment 172B not moved.
Amendment 172C
Moved by
172C: After Clause 47, insert the following new Clause- “Review of the City of London Corporation(1) The Secretary of State must, within 12 months of the day on which this Act is passed, appoint an independent person or panel to undertake a review of the functions of the City of London Corporation in relation to regulation of financial services and markets.(2) The review must consider-(a) the arrangements relating to engagement between the City of London Corporation and the FCA and PRA, and(b) the extent to which the City of London Corporation contributes to the regulation of financial services and markets.(3) The reviewer must publish a report setting out their findings and recommendations no later than 18 months after appointment.(4) The Secretary of State must lay the report before Parliament and, within six months of receiving it, publish a response setting out what steps the Government intends to take in response to the recommendations.”
Baroness Bennett of Manor Castle
My Lords, this amendment would provide for a review of the City of London Corporation with regard to the regulation of financial services and markets. At Second Reading, I referenced my intention to address this issue-here it is. In the interests of transparency, I note that my interest in the City of London Corporation extends beyond that. Noble Lords who read the Politico email newsletter may have noted that it has reported that I am working with the All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services on a survey of people’s views of the City of London Corporation, including whether it should be retained as it is, reformed or abolished. That extends beyond the regulation of financial services and markets as covered by the Bill. I also note that the survey’s existence has led to me being contacted by a significant number of both city residents who are unhappy with the way in which the corporation fulfils its local government-type functions and organisations that receive funding from it and are concerned about the way in which things are done. Those organisations are most keen that what I say does not identify them in any way, for fear of reprisals-I suggest that that is disturbing and telling in itself-but significant elements of the corporation’s operation not being covered by the freedom of information legislation makes it difficult to uncover exactly what is going on. The survey and my expression of my personal views on the subject have...
My Lords, I remind the Committee of my interest as the chair of Norton Rose Fulbright. Although my firm was located in the City of London for more than 200 years, from its founding in 1794, we are no longer within the jurisdiction of the corporation, having ventured south of the river a few years ago. My current office at More London gives me what is probably the best view of the Tower of London, which, notwithstanding the imminent arrival of the Bayeux tapestry, has been a daily reminder that not even the conqueror had the poor sense to interfere with the freedoms of the City, which worked extremely well, and we should be careful before we consider doing so. I oppose this amendment, which contemplates a two and a half year process after Royal Assent, with the attendant costs and distraction for the Treasury that such a review would entail. We should therefore ask what the review is actually meant to uncover.
The proposed new clause sits oddly in a Bill focused on creating significant new accountability mechanisms for regulators and is perhaps intended purely for the noble Baroness to continue her campaign against the corporation. I suggest that she does so through other means. The corporation is not a regulator but instead provides a transparent and constructive convening role that brings together industry, regulators and policymakers to ensure that the United Kingdom’s financial and professional services sector remains world-leading. Its engagement with the FCA and the PRA happens through the same channels open to any other stakeholder body, with consultation responses, industry forums and ministerial round tables. There is no secret arrangement or shadow regulatory role here to be exposed.
The corporation is, however, unlike any other local authority in the UK, not least because the 8,500 residents of the City of London are dwarfed by the over 600,000 people who work there and whose interests also needs to be considered. There is no other municipality that contributes over £100 billion annually to the UK economy and is the centre of our world-leading financial and professional services sector. It is therefore right that the corporation should use its convening power to promote this sector, which is at the heart of its success, including through engaging with the FCA and the PRA. If noble Lords have specific concerns about a particular interaction between the corporation and the regulators, the right response is a specific question to the Treasury or to the regulators, or even to the corporation itself, rather than the statutory review panel with a long process that is being considered in this amendment. We do not legislate for a review every time a body engages constructively with a regulator, and we should not seek to do so here.
My Lords, the noble Baroness, Lady Bennett, has suggested that we inquire into the City of London’s role with the regulators and regulation. My noble friend Lady Bi summed it up well: there is no direct role there. But I wonder whether we could send a message to the City of London, perhaps a little more collegiate and, as a result, more effective. We all recognise that the role and constitution of the City corporation is quite difficult to defend from 21st-century principles. Why does one square mile of the country have these unique privileges? It has billions of pounds worth of property and investment, and the Lord Mayor of London has the status of a Cabinet Minister, apparently, when he or she goes on trips abroad. Why is it charged with the powers of a local authority but also with promoting Britain’s financial services industry? I point out that your Lordships’ House bears witness to the fact that historic institutions can-and often do-do good and important work. I wonder whether, harking back to the traditions of the City of London, there is one that we could help revive, in the spirit of what the noble Baroness, Lady Bennett, may want to happen. Historically, the City of London was responsible for the good conduct of the trades in the city, ensuring that the goods produced could be trusted to be of high quality. Indeed, I believe that Elizabeth I even had the goldsmiths of London check that the coinage that the Mint was producing was of a high enough standard, because...
My Lords, I fear that Amendment 172C strays beyond the purpose of the Bill, which is concerned with improving the regulation of financial services and markets. It is not, in my view, the appropriate vehicle for reopening broader questions about the role and governance of the City of London Corporation. This amendment takes us into a rather different debate-it asks us to examine the role and function of the City of London Corporation-whereas the purpose of the Bill is to strengthen the UK’s financial regulatory framework, ensuring that it is effective, proportionate and capable of supporting growth, investment and innovation, while maintaining high standards. Our focus should remain on achieving those objectives. It is important to be clear about the respective roles of the organisations involved. The City of London Corporation is not a financial regulator. It does not authorise firms, supervise markets or enforce regulatory rules. Those responsibilities rest with the Financial Conduct Authority, the Prudential Regulation Authority and the Bank of England, all of which are independently accountable to Parliament. The City corporation performs a different, but none the less valuable, function. It acts as a convenor of expertise, an advocate for one of the United Kingdom’s most important industries and a champion of the UK as a global financial centre. Through its international engagement, it promotes inward investment, supports exports of financial and professional services,...
My Lords, I shall speak briefly to Amendment 172C in the name of the noble Baroness, Lady Bennett of Manor Castle, on the promotional role of the corporation and the survey views of local residents. Let me also say how interesting the speeches of the noble Baronesses, Lady Bi and Lady Dacres of Lewisham, and the noble Lord, Lord Pitt-Watson, were on this. I have some concerns about whether this amendment is necessary, proportionate or properly directed at the issues before us in this Bill. If the concern is about the regulation of financial services and markets, Parliament should scrutinise the regulators and the Government. Indeed, much of our debate on this Bill has been precisely about that: how we ensure that the regulators are accountable, transparent, proportionate and properly focused on growth and competitiveness. The City of London Corporation, however, is not a financial services regulator and does not set prudential rules. I am therefore not persuaded that a statutory review of the City of London Corporation’s role is the right mechanism in this Bill. At a time when we are trying to strengthen the competitiveness of the United Kingdom, attract global capital, support innovation and ensure that financial services remain one of our national strengths, we should be cautious before creating unnecessary uncertainty around one of the institutions that help to promote that sector internationally. I think the noble Baroness would recognise that as one of its roles. There...
My Lords, I thank the noble Baroness, Lady Bennett of Manor Castle, for her amendment. I have listened carefully to the arguments presented both in support and in opposition. I want to put on record my respect for the expertise of the City of London Corporation. I have worked positively with the corporation over the last year while I have been in office. It is an institution that represents the interests of the financial and professional services sector and, in that role, it contributes hugely to our mission of strengthening our financial services sector and ensuring that it delivers for people across the country. It participates in initiatives designed to promote the UK as a place to do business and attract vital investment into the UK that will provide good jobs and pay for vital public services. I am aware that the noble Baroness is keen to revisit the structure of the corporation. However, I can assure her that, as my noble friends Lady Bi and Lady Dacres have said, the corporation has no unique role or special access in designing or influencing the development of financial regulation. The Government engage with a wide range of interested stakeholders in the development of financial services legislation. This includes the regulators, firms, trade associations and consumer groups. The City of London Corporation can and does participate in that engagement on the same basis as other interested parties.
To reassure the noble Baroness, there are arrangements in place to ensure transparency in relation to the Government’s activities; for example, I and other Ministers regularly publish details of our engagement with all external stakeholders. Similarly, I can assure her that the corporation holds no unique or privileged position in relation to the operation of the financial services regulators. The FCA and PRA engage with a wide number of stakeholders across the market as they exercise their functions, including with the corporation. Where information is held by public authorities, such as the Treasury, the FCA and the PRA, it is subject to the usual transparency frameworks, including freedom of information legislation.
Taken together, I do not see the need for action, as the corporation does not have a unique or privileged position in the development of financial services regulation, at which the Bill is particularly targeted. As such, I ask the noble Baroness to withdraw her amendment.
Baroness Bennett of Manor Castle
My Lords, I thank the Minister for his response and everyone who has taken part in this interesting and informative debate. We have engaged with some interesting and broad issues. I particularly commend the noble Lord, Lord Pitt-Watson, who gave us some interesting suggestions and proposals that I am certainly going to go away and think about. I do not think that continuing with the history is necessarily the right thing to do, but that does not mean we cannot learn from history. The idea of the City of London having responsibility for its tradespeople has an interesting comparison, which makes me wonder: had we held the City responsible for the financial crash of 2007-08, and if the City had paid some of the large expenses that were instead, by austerity, put on the shoulders of the poor, the disabled and the young around the country, how different things might have been. I note that the noble Lord also said that the City should be responsible for seeing that these services should deliver benefit to the world. That is an interesting proposal that I will take away. In responding to what the Minister and the noble Baroness, Lady Dacres, said, questioning what influence the City has over the FCA and the PRA, I will refer to the contribution from the noble Baroness, Lady Bi-
The noble Baroness was not here at the start of this sitting, which started earlier this afternoon, almost five hours ago. I point out that, as far as the Companion is concerned, when noble Lords are withdrawing amendments, they must be short and not rehash the whole argument or make responses to all the points made during the debate. If the noble Baroness would move towards withdrawing the amendment, that would be good.
Baroness Bennett of Manor Castle
I thank the noble Lord, the Whip. I am not rehashing; I am engaging with the contributions.
No. Paragraph 8.82 of the Companion says that when withdrawing amendments, noble Lords should be short in doing so and should not engage, because they will have done that during the debate.
Baroness Bennett of Manor Castle
I was speaking for about a minute and a half before the noble Lord interrupted me. I think three minutes might count as short, and I have two short points to make. The first, as I was saying before I was interrupted, is that the noble Baroness, Lady Bi, said that the City-
My Lords, I apologise to the noble Baroness, but I support what was said from the Government Front Bench. This matter was discussed again in our Procedure Committee this morning: arguments that have been put are understood by a committee or by the House, and there is often merit in moving on relatively quickly, so, from the Opposition Front Bench, I support what was said.
Baroness Bennett of Manor Castle
I note the noble Lord’s contribution. As I said, I would have finished by now had I not been interrupted multiple times. The simple point I want to make is that the noble Baroness, Lady Bi, said that the City engages constructively with regulators. She also said that it uses its convening power to promote the sector. I would argue that, put together, those two things make the case for this amendment. However, I was going to be brief; I would otherwise have finished a minute ago. We have had an interesting discussion. I will think about where this might go on Report but, in the meantime, I beg leave to withdraw the amendment.
Amendment 172C withdrawn.
Amendment 172D
Moved by
172D: After Clause 47, insert the following new Clause- “Review of regulatory causes of debanking(1) Within 12 months of the day on which this Act is passed, the Treasury must lay before Parliament a report reviewing the extent to which individuals, businesses, charities and other organisations have been refused access to banking services, had banking services terminated, or had the use of banking services materially restricted as a result of regulatory requirements, regulatory uncertainty or risk aversion arising from the operation of the regulatory framework.(2) A report under subsection (1) must consider, in particular-(a) the scale and nature of debanking in the United Kingdom;(b) the categories of individuals, businesses, charities and other organisations most affected by debanking;(c) the sectors, industries or lawful activities most affected by debanking;(d) the extent to which debanking decisions are attributable, wholly or partly, to-(i) anti-money laundering requirements,(ii) counter-terrorist financing requirements,(iii) sanctions compliance,(iv) financial crime prevention requirements,(v) regulatory reporting, monitoring or due diligence obligations,(vi) regulatory guidance or supervisory expectations,(vii) fear of regulatory enforcement or supervisory criticism,(viii) uncertainty or confusion as to the proper interpretation of regulatory requirements, or(ix) the cumulative cost or burden of regulatory compliance.(3) In preparing the report under subsection (1),...
My Lords, in moving this amendment in my name and that of my noble friend Lord Altrincham, I shall speak also to Amendments 172E and 172F. Amendment 172D probes on debanking. It would require the Treasury to carry out a review into whether individuals, businesses and organisations are being denied, having restricted access or losing access to banking services as a result of the way in which the UK’s financial regulatory framework operates. The core issue is this: the regulatory environment we have at the moment, and the way in which it is constituted, can mean that people, firms and organisations are denied access to banking services. Without access to a bank account, payment services or basic financial infrastructure, people and businesses are severely constrained in their ability to trade, to invest, to employ, to grow and to participate fully in the economy. The amendment asks the Treasury to examine whether debanking is taking place because of excessive regulation, uncertainty, regulatory confusion, supervisory expectations, enforcement risk or general risk aversion. We have heard concerns from a number of sectors that they are, in effect, playing it safe. They are not necessarily closing accounts because there is a clear requirement to do so; they are doing so because the regulatory environment has become so complex and uncertain that the safest option is to avoid certain customers and sectors altogether. This matters for SMEs. A small business that cannot obtain or...
My Lords, I support Amendment 172E in the name of my noble friend Lady Neville-Rolfe. She expressed her support for it far more ably than I ever could, but I want to say that it would be unrealistic to think that sophisticated financial businesses with complex computer systems and programmes can continue to operate in this country if they cannot protect the secrecy of systems oh whose development they may have spent millions of pounds or dollars. Whether this is carried out by non-compete clauses, which I imagine will be the easiest way to do it, or some other method, what must be achieved is the ability of financial companies to preserve the security of their systems-that is, if we wish these businesses to remain in this country and not go somewhere else where they will get security for what, as I say, may have cost them many millions to develop. In that context, they just do things that we do not know about. For example, the method of communication in the United States now is to bounce radio waves off the ionosphere. They do not want to come here and show everybody how to do it. So I urge the Minister to pay good attention to what my noble friend has said.
My Lords, I support my noble friend Lady Neville-Rolfe’s Amendment 172D. The problem of debanking has reached a serious level in the UK, with roughly half a million people reported to be affected last year alone. I welcome and recognise that the Government have moved on this and that the new rules require banks to give 90 days’ notice and provide a clear explanation. I also welcome the fact that there is a right to challenge unresolved disputes via the ombudsman.
However, there are still certain exceptions in respect of financial crime, anti-money laundering, counterterrorism finance and so on. It is here that I think my noble friend’s amendment is particularly valuable. It asks for a specific report and data for Parliament to know the scale and how far these exceptions may contribute to the problem of debanking. Not only those anti-crime requirements in our laws, but the fear of regulatory enforcement and the operation of regulatory matters affect how people approach their job in banking with implications for debanking. I think that everyone on all sides of the Committee would find such a review very useful because we know how difficult debanking is for not only individuals but small businesses and the whole economy with the uncertainty it can create and the problems and obstructions. For these reasons, I would welcome a review and support my noble friend’s Amendment 172D.
My Lords, this is the final group before Committee stage is completed. I am grateful for the discussions so far, not just on this group of amendments but on each of the more than 220 amendments we have discussed over the past three weeks. I appreciate the insights and wisdom shared by everyone in the six sessions. As someone relatively new to the House, I come away from this stage of the Bill’s journey with renewed faith and belief in the importance of scrutiny in the House of Lords. I thank noble Lords. These amendments propose that the Treasury conducts reviews into a range of important issues in financial services. I will first speak to Amendment 172D, which would require HM Treasury to undertake a review into the scale and nature of debanking in the UK. The Government recognise the serious impact the loss of access to those services can have, but there is already a significant amount of work under way. Parliament has legislated to ensure that domestic politically exposed persons and their family members and close associates are treated in a more proportionate manner under the anti-money laundering framework. The FCA has also undertaken significant work on account access, account closures and debanking as required by Parliament. The FCA has collected evidence to understand where account closures and refusals are occurring and why, and has undertaken further work better to understand the reasons behind account closures and refusals. I am not sure that regulation is a...
My Lords, I thank my noble friends Lord Howard of Rising and Lady Lawlor for their support, and the Minister for his response. These amendments have raised three distinct but connected issues: problems with access to banking services, protection of commercially sensitive information, and the ability of financial services firms to recruit, retain and deploy talent in the UK under the new Employment Rights Act. I hope the Government will reflect further on these issues before Report and provide more concrete evidence on what has been happening on debanking to those who have been involved in Committee. The Minister made some encouraging remarks, but some data would be useful. I very much look forward to his letter on the points that I have raised about the impact of the Employment Rights Act. As the last speaker, I also thank all those who have been involved in the Committee. We have completed it on time and with great good humour, in general. I look forward to Report and, for now, beg leave to withdraw my amendment.
Amendment 172D withdrawn.
Amendments 172E and 172F not moved.
Clauses 48 to 51 agreed.
Clause 52: Commencement
Amendments 173 and 174 not moved.
Clause 52 agreed.
Clause 53 agreed.
Bill reported without amendment.
Committee adjourned at 8.38 pm.