Financial Services and Markets Bill [HL]
House of Lords · Grand Committee · 1 Jul 2026 · 137 speeches · Official Report
Committee
Northern Ireland and Scottish legislative consent sought. Relevant document: 2nd report from the Delegated Powers Committee.
My Lords, I want to address a few key areas before we begin. First, we are starting today with the debate on an adjourned group. Only those noble Lords present earlier in the week at the start of the group should contribute. We have a list to help manage that. I am expecting, based on the adjourned debate, that debate will go straight to Front-Bench contributions. Secondly, on the general rules, I remind noble Lords again that they should declare any relevant financial interest the first time they speak at each stage of the Bill. This means that, in Committee, relevant financial interests should be declared during the first group to which the noble Lord contributes. The declaration does not need to be repeated in debate on later groups at this stage. The declaration should be specific and brief. Members should briefly indicate the nature of their financial interests and not simply refer to their entry in the Register of Lords’ Interests . I remind the Committee of the guidance in paragraph 8.82 of the Companion that, when withdrawing amendments, noble Lords should be brief, need not respond to all the points made during the debate and should not revisit points made when moving the amendment. A number of contributions made when withdrawing amendments on previous days were lengthy. I encourage all participants to keep their remarks short, in the spirit of the Companion .
Debate on Amendment 99 resumed.
My Lords, I am sure everyone has reread the Hansard transcript and is fully on top of the debate that took place on Monday, so I will attempt to keep my remarks brief. I am tempted to engage with the challenge from the noble Lord, Lord Bridges, on this group of amendments, to discuss in depth the issue of international rules on the one hand versus growth and competition objectives on the other. However, I say to the noble Lord, Lord Wilson, as the Whip, that I recognise that we are in Grand Committee and so will limit the comments that I make. Looking at this group of amendments, it is important to say that my party believes in “better together” rather than “beggar thy neighbour”. International rules provide trust, confidence and certainty, which are key to long-term and sustainable growth. This country plays a key role in shaping international rules in sectors that we care about, including finance. The Bank of England is incredibly highly respected, as are our other regulators. There is extensive participation in key bodies, such as the Financial Stability Board, the Basel Committee on Banking Supervision and others. Indeed, the noble Baroness, Lady Noakes, gave a long list of the various committees in which regulators are engaged. I think she thought it might make them go native, but I consider that it is an important opportunity and area of their influence. We remain a player in making those rules, despite Brexit. International rules need to provide flexibility, but they...
My Lords, for me, the group speaks to the essential balance which underpins the purpose and function of effective financial regulation. Of course regulation must promote safety, stability and confidence in the system, but regulation must also support growth, competitiveness and innovation. It must help ensure that the United Kingdom remains one of the world’s leading financial centres. We have often spoken about the contribution that financial institutions and financial services firms make to the UK economy; they provide employment, tax revenue, investment, lending, infrastructure and global influence. This group is about making sure that we put our money where our mouth is. If we say that competitiveness and growth matter then those principles must be reflected in the way regulators act, report and make their decisions. That is why Amendment 99, to which I have added my name, is important. It would shift the requirement from “aligning with” international standards to considering international standards. That is an important distinction. International standards matter, and in many cases the UK will rightly wish to follow them, but we should not place ourselves in a position where we become passive rule-takers when it is not in our national interest to do so. We can see some rules, such as the unbundling of research in MiFID II, having totally the wrong effect-in this instance, regulating research so heavily that less research is produced, particularly for smaller firms. I...
Together, these amendments are about making the competitiveness and growth objective more flexible, transparent and system-wide. They do not undermine safety or tell regulators to ignore risk. They simply say that growth and competitiveness must be placed at the front of the regulatory mind.
I would therefore be grateful if the Minister could address two points. First, do the Government agree that the UK should have the flexibility to depart from international standards, where doing so would better serve UK competitiveness and growth, without undermining safety or stability? That picks up a point made by the noble Baroness, Lady Kramer. Secondly, do they agree that the competitiveness and growth objectives should apply more widely across the Bank of England’s financial market infrastructure and payment systems functions? I look forward to hearing the Minister’s response and, if need be, returning to this vital area on Report.
My Lords, the Government share the views of many in this debate, particularly on the importance of ensuring that the secondary growth and competitiveness objectives are comprehensively embedded in the work of the regulators. That is why the Bill legislates to extend the requirement for the regulators to produce annual reports on their actions to advance competitiveness and growth objectives. Amendment 99 would amend the secondary objective so that when carrying it out the regulators would need only to consider international standards, rather than to align with them. I recognise the desire to ensure that there are no unnecessary constraints on the secondary objective. However, the Government cannot accept this amendment. Aligning with international standards is central to the Government’s approach to supporting the international competitiveness of the UK as a global financial centre. These international standards underpin global financial resilience and support international trade. Stability, predictability and high regulatory standards are the cornerstone of the UK’s reputation as a global financial centre. Weakening the requirement to align would risk undermining the attractiveness of the UK as a place to do business. However, it is worth noting that the UK is no passive recipient of international standards: we help to shape them. The Governor of the Bank of England is the current chair of the Financial Stability Board, and the UK authorities play leading roles in...
My Lords, I thank all noble Lords who have spoken today and the previous day. These amendments all relate to the secondary competitive and growth objective. I think that we share the same desire to have an effective secondary competitive and growth objective, which my lead amendment, in particular, was designed to ensure. The Minister says that the regulators have flexibility to do what is right, whatever the international standards. I do not think that that is captured by forcing alignment with standards, but I will think again about that before Report. I was also disappointed by the Minister’s other replies, because it seems that the Government are not taking opportunities to ram home the importance of growth and competitiveness, which is something that we fully support. I will withdraw my amendment now and consider what I shall bring back on Report.
Amendment 99 withdrawn.
Clause 20: Competitiveness and growth objective: reporting requirements
Amendments 100 to 101A not moved.
Clause 20 agreed to.
Amendments 102 to 104A not moved.
Clause 21: Amendments to time periods for determination of applications
Amendment 105
Moved by
105: Clause 21, page 26, line 3, leave out “changing” and insert “reducing” Member’s explanatory statement These amendments ensure that the Treasury has the power to reduce various time limits for regulatory approvals, but not to increase them.
My Lords, I rise enthusiastically -we have to get going for the football-to move Amendment 105, in my name and the name of my noble friend Lord Altrincham. I will also speak to the other amendments in the group. I am grateful to my noble friend Lord Holmes for his amendments, which seek to achieve broadly the same objective as ours. I am also grateful to my noble friend Lord Howard of Rising for Amendment 151, which raises an important question about whether experienced and well-regarded individuals with a strong regulatory track record should be able to benefit from a more streamlined authorisation process. Fundamentally, the amendments in the group all seek to make regulatory approvals faster, clearer and less prone to delay. We have heard throughout our consideration of the Bill that delays in authorisations, approvals and permissions are a brake on growth. They affect firms’ ability to enter the market, to expand, to appoint senior people and to innovate and compete. The Government recognise the problem: Clause 21 reduces a number of statutory determination periods, including for Part 4A permission applications, senior manager approvals and other regulatory decisions. That is welcome. However, the question is whether the Bill goes far enough and whether the powers that it creates are sufficiently disciplined. One concern raised with us by firms is that the authorisations process can feel driven by deadline, rather than workflow. The issue is not only whether the FCA or...
My Lords, what a pleasure it is to follow my noble friend Lady Neville-Rolfe. I agree with everything she said, with all the principles she set out and with the amendments in this group. I shall speak to Amendment 106 and the other amendments in my name. We are asking a lot of our financial regulators and it is only right that we offer help in the Bill. When we come to the Minister’s response -I do not want in any sense to pre-empt him-there may be comments around the amendments being overly prescriptive. I suggest that these amendments do not ask for prescription but, in fact, deliver clarity and, in a sense, are variously helpful to our financial services regulators. My amendments seek to offer that help but also, as my noble friend Lady Neville-Rolfe said, to assist in driving that high-performance culture. Our regulators are well-regarded around the world. That is about high performance, but high performance in its turn is about continuous development and improvement. I think that this Bill can assist in that purpose. In essence, this is all about the “E”s in this group: efficiency, effectiveness and economic activity. It is often said that delay defeats equity. In this instance, delay defeats economic activity and economic growth. It frustrates small, medium and larger businesses in what they are trying to do right across the United Kingdom economies. I believe that this suite of amendments offers clarity to the regulator and that, through that clarity, the regulator...
My Lords, I declare my interest as an employee of Marsh, an FCA-regulated entity. These amendments in the names of my noble friends Lady Neville-Rolfe, Lord Altrincham and Lord Holmes concern Clause 21, which I very much welcome in principle. The improvements to regulators’ approval timelines are a positive step, as are the powers within the clause that enable the Government to amend those timeframes over time. In effect, the Bill already recognises the need for a mechanism to drive improvement. However, the evidence suggests that we can and should go further. The fact that regulators have consistently met their existing targets-targets that have remained largely unchanged for some 25 years-indicates that there is clear scope for more ambitious deadlines. These amendments are therefore designed to embed a culture of continuous improvement, as referred to by my noble friend Lord Holmes. They would ensure that any future changes to the timeframe set out in Clause 21 could move in only one direction, towards faster decision-making. Moreover, where regulators have consistently met revised targets over a period of two years, the Treasury would be required to reduce those timelines further. In doing so, we would place a statutory obligation on the system to evolve and improve. This matters greatly for the competitiveness of the United Kingdom, particularly for the insurance market in which I work. The speed at which regulators handle authorisations, variations of permission and...
My Lords, I should like to speak briefly and, in so doing, declare my interest as an adviser to and shareholder in Banco Santander. I very much support these amendments. I think that we would all agree that we want our regulations and the entire process to be simple and robust, as that is the bedrock of a competitive global financial centre. I do not think that anyone here is arguing for a weakening to the extent that it would undermine confidence in the market, which is absolutely critical. To support what has just been said, I draw your Lordships’ attention to a study that TheCityUK brought out a few years ago-I think in 2023. It highlighted in its survey concerns among those in the City about the speed of regulatory requirements. If I am reading it right, of those who responded to the survey and were undergoing FCA regulatory approvals, 92% were experiencing delay. If you look at the views on the opaqueness of the systems, which indeed adds to uncertainty and undermines investor confidence, an enormous percentage-almost 100%-saw the system as opaque or somewhat opaque. If one then looks further on in this study at the perceived overall impact that the efficiency of the regulators’ authorisation processes had on the attractiveness of the UK as a place to establish and do business, in terms of the FCA, if my maths serves me right, almost 90% saw it as detrimental or somewhat detrimental to the UK’s attractiveness. I am sure that the FCA and others are doing their best to...
My Lords, my Amendment 151 seeks to enable employment in the financial services industry to be made more efficient. At present, Section 55V of FSMA requires the Financial Conduct Authority to determine a complete application for Part 4A permission within six months and an incomplete application within 12 months. These statutory limits provide certainty but do not distinguish between entirely new market entrants and applicants who have previously been authorised and regulated by the FCA. Many experienced financial services professionals have already undergone extensive regulatory scrutiny, have held approved positions within FCA-authorised firms and possess established records of compliance, integrity and competence. Despite this, when establishing a new authorised firm, they are often subject to the same authorisation timetable as applicants with no prior regulatory history. This approach can create unnecessary delays, increase costs, discourage entrepreneurship and inhibit competition within the UK financial services sector. It is also inconsistent with the Government’s broader objective of promoting growth, innovation and international competitiveness within the UK financial markets. I propose that His Majesty’s Government consider introducing a fast-track authorisation process whereby applicants who have previously been authorised by the FCA or who have held FCA-approved senior management or controlled functions for a substantial period, have no record of serious...
My Lords, I am grateful to the noble Baroness, Lady Neville-Rolfe, and the noble Lords, Lord Altrincham and Lord Holmes, for tabling these amendments on statutory deadlines for regulatory approvals. The Government agree that determining authorisations and other regulatory applications must be prompt and proportionate, while maintaining high standards, and they continue to push the regulators to be as ambitious as possible. This is why the Government are taking action to shorten a range of statutory deadlines through the Bill and, on top of this, have agreed voluntary stretch targets for the regulators to go further and faster to speed up the processing of the most crucial applications and facilitate growth. This focus is starting to pay off: for example, the FCA’s authorisation metrics for the last quarter show that the FCA determined 99.9% of senior manager applications within the existing three-month deadline, compared to 92.5% in the same quarter for 2022-23. In addition, the FCA determined 98.1% of senior manager applications within its two-month voluntary stretch target, determining 50% of authorisations within only 19 days. Amendments 105, 106, 110, 111, 113, 114 and 115 seek to ensure that the Treasury can use the power under Clause 21 to reduce the deadlines for determining applications. The Government understand the intention behind these amendments. The Government are committed to keeping these statutory deadlines under review to ensure that they are as ambitious...
I would like some clarification from the Minister. Does he have, at his fingertips, figures around the stop the clock function? Are the Government currently satisfied with how the function is being used?
Let me come back to the noble Lord with that data; I had it in the original draft, but it seems that we have passed it out. I will write to the noble Lord over the coming days. Our belief is that the right answer is not to hardwire this procedural restriction into primary legislation but to continue improving operational performance and scrutiny of timelines through our wider framework. Amendment 108 would insert detailed operational requirements into FSMA for the handling of authorisation applications. I recognise the attraction of measurable standards on case allocation, initial review, information requests, publication of monitoring data and limiting the use of the stop the clock mechanism. However, as we discussed earlier, the FSMA model delegates certain responsibilities to the independent regulators and, like any other organisation, they need to figure out how to fulfil those responsibilities. They are responsible for ensuring that they have the resources, systems and processes needed to discharge their functions effectively. The right approach for Parliament and the Government is to hold the regulators to account for speed, service quality and operational effectiveness, not to prescribe in primarily legislation the detailed mechanics of how an application must be processed. I have been passed the data that was in the original speech, which answers the question from the noble Lord, Lord Holmes. In the year 2025-26, in 55% of FCA solo-regulated senior management...
I thank the Minister for those statistics and very much appreciate him having them in front of him. This ability to elucidate such detail is incredibly helpful. He set out the importance of enabling the regulator to continue to have the option to increase timelines, rather than just having them set as they are or being able to reduce them, as our amendments suggest. Would he be able to set out to the Grand Committee perhaps four or five examples of where it would be helpful for the regulator to increase timelines?
I understand that the regulator does not have the power to increase deadlines without our consent.
The wording in the Bill is “changing”, so it can go up or down, but we are asking for it to be reduced. That is significantly different.
The noble Lord makes an important point, but the regulator does not have that power. Only the Treasury can grant that power to increase the timelines.
Then the Treasury can do it, but it should be down and not up.
I think this requires some further detail. It is an affirmative power that the Treasury has to regulate, but I will write to the noble Lord in full to make sure that he understands that we are taking this issue seriously. I turn to Amendment 151 and thank the noble Lord, Lord Howard, for raising this. I know that it reflects a long-standing frustration that credible firms, particularly those led by individuals already known to the regulator, may still face lengthy authorisation processes that can delay market entry and inhibit innovation and growth. However, while the previous approval and track record of senior individuals is clearly relevant to the regulator’s assessment, authorising a firm is not simply a matter of approving the people who run it. The regulators must assess the firm as a whole, including its business model, governance, systems and controls, and whether it is capable of operating safely and in the interests of its customers. The Government recognise the importance of timely and effective authorisation processes, especially for new firms. This is why the Government are shortening the deadlines for new firm authorisation applications through this Bill. It is also why the Government are taking steps to establish a provisional licences regime, to reduce the barriers that firms face when seeking FCA authorisation and to help them get up and running faster. The challenges that firms face when seeking authorisation are real, and I am happy to discuss that further...
My Lords, I am grateful to all noble Lords who have contributed to this debate and to the Minister for his response. I welcome that the Government recognise the problem of delay in authorisations and approvals. Clause 21 is clearly intended to make progress in that respect, but the existing approval figures suggest to me that the deadlines are insufficiently ambitious. Leaving it to the FCA and PRA feeds risk aversion, and it is disappointing to hear the Minister endorsing that. Unless the powers in the Bill on the Treasury and the regulators are better disciplined, we may not achieve the cultural and operational shift that firms need and we all want. There will not be an incentive for continuous improvement, of the kind that my noble friend Lord Ashcombe described in the insurance industry, that is so badly needed. I am also not sure what the unexpected circumstances are, not on stop the clock but on the basic system. What is the detail of that? Is it Covid? Is it a war? I do not know. I am grateful for the Minister’s comments on stop the clock. It was interesting to hear that nearly half the cases involved stopping the clock-and that we have no idea how long the bad cases take. A statutory deadline is of limited value if it can be paused repeatedly or if firms feel that pauses are being used in a way that creates uncertainty. The FCA should, wherever possible, identify missing information early and comprehensively. I do not think I heard a satisfactory answer on that. I...
Amendment 105 withdrawn.
Amendments 106 to 116 not moved.
Clause 21 agreed.
Clause 22 agreed.
Amendment 117
Moved by
117: After Clause 22, insert the following new Clause- “Section 166 reviews: threshold and proportionality requirements(1) Section 166 of the Financial Services and Markets Act 2000 (reports by skilled persons) is amended as follows.(2) After subsection (1) insert- “(1A) The regulator may not require a person to provide a report under this section unless it is satisfied that-(a) there is a material risk of serious detriment to regulatory outcomes, and(b) the use of a skilled person is a proportionate response, having regard to-(i) the scale and nature of the suspected issue,(ii) the expected burden on the firm, and(iii) whether the matter could reasonably be addressed through the regulator’s existing supervisory tools.”(3) After subsection (4) insert-“(4A) The regulator must publish, at least annually-(a) the number of reports commissioned under this section,(b) the sectors to which they relate, and(c) the aggregate cost to firms of such reports.”(4) In subsection (5), after “may” insert “, subject to subsections (1A) and (4A),”.”Member’s explanatory statement This new Clause would introduce a statutory threshold for the use of section 166 skilled persons reviews, requiring the regulator to demonstrate a material risk of serious detriment and to consider proportionality, and would require annual publication of the number, sectoral distribution and aggregate cost of such reviews.
Baroness Bowles of Berkhamsted
My Lords, in moving this amendment, I shall speak also to Amendment 123 in my name. As I have said before in Committee, when we have been talking about proportionality, it is at least possible to look at rules and assess whether they appear proportionate and growth-friendly, but it is far harder to understand what is happening on the ground in supervision and enforcement because that activity is not public and is, therefore, less visible. This is particularly so with Section 166 notices. I seem to have once again hit on the same subject as the noble Baroness, Lady Noakes. I promise noble Lords that there has been no conferring, as they say on “University Challenge”. There was a time when a Section 166 notice was very rare. It was regarded as a serious matter and something you did not want others to know about, lest it suggest that you were doing something really wrong, you were in real difficulty, or you were in trouble over something. Now, the reaction is much more along the lines of, “Oh, you too?”, and the sense in the industry is that what was once a rare and targeted tool is becoming a routine, general-purpose device-sometimes even a fishing expedition. These investigations are not small matters. They can go on for a very long time. They are intrusive, expensive and disruptive to normal operations. They require the appointment of external consultants, often at significant cost, and involve a lot of staff time; they even require the hiring of additional staff to deal...
My Lords, I have Amendment 118 in this group. As the noble Baroness, Lady Bowles, noted, it is aimed at the same target as her Amendment 117. Both of us are focusing on the regulators needing to have some specific and serious concerns about regulatory breaches before triggering a Section 166 review. I have had some experience of being on the receiving end of Section 166 notices from my time on the board of a major bank. They are genuinely very burdensome: they cost a lot of money, and they divert a huge amount of staff resources and, more importantly, senior management time. They are not something to be undertaken lightly. The consulting firms absolutely love them. The fees are set by the regulator, so they do not have to do anything awful, such as negotiating with a client around the fees. They often have some perverse incentives, and quite often are structured as phase 1 and phase 2. Phase 1 is where you see whether there is a bit of a problem, then you move on to phase 2. Phase 2 is where the real money usually is, so the consultants leave no stone unturned in their efforts to trigger phase 2, and they can end up creating more work than might perhaps have been needed. Like the noble Baroness, Lady Bowles, I am not saying that Section 166 reviews should not exist, but the use of them should probably revert to the use that existed before. That is why it is important to put a higher hurdle than is currently in the statute for the use of Section 166, so that the burdens are...
My Lords, I am grateful to the noble Baroness, Lady Bowles, and my noble friend Lady Noakes for bringing forward these amendments. I declare my interest as a director of South Molton Street Capital, which is regulated by the FCA. The amendments in this group focus principally on Sections 165 and 166 of FSMA. It is worth recalling that the very expression “Section 166” has become part of the language of financial regulation. When the history of financial regulation is written, it will be the most famous item of regulation for this period. It is part of the common language, because there are dozens and dozens of these regulatory interventions. Section 166 gives the regulators the power to require a firm to appoint or to pay for a skilled person-often a very expensive law firm-to produce a report on specified matters. These reviews can be burdensome, expensive and disruptive for the firms concerned. The concern we have heard from industry is that Section 166 notices have become more and more common in recent years. They were, as the noble Baroness, Lady Bowles, pointed out, initially quite scarce and quite important-and quite quiet, incidentally. Now, they are talked about all the time, because they are as common as anything. The serious issue is that they can, in effect, be used by the regulator as a demonstration of the exercise of its supervisory function. These notices are supposedly for an inquiry, but they look quite threatening: they can be written in bold and in caps...
My Lords, I am grateful to the noble Baronesses for these amendments, and I have listened carefully to the points made today. The principle of ensuring that the regulators take a proportionate approach to their work-in the case of these amendments, to skilled person reviews and regulatory information collecting-is one that the Government strongly agree with. We have previously debated that principle and how it applies more broadly to the work of the financial services regulators. Amendments 117 and 118 relate to skilled person reviews under Section 166 of FSMA. It is an important supervisory tool, and the Government agree that it should be deployed proportionately. However, the Government are not persuaded that there is an issue here that requires us to further constrain the regulators’ ability to require these reviews when they consider it appropriate to effectively safeguard the markets and consumers. The regulators have existing procedures to ensure proportionality when considering whether to initiate a skilled person review. The FCA handbook sets out that it will first consider the circumstances of the firm, the costs involved and the availability of other supervisory tools to tackle the issue. The PRA has similar processes in place. Layering additional statutory requirements on top of this risks creating burdensome delays over supervisory decisions. Skilled person reviews are often used precisely in circumstances where the regulator needs independent expert analysis....
The Minister made great play of the importance of proportionality, on which I think there would be considerable agreement. The Bill removes the requirements to have regard to the regulatory principles, including, importantly, the proportionality paragraphs, for anything other than the five-year plan. It is therefore incumbent on the Government to look at all other areas of the Bill to ensure that proportionality, where it is needed, is correctly referenced in the Bill. By taking it away at the outset from the requirement to have regard in areas other than the five-year plan, the Government are leaving the Bill wide open to the non-proportional use of powers by the regulator. This area has not been fully developed by the Government in their thinking on this.
Baroness Bowles of Berkhamsted
My Lords, I thank all those who have spoken in this debate, in particular the noble Baroness, Lady Noakes, for her last intervention; I presume that the Minister had finished speaking. Perhaps we need 200 amendments on Report saying, “This has to be done proportionately”. That is literally where we are. Anybody who has been near a Section 166 review will know that an awful lot about it seems awfully unfair. For instance, the regulator may not have its own expertise, so it makes you pay to hire it in. Some of these things should be done under the regulators’ ordinary duties. This needs to be looked at and, as the noble Lord, Lord Altrincham, said, some kind of proper discipline must be put around it. That is what we are asking for. I am glad to hear that there is a target of cutting the administrative burden by 25%. We will see how that goes, but I do not think that everything can be left as open as it is now, which is the much-repeated message that we have been delivering. For now, I beg leave to withdraw my amendment.
Amendment 117 withdrawn.
Amendment 118 not moved.
Amendment 119
Moved by
119: After Clause 22, insert the following new Clause- “Cost benefit panels(1) The Financial Services and Markets Act 2000 is amended as follows.(2) In subsection (4) of section 138IA, insert after paragraph (a)- “(aa) keep under review the cumulative impact of rules issued by the FCA including those covered by subsection (3); and”(3) In subsection (4) of section 138JA insert after paragraph (a)-“(aa) keep under review the cumulative impact of rules issued by the PRA including those covered by subsection (3); and”(4) In subsection (5) of section 139A, omit “(e)”.”Member’s explanatory statement This amendment allows the Cost Benefit Panels of the FCA and the PRA to keep the cumulative impact of regulation, including those rules which are not consulted on, under review. It also requires the FCA to prepare cost benefit analysis for guidance and for the Cost Benefit Panel to review it.
My Lords, I thank the noble Lord, Lord Vaux, for adding his name. Unfortunately, he is not able to be in Committee today. The amendments in this group concern cost benefit panels, which were created by the 2023 Act to underpin the existing FSMA requirement for cost-benefit analysis to be undertaken and published when rules are consulted on by the PRA and the FCA. The panels were created a little under two years ago and they are doing good work, as their annual reports show. The Financial Services Regulation Committee had a private briefing session with the chairs of the two panels, and we were impressed by the progress that they have made. My amendment has two elements. The first requires the panels to keep under review the cumulative impact of rules, including those for which a cost-benefit analysis was not required because the impact was expected to be less than the £10 million threshold used by both regulators in their cost-benefit analysis policy statements. Keeping track of the cumulative burden of regulation was a recommendation of the Financial Services Regulation Committee in its Growing Pains report on the secondary competitiveness and growth objective. It was also one of the provisional recommendations of the FCA’s panel in its first report for the period to the end of March 2025. The 2025-26 report is not out until next week, but I would be surprised if it did not feature again. Ideally, FSMA should be changed so that the existing statutory requirement on the...
My Lords, it is a pleasure to follow my noble friend Lady Noakes. I congratulate her on her purposive, rather than literal, interpretation of her amendment. I support her amendment and everything she said, as well as the other amendments in this group. I will speak to my Amendment 129. Many noble Lords here today were in the Grand Committee debates for the then FSM Bill 2023. As my noble friend Lady Noakes rightly identified, the CBA panels have done very good work in their first couple of years of existence. My Amendment 129 seeks to give them further clarity to assist them in doing that good work, to ensure that they have the materials they need to do it, and to bring an additional element around public awareness of the panels’ work. That speaks to greater transparency, awareness and engagement, which can help not only the work of the CBA panels but the wider work of the regulators themselves. I look forward to the Minister’s response.
My Lords, I am grateful to noble Lords who have tabled amendments in this group, which all take broadly the same approach to the cost benefit analysis panels. The underlying point addressed here is simple: if we are serious about accountability, proportionality and reducing regulatory burden, the panels that already exist to scrutinise the costs and benefits of regulation should be able to look at the full practical impact of what regulators do. Amendment 119, in the names of my noble friend Lady Noakes and the noble Lord, Lord Vaux, raises the important issue of cumulative regulatory burden. Amendment 129, in the name of my noble friend Lord Holmes, would give the panels a broader and more visible role, including through regular impact assessments, stronger access to information and greater transparency. Amendment 132, in my name and that of my noble friend Lady Neville-Rolfe, addresses a specific gap: the use of guidance and supervisory practices, which may have significant practical effects on firms, but which do not currently receive the same level of cost-benefit scrutiny as formal rule changes. I start with the cumulative burden point, because it is extremely important. Regulation is not experienced by firms as a series of isolated events. New rules come on top of existing ones, including guidance, reporting requirements, supervisory expectations, data requests, “Dear CEO” letters and enforcement signals. Individually, each new intervention may appear manageable, but...
My Lords, the Government agree that cost-benefit analysis sits at the heart of good regulation, and are committed to ensuring that the FCA and PRA are transparent and rigorous when they assess the impact of their rules on firms and consumers. FSMA 2023 introduced requirements on the regulators to publish a statement of policy for their approach to cost-benefit analysis-or CBA-and to establish CBA panels, as your Lordships know. CBA panels play an important role in the regulators’ work, acting as a critical friend to provide advice to the regulators on their CBAs, with the aim of improving their methodology and approach to CBA. They are required to include experts working at authorised firms to ensure that the regulators benefit from the insights of firms as they develop CBAs, and particularly to improve awareness of the impacts of regulatory proposals on firms. Amendments 119, 129 and 132 seek to build on these existing statutory requirements to prescribe, in primary legislation, the precise functions, working methods and outputs of the panels. The CBA panels are still relatively new institutions. Their value lies partly in their ability to independently develop their own optimal working practices, to identify where their scrutiny has the highest value and to evolve as the regulatory landscape changes. Locking in their mandate in such detailed statutory provisions removes the very flexibility and ability to evolve that makes them effective. Many of the detailed requirements...
Can the Minister explain what the FCA and the PRA are doing about cumulative burden? Are they focusing on the cumulative burdens of the rules that they have assessed using a cost-benefit analysis, or is it for all of their activities? It is my understanding that they are both pretty clear that they will use cost-benefit analysis in the way the statute has prescribed-that is, they use materiality thresholds, so quite a lot of them are not required at all to be looked at-so the whole range of their activities, which covers anything that is not rule-making, does not get assessed for cost-benefit at all. Can I be clear on what the Minister thinks the regulators are doing?
I will have to write to the noble Baroness, because that is a very detailed question.
To be clear, it is the question.
We are trying to be balanced and proportionate here. I recognise that these are important issues but, at the same time, it is about ensuring that the regulator has the flexibility to make those decisions. We are definitely making inroads on this, although I imagine that there is a lot more discussion to be had between now and Report. I want to make sure that I give the noble Baroness the right response. Amendment 132 seeks to extend the CBA obligations to general guidance and supervisory practices-I take that to mean all guidance. The Government recognise the concern that regulatory burdens can be imposed on firms through guidance and supervisory practice, as well as through formal rules. Where guidance is about rules that have already been made, in most cases the underlying policy would have already been subject to CBA through the rule-making process, so requiring CBA for such guidance would be duplicative. In these cases, the guidance is to help firms understand what the rules require and how they operate. Where guidance may result in significant costs being incurred, the Government note and welcome the regulators’ work to voluntarily prepare CBA for guidance-for example, the FCA’s guidance on fair treatment for vulnerable customers. Most guidance issued by the regulators does not impose material incremental costs on firms. Obligating the regulators to undertake CBA on guidance would impose heavyweight analysis where it is least meaningful. It would introduce delays for...
My Lords, I thank the Minister for his reply, but I do not think that it dealt comprehensively with the nature of the problem. I do not think that any of our amendments deal comprehensively with the nature of the problem, actually, because the answer is not loading on extra things for the CBA panels to do; it is about looking again at the obligations of the regulators. That is not what we have put down in these amendments, although we have had a debate on the issue. I was pleased to hear the Minister say that he was prepared to have discussions between now and Report. This is an area where a number of us would like to get together with the Minister to try to work out how we can make some improvements, because the law as it stands is narrowly drawn. I do not think we can assume that the regulators will voluntarily expand that into the areas that some of us think should be covered, so it is right that we look at the legal provisions-but perhaps not necessarily the ones covered by these amendments. With that, I beg leave to withdraw my amendment.
Amendment 119 withdrawn.
Amendment 120
Moved by
120: After Clause 22, insert the following new Clause- “Review of bank capital requirements(1) Within 12 months of the day on which this Act is passed, the Treasury must lay before Parliament a report reviewing the effect of prudential capital requirements applicable to PRA-authorised banks and building societies, with particular reference to on lending capacity, borrowing costs, competition and economic growth, while also considering financial stability. (2) In preparing a report under subsection (1), the Treasury must consult-(a) the Bank of England,(b) the Prudential Regulation Authority,(c) the Financial Conduct Authority, and(d) such other persons as the Treasury considers appropriate.(3) The Treasury must published the report.”Member’s explanatory statement This probing amendment would require a review of the effect of prudential capital requirements on lending capacity, borrowing costs, competition and economic growth, while also considering financial stability.
My Lords, my amendment concerns the impact of prudential capital requirements on lending capacity, borrowing costs, competition and growth. Since my amendment was tabled, His Majesty’s Opposition have announced a new policy position in this area, which I shall speak to now. Our new policy is straightforward. The statutory basis for post-financial crisis bank capital requirements should be amended so that UK regulators are required to take proper account of equivalent capital regimes in competitor jurisdictions, and to identify, justify and, where not justified, remove any UK-specific overcapitalisation relative to equivalent international regimes. We want to consider the position in competitor jurisdictions, to benchmark equivalent regimes, to publish detailed analysis and to explain clearly where the UK is imposing requirements above international standards or above those imposed by comparable financial centres. That seems a basic requirement of a serious competitiveness agenda, on which the UK is particularly reliant. The UK is the world’s largest net exporter of financial services, whereas comparable jurisdictions, such as the US, rely much more on their domestic markets. It is therefore imperative that we remain competitive on the world stage. Capital requirements matter, but there is a cost. Capital held solely for statutory compliance is capital that cannot otherwise be used to support lending, investment, home ownership, business expansion or economic activity. The...
My Lords, both the amendment and the speech by the noble Baroness, Lady Neville-Rolfe, were sensible in terms of making us think about bank capital requirements and whether we have got them right. As she says, the first step is undertaking proper analysis to be able to work out whether that happens. I noticed she caveated everything that they may not be right. They may be right, but they may not. My worry is that that is a sensible position to take but it did not sound like the position being taken by the Leader of the Opposition when she made her speech last week saying that she was going to reduce bank capital requirements to release £450 billion in capital. Where did the calculation that hundreds of billions are sitting idly on bank balance sheets come from? Where do those hundreds of billions come from? If we are going to release £450 billion, what is the calculation in the reduction of bank capital requirements that sits behind that calculation? While I feel quite supportive of the issues that the noble Baroness was raising, we need to be sure-I hope she will agree-that we do not jump the gun on this.
My Lords, the noble Lord, Lord Pitt-Watson, was rather generous in his comments. Sometimes it is important to speak truth to power. This is a lowest common denominator strategy. We have heard it before from the Conservatives, and it is repeated with enthusiasm today. I heard so many of these arguments back in the early 2000s. It contributed and was a fundamental part of the reasons why we ended up with such a major financial crash with huge financial and political consequences that echo through to this day. I could see the argument being made that we need to take proper care that we are looking at capital requirements and that we need to assess them and look at the consequences and do so on a regular basis. That is already part of the programme and certainly would always need to be part of it. I notice that in line seven of the amendment the phrase is, “while also considering financial stability”. If ever there was a phrase lowering the significance of the primary objective with which we tasked the Bank of England, that phrase does it-merely a consideration of financial stability. I was afraid when the growth and productivity objectives were introduced as secondary objectives that quickly the attraction of the phrases would cause them to cannibalise the primary objective. This is a very good example of the way in which that, frankly, has been happening. I have seen across so many of the measures in the Bill a step away from the precautionary principle-in this case, of...
Very often, the argument is that this measure will release new money that will flood into SMEs. I have previously argued in the House, and I will continue to argue, that the reason why high street banks do not lend extensively to SMEs is not because they do not have the money on their books. In fact, they will say, “We indeed have money available.” It is because of the way in which they now operate, after closing local banks and changing the role of their managers, so that they essentially work with distant data, not with the personal knowledge of small banking institutions. Those behavioural and operational reasons have essentially created the problem that so many small businesses face in accessing funds. It is not because the banks face capital requirements that somehow make it very difficult for them to lend; it is the decision they have made internally.
I am not sure that I have much more to add other than to say that I regret it, but at least it is a very honest amendment. It makes it very clear that this is a move away from treating financial stability as a core requirement, which is particularly significant for our country. As we know, the financial sector makes up something like 10% or 11% of our GDP, and some people argue it is 12%. If we look at the United States or other major countries that we label as competitors, their financial sectors are a relatively small part of their GDP. As a result, when it goes wrong for us, as it did in 2008, the consequences are far more severe.
I am always impressed that a crisis that began in America and was driven by a series of American commercial and investment banks ended up costing the British economy and the British financial sector far more than it did that of the United States. In the United States, a relatively small part of its GDP was impacted, but in our country, it was a very significant part. I think we should be exceedingly careful when we see the phrase “considering financial stability”. Obviously, it is no longer a primary objective.
My Lords, I shall briefly speak in response to the noble Baroness, and I once again draw attention to my interest as an adviser to the chairman of Santander. I want to make three quick points. First, I overwhelmingly agree with the thrust of the amendment. I think analysis of this critical issue is important for the reasons that the noble Lord, Lord Pitt-Watson, said. He will know much better than I do how notoriously difficult it is to compare the regimes of the United States, the UK and the EU. If noble Lords are interested in this and cannot sleep, I advise them to look online at recent reports that have come out. The Financial Times reports a law firm called Alvarez & Marsal pointing to the impact of the US’s current moves in prudential regulation and how that has unleashed a considerable amount of bank capital. Meanwhile, the ECB has pushed back with its own analysis showing that the US and the EU are broadly on par, so we cannot compare the others. The European Banking Federation has recently come out with its analysis of this issue. As far as I can see-I stand to be corrected by others-a lot of this depends on how we measure not just the regulatory and prudential aspects but the supervisory actions, and how supervisors can put buffer upon buffer, depending on the banks, the GSIPPS and who you are looking at within the perimeter. This analysis will be very important, and it could be very worthwhile, but it has to try to overcome the enormous problem that exists, now...
I probably have a right to reply, because it is Committee and we can speak more than once. The noble Lord, Lord Bridges, and I often find a whole lot of common ground, and I agree completely that the environment in which SMEs are operating is extremely difficult. However, if he goes back and looks at the numbers produced by the Federation of Small Businesses, he will find that there is significant demand for borrowing, which is continuously turned down and rejected. I just want to make sure that the noble Lord understands that side of the picture. I have no problem with people going away, as I said, and doing proper analysis and trying to understand exactly what the picture is, but there is another side to that, and it is not included in this amendment. If I was amending it, I would add a line, because we need an analysis of the cumulative risk that has been reintroduced into the financial sector by everything from Solvency UK to the whole range of changes-I think I listed them once in a Second Reading speech, and it went on for nearly a page and a half-that have been made. Measuring that cumulative risk would be extremely instructive to us when we start to look at issues such as financial stability. But for goodness’ sake, if we are reducing financial stability to no more than a “have regard”, which is exactly what this amendment would do, we are stepping into really dangerous territory.
My Lords, I am grateful to the noble Baroness for raising this important issue. Prudential capital requirements play a vital role in ensuring that our banking system remains resilient, supports sustainable lending and underpins confidence in the wider economy. We have heard a range of views on capital requirements today. The UK’s framework is internationally respected and has been carefully designed to balance growth with financial stability. Amendment 120 would require HM Treasury to publish within 12 months a report reviewing the impact of capital requirements on lending, borrowing costs, competition and economic growth, alongside financial stability, drawing on consultation with the Bank of England and the regulators. I genuinely recognise the intent behind the amendment. However, it is unnecessary, as the Financial Policy Committee is already undertaking a comprehensive review of the UK’s bank capital framework through precisely the lens that the amendment seeks, including the impact on lending, growth and financial stability.
Can I just check whether it is looking through the lens of treating financial stability as only a “have regard”? Is that what the Minister is saying? The amendment says “considering”. It is a “have regard” statement.
No. The FPC has been tasked by Parliament with responsibility for the stability of the financial system overall. It is the right body to carry out this review, which needs to balance the economic impacts of capital requirements against the protections that they may offer. Getting the balance right in the prudential framework and bank capital requirements has been a key priority for the Chancellor and an issue she discusses frequently with the industry. The noble Baroness, Lady Neville-Rolfe, raised the issue of international comparisons. The FPC set out its assessment of international comparisons when it reviewed this in December 2025. It found that the requirements are broadly in line with international comparators. In some areas, such as leverage requirements on domestic firms, the FPC noted that the requirements may be higher. However, I assure the noble Baroness that it noted leverage as an area for further reform that it plans to cover in next week’s update. As noble Lords may be aware, the Chancellor sets out the annual remit and recommendations for the FPC. The most recent remit letter was sent last November and sets out clearly that the UK must regulate for both risk and growth, and remain competitive in a changing world. As part of that, the Chancellor recommended that the FPC’s review should ensure the UK’s capital framework strikes the optimal balance to deliver resilience, growth and competitiveness. I assure the noble Baroness that the FPC understands this...
My Lords, I am grateful to noble Lords who have contributed to this debate and to the Minister for his response. I thank the noble Lord, Lord Pitt-Watson, for being generally supportive and for explaining that this is a matter of judgment. We now have the resolution regime, so things have changed. As I noted in my introduction, some changes in this direction have already been made. Indeed, I note the Minister’s summary of what is being done by the PRA and the FPC, and I want to look at that before Report. I am sure that we will come back to this issue at a later point, as he said. Contrary to the suspicions of the noble Baroness, Lady Kramer, we recognise the importance of financial stability and why capital requirements exist. That is why I mentioned financial stability in my amendment-it was meant to be a positive. Perhaps she is overinfluenced by past failures, but they of course took place before we had the resolution regime. My concern is that the current requirements go further than is necessary or further than the equivalent regimes in competitor jurisdictions, without proper justification. As my noble friend Lord Bridges said, there seems to be a gap. We have a different regulatory culture, and that may be having an effect. He quoted someone saying that low growth is also bad for financial stability-and I feel that strongly. The cost is felt in lending capacity, in borrowing costs, in competition, in investment and, ultimately, in growth. It is also felt in the UK’s...
Amendment 120 withdrawn.
Amendment 121
Moved by
121: After Clause 22, insert the following new Clause- “Periodic independent review of financial regulatorsAfter section 1S of the Financial Services and Markets Act 2000 (reviews) insert-“1SA Periodic independent review of financial regulators(1) The Treasury must appoint a panel of at least three independent persons (“the Review Panel”) to conduct a periodic general review of the effectiveness of-(a) the Financial Conduct Authority,(b) the Prudential Regulation Authority, and (c) the Bank of England in respect of its functions under Parts 1 and 5 of the Banking Act 2009 and Part 2 of the Financial Services Act 2012.(2) A person may be appointed to the Review Panel only if-(a) the Treasury has proposed the appointment, and(b) the appointment has been approved by a resolution of the House of Commons and a resolution of the House of Lords.(3) A person is not eligible for appointment if, within the previous three years, they have held senior office in the Treasury, the FCA, the PRA, the Bank of England, the Payment Systems Regulator, the Financial Ombudsman Service, or in any firm or body materially affected by the review, unless the nature of the interest has been fully disclosed and the appointment has been expressly approved by both Houses.(4) A general review must take place at intervals of every two to three years and must include a review of-(a) internal operations and controls,(b) systems for responding to whistleblowers, parliamentary correspondence and reports, and...
Baroness Bowles of Berkhamsted
My Lords, I am moving my Amendment 121, and I support the amendments in this group in the name of the noble Lord, Lord Bridges. My proposal is for an independent oversight mechanism for our financial services regulators. It builds on the ideas in Section 1S of FSMA 2000, under which the Treasury can require an independent review. This is usually triggered after a significant event: the most recent review, Gloster’s review published in December 2020, was triggered after the collapse of London Capital & Finance.
I propose, in addition to that ad hoc facility, that there are periodic independent reviews by a panel of independent persons. I suggest at least three people, because I envisage this being a larger matter than an incident-led type of inquiry. I first proposed this during the passage of the Financial Services Bill in 2021 and in the government consultation on the future financial framework.
Is it worth speaking if the Minister is not here?
You might get a better response.
Baroness Bowles of Berkhamsted
Shortly after my proposal first surfaced, I was contacted by people involved in the Australian royal commission on financial services, because they had noted that I had reached the same conclusion as them: that it was too big a job for Parliament to do by itself, given everything else that national Parliaments have to do. Australia introduced two-yearly reviews, and it is not the only country to have an independent review. A similar arrangement now exists in New Zealand, and in the US all regulators come under powerful scrutiny by the Government Accountability Office. One advantage of my proposal is that it follows a path we understand from Section 1S reviews, and it could be done quickly-maybe as an interim solution, for example, until an office such as that proposed by the noble Lord, Lord Bridges, could be formed. By having regular reviews, oversight of progress would also be possible. After her review, Dame Elizabeth Gloster told the Treasury Committee that we are left to “hope” that the regulator “implements” regulations. Hope is not a system. Why did I propose this? It was the point at which the Government were looking at the post-Brexit future financial framework. As has already been rehearsed in this Committee, this Parliament does not have the structure and focus that was available in the EU Parliament. Having been chair of the ECON committee dealing with all the post-financial crisis legislation, I can safely say that I know what it takes and that it is not easy....
My Lords, I will speak to Amendments 133 to 135 and 136 to 139 in my name, but not Amendment 135A, which is in the name of my noble friend Lady Lawlor. I thank my noble friends Lady Noakes and Lady Lawlor and the noble Baroness, Lady Bowles, for putting their names to my amendment. This little clutch of amendments is turning into déjà vu, because the noble Baroness, Lady Bowles, has just spoken about issues that she raised some years ago. My amendment is one that I raised in this very Room, sitting on the other side, exactly three years ago-so it is déjà vu all over again. I start from a basic point, which picks up exactly where the noble Baroness left off. I believe that we here in Parliament need more powers and, critically, more independent analysis to hold financial regulators and supervisors to account. In fact, I just mention here that we need to do far more to hold the Bank of England to account, but that was declared out of scope. I had wanted to table an amendment calling for a regular, probably five- or six-yearly, review led by Parliament into the remit and performance of the Bank of England as an entity and as an institution. I believe that that is an enormous democratic deficit that we need to address. I was told that it was out of scope for this piece of legislation, but I very much intend to return to that at a future date. It is much to the Minister’s relief, I am sure, that we are not going to do that now. We spent Monday debating clauses in the Bill that I...
Ultimately, this amendment is about improving accountability to Parliament. In Parliament, we have entrusted regulators and supervisors with more powers, so surely it is right to have the institutional capacity to hold them properly to account. My amendments seek to do that, and I hope that they will be given careful consideration.
My Lords, I have added my name to my noble friend Lord Bridges of Headley’s amendments creating OFRA. I also support the amendment from the noble Baroness, Lady Bowles, which would use a panel to look at how the regulators are performing. The key thing is that we need more external heavyweight oversight of what the regulators are doing. As noble Lords have identified throughout this Committee, accountability is the key issue that we are focusing on, in particular because of the way in which the Bill weakens the current accountability constructs. My noble friend Lord Bridges referred to the previous time that we were debating the same amendments, when we were sitting on the other side of the Room-I remember it very well. At that time, as my noble friend knows, I did not support his amendments because I was dead set on trying to get either a House of Lords Select Committee or a Joint Committee of both Houses involved. The original version of what is now FSMA 2023 had the involvement of only the Treasury Select Committee in the other place and we were clear that this House had far more expertise in financial services, and that it was important to leverage that either through the use of a dedicated Select Committee in your Lordships’ House or a Joint Committee. There was no appetite for a Joint Committee from the other place. We ended up with a committee, but it took an amendment to the then Bill in 2023, on which I focused all my effort last time. Also, as I said to my noble...
My Lords, I have added my name to Amendments 133 and 135, in the name of my noble friend Lord Bridges, and I shall say a few words about them. I have also tabled Amendment 135A, which amends Amendment 135. Two of the questions raised by the Bill are how will the regulators operate, make, impose and judge the rules and how will Parliament’s proper role in the legislative process be ensured? In some cases, not only do we not know what we are supposed to be legislating on, as the Committee has discussed, but we do not know the basis on which the regulators will, in practice, be held to account. Indeed, as matters stand, the arrangements and the deployment of powers is not known, or not entirely, in many cases. The amendments tabled by my noble friend Lord Bridges and supported by my noble friend Lady Noakes and the noble Baroness, Lady Bowles, to which I have added my name, would establish an office for financial regulatory accountability, which would have the specific duty of examining and reporting on the performance of the FCA and the PRA and how they perform on specific measures, would provide some of the essential answers. The office would assess how far the regulators meet their statutory objectives and principles under FSMA 2000 and, importantly, the effect of specific pieces of regulation. We need to know the impact of these regulations on the domestic development of the financial services and the market, as well as the impact internationally, and we need to know the...
My Lords, I do not want to get involved in the mechanics of the group in how we get this independent scrutiny, but I want to emphasise that it is important. We would welcome a discussion with the Minister about how it is done. We have had various inquiries over the past two and a half years, and I would ask the federations and organisations whether they thought having a concierge service would be useful to overcome some of the difficulties that the noble Baroness, Lady Lawlor, has outlined, especially to help the new boys on the block and the smaller companies to find their way around the complex barriers that they have to face. It seemed to be quite a popular suggestion, but nothing ever came of it. The example was used was the Singapore settlement, although I am wary of international comparisons, and it is right not to follow too much because they are different, but it has a kind of concierge service to help new companies. Where we have a difficulty-I am thinking back on the history of the relationship between Governments and regulators-is that regulators are subject to political pressures. You might not agree, but that is the fact and the real politics. When things go bad, the regulator will be blamed, so they are cautious. Their very nature makes them cautious because they do not want to be the ones that go on holiday and get the sack because something has gone badly wrong. We need protections for the methodology that the regulator uses. I have to say that the...
My Lords, I shall be extremely brief on this. I and my colleagues take the position that from this collection of amendments in the name of the noble Baroness, Lady Bowles, and the noble Lord, Lord Bridges, the Government could craft something really effective and create the information base and the capacity for Parliament to have very appropriate oversight of the regulator. The point I particularly want to add is that this is not hostility to the regulator. Part of the regulator’s problem is that it is trying to communicate to so many different parts of the political framework, with very different levels of understanding. We have all seen that five-year strategy from the FCA. Let us admit that it is a completely vacuous document, but I can understand that those who crafted it thought that they were dealing with people who had almost no grasp at all of how the finance sector works, operates and is directed or regulated. We have given it the absolutely impossible task of not knowing whom they talk to, in what level of detail, and what information to provide. I would say that, from a regulator’s perspective, having an educated oversight body would remove a huge burden and create a proper and constructive conversation, in the end benefiting both sides. I hope the Minister will take away that this is not some hostility to the regulator; this is a process that will make sure that Parliament can do its job but also that the regulator is far better positioned to be able to do its...
My Lords, I am grateful to noble Lords who have brought our attention to past debates on these knotty issues from a position of great expertise. All the amendments raise fundamental questions about how we hold our financial regulators to account. We fully support the principle that sits behind these amendments: that Parliament must have proper oversight over the way in which the regulators work. That includes their internal operations, their rule-making and their engagement with firms and consumers, the quality of their impact assessments, their effect on competition and competitiveness, and the burden they pose on the wider economy. This point has been underscored by many noble Lords throughout our debates on the Bill. If the FCA and the PRA are to be given greater powers and a wider remit, as proposed, that must be matched by greater transparency and stronger accountability. Greater delegated power cannot simply mean more decisions being taken further away from Parliament, with fewer mechanisms for scrutiny. The Minister has written to noble Lords setting out existing mechanisms. That letter refers, among other things, to the ability of noble Lords to ask Parliamentary Questions and to the work of our excellent Financial Services Regulation Committee. Parliamentary Questions have their place, but they are not a systematic mechanism for reviewing the performance, effectiveness or proportionality of regulators. Committees do valuable work, but they cannot be expected to...
My Lords, we turn to the important topic of the accountability of the financial services regulators. I am grateful to the noble Baroness, Lady Bowles of Berkhamsted, and the noble Lord, Lord Bridges of Headley, for tabling these amendments and for the thoughtful contributions made by noble Lords during this debate. I hear what the Committee has said on regulatory accountability and am glad to be meeting the Lords Financial Services Regulation Committee, chaired by the noble Baroness, Lady Noakes, next week. I have also written to noble Lords, as has been mentioned, about the existing framework that governs the accountability of regulators and a copy of the letter is available in the Library. Amendment 121 proposes establishing an independent panel for periodic independent review of the FCA, the PRA and the Bank of England. The Government agree that it is important that regulators are held to account for their performance. This is why they have formalised biannual performance reviews, which the Economic Secretary to the Treasury holds with the CEOs of the FCA and PRA. The minutes of these are published on GOV.UK to support transparency. A prescriptive, legislative requirement would duplicate this and would not be a good use of taxpayers’ money, as the purpose of such a review could be only to understand the regulators’ performance. But through FSMA, Parliament and the Government already have a large number of levers to understand and assess the performance of the regulators....
I just do not understand this argument at all. The committees in this House and in the other place, as my noble friend Lady Noakes said, have the power to summon but, as far I know, they have one policy adviser and one expert adviser-and that is it-to analyse regulations and the actions of regulators and supervisors. As the Minister knows full well, that is nowhere near enough to fulfil what would be the purpose of OFRA. As I said, OFRA would establish a means by which there is independent analysis of regulations-on the specifics and in the round-and of the performance of the regulators and supervisors. They are very different things. One is a means to hold regulators to account; the other gives parliamentarians the means, analysis and insights to do that. I do not understand how the Minister can say that that would dilute accountability.
The point I was making is that the structure that exists today gives the effective governance that we believe is required. We are open to a conversation about the noble Baroness’s options to improve accountability, but the noble Lord rightly raises a separate conversation about the requirements to make sure that those committees are sufficiently resourced. That is a separate conversation but, in our current position, we are trying to balance the accountability that already exists with the ability for the regulators to be flexible. As I have stated previously, we are open to that discussion, because we want to make sure that this process does not dilute that.
I completely agree, but this is not about making them inflexible; it is about giving Parliament the ability to hold them effectively to account. I do not hear anyone saying that there is that means at the moment, and I cannot think that there would ever be a committee, of either this or the other place, enabled to do that. It would require an enormous resource for a committee, which would be completely impossible, as far as I can see. That is why we need a separate body.
We are happy to have that conversation. We believe that the framework we have set out is the right one: it balances that ability to have oversight with the flexibility that we have empowered through FSMA. However, I agree that this debate has clearly illuminated that there is work to do, and I look forward to having that conversation with the Committee next week. I am sure that there are more conversations to be had on this issue between Committee and Report. Amendment 139 would require the FCA and the PRA to fund this new body from their own resources, which are ultimately drawn from industry levies. The regulators would presumably need to increase their fees on authorised firms to cover this. Establishing a body of this kind, with its own membership, staff, legal powers of information access and publication obligations, would involve significant and recurring costs. We would be making industry pay twice to fund functions that have significant overlap.
Amendment 134 would require the Treasury to prepare a charter for financial regulatory accountability setting out the Treasury’s objectives in relation to financial regulation and the means by which they will be attained. The Financial Services Growth and Competitiveness Strategy , which was published in July last year, sets out very clearly the Government’s objective for the UK’s financial services regulatory environment to be proportionate, predictable and internationally competitive. The Chancellor and the Prime Minister have been clear about the fact that they see regulation as key to delivering growth. The regulation action plan sets out the Government’s plans to develop a regulatory system that supports innovation and economic growth while ensuring accountability, and the Chancellor has issued remit letters to the FCA and the PRA on this very issue.
The Government are not complacent about the adequacy of the existing oversight. We continue to keep accountability arrangements under review, and the Bill strengthens the framework in a number of respects. The answer to any remaining gaps is working with and through the parliamentary committees that already exist, instead of creating a new layer of bureaucracy that would sit alongside them.
I thank the noble Baroness, Lady Donaghy, for her important contribution on accountability. As I said, I will meet the Financial Services Regulation Committee in the Lords next week to discuss this. However, I can give the noble Baroness immediate reassurance on one point: the Government launched a concierge service in October 2025, so the Government agree with the noble Baroness that this was indeed an excellent idea.
I thank noble Lords for this thoughtful debate; it is obvious that it will continue to develop over the coming weeks. I ask the noble Baroness, Lady Bowles, to withdraw her amendment.
Baroness Bowles of Berkhamsted
My Lords, I sometimes think that a useful thing to do with the Minister would be to sit down with him with the rulebook and go through some scrutiny. Perhaps he might then begin to see the scale of the task. As I have said, when I chaired the ECON in the European Parliament, the committee there had nearly 100 full and substitute members. All of them were capable of doing work in specialist clusters, doing legislation and scrutinising everything. It was basically a full-time job-they did it all day, every day-and it did not even have anything to do with what was happening in supervision. This task is not within the capacity of a national Parliament. The Minister was out of the Room when I explained that Australia had a royal commission, as part of its post-financial crisis review, to look at what went wrong with regulation. As royal commissions do, it took a long time. When it finally reported, it came to the consultation that an oversight body was needed; similar has been done in New Zealand and the United States, where they have powerful oversight over all of their regulators. It is unreasonable to suggest that a committee that sits once a week for three hours could in any way touch this issue. Our committees are really good at doing specific inquiries into problem areas, but they cannot see things across the piece. That is what I described as our first need, when we left the EU. It has perhaps taken some people who do not have my experience a while to gain an understanding...
Can the noble Baroness take a seat, please?
I think that the Committee would like to hear from the noble Baroness.
As I said at the start of this session, when it comes to withdrawing an amendment, noble Lords need to be brief. We do not want them to rehash the whole debate. They have to be respectful to the Committee because we have other amendments to discuss.
We are a self-regulating House, and this is such an important area that I would like to hear the end of the noble Baroness’s remarks.
The noble Baroness is absolutely right that this is a self-regulating House, but the other side of the coin is self-discipline.
Baroness Bowles of Berkhamsted
I am sorry, but I am replying to the Minister, and I have to say some things again because he was out of the Room. I am trying to explain that the Bill introduces a second need, because we will no longer have access to the information. It is going into a strategy and there is no link to operational duties, no reporting or guidance, and the annual report is only about competitiveness and growth. We are short of the basic information on which we are supposed to do this scrutiny: it is not coming to us; it is being rubbed out by the Bill. It is no good saying that a committee of this House-able, competent and hard-working though the committees are-can do it when you have taken the basic information away. That is the point. There is the fundamental size need, and then the removal of the information need. We need this independent body for the first need and, my goodness, we will jolly well need it if the Act ends up being anything like the Bill is now. I think we will all want to return to this on Report, but for now, I will withdraw my amendment, even though the Minister seems to think that he has the equivalent of a perpetual motion machine and that something will happen with no input.
Amendment 121 withdrawn.
Amendment 122
Moved by
122: After Clause 22, insert the following new Clause- “Reducing regulator duplicationIn section 3R of the Financial Services and Markets Act 2000 (arrangements for provision of services), after subsection (3), insert-“(3A) In exercising functions in relation to-(a) a PRA-authorised person within the meaning of section 2B, or(b) a person performing a senior management function in relation to such person,the FCA may rely on analysis, findings, information, or judgments of the PRA, so far as it is reasonable to do so.(3B) In exercising functions in relation to a person falling within subsection (3A), the PRA may rely on analysis, findings, information, or judgments of the FCA, so far as it is reasonable to do so.(3C) Subsections (3A) and (3B) apply in particular in relation to- (a) rule-making,(b) supervisory activity,(c) investigatory functions, and(d) enforcement decisions.(3D) Where a regulator relies on the other regulator under this section, it must have regard to-(a) the need to ensure that its statutory objectives are advanced, and(b) the desirability of avoiding unnecessary duplication of work or inconsistent outcomes.(3E) Nothing in this section prevents either regulator from undertaking its own analysis or reaching its own conclusions where it considers it appropriate to do so.(3F) For the purposes of this section “a senior management function” has the same meaning as Section 59ZA.””
Baroness Bowles of Berkhamsted
My Lords, the Committee will be pleased to know that this will be very short. I will speak briefly to my Amendment 122, which is quite simple. It is intended to encourage the sharing of analysis, findings, information and judgments between the FCA and the PRA, particularly in relation to senior appointments, regulatory and supervisory activity and enforcement. The amendment would not make this binding in any way; it would apply only in so far as it is reasonable to do so and the regulators want to do so. The objective is to remove duplication and give encouragement to the regulators to rely on one another’s work where that is sensible. I have not looked recently at their memorandum of understanding; they probably have enabled themselves to do some of this, but I am not sure that that enablement has extended to actually doing it. This meshes with some of the other amendments we have had around not duplicating things. If a person has already been approved as fit and proper by one regulator, why would they not be approved by another regulator to do the same thing? However, I would not expect this to be done blindly or without review. It goes to what I said: everything should be tried to avoid unnecessary duplication, because duplications are leading to delays. This could help to shorten approval times under the SMCR for tried and tested individuals and to align rules or processes where the underlying purpose is the same. It is a modest, practical amendment aimed at reducing...
My Lords, I am grateful to the noble Baroness, Lady Bowles, for bringing forward Amendment 122. I will speak to Amendment 166 in my name and that of my noble friend Lord Altrincham. I know that we are all very excited by the result in the football but, as the Minister knows, this is an area of great concern to me, so I will make the case. In our discussions with firms, we have repeatedly heard that regulation has accumulated over many years in a way that is often overlapping and unnecessarily complex. Firms are required to repeat similar information to different bodies, in slightly different formats, at different times and through different systems. They are expected to absorb new rules and expectations while older requirements remain in place. The result is a regulatory environment that becomes heavier and more expensive over time. This affects not just large institutions but smaller firms, new entrants and challengers, which do not have the same compliance teams, legal budgets or administrative capacity as the largest incumbents. Amendment 122 raises an important point in this regard. Where both the FCA and the PRA are dealing with the same firm, it is sensible that they should be able to rely on one another’s analysis, findings, information and judgments where it is reasonable to do so. Our Amendment 166 follows the same principle but would apply it more broadly. It would require the Treasury, the FCA and the PRA, when exercising powers under the Bill, to have regard to...
My Lords, I thank the noble Baronesses and the noble Lord for the proposed amendments. These are both important topics. I continue to listen and will definitely try to continue to engage in constructive debate and discussion as the weeks develop. Amendment 122 seeks to reduce duplication between the work of the FCA and the PRA. I thank the noble Baroness, Lady Bowles, for raising this important issue. The Government agree that it is important to identify and remove duplication between the FCA and the PRA. They have distinct objectives and functions, and each must remain clearly responsible and accountable for the exercise of its own statutory functions and the advancement of its own objectives. Co-ordination is important, but we must be careful about blurring accountability between the FCA and the PRA. To support co-ordination, the FCA and the PRA have, as noted, a memorandum of understanding, which sets out the framework for how they will co-ordinate and co-operate while carrying out their respective responsibilities. The MoU covers their approach to rule-making, supervision and enforcement investigations under FSMA, as well as how and when they will consult and share information with each other. It is designed to ensure that they do not introduce incompatible requirements; that they share information from supervisory activity that is materially relevant to each other’s objectives; and that they avoid duplication in regulatory data collection. In particular, it makes a...
I reassure the noble Baroness, Lady Bowles, that when the FCA and PRA reported on co-operation under the MoU in 2025, they highlighted sharing expertise and information, such as data on the impact of authorised push payment fraud reimbursement rules on the sector. The Government therefore consider that existing statutory and operational arrangements for co-ordination between the regulators provide the appropriate mechanism for reducing duplication, without introducing ambiguity into the statutory framework.
Amendment 166 relates to the net burden of regulation. The Government recognise the impact that regulatory burdens can have on firms, particularly smaller firms and new entrants. We agree that it is vital that both the Government and the regulators take steps to reduce the burden of regulation on firms. As previously mentioned, the Government have made a commitment to cut the administrative burdens of regulation by 25% by the end of this Parliament.
The financial services regulators are actively contributing to that agenda. For example, the PRA is implementing new insurance reporting requirements that will cut paperwork by one-third, contributing to savings for firms of £66 million per year. Meanwhile, the FCA has stripped out data requests for over 36,000 firms, saving them £6 million in administration costs. It has also proposed removing some transaction reporting in the form of fewer financial market transaction fields that are now in scope. The FCA estimates that this could save over £100 million annually while simplifying compliance.
The Government do not think that it is necessary or appropriate to introduce such a duty. The PRA and the FCA have a secondary objective to facilitate growth and competitiveness, which means that they need to consider the impact that new regulation could have on the sector’s growth prospects and the ability to compete internationally, as well as wider economic growth.
There are existing requirements in FSMA that require the regulators to keep their rules under review and to publish statements of policy on their approaches to reviewing rules, which the Government consider to be a proportionate approach. In particular, the regulators are required to develop cost-benefit analyses when developing new rules, which will help them understand how the costs weigh up against the expected benefits. In the Financial Services and Markets Act 2023, new requirements to establish cost-benefit analysis panels were introduced to improve the quality of that analysis, particularly to ensure that it was informed by those with industry expertise.
Given the demonstrable progress that regulators are making in reducing regulatory burdens, and the existing mechanisms for continuing to work to minimise duplication, I ask that these amendments not be pressed to a vote.
I think that, in my amendment, I was trying to talk about when powers are exercised under the Act. Obviously, I appreciate the work that is being done to get the thicket out of the existing regulator. However, we are trying to introduce a system that, when regulations are being made-there will be many as a result of the Bill, because we are extending financial regulation into lots of new areas-that will be done in a way that really looks at the burdens. I am not sure that the cost-benefit panels and their work, which we discussed earlier, quite do that, so I ask the Minister to look at this constructively.
Baroness Bowles of Berkhamsted
My Lords, I thank the Minister for his reply, and everybody else who has spoken in the debate-I do not need to go over any of it again. It was interesting that the Minister elaborated on some of the co-operation that already goes on. I think that it could be interesting for the Committee to ask the regulators to further explain to us how they do that. We hear from industry that if feels there is duplication going on, so maybe we can try to join up that loop. For now, I beg leave to withdraw the amendment.
Amendment 122 withdrawn.
Amendments 123 to 125 not moved .
Amendment 126
Moved by
126: After Clause 22, insert the following new Clause- “Open finance framework(1) The FCA must establish and maintain a framework for open finance.(2) The framework must provide for-(a) secure and standardised data sharing interfaces,(b) rights of customers to direct the sharing of their financial data, and(c) interoperability between different categories of financial services providers, including digital asset providers.(3) The FCA may make rules to give effect to this section.”Member’s explanatory statement This amendment gives the FCA the power to make rules in relation to open finance.
My Lords, it is a pleasure to speak to this group of amendments. Amendment 127 is also in my name, and I thank my noble friend Lady Altmann for co-signing it. These amendments are my latest attempt to get some focus on innovation and technology in a Bill that is currently, strangely, surprisingly and unfortunately largely silent on this subject. It is my latest effort, but it will not be my last. If we take a step back when it comes to open finance, how have we got to where we are? It is something in which everybody across the UK should take incredible pride. Open banking was created here. I offer anybody who believes the false dichotomy that recurs with tedious inevitability-that you can have either regulation or innovation-open banking as a deliberate, willed and intended regulatory intervention to address a market failure. Has it had a measure of success? That is not for me to say, but open banking, which was made in the UK, has been replicated and taken up in just shy of 80 jurisdictions around the world, many of which have taken it much further and much faster than the United Kingdom. Although open banking is an excellent, positive and inclusive innovation, it still has not come to fruition in terms of mass take-up. However, we should consider how these principles can apply to open finance. We have some good stuff in the Data (Use and Access) Act, but we need more to provide a focus on what open finance can do, not least in obviously adjacent sectors such as telco and...
My Lords, I am absolutely delighted with these two amendments from the noble Lord, Lord Holmes. To begin with Amendment 126, I have long been, as he has, a real supporter of open banking and see the potential for it to expand into open finance, and have been utterly frustrated that it languished for so many years. I am convinced that, under the current leadership, real change is happening and real progress is being made. I hope that is a correct assessment, and in other places the Bill continues to assist that process. It is absolutely logical that entities are looking for financial services and going to one provider that they presumably know or can access but are failing to find a satisfactory answer, and cannot then avail themselves of the ability to talk to the rest of the financial services provider world. Open banking and open finance provide those mechanisms. I have one caveat. In proposed new paragraph (c) to be inserted by Amendment 126, the noble Lord, Lord Holmes, explained that the framework needs to provide for “interoperability between different categories of financial service providers, including digital asset providers”. I agree completely with that. The question is who pays. Traditionally, it has always been the banks that have paid. I took a position earlier in the Bill, and continue to take it, that all users of the payment system should be contributing. This should not be something that falls on the banks while the tech companies, in particular, end up...
My Lords, I am grateful to my noble friend Lord Holmes-and for his rather delicate comments on “pale and male”-for bringing forward these amendments. They raise an important set of questions about open finance, innovation, emerging technology and the extent to which the regulatory framework is preparing for the financial services market of the future. We welcome the spirit of this group. My noble friend Lord Ranger of Northwood has tabled amendments in later groups which address digital assets specifically, so I will not pre-empt that debate now, but the broader question raised by this amendment is vital: how are we preparing for financial technologies which are on their way and, in many cases, already here? Regulation cannot be developed only for the market we have today. It must be developed with the market of tomorrow in mind. We need a forward-facing regulatory framework, not one that is constantly trying to catch up after innovation has already moved elsewhere. That means anticipating new technologies, understanding how firms are using them and creating a clear and proportionate regime before uncertainty drives businesses out of the United Kingdom. It is worth reflecting, as we close this day in Committee, that this amendment touches on a very fundamental change that might be coming to financial regulation. All the earlier amendments really concern how credit is distributed within the UK in our current structure, which, let us remember, rests on fractional reserve...
My Lords, I am grateful to the noble Lord, Lord Holmes of Richmond, for Amendments 126 and 127, and for raising the important issues of innovation, inclusion and the future shape of financial services. I spent 10 years building a business in this space for the insurance sector, so it is something that is dear to my heart. The Government recognise the importance of these themes and, as I said at Second Reading, the Bill is intended to modernise the way the sector is regulated, to help it grow and lend more to businesses, and to make consumer protections fit for the digital age. On Amendment 126, the Government fully recognise the potential of smart data schemes, including open banking and open finance. The wide range of benefits from smart data was set out in the Government’s smart data strategy, published in March this year by the Department for Business and Trade. The FCA’s Open Finance road map, published in April this year, sets out steps for collaborating across industry and the wider ecosystem to explore extending the principles of open banking to a much broader range of products. We have already made it clear that the long-term regulatory framework for open banking will help to secure the foundations for open finance, and that our ambition is for the UK to remain a world leader in this area. The Government will be consulting on the long-term regulatory framework for open banking in the coming weeks and intend to lay a statutory instrument by the end of this year. The...
My Lords, I thank all noble Lords who have taken part in this short debate. I agree entirely with the points raised by the noble Baroness, Lady Kramer, about who pays and I agree with the noble Baroness’s earlier amendment on APP. When we have variety in our participants in this market, it is right that, if you are in the market, you pay alongside all other participants, rather than having the asymmetry which currently exists of banks being on the hook and others swimming freely. I also agree with the main thrust of the noble Baroness’s other points, none of which made me queasy at all. I thank the Minister for his response. I agree largely with his comments. I delicately say that bringing in expert independent voices in a more formalised but flexible structure would further empower the FCA to take the excellent work that it does in innovation and go broader and faster. I ask the Minister to reflect on that and if there is more that the Government can do in concert with the FCA, without in any sense fettering its discretion. It would give the FCA even more power to increase the fantastic work it is doing across all these emerging technologies. For now, I beg leave to withdraw the amendment.
Amendment 126 withdrawn.
Amendments 127 to 129 not moved.
Committee adjourned at 7.38 pm.