Lord Stockwood

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That the Bill be now read a second time.

Northern Ireland and Scottish legislative consent sought.

The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)

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My Lords, the financial services sector is one of the UK’s greatest economic success stories: we are the world’s largest net exporter of financial services, and it makes up around 20% of UK exports. The sector made 8% of UK GVA in 2025, totalling £224 billion. It plays a vital role in our economy, underpinning services that households and businesses rely on every day. It provides high-quality jobs throughout the country. It was in recognition of this that the Chancellor announced a significant set of reforms in her speech to the sector in Leeds.

I am very happy to take this Bill because I worked in the sector in the past. I was the CEO of an insurance technology firm offering protections to small businesses, and I have been on several boards of businesses in the financial services sector. While I no longer hold these roles, perhaps this is the right moment to declare my interests as set out in the ministerial register, in particular, a number of my investments in funds that are managed by FCA-regulated firms. In my role as Investment Minister, I see and hear first-hand just how far our financial services sector reaches and the extent to which our institutions, regulation and rule of law are respected overseas.

The Financial Services and Markets Bill will modernise how the sector is regulated, enable it to grow and lend more to businesses and make consumer protections fit for the digital age. It will achieve these objectives while maintaining high standards of regulation and oversight, ensuring that consumers and businesses continue to engage with the sector with confidence and that it will meet their needs. I am pleased that the Bill has been welcomed by a range of stakeholders operating across and alongside the sector. There is general recognition, as there was in an All-Peers meeting that I hosted last week, that it is a question of the balance we are trying to achieve.

As noble Lords would expect, this is a large, technical Bill, so I will briefly set out its purposes and why the Government have adopted the measures they have, and why we believe they strike that balance of promoting innovation and growth while managing and mitigating risk and, of course, protecting consumers.

Turning first to consumer protections and redress arrangements, Clause 1 and Schedule 1 repeal large parts of the remaining provisions of the Consumer Credit Act 1974 so that many of them can be recast into the rulebook of the Financial Conduct Authority, known as the FCA, continuing the changes introduced as part of the Financial Services Act 2012. The Consumer Credit Act was designed for the pre-digital age where everything was done on paper forms. It predates the smartphone by more than 30 years. Research shows that parts of the Consumer Credit Act can be harmful to potentially vulnerable customers, as lenders are often required to send complex communications that result in individuals feeling disempowered, confused and reluctant to seek help. This shows how bad regulation can harm consumers. The FCA is already responsible for making rules that protect consumers and has already made rules to replace some parts of the Consumer Credit Act. It has the expertise needed to perform this role and the powers needed appropriately to police compliance within the rules. Repealing more provisions of the Consumer Credit Act will ensure that it can make rules fit for the digital age.

Moving on, Clauses 4 to 12 reform the operation of the Financial Ombudsman Service, known as the FOS, to improve the consistency and predictability of its decision-making. At the moment, in a small but significant minority of cases, the FOS is acting as a quasi-regulator, by which I mean that rather than simply resolving individual complaints between consumers and firms as intended, its decisions have the effect of setting minimum standards for firms. This can lead to uncertain and inconsistent expectations and outcomes for consumers and firms, which undermines confidence. The Bill is reforming the “fair and reasonable” test as well, which guides FOS decision-making, introducing a mechanism to ensure greater coherence between the FOS and the FCA, and makes a number of other reforms to allow the FOS to successfully fulfil its original role as a quick and informal dispute resolution service.

Clauses 23 to 28 improve protections for consumers who purchase financial products through an “appointed representative”, for example, when purchasing insurance from a retailer acting on behalf of an authorised firm. The Bill will require the FCA to check that an authorised firm is up to the job of ensuring that its appointed representatives operate with high standards of conduct. When something goes wrong, the Bill will ensure that consumers of appointed representatives will be able to bring a complaint to the FOS, which is not always the case at the moment.

Now let me turn to the regulatory framework. I thank all Members of the House of Lords Financial Services Regulation Committee for their Growing Pains report that I read over the weekend. There is a strong alignment between the committee’s conclusions in the report and the Government’s perspective and actions. The Bill will consolidate the regulatory framework to deliver stronger co-ordination and clearer responsibilities.

Clause 13 and Schedule 2 will abolish the Payment Systems Regulator, known as the PSR, and consolidate its functions within the FCA. The PSR has been effective in driving competition and innovation among payments firms, but the current framework is too fragmented. The Bill will reduce the number of regulators that firms need to engage with.

The Bill also makes a number of reforms to support effective operation of the two largest financial services regulators, the Prudential Regulation Authority—PRA—and the FCA. The actions of the FCA and the PRA are absolutely critical to ensure that the UK has the right regulatory environment, as a key part of the Government’s financial services growth and competitiveness strategy. Clause 21 speeds up the regulators’ decision-making by reducing the statutory deadlines for determining a number of key applications, including authorising new firms. Clauses 29 and 30 create a new provisional licence regime, which will support innovative new firms by allowing them to begin operations on a temporary and limited basis while they apply for full authorisation.

The Bill also makes a number of changes to the internal operations of the regulators, to ensure that they are focused on their activities in the right places, and to support effective oversight and scrutiny of their work. The Government have looked at the wide variety of requirements currently applying to firms—some overlapping, some obscure and some simply of low value. Clause 16 requires the regulators to develop and publish long-term strategies. Clause 17 requires them to consider their existing eight regulatory principles when preparing or revising their long-term strategies, while removing the requirement to consider them every time they exercise one of their functions. Clause 18 removes a number of requirements on the regulators that are duplicative or impose a burden on them that is disproportionate to any transparency benefits that they bring.

Collectively, these changes are designed to ensure that government and Parliament can give clear direction to the regulators at a strategic level and support scrutiny of their broader approach in a way that is meaningful and impactful, rather than focusing on the minutiae or clogging up the regulators with process that adds no value. The Bill also supports the international competitiveness of our world-leading financial services sector, including through Clause 37, which enables the Treasury to create overseas recognition regimes to make business across borders easier without compromising consumer or financial protections.

I turn to the section relating to administrative burdens on firms. I have said the Bill ensures that the administrative burden that regulation puts on firms is proportionate, without compromising on core consumer, prudential and market protections. At the core of this objective are reforms to the senior managers and certification regime in Clauses 31 to 36. This regime holds senior leaders in financial services firms personally accountable for their actions. It is a vital regime that was introduced after the failures of the financial crisis, following the report of the 2012 Parliamentary Commission on Banking Standards. Many Members of the House were on that commission, including the noble Baroness, Lady Kramer, who I look forward to hearing from today. This regime has vastly improved the standards of governance and conduct across the financial services sector, and we have the noble Baroness and others to thank for that.

However, the way that the regime operates in 2026 results in significant regulatory burdens, costs and operational inflexibility. Following careful consideration, the Bill will reduce those burdens while retaining the core guardrails that the regime introduced. The Bill gives the FCA and PRA flexibility in how senior manager appointments are overseen and removes the certification regime which applies to roles below senior manager level. In its place, regulators will be able to make appropriate rules in their rulebooks.

Last week, I met many noble Lords, including the noble Lord, Lord Sharkey, the noble Baroness, Lady Bowles of Berkhamsted, and my noble friends Lord Davies of Brixton and Lord Pitt-Watson. They asked me for assurances that the Bill does not weaken the core protections of this regime. I am happy to give those reassurances. Firms will remain responsible for ensuring that those they appoint are fit and proper, and individuals will remain individually accountable for their decisions. This is not about deregulation but about ensuring that the rules operate in a more proportionate and targeted way.

I will now speak to the opportunities for credit unions. The Bill will enable credit unions to serve more people and communities, something I know will be strongly welcomed by many in this House. The Government are committed to supporting the growth of the mutual and co-operative sector, recognising the important role that credit unions play in promoting financial inclusion and providing affordable credit.

Clause 2 expands the common bond requirements for credit unions. It enables credit unions to reflect modern arrangements in our living conditions, allowing them to admit relatives of existing members who live outside the same household and members of the same household who are not relatives. It enables credit unions to permit retirees to remain as fully qualifying members, and to join after retirement. It also enables credit unions to admit students as eligible members under the locality bond, even where they do not live or work in the same place as they study. This delivers on a long-standing ask of the credit union movement, which the Chancellor is proud to be able to deliver, and is part of the Government’s ambition to double the size of the co-operative sector.

On lending and investment, Clauses 39 and 40 update the statutory framework underpinning the ring-fencing regime. This regime requires major banks to separate their UK retail services from riskier investment banking activities. I pay tribute to the Parliamentary Commission on Banking Standards, whose work was instrumental in establishing this regime. I want to be clear: ring-fencing has played a central role in strengthening the resilience of the UK retail banking sector since the financial crisis, but it is also true that the wider prudential and resolution regime has developed significantly since then. In particular, the UK now has extensive resolution powers to protect depositors and taxpayers in the event of future failure. The UK is therefore now in a much stronger position to respond to banking failure than during the global financial crisis.

The 2022 independent Skeoch review concluded that ring-fencing should be retained but identified areas of rigidity and recommended better alignment with the resolution framework. At Mansion House last year, the Chancellor announced a further review of the ring-fencing regime, and last month the Government set out a package of reforms designed to support growth while maintaining financial stability. The Bill makes changes to deliver the outcomes. It clarifies that the regulator need not duplicate rules where protections are delivered elsewhere, and it updates the statutory purposes to reflect how banks could fail today. Overall, these changes create a more coherent and adaptable regime that supports a more efficient environment for banks to lend and invest in the UK economy, while upholding financial stability and protecting depositors.

The Bill will also enable the Treasury to update existing legislation to help small and medium-sized enterprises, known as SMEs, to access lending through a wider range of lenders. Legislation already requires certain banks designated by HM Treasury to share credit information about their SME customers—subject to consent—with designated credit reference agencies to encourage greater lending. Since that regime was introduced, the probability of SMEs establishing new borrowing relationships has increased by over 25%.

However, almost 70% of new lending to SMEs now comes from outside those core designated banks, including from newer challenger banks and fintechs. Clauses 41 to 43 allow the Treasury to expand the scheme to a wider variety of lenders. For the first time, the Government are also extending the scheme to support the provision of credit to the charity sector.

Clause 44 advances the Government’s ambition to make the UK the location of choice for specialist and complex insurance by enabling the PRA to set more appropriate funding requirements for specialist insurance undertakings, known as transformer vehicles. Clause 45 advances the Government’s ambition to establish a new, globally competitive captive insurance framework.

I turn to anti-money laundering. I have spoken about the importance of maintaining the UK’s pre-eminent global position as a global financial centre. However, being a financial hub means that we now face heightened vulnerability to illicit finance. Money laundering firms harm legitimate businesses by distorting competition, increasing costs and enabling organised crime. The UK has a robust set of anti-money laundering rules, but the supervision of those rules is not consistent. So, in October 2025, the Government announced their intention to reform the supervision framework, with the FCA becoming the supervisor of compliance with anti-money laundering and counterterrorism financing rules for professional service firms. The detailed implementation will be through secondary legislation.

Clause 14 will allow the FCA to take responsibility for supervising anti-money laundering and counterterrorism financing among these professions. This will mean more consistent and effective supervision and improved collaboration with law enforcement. Financial crime increasingly takes place via crypto assets, which are increasingly held outside the UK. Several pieces of legislation enable the Government to seize illicit crypto assets with a connection to the UK. However, these powers have not been working effectively. The Bill enables the Government to ensure that they work as intended and can be modified as criminal practices evolve.

Finally, Clause 3 gives the Government the power to act on access to banking services. The way people access banking services in the UK has changed significantly over recent years. More and more of us are banking online and banks are closing branches in response. The Government are committed to ensuring that those customers who need it retain sufficient access to essential banking services in person. Banking hubs play a critical role in this ambition, and we remain committed to supporting the financial services industry’s rollout of 350 banking hubs by the end of this Parliament.

Last month the Government launched an independent review into access to banking services led by Richard Lloyd, former Which? director and former board member of the FCA. This review is to better understand the impact of the current trajectory, including the scale of any detriment to consumers, particularly vulnerable groups. The Bill contains a power to take action on access to banking services, including implementing the outcomes of the review should the evidence demonstrate that this is necessary.

I have been able to touch only briefly on what is clearly a wide-ranging Bill; I look forward to discussing it all in more detail. This Bill will help the financial services sector to grow and lend more to businesses, and importantly, it will make consumer protections fit for the digital age. When I began my speech, I said that the Bill is a matter of balance. I hope noble Lords will agree that it achieves its modernising objectives while maintaining the UK’s high standards of regulation and oversight. I beg to move.

Baroness Neville-Rolfe (Con)

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My Lords, it is a pleasure to follow the Minister as we begin our deliberations on the Financial Services and Markets Bill. Like him, we believe that the financial services sector is one of Britain’s great success stories. It accounts for around 12% of GDP, supports 2.5 million jobs and contributes roughly £110 billion in tax each year. It is not simply a sector to be regulated; it is a national asset to be championed. We need the sector to grow because that will benefit us all.

Turning to the economy overall, we have unfortunately had a lengthy period of low growth following the financial crisis of 2007-08, and there is no sign of imminent recovery. Expectations are now for low UK growth in 2026. This continuing trend must be reversed. The Government’s rhetoric on the importance of growth must now be matched by serious action. Too often, warm words have been followed by policies that pull in the opposite direction. The Bill comes after a tidal wave of anti-growth measures, of which the Employment Rights Act is only the latest example.

It is our view that a major factor in our low rate of growth is overregulation, and that this is especially true of the financial services sector. Our Financial Services Regulation Committee agrees, and it is good to see the chair, my noble friend Lady Noakes, here today. Its excellent report, Growing pains: clarity and culture change required, which the Minister has already referenced, warned that

“the regulatory pendulum has swung too far towards elimination of all risk”.

That matters because an economy that seeks to eliminate all risk will, in the end, eliminate growth as well.

The consequences are already being felt. International firms are looking elsewhere. Businesses already operating here face costs that make the UK less attractive and less competitive. The CEO of Marsh McLennan told the committee that, from a regulatory perspective, the UK is at least six times more expensive than our next most expensive country. That is an extraordinary warning, and one the Government should take seriously. The question is whether this Bill measures up to what is required to meet the concerns of the committee and the wider needs of growth. I fear that, once implemented, the Bill will not lead to the step change required. As we take it through the House, a major perspective from which we will be judging it is its likely effect on growth.

However, in several respects the Bill is moving in the right direction. There is a broad consensus that reform is needed. The Treasury itself has acknowledged that the United Kingdom has been left with an overly complex system, and the National Audit Office has pointed to delays between problems being identified and regulatory action being taken. Industry has been saying the same thing. UK Finance has made it clear that the Consumer Credit Act 2006 is outdated and no longer reflects the protections needed in a modern digital market, and TheCityUK has called for a more coherent, streamlined post-Brexit framework.

We therefore welcome in principle the proposed changes to credit unions and the proposed transfer of the Payment Systems Regulator into the FCA. The changes outlined to the Financial Ombudsman Service are also positive, and we expect that this will bring some further clarity to its role and the regulatory landscape more widely. We also welcome measures designed to reduce approval timelines and to reform the senior managers and certification regimes.

Accordingly, the greatest problem with this Bill is not what is in it but what is missing from it. For example, it contains nothing on financial education—so key to improving our savings and investment culture and performance. More importantly, while this legislation removes significant amounts of old regulations, it hands extensive powers to the Treasury and to the regulators to design what comes next. Yet Parliament is being asked to approve that transfer of power without seeing in sufficient detail the regulatory framework that will replace what is being repealed. The incredibly broad powers in Clause 3, on in-person banking, are a good example. The repeal of a large volume of consumer credit architecture, with the expectation that much of what is removed from statute will later be recast into FCA rules, transfers responsibility for policy-making from Parliament to the FCA—that is another example, We believe that this is unwise.

Moreover, the obscure provisions in Clause 14 on anti-money laundering appear to give the FCA and PRA new powers to extend regulations and impose burdens on a number of professions not currently so regulated.

We are told by some that this is a deregulatory Bill, which is welcome, but deregulation ought not to mean removing rules from primary legislation and recreating them elsewhere, beyond proper parliamentary scrutiny. The test is not just whether the statute book looks thinner but whether the burden facing firms is actually reduced.

I am sure the Minister will point to the regulators’ growth and competitiveness objective, but the Financial Services Regulation Committee was clear that this objective has not yet translated sufficiently into policy or practice. Recent history does not give us confidence that a culture of risk aversion, delay and excessive caution will correct itself without stronger statutory direction, clearer accountability and more effective parliamentary oversight.

There is also a wider question about whether the regulatory framework being created will be fit for the future—the Minister touched on this. Financial services are changing at extraordinary speed, led by remodelling overseas, especially in the US. Digital assets are becoming more sophisticated and more integrated into mainstream finance. We are now discussing sovereign bonds on blockchains, digital settlement systems, tokenised assets and new payment technologies capable of transforming everyday transactions.

Yet industry is warning that the Government still lack a clear strategy for digital assets. As a result, firms face uncertainty, innovation is delayed and businesses connected to digital asset activity risk being debanked. I fear that other countries are moving faster in this area. The United Kingdom should be leading in this space; we have the legal system, the financial expertise, the history, the capital markets and the international reputation to do so.

We also need to have regard to the competitive interest of our UK firms. One very senior banker has warned me that the last-minute proposals on ring-fencing would be welcomed by his overseas competitors, since it would reduce his competitiveness. There is also concern from our huge insurance industry, where the UK is a true world leader, with 69% of income coming from overseas. It fears that downgrading the proportionality duty and confining its application to long-term strategies rather than regulatory decisions will make the UK a less attractive place to do business.

Before I close, I will ask some questions of the Minister. First, are present Ministers determined that the regulations made under this Bill will prove less onerous in practice than the architecture they replace? Secondly, what assessment have the Government made of the FCA’s operational readiness to take on the additional responsibilities conferred by the Bill? Thirdly, is the Minister confident that the measures in the Bill will materially reduce delays in authorisations and approvals, particularly for smaller firms, challengers and new entrants? The ability to stop the clock without an independent arbitrator undermines the targets. Fourthly, is the Minister confident that, following the adoption of the Bill, regulator behaviour will become more growth-focused?

There is a missed opportunity at the heart of the Bill. It contains measures that we welcome, as I have said. It moves in the right direction. It recognises, at least in part, that the current system is too complex, too slow and too burdensome. For that reason, we will approach the Bill constructively, and I look forward to working with the Minister on many of the details, not least given his background in the sector that we are discussing. I hope and believe that there are medium-scale issues on which we can reach agreement in this House, but there are two broad problems, as I see it.

The first is that this is a Bill that begins the process of reform but does not, on its own, meet the scale of the challenge. The test for the Bill is not simply whether it makes technical changes to the financial services framework, but whether it helps make the United Kingdom once again the most dynamic, competitive, innovative and attractive financial centre in the world. The second is that we are being asked to take a lot on trust, because of the remarkable degree of delegation in the Bill. We are required to trust that the regulators will deliver in a timely and effective way, that the Treasury will deliver the necessary framework and that Treasury Ministers will oversee the step change that we need. Looking to the past and to the volatility of current politics, can we really put so much trust in the proposals before us?

Lord Stockwood (Lab)

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My Lords, I thank everyone who has spoken in the debate for their valuable contribution. It has been an incredibly well-informed and courteous debate that, overall, recognised the balance that needs to be found to ensure that consumers are protected and risks are appropriately managed while avoiding an ever-increasing burden of regulation. Noble Lords have a range of views on where exactly that balance might be. In the time that I have, I will try to respond to as many of the points raised as possible. I will not be able to do justice to all the points raised today, but I have meetings scheduled with many people who have spoken. I reiterate that I am happy to meet anyone who would find it helpful to discuss any of the issues ahead of Committee.

As I have said, the Financial Services and Markets Bill will modernise how the sector is regulated. It will help the sector grow and lend more to businesses, and it will make consumer protections fit for the digital age. It will achieve these objectives while maintaining high standards of regulation and oversight. I remind noble Lords that this is why, as I mentioned when I opened the debate, the financial services sector contributes 8% of total UK GVA—although I have been corrected that TheCityUK estimates that, when related to professional services, this rises to 11%. We can all agree it is a substantial part of the UK economy.

The industry is a direct source of jobs and tax revenue, but it is, of course, much more than that. It is a key enabler of growth in other sectors, and it is the provider of payments, credit, insurance and investment services to households and businesses across the UK. A successful financial services sector is one that meets the needs of the broader economy and society at large, and that is what the Bill aims to deliver.

Before I turn to some specifics, I will set out the Government’s position on some of the broader points raised in the debate. A number of Peers, including the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, asked whether it was appropriate to pass more responsibility to the regulators. FSMA 2000 gives the financial services regulators responsibility for making the detailed rules that apply to firms. The regulators operate within this regime set by the Government and Parliament, including a set of statutory objectives that they need to advance. As the noble Lord, Lord Burns, reminded us, this is a long-established approach and the Government believe that the regulators remain the most appropriate entities to make rules for the sector. Both the IMF and the OECD support the principle of regulators making rules independently from government. The delegation in this Bill is entirely in line with the approach that Parliament has repeatedly affirmed. The Government are in full agreement with the noble Lord, Lord Eatwell, when he notes that the success of the UK’s financial sectors depends in part on a highly respected system of regulation and strong, effective regulators.

The noble Baronesses, Lady Neville-Rolfe and Lady Bowles, also asked about the Government’s use of delegated powers, especially the power related to the banking services in Clause 3. The Treasury has submitted to the DPRRC a full delegated powers memorandum, which sets out the justification for each power. On Clause 3 in particular, the Government are taking this power now to ensure that we can respond swiftly to the independent review of access to banking services once it concludes. The Government are committed to keeping all aspects of the power under review as the Bill progresses through Parliament and as the independent review completes its work. We expect to narrow this power once the review is concluded.

On the matter of regulatory complexity, the Chancellor has been clear that the UK needs to regulate for growth and that regulation must be proportionate while adequately protecting consumers and ensuring we maintain the high standards we are known for around the world. This Bill targets unnecessary, burdensome regulation while maintaining those high standards, and we are focused on speeding up regulator decision-making and removing administrative burdens. The Government are committed to creating a regulatory environment that is proportionate and effective and supports growth. Good regulation also supports consumers. For example, the reform of the Consumer Credit Act is designed to ensure that consumers receive clearer and more useful information from lenders, empowering them to make better-informed choices on their finances.

The government framework is prescriptive and outdated. The literacy trust has found that one in seven adults has literacy skills at or below the level expected of nine to 11 year-olds, yet Fairer Finance has found that the reading age required for credit card providers’ materials is that of 11 to 20 year-olds. It is obvious that a simpler, more flexible regime, one focused on outcomes rather than rigid prescription, will enable firms to produce clearer, more accessible financial information, better meeting the needs of the significant proportion of consumers with lower levels of literacy or numeracy. The FSA has the experience to design the system to deliver this and the powers it needs to enforce compliance.

I have listened carefully to the concerns of the noble Baronesses, Lady Neville-Rolfe, Lady Noakes and Lady Gill, and others about changing the application of the regulators’ “have regards”, applying them to the long-term strategy rather than the day-to-day functions. It is vital that the regulators are subject to effective oversight and scrutiny so that Parliament can have confidence they are acting with the appropriate measures and achieving the outcomes required. Much like other areas of regulation that apply to firms, the reporting requirements on the regulator have developed over time and have sometimes laid on top of each other. What results is a detailed set of information, but there are also areas of overlap and duplication. To use a metaphor also used by the noble and learned Lord, Lord Thomas, at times it can be difficult to see the wood for the trees.

The changes will require the regulator to set out the regulation and supervision clearly, making it easier for Parliament and stakeholders to understand, engage with and challenge them. The “have regards” will remain in legislation. This will support the work of the Government and Parliament to hold the regulators to account, cutting out dense piecemeal reporting to focus on the bigger picture. The reforms will reduce unnecessary and duplicative burdens on the regulators, allowing them to speed up and focus on what is important while maintaining the important information needed for meaningful scrutiny. For example, the Bill will require the FCA and the PRA to continue to report annually on how they are advancing their competitiveness and growth strategies. This will support the Treasury’s biannual performance reviews held with the CEOs and the regulators, introduced as part of the Government’s wider regulation action plan.

I turn to reforms of the Financial Ombudsman Service—FOS. The Government are in full agreement with the noble Lord, Lord Sharkey, and my noble friend Lord Pitt-Watson about the importance of trust. It is essential that our regulatory system supports trust in the financial services sector and that people have confidence that they will be supported when things go wrong.

I can give my noble friend Lord Pitt-Watson the reassurance he asked for: when the FOS considers whether the firms have met their obligations under FCA rules, this will include principle-based rules, including the consumer duty. The new arrangements introduced by the Bill will bring in greater co-ordination between the FCA and the FOS and will mean that widespread issues can be spotted and addressed more quickly and effectively. For example, if the FCA spots that large numbers of firms are letting down their customers in a certain way, it can make the regulatory intervention to nip that issue in the bud, rather than waiting until consumers lose out.

I understand that some noble Lords have concerns about limiting claims to the FOS at 10 years. Concerns about potential long-term liabilities that are difficult to assess can hold back investment, making firms unwilling to invest or to serve certain consumer groups. However, historic complaints also pose significant practical challenges when we look at the lack of availability of relevant evidence on which to base a decision. The Government conducted a comprehensive cost-benefit analysis when designing this policy. Looking at recent history, only 11% of cases that are older than 10 years result in redress been paid, much lower than the overall rate. In order to assess these claims, the FOS has charged firms £18.1 million per year in case administration fees, while awarding only £600,000 to consumers, so the case fees are 30 times higher than the redress awarded.

However, I appreciate the point that some financial products are long-term by design, such as life insurance. Issues with these products may not come to light within the 10-year cut-off. so I am happy to assure my noble friends Lord Pitt-Watson and Lord Davies of Brixton that Clause 6 enables the FCA to make exceptions to time limit these types of products. This is aimed exactly at ensuring that holders of long-term products continue to be protected.

The noble Baroness, Lady Kramer, raised concerns that the Government are weakening the senior managers and certification regime. I assure noble Lords that this is not the case. These reforms are about improving how the regime operates in practice by removing unnecessary complexity to help increase efficiency and effectiveness while preserving the regime’s core focus on maintaining strong accountability standards. Firms will remain responsible for assessing the fitness and propriety of senior managers, and pre-approval by the regulators will still be required where regulators determine it necessary to advance their statutory objectives, targeting the regulators’ attention where it matters most. The regulators will continue to hold all senior individuals to account where standards fall short.

Where there is any tension between reducing the regulatory burden and maintaining high standards of senior-level individual accountability, regulators will be expected to prioritise the latter in accordance with their statutory objectives. Senior managers will remain responsible and accountable for the areas of their business that they oversee, including where they fail to take responsible steps to prevent regulatory breaches, regardless of whether they are approved or appointed.

My noble friends Lord Pitt-Watson and Lord Eatwell asked for assurances on the reforms to the ring-fencing regime. As I set out when I opened this debate, the independent review led by Sir Keith Skeoch in 2022 concluded that ring-fencing should be retained but recommended better alignment with the resolution framework. The Bill enables that alignment, meaning that the PRA will not need to duplicate efforts where protections are already delivered elsewhere, especially through the resolution regime. This fundamental safeguard—the separation of retail banking from riskier investment banking activities—is unchanged.

The Government will set out the wider reform programme in the ring-fence review, which will be published and will go beyond the measures in the Bill today. It focuses in particular on enabling ring-fenced banks to support growth, including consulting on a new growth allowance and expanding the range of products and services that they can provide to support UK businesses and the real economy.

My noble friend Lady Hodge asked a number of questions about the FCA’s new responsibilities for anti-money laundering, and I will try to answer them briefly. The Government are working closely with the FCA to ensure that it is ready and able to take on new responsibilities. On registration and legal privilege, the Treasury will shortly publish a response to the consultation on anti-money laundering supervision. This covers the FCA maintaining a register of supervised firms, access to legally privileged material and powers to ensure robust supervision during the transition period.

A duty of co-operation between anti-money laundering supervisors already exists in the money laundering regulations. OPBAS also has a censure power and can recommend that the Treasury strips PBSs of their supervisory role. The Bill provides authority to HMT to make payments to the FCA for proprietary work, therefore the FCA’s AML-CTF supervisory activities will be fully funded by fees paid by the supervised population. This funding for start-up costs will be fully ring-fenced for these purposes, and the Government intend for the FCA’s AML-CTF supervisory activities to be funded on a cost-recovery basis through its fee charges to supervised firms, consistent with the existing funding model. I expect the FCA to consult separately on the detailed structure and operating of these fees.

The noble Baronesses, Lady Young and Lady Hayman, and others raised sustainable finance. As they noted, the Government have clearly set out our ambition to position the UK as the leading hub for sustainable investment, leveraging our sustainable finance expertise to support transition and drive growth. The Government are working closely with the regulators to drive forward this ambition through work including the FCA’s recent consultation on aligning listed companies, sustainability disclosures with international standards, the launch of the Transition Finance Council and work to regulate ESG ratings. To answer the specific question of the noble Baroness, Lady Young, the Government consulted last year on how to implement our manifesto commitment to require financial services firms and listed companies to develop and implement credible transition plans. The Government are considering next steps and will respond to the consultation in due course.

I make the general point that noble Lords should not conclude that if something does not appear in the Bill, that means that the Government are not doing anything about it. The Government have a much broader programme of financial services work sitting alongside the measures in this primary legislation. I acknowledge the thoughtful questions from the noble Lord, Lord Kamall, the noble Baronesses, Lady Young of Old Scone, and my noble friend Lady MacLeod about business and community finance. In the interests of time, I will write to them following the debate. I will be happy to meet the noble Lord, Lord Holmes, to discuss the issues he raised related to technology and innovation. Finally, the noble Baroness, Lady Morgan, raised the important issue of economic abuse. Tackling economic abuse is a priority for the Government and a key theme of the financial inclusion strategy. Ministers will be happy to write to the noble Baroness with details of how we are working with industry, regulators and specialist organisations to tackle economic abuse and help victim survivors to regain financial independence.

I have rather breathlessly tried to answer as many questions as I can. I look forward to revisiting all these points in detail in Committee, and I beg to move.

Lord Stockwood

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That the bill be committed to a Grand Committee, and that it be an instruction to the Grand Committee that they consider the bill in the following order:

Clause 1, Schedule 1, Clauses 2 to 13, Schedule 2, Clauses 14 to 31, Schedule 3, Clauses 32 to 53, Title.

Baroness Neville-Rolfe (Con)

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My Lords, it is a pleasure to open our deliberations on the Financial Services and Markets Bill. I thank the Minister for his constructive engagement so far and I thank noble Lords across the House who have shared their initial views with us. These conversations have been very helpful and have underscored a shared objective: to improve financial services regulation in a way that promotes growth, attracts investment and supports innovation. Although there are differences between us, we all agree on the importance of the financial services industry across the United Kingdom: the contribution it makes to GDP, the 2.5 million jobs it supports and the £110 billion in tax it pays.

However, I think this first group of amendments will challenge the Minister on a very important issue that we will want to address at several points throughout Committee: oversight and parliamentary scrutiny. We have approached this with slightly different amendments, but I believe that the noble Baroness, Lady Bowles, shares the concern, which also applies to her amendments in group 2.

Clause 1 is short, but it is the gateway provision that introduces Schedule 1. It provides for the repeal and recasting of significant parts of the remaining Consumer Credit Act framework into FCA rules. The reasoning behind this desire for reform, as we said at Second Reading, is broadly understandable. The Treasury’s policy statement on CCA reform says that the current framework is increasingly out of date because it was designed for a paper-based credit market and now sits awkwardly alongside modern regulation. The Government say that the aim is to create a more “agile and proportionate” regime, and we do not disagree with that assessment. Certainly, that is the feedback we have been getting in our discussions with stakeholders.

However, identifying the right problem does not necessarily mean that the Government have chosen the right solution. Their approach has two serious consequences. First, Parliament will lose control and oversight of the core consumer protections currently contained in the CCA. Secondly, we are being asked to approve the repeal of these protections without being able to scrutinise the regime that will replace them. This sets a deeply concerning precedent. The purpose of your Lordships’ House is to scrutinise legislation, challenge the Government, ask questions and ensure that the law is workable, proportionate and effective. Yet there is nothing for us to scrutinise. The Government are dismantling the existing regime without showing Parliament what will take its place.

Both Houses contain a wealth of expertise—much of it is here today—including Members with extensive industry experience, who can identify unintended consequences and suggest more effective solutions. As we have frequently made clear, we want to work constructively with the Government on this Bill, but asking Parliament to surrender its powers to a regulator before it can examine the replacement regime is not meaningful scrutiny and it is not an approach that we can support.

Consumer credit in particular matters because it is woven into the everyday financial lives of millions of people. It allows households to spread the cost of major purchases, manage short-term cash-flow pressures and access funds when they are needed, all of which supports wider economic participation but needs to be done carefully and responsibly. This is a very important area and, as with the other parts of the Bill that delegate power, the Minister must take this opportunity to answer some key questions.

First, which core consumer rights and remedies do the Government intend to keep in primary legislation? By what principle have they decided which protections may safely be moved into the FCA rules? Secondly, when will Parliament be able to see the FCA’s replacement rules in draft? Will these rules be finalised before any repeal of the existing statutory protections is commenced? What transitional arrangements have the Government found? Thirdly, how do the Government intend Parliament to scrutinise future changes once the substance of consumer credit protection sits in the FCA rule book, rather than in statute? Finally, what assessment have the Government made of the effect of these reforms on smaller lenders, brokers and intermediaries, as well as on the availability of credit and related services more broadly? What effect is uncertainty on this point around the future regulatory regime having on economic activity and how much is that costing?

My amendment seeks to re-establish a basic constitutional principle that is being threatened by the Government’s approach in this part of the Bill. Parliament should not be asked to repeal important statutory protections before it knows what will replace them, how the new regime will operate and how it will be held to account. Modernisation and agility are worthwhile objectives, but they cannot justify Parliament legislating in the dark. Before Parliament agrees to transfer such significant powers, the Minister must show us not only that the destination is right but that the safeguards, accountability and route for getting there are right as well. I look forward to the Minister’s response and I beg to move.

The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)

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I thank noble Lords for the opportunity to set out the Government’s position on this important set of issues and for the constructive nature of the debate so far. Before we start, my interests are set out in the ministerial register. I invest in a number of funds that are regulated by the FCA.

I start by addressing why Clause 1 and Schedule 1 should stand part of the Bill. The case for reform is straightforward. The Consumer Credit Act—the CCA—is more than 50 years old and was enacted long before the creation of the FCA. It no longer delivers as it should for today’s consumers, who engage with modern products in an increasingly digital world. It too often results in people being sent lengthy, complex documents that they do not read, do not understand and cannot use with confidence. It is important to say that one in seven adults has literacy skills at or below those expected of a 9 to 11 year-old and 34% of adults have poor or low levels of numeracy involving financial concepts, yet the CCA regime means that some of the information provided on credit cards requires a far higher reading age.

Debt advice charities have criticised the way in which the CCA requirements often result in borrowers being sent arrears notices even when they have agreed a repayment plan, causing confusion and alarm. To address the point raised by the noble Baroness in her amendments, this demonstrates that it is not just the content of the arrears notices that is the problem but the inflexible legislative triggers that mean they must be sent even when there is no clear purpose and they cause more harm than good. There are many more examples of where the CCA results in poor outcomes for consumers and anachronistic procedures for lenders.

That is why this Bill continues the work that began in 2012 of repealing this outdated legislation so that it can be replaced with updated rules that better meet the needs of consumers and are fit for the digital age. The Government strongly believe that those replacement rules should, in the main, reside in the FCA rulebook, not in primary legislation. The FCA has extensive experience in developing firm-facing rules for retail markets, including mortgages, insurance and investments. Its rule-making approach is underpinned by consultation and consumer testing so that protections remain robust, proportionate and relevant. The FCA’s new rules for buy now, pay later, which come into force next month, demonstrate what a modern, FCA rules-based regime can deliver for consumers.

I have heard the concerns of some noble Lords that the Bill does not set out how the repealed provisions of the CCA should be replaced and that this has been left to the FCA to determine at a future time. While I appreciate that concern, this is entirely consistent with the model of regulation established in the Financial Services and Markets Act 2000. These provisions sit in the CCA only because this model of regulation did not exist in 1974. Parliament has already vested the FCA with significant responsibilities in this space, objectives that include a primary consumer protection objective, powers to allow it to fulfil its role and a comprehensive system of transparency, governance and oversight.

Parliament will have a key role in scrutinising the FCA as it makes these replacement rules. The FCA is required to advance its objectives through its rules, including its consumer protection objective. The FCA is required to consult, to conduct a cost-benefit analysis on rule changes and to submit copies of those consultations to the relevant parliamentary committees. They include the Financial Services Regulation Committee, ably chaired by the noble Baroness, Lady Noakes.

The FCA has a comprehensive set of enforcement powers that will help it to ensure compliance with its rules and to act decisively where firms are failing to comply. As well as ensuring that an expert body with the right objectives, powers and resources can fulfil this function, this approach ensures that the rules can adapt as needed in the future to stay current and respond to future trends.

The noble Baroness, Lady Neville-Rolfe, asked when Parliament will see the replacement rules and how the transition period might work. The FCA will set out the detail of the new rules through its normal rule-making process. Repeal of legislation will be commenced only once the relevant FCA rules are in place. The Bill contains a power for HMT to allow for an orderly transition. In practice, Parliament, consumer groups and stakeholders will see the FCA rules at consultation stage before the new regime takes effect. I am aware that some noble Lords have tabled amendments to strengthen parliamentary scrutiny further. The Government believe that the current arrangements work effectively, but I look forward to debating them in more detail later. CCA reform is an important opportunity to create a clearer, more flexible and more accessible framework that better reflects today’s consumer credit landscape.

The noble Baroness asked what rights and protections will remain in legislation. Where rights and protections require legislation to work, they will remain in legislation. Criminal offences will remain, so canvassing to minors and doorstep selling will remain in legislation, along with other key protections such as Section 75.

The noble Baroness, Lady Neville-Rolfe, also asked about the impact on smaller firms, as the FCA replaces parts of the Consumer Credit Act. I can assure her that the aim of the reform is to create a more proportionate set of regulations for all firms, including smaller lenders. Everyone will benefit from this modernised regime.

I hope I have provided the Committee with some assurances that the CCA reforms are vital. I ask the noble Baroness, Lady Neville-Rolfe, to withdraw her amendment.

Baroness Neville-Rolfe (Con)

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My Lords, I thank all noble Lords who have contributed to this debate and the Minister for his response. I particularly thank my noble friend Lady Noakes, the noble Baroness, Lady Kramer, and my noble friends Lord Goodman and Lord Ranger of Northwood, all of whom, I think, echoed the Opposition’s concern about overdelegation. In fact, I appreciated and enjoyed their interesting historical and contemporary perspectives, which brought the matter to light.

The discussion has demonstrated that the concern at the heart of these amendments extends well beyond the technical details of consumer credit regulation. It concerns a fundamental question about how Parliament performs its constitutional role, particularly when substantial powers are transferred from statute to regulators. I will not repeat all the points made by my noble friend Lady Noakes, but we need to look at Parliament’s oversight. There is a democratic deficit. We will no doubt debate her letter when we come to Clause 17. I noted the support of the noble Lord, Lord Davies of Brixton, for bottoming out the role of the committee and the points that he made.

We support the objective of modernising the consumer credit framework—I would like to emphasise that—but reform cannot mean that Parliament approves the removal of existing protections without seeing what will replace them. Nor should moving provisions into a regulator’s rulebook place it beyond meaningful parliamentary scrutiny. We will continue to apply these principles throughout our deliberations in this Committee. Wherever the Bill delegates new powers or expands the remit of the Treasury or the regulators, we will be asking the same essential questions. What safeguards will govern the exercise of these powers? Who will be accountable for the decisions taken? How will Parliament examine what is being proposed, assess whether it is working—because follow-up is important too—and intervene where it is not?

There must be a direct relationship between power and accountability, and when the authority, discretion or remit of a regulator is increased, the capacity for effective oversight must increase alongside it. It is constitutionally perverse for an expansion of regulatory power to be accompanied by a weakening of parliamentary scrutiny. The Government repeatedly invoke the need for agility, which I understand, and we recognise the value of a framework that can respond to changing markets and emerging technologies. My noble friend Lord Blackwell warned against the confusing dual responsibility that sometimes exists between the CCA and the courts and regulators, but the noble Baroness, Lady Bowles, pointed out that it is not as simple as delegating everything to the FCA, which is not a legislator. She was right to warn against automated substitution.

Agility cannot become a proxy for opaqueness and flexibility cannot become an excuse for removing important decisions from democratic oversight. The Government must demonstrate that each transfer of power is not merely convenient but necessary, proportionate and matched by effective accountability. If the Minister is willing to engage with us on this basis, we will do so constructively, but we will continue to challenge any provision that asks Parliament to surrender oversight without first showing how that oversight will be replaced. We will return to this issue on Report, unless we can find a better way of ensuring proper scrutiny, but for now I beg leave to withdraw my amendment.

Lord Stockwood (Lab)

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My Lords, I thank noble Lords for the opportunity to set out the Government’s position on this important set of issues. I start by addressing why Clause 1 and Schedule 1 should stand part of the Bill. However, I do not want to duplicate what I said on the previous group, where I set out at length the Government’s policy for the CCA. Suffice it to say that the case for reform is straightforward. The Consumer Credit Act is more than 50 years old and was enacted long before the creation of the FCA. It no longer delivers as it should for today’s consumers, who engage with modern products in an increasingly digital world. That is why the Bill continues the work that began in 2012 of repealing this outdated legislation, such that it can be replaced with updated rules that better meet the needs of consumers and are fit for this digital age.

I understand the strength of feeling on the question of delegation, but I note that the noble Lord, Lord Blackwell, said that this is not a consensus. As I have said, this is entirely consistent with the model of regulation established by Parliament in the Financial Services and Markets Act 2000. The Government strongly believe that those replacement rules should, in the main, reside in the FCA rulebook, not in primary legislation.

The noble Baroness, Lady Bowles, expressed concern about how the FCA will replace some key protections, including information requirements. In the last group, I already explained the process that the FCA will follow. As I said, in practice, Parliament, the sector and consumer groups will see the FCA’s detailed proposals at the consultation stage, before the new regime takes place. I am happy to assure the noble Baroness that the FCA’s recent public statement confirmed that it aims to consult on key information requirements, rights and protections, including cancellation and withdrawal, the termination of agreements, including early settlement, and on looking across the consumer credit journey, with this approach being underpinned by the consumer duty. This will be supported by consultation and cost-benefit analysis, consumer research and stakeholder feedback.

Amendments 4, 5, 7, 8, 9, 10, 11, 12, 13, 14 and 16 would retain information requirements and related sanctions in legislation or limit the FCA to prescribing only the form and content of notices. That would preserve the rigidity we are seeking to address. I cannot accept these amendments, as the provisions are not fit for the digital age. The Bill repeals these rigid statutory requirements so that the FCA can develop a more effective, rules-based regime. This is not about reducing information but about improving its timing, its quality and its clarity. The aim of the regime is that it provides consumers with better information in a clearer form and at a time that is most useful to them.

The consequence of repealing these information requirements is that certain related sanctions will fall away. These sanctions were designed for a different era. The Office of Fair Trading had limited powers for supervision and enforcement, so the regime was designed to be draconian to act as a robust deterrent. The sanctions apply automatically, regardless of the seriousness of any breach or whether any consumer harm has arisen. For example, a lender that used the incorrect wording in an arrears notice is required to refund any interest and fees charged from the point at which that breach was originally made, even if the error was in no way harmful to the borrower. Much has changed over the years since these sanctions were designed, and this approach is poorly suited to the modern approach to regulation. The FCA has strong supervisory and enforcement powers, and under consumer duties firms must deliver good outcomes. Unlike when the CCA was enacted, any consumer who suffers harm can straightforwardly access redress through the Financial Ombudsman Service, the FOS.

I recognise the concern behind Amendment 2, which seeks to ensure that FCA rules can supplement but not replace or diminish rights and remedies in the CCA. However, the Bill already preserves statutory rights that need to remain in legislation. Because FCA rules are not capable of eroding such rights, the amendment is not necessary.

I have already set out, in the last group, several examples of protections that remain in primary legislation, including Section 75 and provisions connected to criminal offences, which must of course remain in legislation. Amendments 6 and 15 would retain withdrawal, cancellation and early settlement rights in the CCA rather than allowing them to be recast into FCA rules. These rights are an important feature of consumer credit products that ought to be preserved. However, the current framework is complex and outdated and, as a result, not always well understood by consumers. The purpose of reform is to ensure that these protections work better for consumers, which is why the FCA has committed to consider cancellation rights alongside other rights including withdrawal, termination of agreements and early settlement, as part of its future framework. The amendments would prevent the FCA taking forward this vital work.

Lastly, Amendment 17 covers certain important rights, such as time orders, and seeks to retain these provisions within legislation without changes. However, changes to these provisions are necessary to ensure that they work together with the new information requirements recast into FCA rules.

I hope that I have been able to reassure noble Lords that the Government are taking forward these changes for the benefit of consumers, and convince them that the changes the Bill makes are necessary to modernise our protections and ensure that they are serving their intended purpose of protecting consumers. I acknowledge that we will come to the scrutiny of the regulators, especially the FCA, in future groups. I therefore propose that Clause 1 and Schedule 1 stand part of the Bill and respectfully ask the noble Baroness not to press her opposition to them.

Baroness Neville-Rolfe (Con)

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My Lords, before I turn to the detail of these amendments, I should briefly set the scene. Noble Lords will be aware that last week the Conservative Party announced a new policy in relation to the Financial Ombudsman Service. An amendment on our proposal for an alternative approach, a financial adjudication service, is currently being discussed with the Table Office, and I do not intend to pre-empt that discussion. We will have the opportunity to debate that proposal at a later stage of the Bill.

The clauses before us, by contrast, change the landscape of dispute resolution in financial services in the immediate term. Our policy announcement does not prevent us engaging properly with the provisions before us now. Indeed, it makes it more important that we do so. We want whatever system Parliament agrees on now to work as well as it can. The amendments in this group are concerned with certainty, timeliness and fairness. They are intended to ensure that the framework being created by the Bill does not introduce unnecessary uncertainty for firms, does not allow yet further delay to become embedded in the system and does not create open-ended liabilities or an undesirable degree of retrospection.

I turn first to Amendment 17A, which relates to unfair relationships under Sections 140A and 140B of the Consumer Credit Act 1974. Its purpose is to retain the six-year limitation period running from the end—I emphasise “end”—of the creditor-debtor relationship for applications or actions seeking relief in respect of an unfair relationship. These can of course go back many years. This reflects a concern that has been raised with us following the Supreme Court ruling in THG plc v Zedra Trust Company (Jersey) Ltd, which found that unfair prejudice petitions under Section 994 of the Companies Act 2006 are not subject to statutory limitation periods. I appreciate that that judgment arose in a different statutory context, but it has prompted a serious and practical question. Does that reasoning have any implications for applications or actions seeking relief under Sections 140A and 140B of the Consumer Credit Act?

If there is any doubt about the applicable limitation period, the consequences could be significant. Credit agreements, and the relationships arising from them, may have ended many years earlier. Banks and other lenders do not keep records indefinitely. They cannot reasonably be expected to defend claims on the basis of files, communications, systems and decision-making processes from an indefinite period in the past. That is why limitation periods matter. They reflect a basic principle of fairness: that after a certain period evidence may be lost, as memories fade and documents are no longer available. Without a clear time limit, firms could be exposed to open-ended liability and a significant increase in vexatious or speculative claims, often fired up by claims management companies.

Amendment 17A therefore seeks to preserve the existing position that, where relief is sought under Sections 140A and 140B in respect of an unfair relationship, the relevant limitation period should be six years from the date on which the relationship between the creditor and the debtor ends. I would be grateful if the Minister could give some clear answers here. As my noble friend Lady Lawlor said in the previous group, it is important to have predictability. Does the Government’s understanding remain that the six-year period applies? Has the position been affected in any way by the Supreme Court’s reasoning in THG v Zedra? If the Government consider the position is already clear, will the Minister set that out on the record? If there is any doubt, will he commit to preserving the current six-year period?

I turn next to Amendment 36, which concerns referrals from the Financial Ombudsman to the FCA. The Bill creates a new mechanism by which the Financial Ombudsman may refer matters to the FCA where there is an issue of wider significance or where FCA rules may be ambiguous. In principle, that is sensible and an important mechanism, but one of the recurring criticisms of the current system is that firms can find themselves judged against interpretations or expectations that were not clear at the time.

A route for the FCA to provide clarity is therefore welcome. However, that mechanism will work only if it operates at pace. If a complaint is referred to the FCA and then sits there for months, the result will be uncertainty for everyone. The consumer is left waiting, the firm is left with a live and unresolved complaint and the ombudsman cannot proceed. The wider market may be left in doubt about the meaning or application of the rules.

Lord Stockwood (Lab)

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My Lords, I begin by considering Amendments 17A and 44. The Government’s reforms to the FOS are aimed at ensuring that the legislative framework in which it operates supports it to perform effectively the role that it was established to do, providing quick, informal and impartial dispute resolution between financial services firms and their customers.

Given the nature of the FOS and the way it operates, it can be effective at resolving the majority of disputes between customers and financial services firms, but it cannot do everything, and some things are more suited to other routes. The alternative routes include the courts and a consumer redress scheme established by the FCA. These routes are more appropriate when addressing systemic issues, such as widespread mis-selling. The reforms that the Bill makes to Section 404 of the Financial Services and Markets Act 2000 are designed to enable the FCA to act quickly to prevent disruption and uncertainty when it finds that a mass redress event has occurred.

Turning to Amendment 17A, I thank the noble Baroness for raising this important issue. I recognise that there have been questions about the time limits that apply to claims brought under Sections 140A to 140C of the Consumer Credit Act 1974 in the light of the Zedra ruling. The Government understand that there is an interest in and desire for clarity in this area. The noble Baroness, Lady Neville-Rolfe, asked me about the Government’s position following the Zedra ruling and its implications for the Consumer Credit Act 1974. The Government’s position remains that the limitation period runs from the end of the credit agreement. That approach provides legal certainty and reflects the nature of these claims. That understanding is consistent with existing case law, including the Supreme Court’s judgment in Smith v RBS.

Baroness Neville-Rolfe (Con)

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My Lords, I am grateful to all noble Lords who have contributed to this brief debate and to the Minister for his response and clarification of THG v Zedra, which I will certainly consider.

My central point is that a redress and complaints system must be fair in operation. It must be capable of delivering justice for consumers, but it must also give firms a reasonable degree of certainty about the liabilities they face, the standards against which they are judged and the timeframes within which matters will be resolved. If we create a system in which liabilities are open-ended, where regulatory redress powers can go beyond ordinary limitation principles, and where referrals can remain unresolved for an indefinite period, I do not think it will produce a better system for consumers.

I agree that we must look after consumers—this is obviously a very important part of consumer law—but I worry that we will produce a slower, more uncertain and more contested system for everyone if we do not get these judgments right. I do not accept a bias towards business, as the noble Baroness, Lady Bowles, suggested. Actually, we are seeing a shift the other way in some of these areas, which is why I have had the representations I have had on these points and why I think is it is very important to find clarity.

I note what my noble friend Lady Altmann said about pensions. The Minister has answered and explained that he sees pensions in a slightly different way. I am not sure what the limitation rules are there.

I hope that the Minister will reflect further on the thrust of these amendments. In particular, I hope that he will consider whether the Government can provide a clearer statutory safeguard on limitation—clarity is certainly important—as well as a firmer timetable for FCA opinions. I worry that just delegating it to the FCA will mean it being in charge of its own timetable. If there were an enormous problem in the financial services industry that required the diversion of staff elsewhere, for example, things could slip, and redress for the consumer could then slip as well.

All of these amendments go in the same direction: towards fair, timely and certain decision-making, with predictability for both consumers and the businesses involved. For now, I beg leave to withdraw my amendment.

Baroness Neville-Rolfe (Con)

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My Lords, Amendment 21, in my name and that of my noble friend Lady Noakes, would ensure that any government intervention in the provision of in-person banking services is evidence-based, proportionate and properly balanced. It would require Ministers to consider not only the needs of consumers but the legitimate commercial reasons why firms may reduce their physical banking provision.

More widely, Clause 3 raises two distinct but closely related concerns. Our amendment speaks to the first: banks do not close branches simply on a whim. Consumer behaviour has changed profoundly, more banking is conducted digitally, and maintaining a physical network carries substantial costs. The Government may decide that wider social considerations justify intervention, but they cannot responsibly make that decision while ignoring the commercial realities facing the firms they intend to regulate.

Lord Stockwood (Lab)

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My Lords, I will begin by setting out why Clause 3 should stand part of the Bill. The way that UK citizens bank has changed significantly in recent years, with many customers choosing to use digital channels such as mobile banking. As such, we have seen many firms reviewing how best to meet these changing needs, and banks are closing branches in response.

However, for some people who require access to in-person banking services, these changes may have resulted in detriment. The Government are committed to ensuring that people who need in-person banking, including vulnerable customers and those with specific needs, can continue to access essential services. Last month, as mentioned, the Government launched an independent review into access to banking services led by Richard Lloyd, former executive director at Which? and a former board member of the FCA. I encourage noble Lords to engage with him. As they have noted, he conducts this critical work. I am glad to hear much agreement from many noble Lords today as this is a critical issue and the Government are right to be exploring it.

Clause 3 ensures that we can act swiftly and proportionately if the evidence from the Access to Banking Services review supports intervention. Once the Access to Banking Services review has concluded and made its recommendations, the Government will assess whether any further legislative change may be required. I appreciate that the power is broad and that many of the amendments in this group are aimed at scrutinising or reducing the breadth of that power. I also recognise that the Delegated Powers and Regulatory Reform Committee has drawn Clause 3 to the attention of the House and recommended that the power be removed from the Bill. The Government have considered that report and will be responding in writing in the normal way before Report.

We accept that this is a broad power, but we consider that it is needed now so that, once the independent review reports, the Government can respond promptly and proportionately in light of the evidence and recommendations that it provides. As the review is still ongoing, it is not yet known what detriment exists, which customer segments are most affected, whether further intervention is needed or what form it should take. The Government are committed to keeping all aspects of this power under review as the independent review completes its work.

I pass on my personal welcome back to the noble Lord, Lord Vaux. His comments about Ministers changing is indeed pertinent on a day such as today. I am not casting too far in the future; indeed, I keep checking my phone just to see whether I make it through Committee stage.

The noble Lord whether this power could be narrowed. I can confirm that the Government expect to narrow the power once the review has concluded in October and we have had the opportunity to consider the recommendations. This will provide further clarity on any appropriate interventions that will allow the power to be refined.

Lord Stockwood (Lab)

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I was coming on to that point. The noble Lord asked what the power can do and how that scrutiny can take place. It allows the Government to introduce targeted secondary legislation or to confer functions on the FCA, including the power to make rules in the future. When using this power, the Treasury must have regard to the recommendation made by the Lloyd review.

I think the noble Lord made a point about what legislation could be amended. I can only answer this in part at this time: the Treasury expects to use the power if needed to amend relevant legislation, for example, financial services legislation.

Lord Stockwood (Lab)

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No, that is not what I am concluding.

Lord Stockwood (Lab)

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With all these examples, I will have to come back in some detail at a later stage. The idea of narrowing the powers means that we can take into consideration the conversation and debate, while acknowledging that there will be some work to do in the intervening period. We believe we have the time to do that before the Lloyd review comes into play, allowing us to make the amendments necessary.

On Amendment 18, from the noble Baroness, Lady Noakes, I reassure noble Lords that the Treasury engages very regularly with the retail banking sector as part of its policy-making process. In addition to the Treasury’s ongoing regular engagement, the Access to Banking Services review will engage closely with as wide a range of stakeholders as possible, including the industry, consumers, local authorities, small and medium-sized businesses, and trade bodies. Furthermore, if regulations are made under this power to confer functions on the FCA, the Government would expect the regulator to follow its usual processes and to fulfil its statutory duty to consult before it imposes any new requirements.

Amendment 21, in the name of the noble Baroness, Lady Neville-Rolfe, contains a similar requirement for the Treasury to consult before making any regulations. It would require the Treasury to have regard to other sources of evidence, including the burdens that any regulations would place on banks, and for the Treasury to publish a statement alongside any draft regulation summarising its consideration of the evidence. The review will consider these sources of evidence, and, in considering the review’s recommendations, the Treasury will naturally take into account the impacts on banks and other relevant businesses. If the Treasury brings forward regulations under this clause, it will publish an impact assessment that will consider the impact on firms, as well as the proportionality of regulation.

Similarly, Amendment 23—in the name of my noble friend Lord Sikka and spoken to by my noble friend Lord Davies of Brixton—would require the Treasury to have regard to the need for local banking services when making regulations under Clause 3. I reassure my noble friends that the review will consider the need for in-person banking services and the impact on any specific cohorts or demographics. Funding will be considered once the review has identified the scale and nature of the consumer detriment and once the Government have considered how to respond.

Likewise, Amendment 22, in the name of the noble Baroness, Lady Tyler of Enfield, seeks to require the Treasury to have regard to several matters relating to the existing provision of banking services, including through banking hubs and the Post Office. The review will consider these sources of evidence when forming its recommendations. On her specific point on the time between bank branch closures and the opening of a banking hub, I reassure her that, if a banking hub is recommended, FCA rules already require banks not to close existing cash-access services, such as branches, until the recommended solution is in place.

Amendments 20 and 25 would require the Treasury to commission further independent reviews if it wishes to make subsequent regulations after first exercising the power in this clause. There is an existing requirement in Clause 3 for the Treasury to have regard to the recommendations of the current review when making regulations. The review was commissioned to bring together proactively the evidence from across the UK and to look at the trajectory for access to in-person banking services, not just the position as it currently stands. If the Government consider it necessary to make further provision in future, they would envisage this to follow the usual process of consultation and impact assessment, beginning from the baseline of evidence provided by the ongoing review. Further wide-ranging independent reviews are likely to be disproportionate.

Amendment 24, in the name of the noble Baroness, Lady Bowles of Berkhamsted, is similar: it would limit the power to be used only to implement matters arising directly from the independent Access to Banking Services review. As I have made clear, the Government’s intention is for the power to be used to implement the recommendations of the review. However, it is important that the power is not limited solely for this purpose, in case further relevant evidence outside the scope of the review comes to light as Ministers consider the review’s recommendations. The Government should be able to consider all relevant evidence, not just the review itself, before making any regulations.

Amendment 19 would require the power to be used to make regulations only if the relevant banking services would not be provided on a voluntary basis. The Treasury welcomes action taken by industry to support customers and welcomes the voluntary commitments, such as services provided in banking hubs, that the industry has taken forward. The Treasury will consider relevant information in determining any regulations to take forward following this Bill, including any relevant voluntary arrangements already in place.

Lord Stockwood (Lab)

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My Lords, Amendments 28, 29 and 30 are aimed at increasing access to finance and ensuring that the customers of financial services firms are protected. I recognise the intention behind these amendments. However, I do not believe that either solution is workable.

On Amendments 28 and 29, I agree that data on access to finance and holding the sector to account are important. However, these proposals would introduce a new, prescriptive and burdensome framework on the FCA and firms that I am not persuaded would deliver the desired output.

Amendment 28 would require the FCA to establish a framework to monitor, assess and publicly report on certain banks’ and building societies’ performance in providing access to affordable credit. Amendment 29 would require the FCA to take action against firms that do not meet a minimum standard. As the noble Baroness, Lady Kramer, said, this approach resembles the United States’ Community Reinvestment Act 1977, but we should not assume that it would have the same effect here. Our starting point is different: we are working nearly 50 years later, in a digital age, with a far more diversified credit market. In any case, lenders already publish significant data. Chapter 7 of the FCA’s Conduct of Business Sourcebook requires extensive disclosure on personal and business current accounts. We also have the FCA’s Financial Lives Survey, the SME Finance Monitor and the British Business Bank’s annual SME finance publications, among others.

Amendment 29 would require the FCA to act against firms that do not meet a minimum lending standard. Striking the right balance on access to credit has long been a challenge. We want consumers to be able to access credit where it supports financial resilience and businesses to secure the finance needed to grow, but inappropriate credit can lead to overindebtedness, with serious consequences. The amendment could, in effect, compel lending to more vulnerable groups or SMEs. Even a well-designed regime could be a blunt instrument, with a risk of unintended outcomes. It would also represent a significant intrusion into firms’ commercial decisions.

More fundamentally, it is difficult to see how firms could increase lending and take on greater risk without raising prices to reflect that greater risk. If firms do not price risk appropriately, it opens us up to financial stability risks. The FCA would be placed in the invidious position of having to mandate affordable credit, while the mechanism required to expand provision could increase costs and potentially increase risk for the borrower and the firm. That runs directly counter to the intended objective for vulnerable customers and SMEs.

Although I cannot accept these amendments, I stress to noble Lords that the Government are not complacent about financial inclusion or the availability of SME finance. The noble Lord, Lord Altrincham, asked me to set out what the Government are doing, and I am happy that noble Baroness, Lady Kramer, mentioned several of these interventions already. The Government published their Financial Inclusion Strategy last autumn, and we are supporting practical interventions for consumers, including a small sum credit pilot enabling mainstream lenders to test lending to customers outside their usual risk appetite. Monzo was announced as the first participant in the scheme earlier this month.

We have launched a transformation fund for credit unions, alongside common bond reforms in this Bill, to strengthen their lending capacity. We are also advancing targeted SME finance measures to improve competition and supply, including enhancing the consumer credit data sharing scheme through Clauses 41 and 43 of this Bill. We are supporting up to £150 million of lending through the Community ENABLE funding programme over the next two years. We are establishing a CDFI taskforce and working with industry to improve bank referrals. Indeed, tomorrow I am meeting several large asset managers as chair of the place-based impact investment scheme. We will set out next steps on open finance later this summer. This has significant potential to support SME lending across a wide range of providers, alongside broader work with the Bank of England on capital and ring-fencing.

I highlight community development finance institutions, which I know are a priority for the noble Baroness, Lady Kramer. In addition to the CDFI taskforce and the Community ENABLE funding programme that this Government have funded, the sector benefits from Fair4All Finance’s affordable credit scale-up programme, which has committed more than £40 million in social investment in England to date. The financial inclusion strategy further includes measures to strengthen community finance, including promoting partnerships with mainstream lenders. Taken together, these measures support access to finance in the UK in an appropriate and responsible way.

Amendment 30 would introduce a new fiduciary duty on firms when carrying out FCA-regulated activities. It would place specific legally binding requirements on firms. I agree with the noble Baroness that it is vital for firms to act in a way that delivers good outcomes for consumers. However, I believe that FCA regulation is able to achieve this, and I am concerned that this new duty would risk creating overlapping requirements, causing confusion and reducing consumers’ access to finance.

The FCA’s consumer duty is designed to set a high standard of protection for retail customers by requiring firms to act to deliver good outcomes in line with the outcome sought by this amendment. It requires firms to put consumers’ needs at the heart of their business, including by acting in good faith, avoiding foreseeable harm and supporting consumers to pursue their financial objectives. In practice, this means that firms must design products and services that meet consumers’ needs, provide fair value, communicate clearly and offer effective support.

I am concerned that the requirements set out in this amendment would risk making more vulnerable customers more expensive and risky to serve, which would reduce their access to products such as credit and insurance. Introducing a novel statutory fiduciary duty, the precise scope of which would fall to be settled through litigation over a number of years, would create significant legal uncertainty. That uncertainty would carry a cost, which firms would be likely to manage by withdrawing from, or repricing, services for higher-risk customers. I recognise that there is some precedent for a fiduciary duty in trust-based pension schemes. However, the dynamics of the market are very different from wider consumer financial services. Typically, employer pension schemes do not choose which individual customers to serve, and the fiduciary duty applies at the membership level.

I genuinely understand the importance of lending for all parts of the economy, and I understand the need for borrowers to be protected, but I am convinced that the Government are taking the right set of actions, and I am afraid that Amendments 28, 29 and 30 would bring significant unintended consequences. I therefore ask the noble Baroness to withdraw her amendment.

Baroness Neville-Rolfe (Con)

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My Lords, I am grateful to noble Lords across the Committee. I have noted the variety of concerns expressed on this part of the Bill. As noble Lords have heard, my party has announced proposals to remove the Financial Ombudsman Service and replace it with a new financial adjudication service. That proposal is not before the Committee in this group, but we have an agreed amendment; we will have the opportunity to debate it properly at a future stage.

I start by speaking to Amendment 32 in my name and that of my noble friend Lord Altrincham. The amendment would retain the existing six-year longstop rather than extending it to 10 years, as Clause 6 would do. As I have already said, I am concerned about this move, albeit for different reasons to some other Peers who have spoken. I accept that there is a balance to be struck here: consumers must have access to proper, effective and fair redress mechanisms. Where a consumer has suffered detriment because of misconduct, poor practice or a failure by a firm, there should be a clear route through which a complaint can be considered and, where appropriate, redress can be provided. However, this does not mean that time limits are unimportant. On the contrary, time limits are an essential part of a fair system. Claims can be heard fairly only when sufficient information is available to both sides to allow them to mount a proper case. That means records, correspondence, product documents, internal decision-making, staff recollections and the wider factual context in which the relevant decision was made.

The further back in time a complaint goes, the more difficult this becomes. Evidence may be incomplete and documents may no longer exist. The people involved may have left the organisation, systems may have changed, products may no longer be offered and the regulatory context may have moved on. A complaint may still be sincerely brought, but the ability of the firm to respond fairly and fully may be materially impaired. That is why limitation periods exist: they reflect the basic principle of justice that, after a certain period, it becomes harder to determine matters fairly and reliably. That principle applies in the courts, and I believe that it should continue to be properly reflected in the ombudsman’s framework. I am concerned that extending the longstop from six years to 10 years risks pushing the system beyond that fair balance.

I have noted the comments made by the noble Lord, Lord Davies of Brixton, in particular his references to pensions and endowment mortgages. I will be interested in the Minister’s response on how those products are dealt with and whether the exemptions are intended to cover that area.

On this occasion, I do not agree with the noble Lord, Lord Sharkey—although we often agree on other matters—because there is a genuine concern in the industry about vexatious or speculative claims. We should not be naive about this. There is a whole claims management industry dedicated to identifying and pursuing potential claims. Some of those claims may be legitimate, and consumers should not be denied redress where redress is due, but others may be weak, opportunistic or based on limited evidence. If the period is extended significantly, the volume of such claims may increase, so firms will have to devote more resource to investigating and defending matters from many years ago.

All this has a cost and makes all concerned more risk-averse, so it becomes more difficult for providers to accept customers at the margin. This matters for not only firms but the wider economy. We cannot stimulate growth, support lending, encourage investment and improve productivity if banks and financial services firms are pouring ever more resources into fighting historic claims, rather than serving customers, lending to businesses, supporting economic activity and innovating. There is a real opportunity cost here.

My noble friend Lord Roborough is unable to be here today, but I understand that his Amendments 38 to 41 are intended to probe whether the reforms in the Bill provide sufficient certainty for regulated firms that, where they have complied with the relevant rules and requirements, the Financial Ombudsman Service will not be able to go substantially beyond that framework in finding fault or imposing redress. This is not to question the proper role of the ombudsman in cases such as car finance commissions, where the courts have confirmed the relevance of undisclosed conflicts of interest; rather, it is to test whether the current “fair and reasonable” jurisdiction risks giving the FOS a quasi-regulatory role, including through inconsistent interpretation, the retrospective application of standards or decisions that go beyond the rules in force at the time. This is the core issue that has been raised time and again: the FOS needs to be reined in, but does the Bill do it?

At the same time, I recognise the number of views on this question. It is for the Minister to show that the proposed changes do not weaken the ability of consumers, including vulnerable consumers—particularly those in serious circumstances, such as terminal illness—to obtain fair redress. I have been told, for example, that there is a variance between companies over acceptance rates in such cases. The Minister might want to look into that.

Serious concerns have been raised. I look forward to hearing the Minister’s response to this group. My own concern remains that, as drafted, the Bill shifts the balance too far. It extends exposure to firms in a way that may appear consumer-friendly at first sight but risks generating delay, uncertainty and large volumes of contested claims. The six-year longstop strikes the right balance, so why 10 years? What evidence has led the Government to conclude that six years is insufficient? Can the Minister break that down by product or financial services type? What assessment has been made of the impact on firms, on complaint volumes, on the claims management sector and on the resources of the ombudsman itself? How will the Government ensure that extending the longstop does not simply create a larger backlog of older and more difficult cases?

I would be grateful if the Minister could also address the practical point about record-keeping. Do the Government now expect banks and other firms to retain detailed customer records for 10 years in anticipation of potential FOS complaints? If so, what assessment has been made of the cost and operational burden of doing so? I speak as a former company secretary in a large company; I know about the problems in keeping data. Indeed, what about doing it retrospectively?

I hope that the Minister will reflect carefully on the points I have made on the possibility of retaining the six-year longstop. I very much look forward to his response.

Lord Stockwood (Lab)

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My Lords, as we have heard today, the Financial Ombudsman Service—the FOS—plays a vital role in providing quick, informal and impartial dispute resolution between customers and their financial services providers. It offers an accessible route for dealing with complaints that is designed to act as an alternative to resolving cases through the courts, which can be costly, lengthy and a process that often does not work for firms and consumers. The Government are clear that an effective ombudsman provides consumers with confidence in our financial services sector and is a key element of an effective system.

The Government’s review of the FOS found that, although the FOS fulfils its role in the majority of cases, in a small but impactful minority of cases, it has acted as a quasi-regulator. That conclusion was supported by the Financial Services Regulation Committee, chaired by the noble Baroness, Lady Noakes, in its report, Growing Pains: Clarity and Culture Change Required, which was published in June 2025. It recognised that the FOS’s

“actions have regulatory impacts by creating precedents that the FCA requires firms to follow”,

and that this

“generates an unacceptable level of uncertainty for firms, stakeholders, and investors”.

I want to be clear that the review was not suggesting that the FOS was acting improperly; rather, it concluded that the way in which the legislative framework operates made such issues unavoidable by creating a disconnect between the FCA’s rules and the FOS’s decisions, giving rise to unpredictability and a lack of certainty across the regulatory environment. That unpredictability is damaging for everyone and harms consumers’ confidence in the financial services products and services they rely on, as well as firms’ confidence to invest and innovate in the UK.

There is a large number of amendments before us. I will start with Amendment 31. This proposal would substantially extend the timeframe for bringing complaints to the FOS and would require the FOS to spend even more of its time and resources investigating, considering and attempting to resolve historic cases than it does today. We know from current experience that this would substantially increase costs while delivering comparatively limited increases in redress awarded. Further extending the timeframe beyond 10 years in an open-ended way to accommodate a complainant’s reasonable awareness of an issue would increase uncertainty for firms around historic liabilities, reducing appetite to invest in the UK’s financial services businesses.

The Treasury’s analysis of data from the FOS on historic cases is clear: they are more likely to be withdrawn or abandoned and have lower success rates than the average, often due to limited evidence and information being available. The Government’s analysis concluded that complaints to the FOS that are over 10 years old cost firms, on average, more than £18 million per year in case fees but deliver only £600,000 per year in redress for consumers. This is not a proportionate or balanced approach, nor is it consistent with the FOS’s quick and simple purpose. Extending the timeframes would slow down the FOS’s resolution of cases that are more recent and have a higher chance of being upheld, delaying consumers access to the redress they are owed.

Turning to Amendment 32, the Government considered carefully the options for different time limits to be set in legislation, including a six-year limit, and published their analysis in the impact assessment. Although this is a matter of judgment, the Government concluded that a 10-year time limit would strike the appropriate balance between consumer protection and providing certainty to firms, with a six-year limit resulting in too many people losing access to redress. However, I assure the noble Baroness and the noble Lord that the new limit introduced by the Bill is designed to act as a backstop to the existing limits set in rules made by the FCA. In most cases, the time limit will remain at the existing six years, with the 10-year backstop kicking in for cases where the customer could only reasonably have become aware of the problem at a later date.

On Amendments 33 and 35, the Government agree that, where the cause for complaint may take longer to come to light, such as with pensions, it is important that complaints can continue to be brought to the FOS. This is why the Bill gives the FCA discretion to make exceptions to the time limit in specified circumstances, where it is appropriate to do so. The Government carefully considered their approach to defining these exceptions and determined that the FCA is best equipped to develop proportionate and fair exceptions and to define these in its rules, given the FCA’s supervisory role and oversight of the sector and the level of technical detail that is required for the definitions.

The noble Lord is right to recognise the careful balance needed between ensuring that we do not undermine the certainty that this reform is intended to deliver while maintaining consumers’ trust and confidence that they will have access to redress when things go wrong. The Government are working closely with the FCA as it develops these exceptions and the FCA will set out its proposals in due course.

Amendment 34 relates to cases where there is an ongoing relationship between the consumer and a firm. Some complaints may be about acts or omissions that continue to occur or have effect in the context of an ongoing relationship between a consumer and a firm. The Financial Services and Markets Act 2000 does not place a restrictive definition on “acts” or “omissions”, so there is no reason why such an ongoing act or omission could not be the basis for a complaint within the time limit. The Government’s reforms in the Bill will not change the FOS’s discretion to identify the act or omission to which a complaint relates for the purposes of applying relevant time limits. It will continue to be for the FOS to make those judgments, based on the circumstances of the case and in line with the rules set by the FCA.

I will now explain the Government’s purpose behind Clause 8 and why it should stand part of the Bill. The noble Lords, Lord Davies of Brixton and Lord Sharkey, asked about the evidence base behind the Government’s policy. The Government’s review found that, in a small but significant minority of cases, the FOS has acted as a quasi-regulator. This means that, in some cases, the FOS has held firms to a standard that is different from those set by the FCA. The majority of responses to the Government’s consultation on the proposals to reform the legislative framework in which the FOS operates were broadly supportive of aligning the FOS’s fair and reasonable test with the FCA rules.

Lord Stockwood (Lab)

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I apologise for taking a moment to ask my officials a question; I want to make sure that I give the right answer. Where the FOS has complied with the FCA rules, it still has the discretion to make judgments, as long as it believes them to be fair and reasonable.

Lord Stockwood (Lab)

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Certainly. We are trying to align the FOS’s “fair and reasonable” test with the FCA rules, but it retains some discretion.

I apologise for taking another moment to consult my officials. For clarity, where the FOS has aligned with the FCA rules, it has to believe that that is the case, and that determination has to be upheld.

Lord Stockwood (Lab)

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I will take the opportunity to write because this definitely needs clarification. The note that I have says that in cases where the omission being complained about is governed by FCA rules, if the firm has met its obligations under those rules, the FOS will be required to find that it acted fairly and reasonably. All the FCA’s handbook is relevant here, including the principles for businesses and, therefore, the consumer duty. There will be coherence between those determinations but only when the FOS believes that the fair test has not been met can it challenge the FCA. I will write to noble Lords because this is an important point that needs a definitive answer. I apologise for that.

On Amendments 37, 42 and 43, as I have set out, the reforms to the FOS’s fair and reasonable test are designed to preserve the FOS’s existing discretion in areas not covered by FCA rules. The Bill specifies the matters that the FOS must take into account when making determinations, taking this out of FCA rules and making it subject to parliamentary oversight. The matters listed include the law, relevant guidance, codes of practice and further materials published by the FCA or other regulators. This provides greater clarity around how the FOS makes its decisions. As I explained earlier, the Government’s view is that where there are relevant FCA rules, there are benefits from ensuring that FOS decisions are consistent with them. I will write to clarify further in case I have created confusion in this conversation.

On Amendments 38 and 41, the Government recognise the important role the FOS plays within the wider financial services regulatory environment. The reforms included in the Bill are about making sure that the FOS and the FCA are able to carry out their respective roles effectively, co-operating where necessary but maintaining their separate responsibilities. These amendments would go further and require the FCA to become involved in the determination of individual complaints. This is a role that the FCA is not designed or equipped to undertake. It is, and should continue to be, the role of the FOS as the independent, impartial dispute resolution service.

Turning to Amendments 39 and 40, the Government’s review of the FOS concluded that the “fair and reasonable” test works well in the majority of cases to enable a quick and fair resolution of complaints. Removing the “fair and reasonable test”, as proposed by these amendments would undermine the FOS’s quick and informal role and put in its place a more legalistic approach based on strict adherence to the FCA’s rules. This could introduce additional costs and delays, and reduce the FOS’s effectiveness as an accessible and simple alternative to the courts.

I turn to Clause 7 and the new referral mechanism, which will require the FOS to seek a view from the FCA where it considers that a matter relating to a complaint may indicate ambiguity in the FCA’s rules or have wider implications for consumers and firms. As well as enabling the FOS to make decisions that are consistent with FCA rules, the referral process will ensure that systemic questions and issues are identified at an early stage and the FCA can consider whether a regulatory or supervisory intervention may be appropriate, rather than continuing to consider each individual complaint separately. Alongside the new reporting requirements provided for in Clause 9, this will improve understanding of the FCA’s rules and the standards expected of firms, in turn improving confidence in financial services and ultimately reducing the number of consumers who experience poor treatment, which all noble Lords will agree is preferable to providing redress after the fact.

Given the important role that the FOS plays, this is a clearly a matter of huge interest, and there is a range of views on exactly what the best system would look like. Notwithstanding that, I will write on the specific things that I might have caused confusion about.

I have listened carefully to the representations. The Government’s view is that the reforms set out in the Bill strike an appropriate balance, improving the clarity and consistency of redress arrangements while allowing the FOS to continue to make fact-specific decisions on individual complaints. They ensure that both the FOS and the FCA are equipped to fulfil their respective roles and responsibilities so that consumers can have confidence in the key financial services on which they rely, and so that firms understand what is expected of them and can act on it. I therefore ask the noble Lord to withdraw the amendment.

Baroness Neville-Rolfe (Con)

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My Lords, for reasons that will become apparent, I start by referring to my register of interests, including my shareholding in Meta.

I am grateful to the noble Baroness, Lady Kramer, the noble Lord, Lord Vaux, and my noble friend noble Lord Holmes, who is absent, for bringing forward this important group of amendments. I am sorry that this debate is so late and that the Grand Committee is so thin under the new five-hour arrangements—of which I am not a fan—because, collectively, these amendments raise an important and timely point. As online retail platforms and digital marketplaces become more popular and AI makes fraud easier, there has been a concurrent increase in the risk that people face from online fraud, as we have heard from the noble Lord, Lord Vaux.

We have seen concerning figures suggesting that Facebook Marketplace is now the single most scammed UK consumer platform. Very large sums are stolen through it every day in the UK, and a very high proportion of UK purchase fraud begins there. We have also seen banks such as Santander taking active steps to block suspected Marketplace transfers to protect customers. Those examples raise very important questions: how easy is it for consumers to obtain redress when they are defrauded in this way? Who holds ultimate responsibility when a fraud is facilitated through an online platform, and how can the regulatory framework ensure that the firms best placed to prevent the fraud have a real incentive to do so? It is also important to consider how changes can be made without introducing new rafts of regulation that put up costs and prices.

Banks and payment service providers have significant responsibilities, and rightly so. They process the payment, have duties to their customers, and have tools available to detect and prevent suspicious transactions. Yet they are often not the place where the fraud originated, and may see only the final payment instruction, by which point much of the harm has already been set in motion. By contrast, technology companies and online marketplaces may be much closer to the source of the problem. They host the listings, provide the communications infrastructure, enable the interaction between buyer and seller, and in many cases have access to data which could help identify suspicious behaviour before money ever leaves a consumer’s account.

Amendment 46 is based on the principle that fraud should be paid for by those best placed to prevent it, not simply those who happen to process the payment at the end of the chain. If platforms know that they may share liability where fraud is facilitated through their systems, they will have a much stronger incentive to identify fraudulent listings, remove scam accounts, improve verification, share data and co-operate with banks and regulators, and indeed help consumers to avoid fraud, as we can do a lot ourselves as consumers. This is not about saying that technology firms should always be liable in every case, nor is it about absolving banks of responsibility. Yet it recognises that the current model may place too much of the burden on one part of the system, while allowing other actors, including very large and profitable tech companies, to avoid the financial consequences of fraud which often begins on their platforms.

The goal should be to stop fraud before it happens, which means better consumer warnings, transaction monitoring, real-time data sharing, and use of technology by all relevant firms. It also means transparency. If particular platforms, channels or types of transaction are consistently associated with fraud, that information should be visible. Sunlight is an important tool of accountability, which is why Amendment 59 is valuable in principle. As the experienced noble Lord, Lord Vaux, has explained, regular publication of data on APP fraud performance, including where fraud originates, would help Parliament, regulators, firms and consumers to understand the real shape of the problem. It would put pressure on firms whose systems are repeatedly linked to fraud to improve their performance.

Before we take a definitive view on these amendments, I would be grateful if the Minister could address several questions. First, what is the Government’s view on the principle of shared liability for APP fraud across the wider ecosystem, including technology companies and online marketplaces? Secondly, is there a place for greater transparency on APP fraud performance? Thirdly, what discussions have the Government had with tech platforms about fraud originating on their services, and what more does the Minister believe those firms should be required to do? Fourthly, does the Minister accept that online platforms should have stronger incentives to prevent fraud where they host the marketplace, the listing or the communication through which the scam takes place? Finally, how do the Government envisage tackling this problem? Do they have plans to introduce legislation on this issue, or do they believe that changes within the existing framework will be sufficient?

APP fraud causes real harm to individuals, families and businesses. It can undermine confidence in digital payments and online commerce, which is increasingly the direction of travel. It also imposes costs on the wider financial system. I recognise that this may go even wider than our Bill, but this is an important group and I look forward to the Minister’s responses, and to seeing how we can improve this important area.

Lord Stockwood (Lab)

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My Lords, I am grateful to the noble Baroness, Lady Kramer, and to noble Lords for tabling these amendments and to all noble Lords who have contributed to this important debate. The scale of fraud and the devastating impact of that crime on victims remains a concern for this Government. The Government take the issue of fraud very seriously and are dedicated to protecting the public and businesses from this appalling crime.

Baroness Neville-Rolfe (Con)

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My Lords, I am grateful to noble Lords for bringing forward this group of amendments, which raises several important questions around the future shape of payments regulation once the Payment Systems Regulator is brought within the FCA. I am particularly grateful to my noble friend Lord Holmes for introducing Amendments 47A and 101A with simplicity and clarity; I note the support from the noble Lord, Lord Vaux, and the noble Baroness, Lady Kramer.

Despite the arguments of the noble Baroness, Lady Kramer, I do not favour extending the FCA’s service user objective to include consumer redress or access to cash; indeed, I am against a levy for such purposes. In any event, payment system operators do not deal with customers. That is done by financial services firms.

I am more receptive to the amendment from the noble Lord, Lord Vaux, on applying the secondary growth and competitiveness objective to the regulation of payment systems. Does the Minister intend to do this? If so, can it be done by the proposed regulations or does it need to go into the Bill? I should add that, as with so much in the Bill, the framework is broad while the substance is left to later regulations. That is a real concern, as it leaves a lacuna in parliamentary accountability.

We have been through the arguments on consumer credit and in-person banking, but I log them again for good order. I want also to address two central themes running through this group: first, the need for proper industry engagement and accountability in regulation-making; and, secondly, the question of whether the new regime is sufficiently clear and future-proofed.

On the first point, we welcome the amendments that seek to strengthen the consultation requirements and ensure adequate time for meaningful industry engagement, as the noble Baroness, Lady Bowles, set out in her Amendment 48. That would have a dual effect. First, it would increase transparency and accountability for regulators. If regulators are required to consult properly, explain their reasoning, engage with those affected and publish clear strategies, we have a better chance of understanding not only what they are doing but why they are doing it. One point that is clearly of concern to other noble Lords is the extent of the discretion afforded to the Treasury in designating and de-designating payment systems.

The second effect is that this would ensure that those affected by regulation have a meaningful opportunity to have some input in our deliberations on the Bill and our discussions with industry. It has become clear that the regulatory environment seems to be planned and developed at some distance from the firms that are expected to comply. New regulations, handbooks and guidance may make sense to the people sitting in the FCA or the PRA, but they do not always make sense to those at the coalface: firms, compliance teams, payment providers and market participants. They have to interpret them to implement them and live with the operational consequences.

In this case, those with an interest go way beyond the regulators’ normal clients. For example, concerns have been expressed by retailers, which are usually quick to spot practical problems. I remember well that, when I was at Tesco, we were introducing the euro into our businesses in Ireland and elsewhere. Because of inadequate consultation, the timing was wrong, with training and IT changes needed during the busy Christmas period—a recipe for cost and chaos.

This is a real problem. If regulation is developed in a silo, away from the experience of market participants, even well-intentioned regulation can become impractical, disproportionate or poorly targeted. We end up with the regulator and the regulated working from different understandings of how the market actually functions. That is why I hope that the Minister will look constructively at the amendments that seek to strengthen consultation, transparency and meaningful engagement both with professional bodies and with market participants. Without proper planning, there will be a risk to growth—and, indeed, to the UK’s reputation on payment systems, which has generally been good.

The second major issue is the question of what exactly is covered by the regime. Is the Bill regulating the market as it exists today or preparing the UK for the market as it will exist in a few years? We will speak about digital finance and digital assets in later groups, but the point is highly relevant here, as the noble Baroness, Lady Kramer, mentioned. If the Bill is to modernise and improve regulation, why does it feel in places as though it is being designed for a market that may already be out of date? We have the legal system, the financial services expertise, the markets, the professional services ecosystem and the technology capability to be a world leader, but leadership requires clarity and confidence from the Government and I do not think we are yet seeing enough of either in this Bill.

That brings me to the wider point about accountability and scope, which was raised on Monday. If the PSR’s functions are to be absorbed into the FCA, how will this new regime be properly held to account? How will the Government ensure that payments regulation does not become simply one more area lost within the wider FCA structure? I would be grateful if, in addition to my initial questions about growth, competitiveness and the level of delegation, the Minister could address three points.

First, how will the Government ensure that industry and professional bodies are brought into the regulation-making process early enough for their input to make a meaningful difference? Secondly, how will the Government ensure that the new regime is sufficiently clear and future-proofed to capture new forms of payments and digital finance, rather than regulating for the market of the past? Thirdly, how will the new payments regime be held to account once it sits within the FCA and what mechanisms will exist to ensure that Parliament, industry and consumers can properly scrutinise its operations? A lot of clarity is needed on this part of the Bill, which we of course support in principle. I very much look forward to the Minister’s reply.

The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)

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My Lords, I am grateful to the noble Lords, Lord Holmes and Lord Vaux, and the noble Baronesses, Lady Kramer and Lady Bowles, for tabling these amendments, and to the noble Lords who have spoken in this debate. I will speak first to the amendments concerning the regulation of payment systems and then turn to Amendment 48 tabled by the noble Baroness, Lady Bowles, which raises a separate issue concerning the consultation processes of the FCA and PRA.

There is no doubt that payment systems are critical economic infrastructure. They must be secure and resilient, but also support competition, innovation and good outcomes for the households and businesses that rely on them. That is the purpose of the Bill. It consolidates the Payment Systems Regulator’s functions within the FCA to create a more coherent framework. This is an institutional reform and should not be seen as weakening consumer protection, competition regulation or regulatory standards. The PSR has been effective in driving competition and innovation among payments firms, but the current framework is too fragmented. The Bill will reduce the number of regulators with which firms need to engage.

It is worth stating that the Government have not rushed into this. We consulted on this proposal almost a year ago, in September 2025, and have been working on the details ever since. We published a detailed response in April this year. Throughout this process, the Government have been clear: the intention is not to fundamentally change how this part of the sector is regulated; it is about changing who regulates it to produce a more streamlined system. When I respond to each amendment, I hope that noble Lords will keep this in mind. I hope to reassure noble Lords that the Bill already provides the right framework.

I understand that the desire of Amendment 47A is to ensure payments-specific expertise and that the interests of users and the industry are heard in the FCA. However, the Government do not consider a new statutory payments system panel to be necessary, because the Bill ensures that the FCA’s general duty to consult in relation to its general policies and practices includes participants in regulated payment systems, including those who use or are likely to use services provided by participants in payment systems. We believe that this will ensure that their views will be considered without needing to recreate separate structures within the newly simplified regulatory framework.

I understand the concern in Amendment 49 about whether systems that involve digital settlement assets fall within the definition of a payment system. The Bill attempts to be clear that they can and are capable of designation, even where enabling the transfer of funds is not their primary purpose, reflecting how they may support payment activity within wider platforms.

Amendments 50 to 53 seek to make designation mandatory once the relevant payment systems definition and designation threshold is met, and to restrict the Treasury’s discretion to revise or withdraw designation notices. The Government do not consider that appropriate. As I have already stated, payment systems are technologically dynamic. The Treasury must retain discretion to assess the circumstances and to regulate proportionately, taking into account the relevant factors. Making designation automatic, or withdrawal too restrictive, could introduce rigidity and unintended consequences. Therefore, the Bill preserves the existing position whereby the Treasury may designate a system where it meets the definition of a payment system, and only where the relevant threshold is met. The Government have determined that it is appropriate to maintain a designation regime for payment systems because it facilitates more targeted and proportionate regulation.

Lord Stockwood (Lab)

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It does indeed. Returning to Amendments 55A, 55B and 55C, I agree that the FCA must be able to consider user access and market entry by infrastructure and payment service providers. The Bill already achieves that. The FCA’s payment systems objectives are intended to be equivalent in substance and scope to the PSR’s existing objectives.

The noble Lords, Lord Holmes and Lord Vaux, asked about drafting differences between the FCA and the PSR objectives. Changes in drafting of the FCA’s payment systems objectives are for simplification only. The FCA’s payment systems objectives retain the substance of the PSR’s objectives.

Turning to Amendment 57, the Government are committed to improving financial inclusion, but a new levy on payment system participants is not the right mechanism. The better course is targeted and proportionate action, including through the Government’s financial inclusion strategy and the recent allocation of £132.5 million in dormant assets funding to Fair4All Finance.

On Amendment 101A, the Bill already provides for the secondary competitiveness and growth objective to apply to the payment systems’ general functions. Any reporting on that secondary objective would include its application to payment systems’ regulation, as appropriate. Therefore, the Government consider the amendment unnecessary and are satisfied that the Bill already gives the FCA the right objectives to support innovation, competition and growth.

Finally, Amendment 48 seeks to introduce maximum and minimum lengths for the consultations undertaken by the FCA and PRA. I understand the desire to ensure that, where regulators consult on proposed rule changes, stakeholders have a fair opportunity to consider the proposals and respond properly. However, this amendment would impose a rigid statutory timetable on consultations, which will cover a very wide range of issues that vary considerably in complexity, urgency and market impact. The Government’s view is that it is appropriate to allow the regulators to determine the appropriate consultation period, rather than being bound to timings set in primary legislation.

The noble Lord, Lord Vaux, is right on how we describe the interpretation of the drafting; I commend him for his skill in reading a very technical provision that I have had difficulty reading. He asked why payment systems that involve digital settlement assets are treated differently. This reflects the particular characteristics of digital settlement assets and the way the market is developing. It also reflects the existing arrangements under the PSR framework.

The Bill preserves flexibility to bring relevant systems within the scope of payment systems regulation, where they support payment activity. That does not mean automatic regulation. The system must still be designated by HMT before the FCA’s main powers apply. This approach ensures that the new framework is both future-proofed and proportionate. The noble Baroness, Lady Neville-Rolfe, raised the issue of consultations with industry. The FCA works closely with industry, and the Bill sets out clear consultation requirements on the FCA to support this as it takes on this new role.

As I said at the start, I cannot accept these amendments, but I appreciate the spirit of where they come from. The Bill is aimed at ensuring that we have the right institutional framework for this part of the sector, while ensuring that we do not weaken those consumer protections. I therefore ask the noble Lord to withdraw his amendment.

Baroness Neville-Rolfe (Con)

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Before the Minister sits down, may I come back to the question of consultation? We are being asked to have a high degree of delegation with this change of governance for the Payment Systems Regulator. The Minister seems sure that the regulator will meaningfully consult the right people at the right time. It seems extraordinary to leave so much discretion with the regulators, particularly, as I explained, when they are moving into very new areas. He has rejected the idea of a panel, which would be one way of getting expertise into the system, and I wonder if he will think further about this.

Lord Stockwood (Lab)

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To come back on that, we have heard the criticism of the FCA loud and clear. The intention is for further debates to come back to what we believe is the current state of oversight and governance, and we are open to the conversations that the debates will lead to.

Lord Stockwood (Lab)

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My Lords, the purpose of the government amendments in this group is to ensure that the relevant provisions of the Bill operate clearly, consistently and in line with the Government’s original policy intent. They are technical and corrective in nature and do not change the underlying policy of the Bill. However, it is important that noble Lords understand the purpose of the amendments so that they can agree that they are minor and technical, so I will explain them briefly.

Amendments 56, 60 and 63 make minor, technical corrections to Schedule 2, which, taken with Clause 13, abolishes the Payment Systems Regulator and gives broadly equivalent functions to the FCA. Amendment 56 removes a duplicative provision from new Section 131Z9 to the Financial Services and Markets Act 2000 that is already covered by new Section 131Z19. Amendment 60 corrects a cross-reference so that the Bill refers to the correct FCA payment system powers when setting out how the Competition and Markets Authority is to determine an appeal.

Amendments 61, 62 and 63 ensure that references to the chair of the PSR, which will be obsolete after the PSR is abolished, are deleted in the correct places in Schedule 1ZA to the Financial Services and Markets Act 2000, which concerns the FCA’s constitution and governance.

Amendments 143 to 145 are also minor and technical amendments. Amendment 143 and 144 ensure that Section 66A of FSMA is amended in a coherent and orderly way, regardless of whether the amendments to that section made by Clause 27 are commenced first or the amendments to that section made by Clause 36 are commenced first. Amendment 145 amends subsection (4) of new Section 55AA, inserted by Clause 29(3), to ensure that the language used there is consistent with the language used elsewhere in FSMA. The amendment simply replaces the words “is in force” with “has effect”. These amendments do not change the policy or legal effect of the affected clauses. They are drafting amendments for the purposes of coherence and consistency only.

I now turn to Amendments 147 to 150, to Clause 33. Clause 33 allows firms to apply for senior approval, subject to conditions or a limited period; they are known as permitted conditional applications. This helps support a more flexible approvals process. Amendments 147 to 150 are technical amendments that fix an error in the original drafting and will ensure that the framework operates as intended. Without these amendments, there is a risk that decisions will not be properly formalised and that the period for determining applications will not be applied consistently.

Amendments 147 and 149 provide that the period for determining permitted conditional applications is the same as for other senior manager applications. Amendments 148 and 150 provide that regulators must give written notice when they approve a permitted conditional application. Taken together, these amendments will ensure that the statutory framework works clearly and consistently in practice.

In summary, this group of government amendments makes technical corrections to ensure that the Bill works as intended. I hope that noble Lords will join me in supporting them.

Lord Stockwood (Lab)

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My Lords, I am happy to apologise to the noble Baroness for any mix-up. It was my understanding that it was not necessary to do an all-Peers letter for only a handful of technical amendments. With that in mind, we believe that the amendments we have proposed are minor and technical in nature and were tabled in good time before the Committee’s first debate. They are on drafting errors and remove duplicate and obsolete provisions, ensuring that the relevant provisions in the Bill and FSMA operate clearly and consistently. I trust that my explanation has given the noble Baroness the information she needs, but I will withdraw the amendment for now and bring it back on Report.

Baroness Neville-Rolfe (Con)

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My Lords, I will speak to the stand part notice on Clause 14 and Amendment 69A in my name and that of my noble friend Lord Altrincham. I am also grateful to my noble friend Lord Holmes, to the noble and learned Lord, Lord Hope of Craighead—whom it is a particular pleasure to welcome to the Committee on this Bill—and to the noble Baroness, Lady Kramer, for bringing forward a number of useful amendments in this group. My noble friend Lord Mackinlay of Richborough is right to summarise the concerns about and nonsenses of the money laundering regulations in general, which we should try to address as part of reform. We certainly support that.

The question we have to ask is whether the Government’s chosen mechanism is sufficiently clear, proportionate and workable. At present, I am concerned that it is not. Clause 14 represents a major structural change, moving front-line AML supervision for professional services from the existing professional body supervisors to the FCA. The Bill will allow FCA supervision of money laundering to be extended to several new areas—to 22 bodies in all, as we have heard, including solicitors, law firms, accountants, trust and company service providers and, in practice, estate agents. Yet, as with so much in this Bill, the framework is broad while the substance is left to later regulations. That is a real concern.

My Amendment 69A seeks to address that in part by requiring the Treasury to report to Parliament on the process for transferring responsibilities under Clause 14. That report would force the Government to set out how the transfer will work in practice, what steps will be taken to manage the transition, how costs will be assessed, how duplication will be avoided and how the FCA will acquire and maintain the necessary sector expertise—all points that have been raised in the debate.

We have heard serious concerns from industry and professional bodies about spiralling costs, duplication and regulatory uncertainty. The Law Society described the proposal as

“a seismic shakeup to how law firms and their AML … obligations are regulated”.

It warned that the change risks diverting

“attention, resources and time from supporting clients and growing their businesses”

towards adapting to a new and uncertain compliance regime. That concern should be taken seriously. The Government and the FCA should be seeking to simplify requirements, reduce duplication and minimise the compliance burden, while maintaining strong safeguards against economic crime.

The risk of duplication is particularly important. Solicitors are already subject to a distinct regulatory framework. They have professional obligations, ethical duties, responsibilities to the court, duties under the rule of law and obligations around client confidentiality and legal professional privilege. If the FCA is now to be added to that landscape as a supervisor, the Government must explain precisely how the new system will avoid overlapping or conflicting expectations.

Like the noble Baroness, Lady Kramer, I am particularly concerned about sector expertise: if the FCA is to take on these responsibilities, it must have people within it who understand the professions and bodies that they will be supervising. It must understand how law firms operate, how client accounts work, how professional privilege functions and how smaller or high street firms differ from large practices.

Costs are another major concern. I emphasise that small and high street firms are worried that a move to FCA supervision may result in higher fees and new compliance costs. Many of these firms are already under pressure. They serve individuals, families and small businesses in communities across the country. If the effect of this reform is to impose disproportionate new costs on them, it could have real consequences for access to legal services. The FCA does not understand how to deal with thousands and thousands of such firms.

We also need to understand how regional capacity will be maintained. Professional services are not confined to London; it is one of their charms. AML risks and compliance responsibilities exist across the whole country. The existing professional body model has the advantage of sector-specific and, in many cases, locally embedded knowledge.

There is also a specific territorial issue here, as we heard from the noble and learned Lord, Lord Hope. The Law Society of Scotland has opposed the change and raised concerns about the compatibility of FCA supervision with the regulation of legal services in Scotland. The Government need to explain how these reforms will interact with devolved and existing statutory frameworks, as well as how they will avoid creating a two-track or conflicting regulatory regime. The noble and learned Lord also emphasised the SME issue, which seems to be a particular difficulty in Scotland.

Lord Stockwood (Lab)

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My Lords, I am grateful to the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, the noble Lords, Lord Altrincham and Lord Holmes of Richmond, and the noble and learned Lord, Lord Hope of Craighead, for tabling these amendments relating to the implementation of anti-money laundering and counterterrorism financing supervision reform. I would be more than happy to meet the noble and learned Lord to discuss his points in detail before Report. I thank him for that kind offer. I am also more than happy to write to the noble Baroness, Lady Neville- Rolfe, on her questions, although I will cover professional privilege in my response.

I recognise the broad concerns that sit behind these amendments. We all want to get this right. However, the Government do not believe that these additional statutory requirements are necessary. I will start by setting out why Clause 14 should stand part of the Bill. Because the UK is a global financial hub, we face heightened vulnerability to illicit finance, as has already been mentioned. The UK has a robust set of anti-money laundering rules, but the supervision of those rules is simply not consistent. The Government understand the burden of compliance, but their recent statutory instrument made money laundering regulation more proportionate by ensuring that requirements are enforced when and where the risks are highest, and reduced where they are not.

In October 2025, the Government announced their intention to reform the supervision framework, with the FCA becoming the supervisor of compliance on anti-money laundering and counterterrorism financing rules for professional services firms. Clause 14 is designed to support this transition and ensure that the new supervisory regime can function effectively. It is worth restating that we believe that the vast majority of companies take seriously their responsibility to ensure that their clients’ funds are clean. We are grateful for their efforts; they are important gatekeepers, protecting the integrity of the UK economy. This reform will bring professional services firms in line with other regulated sectors, such as financial services, which are already overseen by a public sector supervisor. This is fair and proportionate.

The Government have recently published their updated anti-money laundering and counterterrorist financing national risk assessment. It found that all professional services in scope of this reform remain high risk for money laundering, based on an extensive analysis of the available evidence and intelligence. Clause 14 is essential to ensure the effective implementation of these supervision reforms. Without it, the Government would lose the ability to make important provision in respect of co-operation and information sharing between the FCA and professional bodies.

Ongoing co-operation between the FCA and professional bodies will be key to ensuring that firms’ reform is effective; it has been mentioned by many noble Lords today. It will mean that additional burdens on firms, including dual regulation and issues around enforcement, are minimised. Without this, implementation of reform will be less effective, and firms will likely face additional burdens, which the Government are determined to avoid.

The Government’s objective is to simplify and strengthen the fragmented supervisory system, improve consistency across sectors and support more effective action against economic crime. Effective supervision depends on robust co-operation and information sharing between supervisors and other partners across the wider AML/CTF framework. Co-operation and information-sharing mechanisms will ensure that additional burdens on firms, including dual regulation and issues around enforcement, are minimised, addressing key concerns raised by stakeholders. Clause 14 provides the basis on which those future arrangements can be established. The Government therefore consider Clause 14 essential and strongly support its inclusion in the Bill. To re-emphasise the objective here, this is about simplifying and strengthening a fragmented supervisory system, improving consistency across the legal and accountancy sectors and ensuring that firms are supervised to a consistently high standard. There is no proposal to introduce new anti-money laundering obligations on businesses.

I turn now to Amendments 65 and 67, which are concerned with whether firms will continue to receive appropriate support and whether the FCA will possess sufficient sector-specific expertise, which has been raised by many noble Lords today. The Government agree that these are important issues. However, they are already central to implementation planning. The Treasury’s recent consultation on the FCA’s duties, powers and accountability demonstrated the importance that stake- holders place on sector expertise, guidance and engagement. The Government have been clear that implementation must involve the development of specialist expertise within the FCA and close engagement with existing supervisors and representative bodies.

The FCA also starts from a strong foundation. It already supervises firms for AML/CTF purposes and oversees legal and accountancy professional body supervision through the Office for Professional Body Anti-Money Laundering Supervision. This gives the FCA substantial experience of both AML/CTF supervision and the professional services landscape. The FCA will also ensure that there is clarity for practitioners on sector-specific issues, such as guidance on the treatment of documents covered by legal professional privilege.

The Government have also recognised the value of practitioner expertise. Consultation responses strongly supported practitioner-led guidance, and the Government have indicated in their response to the consultation, published on 18 June this year, that engagement with sector experts and existing guidance bodies will remain an important feature of the future regime. The Government therefore agree with the importance of preserving sector expertise and ensuring that firms continue to receive effective support. However, these issues are already being addressed through implementation planning, continued engagement with existing supervisors and representative bodies, the development of specialist capability within the FCA, and future guidance arrangements. The Government do not believe that additional statutory obligations on either the Treasury or the FCA are necessary to achieve those objectives.

Amendments 64B and 69AA reflect important stakeholder concerns surrounding the need for proportionality and a risk-based approach, appropriate protections for legal professional privilege and client confidentiality, and the need to minimise duplication and impact on supervised persons. These concerns were raised by respondents to the recent consultation, and the Government agree that they are very important issues. Amendment 64B would require regulations made under new powers to consider proportionality and a risk-based approach to supervision, provide appropriate protections for legal professional privilege and client confidentiality, and avoid duplication between regulators. It would also require the Treasury to publish an impact assessment prior to making regulations.

However, the money laundering regulations, or MLRs—the legislation that provides for our supervision regime—already provide protections in respect of the need for a risk-based approach and legal professional privilege. The risk-based approach underpins our supervision regime and is already set out in the legislation. The Government took additional steps to ensure that the existing regulations are proportionate through changes made via statutory instrument on 9 June 2026. The MLRs are kept under regular review to ensure that they are proportionate.

The noble and learned Lord, Lord Hope, and the noble Baroness, Lady Kramer, particularly asked me to cover this point, so I take the opportunity to do so. The FCA will not be able to compel disclosure of legally privileged material under new responsibilities. It will provide guidance to ensure that privileged material is appropriately protected during supervisory activity. That is because this Government are committed to respecting the distinctive obligations that the legal sector has. Regulation 72 of the MLRs provides explicit protection for legal professional privilege. This will apply to regulations made under the new power conferred by Clause 14.

Finally, the power in Clause 14 will ensure that reciprocal co-operation and information-sharing between supervisors and professional bodies is central to the new regime, minimising duplication. Regulations made under the new power in Clause 14 will be subject to the draft affirmative procedure. In making regulations, the Government consider the impact on firms; this is formally set out in our published regulatory impact assessment. Therefore, the additional requirement introduced by Amendment 64B would be duplicative of this process.

Amendment 69AA would require the Treasury to review regulations made under the new power in Clause 14 within three years of them being made, and to lay before Parliament a report summarising the conclusions of that review. The Government are already required to review the MLRs at intervals not exceeding five years, a requirement that would also apply to regulations made under the new powers in Clause 14. As a result, the Government regularly review the regulations to ensure that they are effective and proportionate, and to respond to emerging threats. This is evidenced by regular updates made to the regulations via secondary legislation, with the most recent changes made this month.

The Government’s aim is to minimise duplication and burdens on firms and to protect legal professional privilege and client confidentiality. These will be the most important factors when considering reviewing existing regulations. Consideration of these issues is already fundamental to our supervision regime, and the regulations are consistently reviewed to ensure that they continue to be fit for purpose. Therefore, the Government consider these additions to be unnecessary.

Amendments 66 and 69 are ultimately concerned with readiness and implementation. They seek assurances that the FCA will be capable of supervising professional services firms across different regions of the UK, and that the reform will proceed according to a clear timeline. The Government share the objective of ensuring the implementation is successful. While significant implementation planning has already taken place, substantial work will continue ahead of commencement. The Government have consistently recognised that this requires careful preparation, phased delivery, detailed transition planning and close collaboration with existing supervisors.

The Government have also been clear that effective implementation will require the development of sector-specific and jurisdiction-specific expertise, including a strong understanding of the legal sector, as mentioned, and of professional services firms of all sizes across all parts of the United Kingdom. HMT will work closely with the relevant bodies in Scotland and Northern Ireland to ensure that implementation reflects the distinctiveness of their legal systems and is aligned with existing legislative and regulatory frameworks. This is already managed through governance and business planning. The FCA already operates nationwide and has confirmed that it anticipates having a significant presence for the new regime in its offices outside London, to ensure it has the capacity to supervise these additional sectors.

However, the Government do not believe that placing reporting requirements or implementation timetables in primary legislation is the right approach. Implementation of this reform is a complex programme involving systems development, recruitment, training, funding arrangements and transition planning. The Government must retain sufficient flexibility to ensure that these activities are delivered effectively. However, that does not mean firms will be left without certainty. The Government are already working closely with the FCA, HMRC and existing supervisors to ensure reform is implemented in an orderly way, including ensuring that businesses are clear about when transition will occur and have sufficient time to prepare for change. A statutory timetable risks becoming outdated and may constrain the Government’s ability to manage implementation in the most effective manner.

Furthermore, the detailed provisions on supervision reform will ultimately be delivered through future secondary legislation. This means that the Government will retain control over commencement and can ensure that functions are conferred only once appropriate implementation preparations have been completed.

Baroness Neville-Rolfe (Con)

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Since it is Committee, I have a couple of points to raise with the Minister before we finish this important section. First, I think the industry needs some idea of the timeframe for these reviews and for the implementation of these changes. That may already exist in ministerial statements, but it would be extremely helpful if the Minister could look into that and let us know. We have had the experience of the defence investment plan, and the uncertainty that can be created when you do not know when major changes are being made is bad for the sector.

Secondly, on parliamentary privilege, a very niche point, do the plans to protect it apply to in-house counsel as well as external legal counsel? Small companies, such as estate agents, would not want to have to employ expensive solicitors and lawyers if they do not need to.

Lord Stockwood (Lab)

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I will have to write to the noble Baroness on those points, to make sure that my answers are correct.

Baroness Neville-Rolfe (Con)

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My Lords, I am grateful to all who have taken part in this short debate. We are sympathetic to the broad purpose of requiring regulators to think strategically, but, if the regulatory strategies are to be meaningful, they must not simply become static documents published every few years then left on the shelf. As my noble friend Lady Noakes said, that is not the way we do it in business. Common practice is for five-year strategies, reviewed annually, and annual plans.

The amendment tabled by my noble friend Lord Ashcombe would reduce the strategy period from five years to three years. He is right that markets can change very quickly, as we keep hearing. A five-year strategy risks being set in stone for too long, unless the Minister is able to clarify that the plans will be updated regularly. If not, a shorter period, such as three years, would have real benefits. Perhaps the Minister can explain why the period of five years has been chosen and how he believes the strategies will remain agile and flexible.

I am delighted that the Minister said that he was prepared to accept Amendment 70 on competitiveness and growth. As I have said several times, the growth of the UK financial services sector is key to growth more generally. Regulation should say how the Government—or the regulator—understand that objective, how they are giving effect to it and how their regulatory approach is supporting growth in the market, because the UK has a large and dynamic financial services sector. My noble friend Lady Lawlor emphasised that point, which we should not forget, and we cannot assume that its international position is guaranteed. Regulation has a direct effect on investment, innovation, listings, lending and market depth, as well as on the attractiveness of the UK as a place to do business, so, if regulators are not required to think explicitly about this, the growth objective risks being honoured in theory but neglected in practice.

Amendments 71 and 74 on consultation are very welcome. As we have said in our debates on previous groups, bringing experts into the room in a timely way is a vital part of the regulatory process.

In my view, the boards of regulators have a part to play in the strategic plans, but my recollection is that those engaged in regulated companies were excluded from the non-executive roles on the PRA and the FCA. Is this still the case? My own board experience is that conflicts of interest can be managed. I believe that regulators will benefit from current knowledge from the industry, particularly given these new statutory strategies, the digital changes to which we keep referring and the expansion of the scope of the FCA. I would like to hear from the Minister what the current rules are—perhaps in a letter, as I have not raised this point with him before.

I also support the principle behind Amendments 72 and 75 in the name of the noble Baroness, Lady Bowles. They would require the FCA and the PRA to review their rulebooks and explain how they will simplify or remove rules that are outdated, unnecessary or duplicative. Regulation, as has been said, tends to accumulate. New rules and duties are added, but old rules are not always removed. Guidance, expectations and supervisory practice develop over time. A long-term strategy is not only about what new initiative the regulators want to pursue; it should also be about what the regulator can simplify. If a regular rulebook review is done with a view to making regulation less burdensome, cheaper to operate and supportive of growth, that will be a very positive step.

The amendments on Treasury recommendations also raise a serious question around accountability and regulator independence. There is, of course, a balance to be struck. We do not want day-to-day political interference in regulatory decisions but nor should independent regulators operate without clear strategic accountability to Parliament and the Government of the day, as my noble friend Lord Massey and the noble Baroness, Lady Kramer, explained better than I can. The Government should explain why the Treasury’s recommendation-making power is framed as it is, why it is limited in the way proposed and how Ministers expect it to operate in practice.

Finally, on the Clause 16 stand part notice, I understand the concerns raised in the debate. The value of that clause will depend entirely on whether the strategies produced are meaningful, responsive and capable of being scrutinised. If they become generic documents with broad statements of aspiration, they will add little. If they provide clear commitments, measurable priorities, proper engagement with growth and competitiveness, and a disciplined approach to reviewing the rulebook, they will be useful.

I very much look forward to a full response from the Minister to the points that have been made.

Lord Stockwood (Lab)

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My Lords, I begin by explaining the Government’s purpose behind Clause 16 and why it should stand part of the Bill.

The Government have often heard feedback calling for the regulatory system to have an overall long-term strategy with clear goals, where the regulators consider the cumulative impacts of their policies and the interaction between supervision and rule-making. The reforms introduced by Clause 16 are intended to address this feedback and will improve transparency around the regulators’ long-term direction and focus, which the Government consider will support effective oversight and scrutiny of the regulators.

Clause 16 requires the FCA and the PRA each to prepare and publish long-term strategies so that stake- holders, including regulated firms, can better understand the regulators’ approach to the sector, and so that the Government and Parliament fully understand the regulators’ priorities and can more effectively hold them to account on how they are translating their objectives into actions and results. When the Government consulted on this proposal, it received strong support: 83% of respondents supported it and agreed that the regulators taking a more strategic and cohesive approach would benefit the sector by helping firms know what to expect.

I have listened carefully to the concerns raised by noble Lords. However, the Government remain firmly of the view that Clause 16 will support scrutiny. By requiring a clear long-term strategic overview, Clause 16 will help the sector understand and plan more effectively for regulatory initiatives and will help interested parties engage with the regulators at a strategic level. Without Clause 16, there would be no requirement for the regulators to set out, in one place, their long-term priorities and approach in advancing their objectives. The aim of the strategies is to make it easier, not harder, for Parliament and stakeholders to scrutinise whether the regulators’ actions are coherent and aligned with the framework that Parliament has set.

On Amendment 70, the Government agree with the noble Baroness, Lady Noakes, that the FCA’s secondary international competitiveness and growth objective should be central to the formulation of its long-term strategy. Growth is the number one priority for this Government and the financial services sector, as many have noted, is key to delivering this. The Government always intended the FCA’s long-term strategy to set out its priorities for advancing our international competitiveness and growth objective. We are looking into this point to determine if this is fully clear within the drafting of the clause, and we are open to tabling an amendment on Report should we determine that it is needed. I thank the noble Baroness for bringing this to my attention and commit to keeping her and other noble Lords informed as this consideration progresses.

I turn to Amendments 69B and 73A. The noble Lord, Lord Ashcombe, and the noble Baroness, Lady Neville-Rolfe, asked me to explain the Government’s thinking behind the time periods here. The Government have set the length of this strategy as five years because, as has been noted, it is the standard time period for organisational strategies and is very common in the business world, as many noble Lords will appreciate. It also aligns with standard parliamentary terms and therefore the requirement for the Treasury to issue recommendations to the regulators at least once per Parliament. However, the Government recognise that financial services markets can evolve quickly and it is important that the regulators’ strategic documents remain current and useful.

The noble Baroness, Lady Noakes, asked me how the strategies would be kept under review. The Bill provides flexibility for the regulators to revise or publish a new strategy within the five-year period if circumstances require it, or to publish a strategy for a shorter period of time than five years. If they do the latter, it will need to be with an explanation about why this is appropriate. Five years is therefore a maximum interval, not a requirement to wait five years before making a change. For example, the Bill requires the regulators to consider whether they need to update their strategy or issue a new one whenever new Treasury recommendations are issued. The Government’s view is that this strikes the right balance between providing a long-term, stable framework and allowing regulators to respond when market, economic or regulatory conditions change.

On Amendments 73 and 76, the Government’s approach here is deliberate. The need for the regulators to take account of Treasury recommendations at a strategic level, rather than at the level of general functions, has been carefully considered. Under the new framework, the Treasury’s recommendations to the regulators regarding its economic priorities will inform the development of their strategic priorities. This is aligned with the change to the way that the regulatory principles will be applied, and I hope it demonstrates the Government’s confidence that influencing the regulators’ strategies is an effective mechanism for ensuring that they have an appropriate focus and are performing well.

Further to this, the framework has been carefully designed to ensure that Treasury recommendations are taken fully into account. As I mentioned earlier, regulators must consider updating or producing a new strategy whenever the Treasury sends a new recommendation letter. The regulators will continue to be obliged to respond annually to the Treasury on their actions in response to the recommendations separately from the strategy document. This will support continued transparency and accountability regarding how the regulators are taking government recommendations into account.

Lord Stockwood (Lab)

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I think this is part of a broader discussion. I am informed that this takes into account existing practices for how the reviews and overviews take place. Unless we decide, in the following debates, that we need an amendment to provide parliamentary overview, this will apply to the current regulatory framework as the oversight currently exists.

Lord Stockwood (Lab)

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I do not want to get confused about this. My understanding is that this is already existing practice, but I will take this away and write to the noble Baronesses just to confirm that this is exactly correct. We are trying not to defer from the practice as it exists today, but I will write to clarify that.

Lord Stockwood (Lab)

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I will write to the noble Baroness to clarify that.

Lord Stockwood (Lab)

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Again, we are trying to stress that the oversight that exists today will not be changed. The Treasury’s annual review should be able to take that into account. We believe that what we are putting forward here should not change the existing profile.

Lord Stockwood (Lab)

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We will have to come back to these points at a later date. This is a broader conversation on oversight, and points have been made on this subject outside the Room. I hope noble Lords will allow me to come back to these points, as I think this will come up in further debates both during and after Committee.

Turning to Amendments 72 and 75, the Government agree that regulation should be proportionate and support the objectives behind these amendments. Indeed, the Bill forms part of the Government’s broader effort to reduce the burden of regulation on businesses, ensuring that the UK has a regulatory environment that supports growth while maintaining high standards. The Government have made a commitment to cutting the administrative burden of regulation by 25% by the end of this Parliament. The financial services regulators are actively contributing to this agenda. For example, the PRA is implementing new insurance reporting requirements that will cut paperwork by one-third, contributing to savings for firms of £66 million per year, and the FCA has proposed removing some transaction reporting that would save firms over £100 million per year.

However, the Government do not think it would be appropriate to impose a requirement that every long-term strategy must include a full review of all regulations and a plan for eliminating them. A universal rule review exercise each time a strategy is prepared or revised would not be proportionate and would reduce the regulator’s capacity to focus on other priorities. There are existing requirements in FSMA which require the regulators to keep their rules under review and to publish statements on policy and on their approaches to reviewing the rules. The Government consider that this is a proportionate approach.

Amendments 71 and 74 seek to require the FCA and the PRA, when preparing and revising their long-term strategies, to consult persons they consider would be affected, including those they regulate. I understand the intention behind these amendments. If the regulators are to produce long-term strategies that are meaningful and credible, it is clearly important that they are informed by engagement with those who are affected by them. The Government have a clear expectation that the regulator’s strategies will be informed by that engagement.

Lord Stockwood (Lab)

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Again, we will have to come back to that point. One of the things we are trying to consider is how we do not overburden by creating more regulation, but we will have to review that point and come back to the noble Baroness.

Lord Stockwood (Lab)

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There is a broad philosophical point being made about trusting the FCA and the regulators. Again, we will come back to this in further debates. It is a view that I understand, and we need to develop this through the process of the debate, but it is definitely not the intention to give them free rein to make laws randomly. I think we will have to come back to that later in Committee, if that is okay.

Lord Stockwood (Lab)

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That is correct.

Amendments 71 and 74 seek to require the FCA and the PRA, when preparing or revising their long-term strategies, to consult persons they consider would be affected, including those they regulate. The Government have a clear expectation that the regulators’ strategies will be informed by engagement with industry, consumer representatives and other stakeholders. However, adding a statutory consultation requirement could lead to long delays between a new Government setting direction through a recommendation letter and the regulators putting a strategy in place.

The noble Baronesses, Lady Kramer and Lady Noakes, asked how the Government’s remit will work under the new system. The FCA and the PRA will now be required to have regard to their remit letters when producing or updating long-term strategies. The regulators will continue to be required to respond annually to remit letters, setting out the actions to which they will respond. The noble Baroness, Lady Neville-Rolfe, asked about non-executive directors; I will write to her on that as I do not have the answer to hand.

The accountability of the financial services regulators is clearly an important matter of huge interest to the Committee. I have heard a range of views today on exactly what this should look like, and we will continue to debate this issue in relation to subsequent clauses. However, regardless of views on the wider matters of transparency and accountability, I am confident that the majority will agree that long-term strategies will add to our understanding of the regulators’ strategic priorities and approach, which must be a good thing. I therefore ask that Clause 16 stands part of the Bill.

Lord Stockwood (Lab)

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I apologise. Can the noble Baroness repeat that?

Lord Stockwood (Lab)

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What the clause is trying to represent is that this is the starting point. There is definitely work to do and it needs to be improved.

Lord Stockwood (Lab)

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What we have set out in answer to that question is that there is clearly a need for greater transparency and thinking about what the five-year plan looks like. In terms of the interaction with the Treasury, the hope is that we can get it into a position where it has greater clarity and certainty about long-term planning. It will be an emergent process, to ensure that it is improved on.

Lord Stockwood (Lab)

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I can clarify that an annual plan is required and will still be required. Let me write to the noble Baroness to confirm that.

Lord Stockwood (Lab)

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Understood.

Lord Stockwood (Lab)

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That is correct.

Lord Stockwood (Lab)

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The sense is that it creates an administrative burden. We are trying to cut down on regulation as part of trying to accelerate growth, and we believe that that is the right balance.

Lord Stockwood (Lab)

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They are obviously related.

Lord Stockwood (Lab)

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My Lords, I am grateful to noble Lords for their thoughtful contributions to this debate. This clearly animates a lot of discussion. I particularly acknowledge the noble Baroness, Lady Noakes, and the work of the Financial Services Regulation Committee in effectively scrutinising the work of the regulators. It is important work, and we intend through this process to support that and not diminish it in any way. As was clear from those contributions at Second Reading, noble Lords place a strong emphasis on getting the regulatory principles right. The Government also take this matter very seriously.

Amendment 77 would require the Treasury to carry out and lay before Parliament a review of the regulatory principles in Section 3B(1) of FSMA. I am sympathetic to efforts to streamline the process of making regulation and to giving regulators a clear and manageable set of issues on which to focus. However, the Government have already considered this question and have carried out a review of the regulatory principles, as well as the other “have regard” provisions mentioned by the noble Baroness, Lady Noakes. The Government committed to this review in the Regulation Action Plan published in March 2025, and carried out the review with a view to identifying opportunities to rationalise those principles.

As a result of that review, the Government concluded that each of the regulatory principles in the Financial Services and Markets Act 2000 is individually important; that they do not materially overlap with each other or with other requirements set out in legislation; and that they play an important role in providing transparency and supporting the Government and Parliament’s oversight of the regulators. However, the Government also found that the “have regard” provisions can reduce regulators’ ability to act strategically and with a clear focus.

Currently, the way that the principles operate results in the production of large volumes of information that do little to support effective overall scrutiny of a regulator’s performance. The Government have drafted the measures in this Bill with a view to rationalising how the regulators take these regulatory principles into account, without amending the principles themselves. We recognise that this is an area where there is significant interest; issues related to this amendment will continue to be debated during the passage of the Bill, when there will be an opportunity to discuss this area in greater detail. A further statutory review, beginning after Royal Assent, would duplicate the work that the Government have already undertaken.

I will come back to noble Lords’ specific questions in writing if I do not cover them later in the debate. I ask the noble Baroness to withdraw her amendment.

Lord Stockwood (Lab)

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My Lords, I welcome the focus of the noble Baroness, Lady Kramer, on the vulnerabilities in the private credit system.

Although the Government are clear that the growth of private credit has brought benefits to the real economy, we and the financial regulators are very conscious of the potential vulnerabilities in this sector. Just last month, the Chancellor and the Governor of the Bank of England joined their fellow G7 Finance Ministers and European Central Bank governors in agreeing that potential risks in the private credit ecosystem call for continued monitoring, including that of the interconnections with banks and insurers.

The amendment from the noble Baroness, Lady Kramer, would require the PRA and the FCA to consider private credit’s interactions with the wider financial system in all cases where the regulatory principles are engaged, or else their decision-making could be unlawful. I assure her that the regulators are already working to understand these vulnerabilities deeply and to address them where necessary. This work does not require placing additional duties on the regulators.

I will highlight the existing work of those regulators. First, the Bank of England’s Financial Policy Committee has been focused on the risks of private markets for many years, and the Chancellor’s most recent remit letter to the FPC asks that that work continues. I specifically note the Bank’s system-wide exploratory scenario on private markets, the SWES—as if we needed another acronym. It is examining how a stress scenario could affect the UK’s private markets ecosystem and interconnected banks, insurers and pension funds, with significant participation across the industry. The UK’s system-wide regulator, the Bank of England’s Financial Policy Committee, is the right authority to carry out this work, and its findings will be laid before Parliament when it is complete.

For its part, the FCA also maintains a close focus on these risks, including in its firm-level supervision. Where specific issues are identified, targeted interventions follow. We also welcome the FCA’s work to improve the visibility of risks and data availability through its reviews of the alternative investment fund managers directive framework, and its efforts to raise standards on conflicts of interest, valuation practices and risk management.

I note the noble Baroness’s concerns about the FCA’s regulatory perimeter, but I emphasise that the marketing of funds in the UK is indeed subject to UK regulatory requirements, protecting UK investors. Further, the PRA continues to assess and mitigate risks from private markets to the banks and insurers it regulates. This includes its 2024 thematic review of private equity-related financing activities with banks.

Finally, given the cross-border nature of the private credit ecosystem, the Bank and the FCA are actively engaged in international work, including at the Financial Stability Board, which is chaired by the Governor of the Bank of England. The Government believe that, under our regulatory framework, vulnerabilities in private credit are being understood and addressed where needed, but there is of course much room to improve. I therefore ask the noble Baroness to withdraw her amendment.

Baroness Neville-Rolfe (Con)

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I agree with the noble Baroness, Lady Kramer, that digital assets are a serious issue and that they deserve proper scrutiny. We come at it from a slightly different perspective. I note the point made by my noble friend Lady Noakes that this is not a matter for regulatory principles.

This week, as we have heard, the Bank of England published its final policy statement and draft code of practice for sterling-denominated systemic stablecoins. This may go some way to supporting institutional scale-up, but we are concerned by the general reaction, which has been that the fundamentals have not changed and that the prevailing regime we are left with could still leave UK issuers less attractive internationally.

We are very grateful for the work of the Financial Services Regulation Committee, under my noble friend Lady Noakes, with the help of her very distinguished committee. Yet again, it features in almost every part of this Bill. Its report, Stablecoins: Waiting for Regulation, makes it clear that the UK, in its view, is lagging behind the US and EU on stablecoin regulation. Stablecoins and other forms of digital money are no longer simply niche products or theoretical innovations; they have the potential to become part of the wider payments and financial infrastructure.

The danger now is that we risk creating, or at least allowing to persist, a regulatory grey zone. Firms need clarity on the duties, expectations and requirements that they will have to meet. That is why we are calling for a much clearer digital asset strategy from the Government. We need Ministers to take a position of leadership in this area. It is not enough to simply respond to developments as they arise in different parts of the digital stratosphere. We have tabled amendments alongside the noble Lord, Lord Ranger, who is somewhat expert in this area and is not here today, to probe the Government on the wider question of digital assets and digital finance strategy. We will come to those amendments in a later group. I do not want to pre-empt that debate now—not at this late hour, with so few people in Committee on such a hot day.

This amendment touches on the same underlying point: that the Government need to provide clarity and certainty. They need to provide leadership, whatever that is. I would be grateful if the Minister can briefly explain the Government’s position on stablecoins, and— in response to the point that the noble Baroness, Lady Kramer, has rightly raised—explain how stablecoins will help growth and competitiveness.

Lord Stockwood (Lab)

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Amendment 79 would require the FCA and PRA to assess the impact on the taxpayer of any provision of backstop arrangements by the Bank of England to private stablecoin when exercising their general functions. I support the noble Baroness’s goal of ensuring that all government and Bank of England activity provides good value for the taxpayer. The Bank of England already has a duty, established in the joint memorandum of understanding with HMT, to

“ensure value for money by minimising financial costs and risks to its capital”.

The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)

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My Lords, I am thankful to noble Lords for their contributions. I specifically welcome the noble Lord, Lord Reay, who is making his first contribution on the Bill from the Front Bench.

There is absolutely no denying that this is a critical issue. As set out by the Chancellor in her Mais Lecture, sustainable growth depends on resilient foundations. Action on climate, adaptation and resilience can help reduce exposure to future shocks and support long-term economic stability. At the 2025 spending review, this Government committed £65 billion in capital funding for clean energy, climate and nature, including nuclear, and an additional £3.6 billion in capital funding for flood defences. The National Wealth Fund has been capitalised with over £27 billion and plays a central role in mobilising private investment into priority sectors, including clean energy, and supporting the transition to a low-carbon economy, while contributing to growth and energy security objectives.

Before I turn to the amendments, I stress that sustainable finance is a core priority for the Government. It is also a key opportunity within the financial services growth and competitiveness strategy. The UK is one of the world’s leading sustainable finance centres, with London ranking first in the Z/Yen global green finance index. Our focus now is on how to evolve and expand.

Lord Stockwood (Lab)

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We believe that the “have regards” give them the current position, which is that they should consult on the nature considerations. As my noble friend Lord Pitt-Watson mentioned, there is a substantial amount of work going on. There is room for improvement in the governance of that process, but we believe that the next five-year plan should be the place to review that even further.

Amendment 140 would require the FCA and the PRA to make rules mandating transition plans aligned with the Paris Agreement. The Government have committed to mandate UK-regulated financial institutions and large companies to develop and implement credible transition plans that align with the 1.5 degrees goal of the Paris Agreement, and we remain committed to that. We are reviewing responses to the Government’s consultation on the topic from a wide range of respondents and we will set out those next steps in due course.

I make it clear that we are mindful that firms do not approach transition planning in isolation, as this is closely linked to how firms identify, assess and manage climate-related risks. Any requirements must reflect this and sit within a coherent sustainability reporting framework. This policy is not confined to financial services alone; it must be done across the wider corporate landscape. We are therefore considering transition plan requirements alongside the wider modernising corporate reporting programme and discussions on what role the UK sustainability reporting standards should play in our corporate reporting framework. This amendment would risk pre-empting carefully considered and co-ordinated plans following our consultation, so I am afraid that I cannot agree with the noble Baroness, Lady Hayman, that the Bill is the right route forward to deliver this final commitment.

Lord Stockwood (Lab)

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I cannot pre-empt the timing of that report, but I will come back to the noble Baroness and have a follow-up meeting to get the specific details. I do not want to give her the wrong information today. This is important to this Government, as set out in the wider consultation and actions that we are taking. I might have to have a separate meeting to get a specific answer to that.

On Amendment 142, it is important that nature-related risks are properly understood and managed, given the material risks that they can pose to the financial system and wider economy, and we have already made significant progress in this area. As I mentioned, the Government have now finalised the UK sustainability reporting standards, and the FCA has consulted on aligning listed company disclosures with this framework. These standards, based on the International Sustainability Standards Board’s well-established global baseline of sustainability disclosures, require companies to disclose material sustainability-related risks, including nature-related risks where relevant. The Government recognise the important work of the Taskforce on Nature-related Financial Disclosures in this area and we welcome ISSB’s decision to advance further work on nature-related disclosures, building on TNFD’s recommendations. We will continue to ensure that the UK framework evolves in line with international best practice and we therefore do not support this amendment.

Amendment 172, on deforestation, seeks to require the Government to lay regulations on deforestation and undertake the review envisaged in Section 79 of the Financial Services and Markets Act 2023. I reassure the noble Baroness that the Government remain committed to this work. Just last week, the Government announced their intention to bring forward new rules to tackle deforestation. Later this year, we will consult on the proposed approach to bring in a due diligence framework in regulations under primary legislation, including the Environment Act 2021. We aim to require GB businesses using forest risk commodities to carry out appropriate due diligence, with secondary legislation delivered as soon as possible.

Action on deforestation must be co-ordinated across government to be effective. Therefore, the government commitment already made in the Financial Services and Markets Act 2023 is the right one. HMT will publish the deforestation-linked finance review within nine months of the Environment Act regulations being made, rather than laid. I do not accept that this can be speeded up, but I assure noble Lords that the Government will undertake this review. This approach will support coherent regulation across the UK, protect the internal market and support export-led growth. For these reasons, we do not support bringing forward these timelines.

Amendments 83B and 86A are related to climate risk and the financial gains from environment-linked criminal activity. I reassure noble Lords that, as set out in relation to Amendment 103, regulators are already required to take into account and monitor climate risk, including through the requirement that they have related to the UK’s net-zero and environmental targets, where relevant to their functions. This has already resulted in significant regulatory action.

Additionally, financial crime and money laundering, whether related to environmental crimes or not, is illegal and something that financial regulators, and this Government, already take extremely seriously. The FCA has a broad remit to tackle financial crime under its market integrity objective and requires authorised firms to take steps to ensure they are not used to further financial crime. The FCA has robust powers to supervise these controls and take action against firms which do not put adequate financial crime controls in place.

The Chancellor also announced on 21 October 2025 that the FCA will become the supervisor for professional services firms’ anti-money laundering and counterterrorist financing work. This will replace the existing complex system, involving 22 private sector bodies, and recognises the FCA’s effectiveness in tackling financial crime. Clauses 14 and 48 make necessary changes to primary legislation to enable this reform.

I hope this response clarifies why we believe the current framework is the right one. This has been an engaging debate. We have heard a range of views, and I hope I have convinced the Committee that the Government’s approach is the right one, and that we are making significant progress against our commitments, but that we should not rush to action. I ask the noble Baroness to withdraw her amendment.

Baroness Neville-Rolfe (Con)

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My Lords, I am grateful to my noble friend Lord Holmes and other noble Lords for bringing forward their amendments in this group.

I was glad to hear that the Minister will meet the Financial Services Regulation Committee to discuss this part of the Bill. I am sure he will be as disturbed as I was to hear about the widespread fear of regulated businesses in expressing any criticism of the regulators—the most important regulators in the land, to quote my noble friend Lady Noakes. We certainly rely on financial services and good regulators for growth in this country.

The central theme of this group is the proportionality of regulation. That is an absolutely fundamental requirement for all regulation; it is particularly so when we are talking about small and medium-sized enterprises, which are less able to afford the costs of regulation—in terms of diversion of time, regulatory fees and legal fees—and are the most held back by excess regulation.

There were 5.6 million small businesses in the UK at the start of 2025. They account for three-fifths of employment and around half of turnover in the UK private sector. Total employment in SMEs was 16.9 million—60% of the total—with turnover estimated at £2.8 trillion, or 51% of the total. Having financial services that operate with proportionality and common sense is important to them; indeed, almost every single one of these firms will access and use financial services through the course of their operations. It is even more important to the thousands of SMEs that operate in financial services, whose remit is of course being extended by the Bill, and the thousands more SMEs in the legal and professional firms that advise on financial services.

In practice, regulation often falls most heavily on precisely those smaller firms least able to absorb it. The reasons are obvious: SMEs do not have large compliance departments or in-house legal teams; and they do not have armies of advisers whose job is to interpret regulatory requirements. In many smaller firms, people wear many hats, as I know well. This means that a regulatory requirement that may be manageable for a large institution can be a serious burden for a smaller firm. Above all, regulation should be designed in such a way that it protects consumers and supports market integrity without imposing unnecessary burdens.

Amendments 83 and 84 in the name of my noble friend Lady Noakes, to which I have added my name, go to this underlying point by seeking to elevate proportionality in the FCA and PRA frameworks; it is pleasing to have the support of my noble friend Lord Ashcombe and the Liberal Democrat Front Bench in this. Proportionality should not be a box that regulators tick after the main decisions have already been made; it should be central to how they think about regulation from the outset.

The amendments in the name of the noble Baroness, Lady Bowles, raise an important point about tailoring regulation to the size, nature and objectives of different firms. The regulatory framework should recognise that a mutual does not have the same objectives as a major bank, and that different business models can present very different risks; the noble Baroness explained all that eloquently.

I would also like to comment on Amendment 86 in the name of my noble friend Lady Noakes. As she said, the Legislative and Regulatory Reform Act 2006 requires regulators to act in a way that is transparent, accountable, proportionate, consistent and targeted, ensuring that regulation is effective without being unnecessarily burdensome. Those are fundamental points and likewise need to be protected as guiding principles.

In closing, I would be grateful if the Minister could assure us: first, that proportionality will be genuinely embedded in regulatory decision-making, ideally by amending the Bill on the lines of Amendment 83. We hope he will look at this issue very seriously. Secondly, can he assure us that the FCA and PRA will in future be expected to take account of the particular position of SMEs, mutuals and smaller firms when designing and applying rules? A proportionality duty would go a long way to fixing the problem and would seem to fit in well with government policy to support small business promoted by his other department, the DBT.

Lord Stockwood (Lab)

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My Lords, this will be the first of many groups where we discuss the frameworks that the regulators operate under, so I will say a few words about that framework before turning to the amendments.

Many of these amendments, and those in other groups we will take today, focus on the regulators and their accountability to Parliament. Parliament has enshrined the principle of regulatory independence into primary legislation through the Financial Services and Markets Act 2000, which obviously everyone in the Room knows as FSMA. The Government continue to believe that this model best serves the UK’s long-term interests by delivering effective regulation, informed by evidence and free of political interference. It is absolutely right that financial services markets, firms and activities are overseen by operationally independent, expert regulators. The FSMA model sets out clear roles and responsibilities for Parliament, the Government and the regulators. Parliament sets the objectives for the regulators and holds them to account for how they further those objectives when discharging the statutory functions that Parliament has given them.

The Government and Parliament must be able to scrutinise the work of the regulators to evaluate how effective they are and the impact that their rules are having. It is important that the regulators remain independent and accountable for their actions. The regulators are directly accountability to Parliament, and there are a range of mechanisms within FSMA to support that accountability and allow Parliament to effectively scrutinise the regulators.

A critical part of regulatory independence is the idea that the regulators listen to legitimate criticism and scrutiny—and the regulators do listen. For example, the FCA decided not to progress some changes to its proposed enforcement policy following scrutiny from the House of Lords Financial Services Regulation Committee. However, it is clear from the debate today and from outside the Room that there is room for improvement.

On the recent publication by the Financial Services Regulation Committee, chaired by the noble Baroness, Lady Noakes, I recognise the important work of that committee in its Growing Pains report and share its ambition to see a regulatory culture that is more proportionate, more responsive and more supportive of growth. The committee’s recommendations were directed principally at how regulators exercise their functions rather than at the statutory framework itself. The Bill provides greater legal clarity and certainty but it remains for regulators, through their leadership, judgment and accountability to Parliament, to deliver the cultural change that the committee rightly called for.

On the amendments in this group, Amendments 81, 83, 83A, 84, 84A and 85 each seek to address various aspects related to the principle of proportionality. I recognise the concerns and strength of feeling that I have heard today and I agree that the principle of proportionality is extremely important and must remain central within the regulatory framework.

The Bill’s approach is not to remove proportionality from meaningful consideration. Instead, the reforms will require the regulators to have regard to proportionality in the development of their long-term strategies, ensuring that they are applied in a more coherent and visible way at the strategic level. This would mean that, for example, rather than considering if an individual proposal is proportionate, the regulators will be required to set out clearly how they have considered whether their strategy and workplan as a whole results in burdens on firms that are proportionate to the outcomes they achieve. This change will support more meaningful scrutiny of how the regulators are considering and responding to the regulatory principles, and will support greater overall scrutiny of the regulators’ work.

Amending the framework to prescribe in detail how the regulators must recognise differences in the size, nature and objectives of the firms it regulates goes far beyond the current framework and risks adding unnecessary complexity to the framework. It is for these reasons that the Government cannot accept these amendments.

Lord Stockwood (Lab)

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I understand it, and I think I have demonstrated in the debate today and outside—I am looking forward to the meeting next week—that we remain open-minded. We are trying to achieve the balance between the regulatory oversight that we believe already exists and the feedback that we have had from the committee. I remain open to those conversations. We believe that the framework tries to keep that balance between the oversight that exists in Parliament and the independence of the regulators, but we genuinely look forward to that constructive discussion.

I turn to Amendment 87, which seeks to expand the regulatory principles and make them more detailed and directive. The Government’s view is that FSMA should provide a principled framework within which the regulators exercise expert judgment. This amendment goes far beyond refining the existing principles and would, instead, replace them with a highly prescriptive set of instructions that risks legal complexity, rigidity and dispute over interpretation.

The concepts highlighted in the amendment are important, but the Government do not believe they should be hardwired into primary legislation in this level of detail via the regulatory principles. The issue is not whether compliance costs, innovation, competition or post-implementation review matter—they clearly do—but whether it is right to place these requirements in primary legislation. The Government’s view is that it is not. It is not a sensible approach to grant the regulators significant powers and responsibilities, and to then overprescribe with how they must fulfil them.

Lord Stockwood (Lab)

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Let me get back to the noble Baroness on that. I believe the amendments were trying to change and streamline the regulation, but I want to make sure I give a precise answer rather than a quick judgment on that.

Let me turn to Amendment 86, which seeks to bring the regulatory principles of the Legislative and Regulatory Reform Act 2006 into FSMA. The Government recognise the importance of certainty in the regulators’ framework. FSMA already contains its own carefully developed set of duties, objectives and principles, designed specifically for financial services regulation. The Legislative and Regulatory Reform Act is very broad in scope, and the principles it contains are important ones. But there is significant overlap between these principles and those already in FSMA, so adding them here would bring duplication and legal complexity, rather than clarity. These will now be considered at a strategic level as a result of Clause 16.

In some way, the Government agree that proportionality matters, that unnecessary burdens should be avoided, and that the regulators must be held properly to account for how they exercise the significant powers Parliament gives them, but they should not be overly constrained in how they approach their work. We should have confidence in their expertise and regulatory judgment, and confidence in the mechanisms in place that allow us to ensure that they are performing as they should do so. Ultimately, an overly prescriptive approach that ties the regulators would not be in the interests of those they regulate, or those protected by their regulation.

This is not a question of whether Parliament should hold regulators to account. We all clearly agree that it should. The matter before us is where we think the right balance lies between democratic oversight and allowing regulators to carry out statutory responsibilities effectively. I recognise that not everyone will agree that the Bill strikes that balance in the right place, and I respect the arguments that have been made this afternoon and the continuing debate that we will have. I hope noble Lords will also accept that I have listened carefully to those arguments that have been made. I will respond either in writing or in meetings outside the Room to any points that I have not answered fully today. I therefore ask the noble Lord to withdraw his amendment.

Baroness Neville-Rolfe (Con)

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Perhaps I might press the Minister on the subject of smaller businesses and the Bowles amendment to the proportionality proposal, which takes account of differences in the size, nature and objectives of businesses when the regulators are plying their trade. I am not quite clear what the Minister feels about these smaller businesses and whether he agrees that it is necessary to deal with them in a slightly different way.

Lord Stockwood (Lab)

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My business insured a million small businesses, so I think they are vital to the UK economy. Let me come back to the noble Baroness with a full answer on that. It is critical that we make sure that they are protected.

Lord Stockwood (Lab)

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It goes without saying that there are many things on which I do not agree with the Labour Government of 2006, but we will leave that for another day. We believe that this is already covered. I do not want to allow the noble Baroness’s expertise to be undermined by my relative inexpertise, so let me come back in writing on that. The advice I am getting is that we believe that it is already covered, but let me come back in writing before our meeting next week.

Baroness Neville-Rolfe (Con)

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My Lords, we understand the reasoning behind these amendments. Financial inclusion is, of course, an important objective, as the noble Baroness, Lady Tyler, explained so clearly. Indeed, that is precisely why we have tabled amendments on financial education, to be discussed at a later stage. We believe that one of the most effective ways to improve financial inclusion is to ensure that from a young age, people have the knowledge, confidence and capability to understand how to manage their money to avoid harmful financial decisions and to access the products and services that are right for them—and, I should add, to understand new technology, data and digital inclusion, as my noble friend Lord Holmes explained.

However, we are not persuaded that the mechanism proposed in these amendments is the right one. In particular, when it comes to proposals such as expanding the scope of Section 3B of FSMA and adding further regulatory principles, we encounter the same problem that I raised in previous groups: every time Parliament adds another principal duty, reporting requirement or objective to the regulator’s framework, it may sound reasonable in isolation but, cumulatively, these duties feed through into more process, more internal assessment, more reporting and more consultation paragraphs. That is more compliance requirements, more boxes to tick and less overall efficiency for financial services.

We should be careful not to assume that every social or economic objective is best delivered by placing a new statutory duty on the FCA or PRA. Regulators already have extensive responsibilities, so we have to make the choices with care because, at some point, the accumulation of such duties becomes counterproductive. It makes the regulatory priorities less clear and it can slow decision-making and create uncertainty for firms. In short, it is unwise.

As I have explained, we would improve inclusion via improved education, and we are about to introduce an amendment on debanking, which may be relevant. There is a lot of partnership and voluntary activity, as the noble Lord, Lord Pitt-Watson, hinted at—and as I remember from my time with Tesco Bank, which was centred in Scotland and did some terrific work.

The problem of child trust funds was mentioned by the noble Baroness, Lady Kramer, and it seems like a popular cause for deregulation by the Treasury and the regulators. I am sure the Minister will want to comment on that.

Lord Stockwood (Lab)

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My Lords, I am grateful to the noble Lord, Lord Holmes of Richmond, the noble Baronesses, Lady Tyler of Enfield and Lady Kramer, of Richmond Park, and other Peers for drawing attention to the important issue of financial inclusion. As someone who grew up in poverty, it is not an abstract concept to me and the community I come from.

The noble Baroness, Lady Tyler of Enfield, asked if I would meet her to discuss this agenda further. I would of course be happy to meet her and any other noble Lords who would like to discuss the topic. I will write to her ahead of that meeting on the FCA’s consumer duty and what it means for financial inclusion, but I assure noble Lords that the Government are not relying on the FCA’s consumer duty as a catch-all solution. The Government agree that people should be able to access the financial services they need—that is an important objective—but we think that these amendments are not necessary to achieve that.

Amendments 124, 128 and 104 would give the Financial Conduct Authority a new statutory financial inclusion objective and require it to establish an independent financial inclusion unit. These amendments focus on action and measurement. Financial inclusion requires all parts of the system to work together. That is why it is important for the Government to lead this agenda, not the FCA. To secure action, we have published a Financial Inclusion Strategy, setting out an ambitious package of measures to improve access to financial services.

The FCA is closely involved in delivering this work. Sarah Pritchard, the deputy chief executive, also sits on the Financial Inclusion Committee, which monitors the strategy and supports its implementation. The Government have taken formal steps to reinforce the FCA’s role in this area. In her most recent remit letter, the Chancellor asked the FCA to have regard to reinforcing financial inclusion, and the FCA is responding to that ask.

The FCA’s 2025-2030 strategy identifies helping consumers to navigate their financial lives as one of its four strategic priorities. As part of this, it highlights an increase in the consumers who hold key products as a success metric for its work, and it is acting on this. For example, to advance the Financial Inclusion Strategy’s aim of boosting savings, the FCA developed a regulatory statement to support the uptake of workplace saving schemes. On measurement, the FCA already plays an important role in tracking progress on financial inclusion through its flagship financial lives survey, which provides a strong evidence base for monitoring outcomes over time.

I recognise Amendment 128’s emphasis on independent scrutiny and prioritisation of financial inclusion in the FCA’s work. As part of the FCA’s statutory framework, the consumer panel is in place to represent the interests of consumers and provide independent advice and challenge to the FCA. As already covered, the FCA’s strategy and membership of the Financial Inclusion Committee means that financial inclusion is embedded in its work. This is more effective than an operationally independent unit.

On oversight and transparency, I understand the intention behind Amendment 104, which seeks to require the FCA and PRA to report annually on financial inclusion, and Amendment 95, which would require the FCA to report on financial inclusion metrics and how it has acted to improve financial inclusion. However, these amendments are not necessary or appropriately targeted. The regulators already report publicly and are accountable to Parliament. Moreover, the FCA’s financial lives survey provides a biannual update on a wide range of financial inclusion metrics in the UK, including the numbers of unbanked people, those who have been declined for a product and the experiences of vulnerable customers. The FCA is also closely involved in the delivery of the Government’s Financial Inclusion Strategy, which is a public document and subject to public review next year. Amendment 104 would place reporting duties on the PRA, whose statutory role is prudential regulation, creating uncertainty about the PRA’s remit and what it would be expected to report against.

Amendment 82 would add financial inclusion to the regulatory principles that the FCA and the PRA must have regard to when discharging their general functions. The Government do not agree that this is the right mechanism to ensure that financial inclusion is prioritised. The amendment would require unclear action from the PRA. Parliament regularly holds the regulators to account for their work on financial inclusion. The Commons Treasury Select Committee recently held a session with the FCA’s deputy CEO for its Financial Inclusion Strategy inquiry. Amendment 97’s requirement that the FCA be prepared to demonstrate to relevant parliamentary committees how it has had regard to financial inclusion is therefore unnecessary. Any relevant Select Committee can call the FCA and hold it to account for its work on financial inclusion.

Amendment 141 seeks to require the FCA to establish a new legal route for third- party access to control another person’s assets, which goes well beyond its regulatory remit. The law requires parents or guardians to have legal authority to make decisions about the financial assets or property of their adult children. This includes accessing funds held in a mature child trust fund. Decisions about who may act on behalf of a person lacking capacity are governed by the Mental Capacity Act 2005 and are determined by the courts, reflecting the need for safeguards to protect vulnerable people. It is not appropriate for FCA rules to seek to substitute or override existing rules and processes. The Ministry of Justice recognises that the process of obtaining access can be challenging for the parents and carers of young people who lack capacity. It is exploring how the Government can best facilitate access for parents and carers to child trust funds on behalf of their children. I would be happy to raise this with the MoJ rather than berate it, as the noble Baroness suggests.

Turning to Amendment 161, I recognise how a broader set of data might support a more accurate assessment of underserved SMEs’ creditworthiness. However, it should be noted that the Treasury already has the ability in Section 4(5) of the Small Business, Enterprise and Employment Act 2015 to specify the SME information that must be shared. We are actively considering updates to the scope of data in the next phase of the CCDS reforms. However, it will not be expanded in line with this amendment, given that it would require redesigning the scheme entirely, expanding it beyond financial services participants, some of whom see little return for their participation, which already imposes a degree of burden. I do not think it appropriate for financial services legislation to impose regulatory obligations on non-financial market actors in this way, not least without consultation. That is not to say the ambition is misplaced. Indeed, these issues are potentially better addressed through the future development of open finance and smart data initiatives.

Amendment 169 seeks to require a review of know-your-customer requirements. I understand the concern that the current framework may not always operate as it should in supporting access to financial services. As the noble Lord, Lord Holmes, rightly stated, technology is already playing a part but can do better. Indeed, businesses such as Quantexa and Onfido are leading the way in this space. The Government do not believe that anti-money laundering requirements and financial inclusion are mutually exclusive. The money laundering regulations already provide firms with the flexibility to take a proportionate and risk-based approach to customer due diligence. As part of the financial inclusion strategy, major high-street banks have launched pilots on improving access to bank accounts, demonstrating how financial inclusion initiatives can operate within the existing framework.

Reforms to make customer due diligence requirements more proportionate and effective have already been made, including through amendments to the money laundering regulations made via statutory instrument earlier this month. The Government are also taking steps to support the effective use of new technologies, such as through the publication in February of guidance on the use of digital identities to support customer verification. Finally, the money laundering regulations also mandate a review of their regulatory provisions every five years to assess whether they are effective, appropriate and proportionate. The next such review will be published in 2027.

The noble Lord, Lord Holmes, asked how financial inclusion has changed under the current Government. In November, we published the Financial Inclusion Strategy, which supports access to banking for those with no fixed abode and small-sum lending to help people access credit and makes it easier for people to save. The noble Baroness, Lady Tyler of Enfield, noted that when a House of Lords Select Committee looked at this topic, it found that 1.7 million people were unbanked. Although it is still too high, I can report that the latest survey data shows that the number of unbanked people has fallen to under one million. As I already set out, with many of the actions we are taking, the Government hope to reduce this further. Financial inclusion is not a gap in the framework. It is an agenda already being delivered by the Government, with the FCA closely engaged in its implementation. I therefore ask the noble Baroness to withdraw her amendment.

Baroness Neville-Rolfe (Con)

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My Lords, this is an important clause, and I understand why noble Lords wish to probe the Government’s approach to Clause 17. It is always right that we scrutinise carefully any change to the statutory framework governing our financial regulators, and the sponsors have set out their case well. I note that they were introduced into the 2023 Act for good reason: to try to ensure that financial regulation in the UK is proportionate, accountable, flexible and aligned with economic and market objectives.

As I said earlier, I am glad that a meeting with the Financial Services Regulation Committee will take place next week. Certainly, I would like to get to the bottom of whether the change neuters the committee, as has been suggested by the noble Lord, Lord Eatwell, and my noble friend Lady Noakes; indeed, I think that committee was unanimous that there was a problem. I thought it was interesting that my noble friend Lord Bridges echoed concerns that key, case-by-case analysis by the committee would disappear, and that the noble Baroness, Lady Donaghy, expressed concern about the way that her questions about cost-benefit analysis had been answered, presumably under the existing system.

These are all very legitimate questions, but there are other considerations—the noble Baroness, Lady Bi, touched on some of them. Our position is that we do not want to perpetuate overburdensome regulation. In discussions with industry, we have heard repeatedly that the regulatory principles in Section 3B of the 2000 Act can themselves lead to tick-box exercises. That is particularly true where the principles require regulators to consider wider public policy objectives, which may have only a very indirect connection with the firms being regulated or the activities in question. For example, Section 3B(1)(c) includes

“the need to contribute towards achieving compliance by the Secretary of State with section 1 of the Climate Change Act”—

the net-zero target—

“and … the Environment Act 2021 (environmental targets) where each regulator considers the exercise of its functions to be relevant to the making of such a contribution”.

My own experience of serving on a challenger bank’s board is that there is already a lot of climate-related activity required by the regulators that creeps into many aspects of governance. It is generally costly and sometimes of little worth. That was before the regulatory principles were added. That reflects, harking back to our earlier conversation, the extensive net-zero regulations that exist, the remit letters and the sustainability reporting network, all of which were cited earlier. Therefore, the real question is whether financial regulation is the right vehicle through which to pursue such goals and whether embedding such considerations produces better regulation or simply more process, as we suspect.

The Bill is meant to be deregulatory, and it is meant to simplify the regulatory environment and to support growth and competitiveness. I think the Government may be genuinely reducing a burden that has been identified by industry. We should be careful before assuming that every principle must remain in place. For me, the real tests are about what improvements are coming about here. I am interested in the detail. Does it make the FCA or the PRA more effective? Does it protect consumers? Does it support financial stability? Does it help growth? Alternatively, does it simply create another layer of process, the cost of which falls on firms?

I would be grateful if the Minister could explain more clearly the Government’s rationale for Clause 17. What burdens have been identified and what will the impact be of the changes proposed here? What evidence have the Government received from industry and regulators about the operation of the current Section 3B principles? How will the Government ensure that removing or amending such principles reduces unnecessary burdens, without weakening the core protections that consumers and markets expect?

As the Official Opposition, we are, in essence, in listening mode on this quite radical proposal. We would like to understand whether the “whereases” that are being partially abolished are a burden on only the regulators or whether that feeds through to industry and consumer protection—and, if so, how. I believe that, sometimes, a clearer, simpler and more focused framework is more effective. If Clause 17 helps move us in that direction, it may be needed in the Bill, as the noble Baroness, Lady Bi, suggested. However, it also seems very important to work out how the two parliamentary committees will exercise proper oversight going forward in a post-Brexit regulatory environment, and to ensure that any regulatory resistance, which we have been hearing about this evening, is minimised.

Lord Stockwood (Lab)

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My Lords, it is clear that the Committee places a strong emphasis on getting the regulatory principles right. The Government also take this matter very seriously and genuinely value the contributions made in this debate.

Before I start, it is important to remember that the regulators have both principles and objectives. The regulators need to advance these objectives—regulatory principles are something that they consider only when doing so—and the Bill does not change that. The noble Lord, Lord Vaux, asked me whether the regulators will be required to report on the long-term strategy. Clause 16(6) amends Schedule 1ZA to FSMA so that the FCA must explain, in its annual report, the extent to which it has implemented its long-term strategy. Clause 16(7) does the same for the PRA.

The Government agree that the regulatory principles are an important part of the statutory framework. They are also aware that each of these principles has strong support, so, while there may be a view that some could be removed, there is no consensus on which ones it would be suitable to remove. This is why, when the Government reviewed the principles, they concluded that none of the individual principles should be removed from legislation. Instead, the Government concluded that the regulatory principles must continue to play a significant part and a central role in the work of the regulators through new long-term strategies. The regulators will be required to have regard to those principles when preparing or revising their strategies, ensuring that they are applied in a more coherent and visible way at the strategic level and in a manner that supports an overall assessment of the regulators’ performance and actions.

In our debates on other clauses, there has been a widely shared view that, in some areas, regulatory requirements on firms have become overly prescriptive and, in some cases, duplicative. The Government consider that, in some areas, this is also true of the regulators, and that, over time, various requirements have been added to and extended. This places the resourcing burden on the regulators, which is ultimately paid for by firms and can reduce their capacity to act quickly and effectively.

That is why the Government consider it appropriate to change the way in which the regulatory principles in FSMA are applied to the regulators. The Government consider that this new approach will support more meaningful scrutiny of the regulators’ strategy, as opposed to repetitive and fragmented processes across the individual exercising of their functions. As I explained earlier, it would mean that, for example, rather than considering whether an individual proposal is proportionate, the regulators will be required to set out clearly how they have considered whether their strategies and work plans as a whole will result in a proportionate burden on firms.

Let me be clear: the regulatory principles will remain central to the regulators’ work under the new framework. Parliament will continue to have the full range of statutory and constitutional levers through which it can hold the regulators to account, including scrutiny by parliamentary committees and review of the regulators’ publications, such as their annual reports, on how they have advanced their statutory objectives and their annual responses to the Treasury’s letters of recommendation on economic policy—both of which the Treasury is required to lay before Parliament. The requirements for the regulators to consult on proposed rules and demonstrate how they have advanced their objectives will remain. If the rules on which the regulators are consulting will impose costs, their cost-benefit analysis must also be published. The regulators must also notify the chairs of parliamentary committees when they issue consultations. This requirement is also unchanged. If a parliamentary committee writes to a regulator concerning a publication, the regulator must respond to that committee in writing. The Government consider that these are the most effective ways of holding the regulators to account.

The accountability of financial services regulators is a significant matter for this Committee—I have heard that loud and clear. The regulatory principles are important for shaping the work of the regulators, and I recognise the strength of feeling on how they operate. However, the way in which they currently operate can reduce the regulators’ agility while doing little to support effective overall scrutiny or to materially benefit firms. Reforming how the regulatory principles work will ensure that these principles continue to be central to the work of the regulators and will support enhanced scrutiny of their overall performance. I therefore move that Clause 17 should stand part of the Bill.

Baroness Neville-Rolfe (Con)

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My Lords, I am grateful to the noble Baroness, Lady Bowles, for bringing forward these amendments. They raise two very salient points about the accountability of the financial regulators and the mechanisms by which Parliament, the Treasury and the public can scrutinise how those regulators use their powers.

One of the core functions of the Bill is to increase the power and scope of the remit of the regulators, in particular the FCA. Across the Bill, more responsibility is being transferred, more detail is being left to rules and more of the practical operation of the regime will depend on regulatory judgment, rather than primary legislation. My concern is that although the Bill increases the power of the regulators, it does not always provide a corresponding increase in oversight or scrutiny of them; as an ex-Treasury Minister, I am slightly surprised that the Treasury is entirely happy with that.

To me, Amendment 88 seems a sensible and proportionate form of challenge. It would create a formal and transparent way for the Treasury to say that, in effect, a regulator may have gone beyond what Parliament intended or may have acted in a way that is not consistent with its statutory remit. This matters because the Treasury is directly accountable to Parliament in a way that independent regulators are not. If regulators are to exercise substantial powers delegated by Parliament, there must be some meaningful mechanism by which Ministers can challenge, explain and account for how these powers are being used. We will come back to this point again at a later stage in Committee; my noble friend Lord Bridges has tabled an amendment that speaks to this same broad issue.

The underlying point is simple: if regulators are powerful, they must also be accountable. How best to achieve this should be a key objective of our scrutiny in Committee and on Report. I would be grateful, therefore, if the Minister could set out the Government’s position on this wider issue. He wrote to us shortly before Committee—a little too shortly before Committee; I say that politely—but I am not sure whether what he sent us, including the Treasury memorandum, answers our outstanding questions. So do the Government accept that the Bill increases the powers and responsibilities of the FCA and PRA? If so, do they accept that stronger oversight mechanisms are called for? What formal routes currently exist for the Treasury to raise concerns about regulator rules or guidance that may not reflect Parliament’s intention?

Also, what is the Government’s objection, if any, to periodic independent reviews of regulator performance and burden? As a former Minister, I found that, although such requirements were unpopular with the department at the time they were put into law, they proved useful in helping me keep on top of the responsible regulators and their policies.

I very much hope that the Minister will engage constructively with the problem, answer my questions, on both the previous group and this group, and appraise in a constructive spirit the amendment tabled by the noble Baroness, Lady Bowles. Above all, we need reassurance that the Government recognise the importance of scrutiny, transparency and trust in the regulatory system.

Lord Stockwood (Lab)

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My Lords, the accountability of our financial regulators is a serious matter, and Parliament rightly takes a close interest in how the FCA and PRA exercise their powers. We have extensively discussed the FSMA model of regulation today. It is the foundation of a system of regulation under which Parliament sets the regulators’ objectives, invests them with the powers that they need to further those objectives and sets out a clear system of governance and accountability under which the regulators are required to account for their actions and effectiveness in furthering the objectives that Parliament has set for them. As I said before, the Government remain of the view that this is the most appropriate and effective model of regulation available. It has served us well and is internationally respected.

The difficulty with this amendment, therefore, is that it would cut across the foundational principle of our regulatory architecture. The FCA and PRA are operationally independent bodies. That independence is not incidental; it is the source of their authority and credibility and, ultimately, their value to the consumers and markets they serve. Under the FSMA model, it is the responsibility of the regulators to interpret their statutory objectives. It is not the role of HM Treasury to do so. This amendment would, over time, erode precisely the independence that makes those regulators effective. Markets, firms and consumers need to know that regulatory decisions are made on the merits, free from political pressure. This amendment, however well-intentioned, risks compromising that assurance.

Of course, Parliament can and does challenge the regulators where it thinks they have done something wrong. Given that their authority ultimately flows from Parliament, the regulators take that incredibly seriously. Parliament can and does make its views known to the regulators on key issues. For example, after a highly critical report from the House of Lords’ Financial Services Regulation Committee, and in recognising the lack of consensus among the stakeholders, in 2024 the FCA dropped plans to change the way that it publicised ongoing enforcement cases.

The noble Baroness, Lady Neville-Rolfe, asked whether the Government are satisfied with the current framework. There is an appropriate requirement already set out in FSMA that is designed to support scrutiny and oversight and, in certain circumstances, to allow the Government to give the regulators some level of direction. For example, the Government can require a regulator to review one of its rules or to appoint an independent person to review those rules where they consider this would be in the public interest. The Government can also require the regulators to make rules but cannot direct their content or purpose.

The regulators have a statutory duty to keep their existing rules under active review. This is contained in Section 3RA of FSMA. Furthermore, the Treasury has an ability to direct regulators to launch an independent review of specified rules, with the outcome laid before Parliament. The regulators are also subject to robust wider parliamentary accountability, including through the information they are required to provide to relevant committees and the vital role those committees play in questioning the regulators and critiquing their work. Those are the appropriate channels for testing the consistency of regulators’ actions with legislation or statutory objectives, not a ministerial statement of concern, which starts to undermine the principles of independent regulation. I therefore ask the noble Baroness to withdraw her amendment.

Baroness Neville-Rolfe (Con)

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My Lords, we are sympathetic to the concerns raised by noble Lords across this group. I was glad to add my name to several amendments tabled by my noble friend Lady Noakes. I entirely agree with her and with the noble Lord, Lord Vaux, that the role of the relatively new and very effective Lords Financial Services Regulation Committee should be added to the 2023 Act. We are lucky to have such an assembly of experts and effective questioners, as well as Lords clerks, to help with the enormous task of scrutiny in the financial services sector.

We have just been discussing the accountability of the regulators, the importance of scrutiny and the need to ensure that the FCA and PRA exercise their considerable powers in a way that is transparent, proportionate and properly justified. This group raises those same issues in the more specific context of guidance, consultation, cost-benefit analysis and the way regulators explain the impact of what they do. I look forward to the Minister’s response to the noble Baroness, Lady Bowles.

Our Amendment 90 asks a serious question about cost determination. The cost-benefit analysis panels within the regulators are an existing mechanism of accountability. They are designed to provide scrutiny of the costs and benefits of regulatory proposals and to help ensure that regulators properly consider the burden that their rules impose.

But there is a significant limitation. As I understand it, the cost-benefit analysis panels are engaged only where the regulator makes a rule change that the regulator itself considers to be materially significant. Should there not be a more independent mechanism for testing whether a regulator’s view that a proposal has no or minimal cost impact is actually correct? If the regulator decides that a proposal has no or only minimal cost impact, then the process may not trigger a cost-benefit analysis—but that judgment may itself be contestable, especially if it is a net threshold, hiding both the costs and the benefits. Firms may take a very different view about the practical cost of implementation, the operational burden, the systems changes required and the cumulative impact when viewed alongside other requirements. Indeed, cumulative effect is a concern rightly enshrined in my noble friend Lady Noakes’s Amendment 119, which we will discuss on a later group.

There is also a wider issue. The cost-benefit analysis panels are not generally able to assess changes in guidance or enforcement activity. Guidance can be hugely significant in practice. Enforcement activity can create powerful incentives and costs across the sector, even beyond the firm that is directly affected. So the question is not simply whether a formal rule change has costs; it is whether the regulators’ activity as a whole is proportionate, whether it is evidence-based and whether the burden it places on firms is properly understood. That is why we want to press the Minister on whether the Government will give thought to expanding the remit of the cost-benefit analysis panels. For example, how will they operate in relation to the FCA’s new powers on credit, on in-person banking and on payment regulation?

Equally importantly, should they not be able to consider whether guidance, supervisory expectations and certain enforcement-related approaches carry material cost implications? Cost-benefit analysis forces a discipline on regulators. It requires them to summarise what they are doing succinctly and clearly, and to ask whether the benefit justifies the burden, whether the same objective could be achieved in a less costly way and whether the cumulative effect of regulations is proportionate. I always turn to the impact assessment of a rule if it is available, as it allows one to get to the heart of what is happening.

The broader point is that transparency, consultation and cost scrutiny are not bureaucratic obstacles to good regulation; they actually help to prevent unintended consequences and excess red tape, and they sometimes draw attention to harm to SMEs. They give Parliament and industry confidence that regulatory powers are being exercised responsibly.

So I would be grateful if the Minister could address the specific issues raised by Amendment 90. I have five questions, to which the Minister may want to respond by letter if necessary. First, who in practice decides whether a proposed regulatory change has no or minimal cost impact? Secondly, what is the threshold, in millions of pounds, and is it gross or net of benefits? What safeguards exist to test that judgment? Fourthly, are the Government satisfied that the cost-benefit analysis panels have a sufficiently wide remit? Fifthly, will the Minister consider whether that remit should be expanded to include guidance, supervisory expectations and other regulatory activity that may impose material costs on our important financial services sector?

As we have said throughout Committee, accountability must keep pace with regulatory power. If regulators are to be given more responsibility, the scrutiny of their decisions, their processes and their costs must be strengthened. I will listen carefully to all the Minister’s responses on cost-benefit and, unless these are satisfactory, the Opposition will want to bring forward an amendment on Report.

Lord Stockwood (Lab)

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My Lords, I begin by explaining the Government’s purpose behind Clause 18 and why it should stand part of the Bill. Over time many reporting and procedural requirements have been placed on the FCA and the PRA, increasing burdens, introducing duplication and in some cases complicating oversight, scrutiny and accountability. There is broad agreement that this dynamic is true for firms subject to regulation. I ask noble Lords to reflect on whether it might also be true for the regulators and on whether that is slowing them down and ultimately having a negative impact on firms and consumers.

These burdens are not without consequences. The regulators must follow the letter of these requirements, diverting time and resources away from other work. Ultimately the cost of that work is passed on to firms through the levy they pay and through their engagement with the asks of the regulator. The Government’s view is that there is scope to rationalise parts of this approach to enhance the effect of scrutiny and to help regulators become more agile and ultimately better support innovation and growth.

The Government sought feedback on which regulator publications stakeholders found most useful and then worked closely with the regulators to consider this feedback and further assess the range of requirements placed on them. Feedback to the regulatory environment consultation indicated very low engagement with certain types of regulator publications, and the regulators’ data confirms this. In recent years, the FCA and the PRA consulted on several proposals to which they received zero responses, although I accept that not all publications are created equal.

I have listened carefully to the concerns raised, particularly the argument that these provisions remove practical tools that help Parliament and stakeholders understand what the regulators are doing and why. I recognise that concern, and that is why the Government have approached this area carefully. Clause 18 is carefully targeted and relatively modest. The Government are retaining the vast majority of the existing transparency and reporting framework. Clause 18 is focused on removing a small number of requirements where the burden of complying is disproportionate to their value. These changes do not prevent the regulators undertaking any of these activities where they judge it useful to do so. Instead, they give the regulators greater flexibility to focus on delivering their strategic priorities.

This clause must also be read in the context of the wider framework. The Bill introduces new long-term strategies, maintains the requirement for regulators to respond annually to Treasury recommendation letters and provides for an additional annual report on how the FCA and the PRA have complied with their competitiveness and growth objectives. Taken together with the existing framework in FSMA, these measures are intended to strengthen overall transparency, not weaken it.

I turn to the amendments, starting with Amendment 89—

Lord Stockwood (Lab)

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Unfortunately, the precise question was not asked in the consultation.

Lord Stockwood (Lab)

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I will have to come back to the noble Baroness. The broader requirement is that we are trying to streamline the process to take the regulatory burdens away. We recognise that we need to give a precise answer on that.

Lord Stockwood (Lab)

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They are not the same thing. The approach we are trying to take is to streamline duplication while not in any way detracting from the overall process. That is the principle we are trying to follow here.

Amendment 89 would preserve the statutory requirements on the FCA and the PRA to give guidance about how they intend to advance their objectives. This requirement was introduced by the Financial Services Act 2012, and since it came into force, both the FCA and the PRA have published guidance fulfilling this requirement, which is updated when necessary. For example, most recently the PRA updated this approach to policy statements in February 2025. Removing these statutory requirements will not prevent the regulators giving such guidance where they consider it beneficial to do so. These requirements would also be duplicative with the new long-term strategies, which will set out the regulators’ approach and priorities for advancing their objectives, as well as other statutory publications, such as the regulators’ annual reports.

Lord Stockwood (Lab)

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Could you repeat the question?

Lord Stockwood (Lab)

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I believe that they still have to publish the full guidance, but let me come back with a written response on that.

Turning to Amendments 90 and 92, the Government recognise the impact that changes in rules and guidance can have on firms, particularly smaller firms and regulated persons trying to understand what is expected of them. The government reforms are intended to avoid imposing full consultation and cost-benefit analysis requirements where proposals are genuinely minor or low impact, while preserving the wider consultation framework for substantive changes. Minor changes to rules include corrections, clarifications or minor technical updates, and it will be for the regulators themselves to determine whether a rule change meets this definition, as they are best placed to assess the impact of such changes. For example, last year, the FCA consulted on reducing late filing charges from £250 to £100. Under this provision, the FCA would not be obliged to consult and could make these changes faster.

Lord Stockwood (Lab)

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I think there is a broad principle: we are trying to give the FCA the power to make those small changes in both directions.

Lord Stockwood (Lab)

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Our overarching principle is that we are trying to show trust in the regulators while recognising the significant feedback from the debate today. We are hoping that minor changes will be in their gift and their expertise.

I will come back to my notes here. The measure is about giving the regulators the flexibility to gather industry input in more efficient ways. It is not about bypassing industry, but rather about recognising that the industry’s time is valuable and should be focused on engaging with consultations that genuinely have impact. Other channels, such as round tables with firms, supervisor interactions, meeting with trade bodies and engagement with statutory panels, can provide a more efficient route to understand industry’s issues on what are minor or technical changes. The Government’s view is that retaining these specific requirements in all cases would preserve unnecessary process, even where it adds little value in practice, and that the Bill preserves consultation requirements in most cases and where there is genuine value for the sector, as well as regulatory oversight.

Amendments 93 and 94 seek to remove all requirements on the PRA to meet the auditors or PRA-authorised persons. As the noble Baroness, Lady Noakes, noted, the Bill removes the requirement for the FCA to meet at least once a year with the auditor of any PRA-authorised firm that has been designated as important to the stability of the UK financial system. Requiring both the FCA and the PRA to meet PRA-authorised firms is duplicative and unnecessarily burdensome in terms of the effective use of resources. However, the Government’s view is that removing all requirements around engaging this important group of auditors would go too far. It is vital that the PRA continues to engage with these auditors and plan for meetings to take place at least annually, to ensure that the PRA can secure the valuable insights into the health of systemically important, regulated firms that auditors can provide. It is for this reason that the Government cannot accept these amendments.

Baroness Neville-Rolfe (Con)

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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 know this from relatives who work in analysis; I do not think that is an interest to declare, but it is evidence. Another example is the EU’s sustainable finance disclosure regulation, which is now under review because it is too complex and burdensome.

The whole point of having an independent post-Brexit regulatory framework is that the UK should be able to design rules that work for our markets, our firms and our economy. The UK’s position in financial services is not secured by right. Other jurisdictions are moving quickly. We know the compliance costs are generally higher in the UK, so unless we offer a regulatory environment that is clearer, more cohesive, more predictable and more conducive to growth, it is likely that firms, capital and innovation will go overseas, the opposite of what we and the Government want. We are already seeing this risk in areas such as digital finance. Firms in digital assets, payments and new financial infrastructure need clarity and confidence. Where they do not find it in the UK, they look elsewhere. The Employment Rights Act is also having a chilling effect.

Amendments 100 and 101 are important because they would strengthen accountability around the competitiveness and growth objective. It is not enough for regulators simply to say that they have considered competitiveness. Parliament needs to see how that objective has been applied, what evidence has been used, what impacts have been assessed—for example, on SMEs, which are a key feature of my noble friend Lord Hunt of Wirral’s amendment—and how regulatory decisions have affected firms and markets over time.

Amendment 102, which I have also supported, would extend the secondary competitiveness and growth objective to the Bank of England’s financial market infrastructure functions. The same should apply to Amendment 104A on payment systems. If we want a dynamic payments ecosystem, competitiveness must be considered across the whole regulatory architecture.

The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)

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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 international bodies. I reassure noble Lords that international standards generally operate on a comply-or-explain basis. No standard trumps the objectives of the FCA or the PRA. Where it is right for the UK to go further, or where the nuances of our market require a different approach, the FCA and the PRA retain full flexibility to do so.

Amendments 100 and 101 would require the growth and competitiveness reports to be laid in Parliament and would prescribe their contents. These amendments clearly demonstrate the importance this House places on the growth and competitiveness reports. The Government absolutely agree about that. Since they were introduced in FSMA 2023, their value to stakeholders in Parliament and industry has been clearly demonstrated, which is why the Bill extends the original temporary requirement and will require the regulators to keep producing the reports on an annual basis. However, these amendments are not necessary: they are overly prescriptive and overlap with existing reporting mechanisms. For example, the regulators already provide ample public reporting on their authorisation metrics, which are published regularly and allow for year-on-year comparisons, and they already publish metrics along with their competitiveness and growth reports.

Amendment 102 would give the Bank of England a secondary objective to facilitate international competitiveness and growth in its regulation of central counterparties and central securities depositories. The Government recognise the importance of a dynamic and competitive UK clearing and settlement market. However, CCPs and CSDs have a unique role in managing risk at the centre of global financial markets and the value they provide is based on reliability and sound risk management. The UK’s success as a global centre for financial market infrastructure depends on its reputation for resilience, and regulation must reflect the roles of CCPs and CSDs as critical, globally shared infrastructure. The Government therefore do not believe that it would be appropriate for the regulatory framework for these firms to focus on international competitiveness or growth in the same way as other firms, or that the secondary objective for the Bank to facilitate innovation is the right one. However, the Chancellor made it clear in her remit letter to the Bank last year that it should consider how it can best support the Government’s growth mission when pursuing its objectives.

Lastly, Amendment 104A seeks to introduce new secondary objectives for the Bank of England in relation to payment systems. I am grateful to the noble Lord for raising this issue. The Government recognise that, where appropriate, secondary objectives can help the regulator to advance its primary objective in a balanced way. Payment systems are critical economic infrastructure and the Government agree that, alongside security and resilience, regulation in this area should support competition, innovation and growth.

However, the Government consider that the Bill already provides a framework that supports the aims of the amendment. Following the FCA taking on the responsibilities of payment systems regulations, it will retain the substance of the PSR’s objectives. This means that it will be responsible for promoting competition and innovation in payment systems and for protecting the interests of service users. The Bill also applies the FCA’s secondary competitive and growth objective to its general payment system functions and it includes provision to ensure that the Bank and the FCA co-ordinate effectively. I therefore ask the noble Baroness not to press her amendment.

Baroness Neville-Rolfe

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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 PRA technically meets the statutory deadline; it is whether substantive work begins early enough in the process. If a case is not allocated promptly, if an initial review takes place only late in the period, or if information requests are made close to the deadline, the firm bears unnecessary costs and uncertainty, even if the regulator ultimately meets the formal target.

My first set of amendments today—Amendments 105, 110, 113 and 114—would ensure that the Treasury’s power to alter these time limits could be used only to reduce them. If the purpose of the Bill—and, indeed, the Government’s wider financial services strategy—is to make the regulatory system more streamlined and fit for purpose, success must be measured in part by reductions in the time taken to make decisions. I hope that the Minister will be sympathetic to that principle. The Treasury should be able to shorten regulatory approval periods where experience shows that this can be done safely, and it should not be able to lengthen them without returning to Parliament with a clear and specific justification.

The amendments tabled by my noble friend Lord Holmes take a similar approach but go further by proposing an automatic ratcheting-down mechanism. Where regulators had met the applicable time period for a defined period, the Treasury would be required to reduce the time limit further. That is a sensible principle of continuous improvement. If regulators consistently demonstrate that they can meet a deadline, we should be willing to ask whether that deadline can become more ambitious.

Amendment 109 concerns the FCA’s ability to stop the clock during the senior managers approvals process. We have heard from industry that the power to stop the clock can be used repeatedly during an approvals process. That is extremely frustrating for firms. It makes workforce planning more difficult and can leave firms waiting for months without any real sense of when a decision will be made.

Stop the clock powers can render the headline statutory deadline almost meaningless. Amendment 109 would, therefore, allow the FCA to use the formal stop the clock mechanism only once in relation to a senior manager approval application. When it does so, the FCA would be required, as far as is reasonably practicable, to specify all the information that it requires at that point. The FCA could still ask for further information later, but that later request would not stop the statutory clock.

As I have said, delays in approvals can affect business decisions, market entry, expansion, restructuring and succession planning. They can discourage talented individuals from taking up roles in the UK if they fear that the process will be slow, uncertain or opaque, and they could even put at risk our reputation as a leading financial centre.

I welcome Amendment 151 in the name of my noble friend Lord Howard of Rising. It asks whether there should be a more streamlined or expedited Part 4A authorisation process where the applicant is managed or directed by individuals with an established FCA-approved—or PRA-approved, I assume—track record and good regulatory standing. A review could help to identify where duplication exists and where good regulatory history can be taken into account in a practical way.

I would be grateful if the Minister could address three questions. First, what do the Government see as a reasonable timeframe for the approval of new products, new services and senior managers? Those of us who are used to more dynamic sectors think that the new targets are insufficiently challenging, but let us hear what they are. Secondly, do the Government accept the principle that the Treasury’s power to change approval time limits should be used only to reduce them, not increase them? If the Government do not accept that, in what circumstances do they envisage the Treasury using this power to lengthen regulatory approval periods? Thirdly, what safeguards exist to ensure that the FCA’s stop the clock powers are used proportionately and not in a way that undermines the statutory deadline?

We cannot talk about growth, competitiveness and innovation while tolerating unnecessary delays in the basic processes that allow firms to operate and people to take up senior roles. We know from history that we need strong management, as well as strong and challenging non-executive directors for our banks, but we also need an efficient approvals system that supports that. I beg to move.

Lord Stockwood (Lab)

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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 as possible to support firms. The intention behind this is primarily to allow certain deadlines to be shortened further if conditions change in future and the regulators can process applications faster. However, it is vital that the regulatory framework reflects the need for a robust approvals process and the high standards expected of firms operating in the UK. Limiting the Government’s ability to recalibrate the statutory deadlines in the other direction would limit our ability to react to unexpected circumstances and could risk those high standards being watered down or push the regulators to refuse more applications to ensure they are meeting their legal obligations. This is why the Government’s view is that the powers must remain flexible.

Amendments 107, 112 and 116 would oblige the Government further to shorten these statutory deadlines should the regulator meet these deadlines for two consecutive years. The Government understand the intention and ambition behind these amendments but do not agree that this is the right way to achieve it. Meeting an existing deadline for two consecutive years does not in and of itself mean that further shortening the deadline will be appropriate and could risk watering down standards. Such a ratcheting mechanism could also drive perverse behaviour, disincentivising the regulators meeting these deadlines to avoid further operational pressures. The Government’s view is that these amendments would prevent the exact outcome they are seeking to achieve.

On Amendment 109, I understand the concern that statutory deadlines are less meaningful if the FCA can repeatedly stop the clock and make rolling requests for information. The Government recognise the frustrations that firms feel when applications are paused or when they receive repeated requests for information. The noble Baroness, Lady Neville-Rolfe, asked about the proportionality of circumstances in which the FCA can indeed stop the clock. The FCA can stop the clock only in three specific circumstances under FSMA: for change of control, senior manager and appointed representative applications. This power allows the FCA fully to investigate issues that emerge only after an initial response has been received or where further clarification is needed on matters that were not reasonably identifiable at the outset. This is important for ensuring that robust standards are applied.

The Government think it is important that the regulators retain some flexibility to scrutinise senior manager applications properly. A rigid rule limiting the formal stop the clock power to a single occasion risks weakening the regulator’s ability to conduct proper scrutiny in more complex cases, which it does only on very few occasions when really necessary. It also risks encouraging broad, defensive and overly onerous initial information requests as the FCA seeks to adjust procedures to the new requirement, potentially making the process more onerous for all applications. However, I do not want to sound complacent: the Government will continue to engage with the regulators to ensure that they are processing applications as quickly as possible while maintaining standards and avoiding delays.

Lord Stockwood (Lab)

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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 applications there was no stop the clock and for 32% of cases the clock was stopped only once. Even when the FCA does use its stop the clock power, it continues to determine applications promptly. In Q4 of 2025-26, 50% of senior manager cases were determined within 19 days. As mentioned previously, 99% were determined within the new target of two months.

Lord Stockwood (Lab)

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I understand that the regulator does not have the power to increase deadlines without our consent.

Lord Stockwood (Lab)

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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.

Lord Stockwood (Lab)

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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 with the FCA, but imposing a statutory requirement on the Treasury to undertake such a review is disproportionate and not the right way to address them. As I committed to the noble Lord in our meeting prior to today, I will talk to the FCA about this and how it will ensure that this process is sped up.

I fully recognise the concerns that noble Lords have raised about delays, responsiveness and the need for an approvals regime that supports growth and competitiveness. The Government are actively addressing these through the shortening of a range of statutory deadlines in the Bill, in a way that is targeted, proportionate and will ensure competitiveness without compromising the rightly high regulatory standards that firms must meet to operate in the UK. I therefore ask the noble Baroness to withdraw Amendment 105.

Baroness Neville-Rolfe (Con)

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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 welcome the points raised by my noble friend Lord Holmes on all granular performance data. My noble friend Lord Howard of Rising has also raised the idea of a fast track for established senior managers, and I very much look forward to hearing the results of the Minister’s conversations with the FCA, and perhaps the PRA, on that. I am not that hopeful, and I encourage the Minister to press these issues. They matter a lot to the industry. I know, from planning and other areas that I have been involved in during my long career, that speeding things up can lead to very positive feedback. I hope the Minister will reflect further, but for now I beg leave to withdraw my amendment.

Lord Stockwood (Lab)

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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. For example, requiring the regulator to satisfy a threshold test before commissioning a review could limit the regulator’s ability to direct a skilled person to investigate a potential consumer harm and implement a mitigation strategy.

The data does not suggest that the use of skilled person reviews has grown over time. I reassure noble Lords that the FCA’s use of them has been broadly consistent over the past 10 years, with an average of 48.5 commissioned a year. However, in 2025-26, only 31 were commissioned, down from a high of 83 in 2023-24. This increase reflected the FCA’s strengthened oversight in key areas, including financial crime and appointed representatives and, despite the increase in volume, overall costs to firms remained flat.

Amendment 117 would create statutory disclosure requirements relating to Section 166 skilled person reviews. The FCA and the PRA already provide transparency by publishing data on the reviews they have commissioned in their annual reports.

Amendment 123 seeks to raise the bar for regulators requesting information for the firms they oversee. The Government recognise the impact that regulation and supervision can have on firms, and agree that regulators’ supervisory activities, including information requests, must not create disproportionate burdens on firms. That is why the Government have committed to cutting the administrative burden of regulation by 25% by the end of this Parliament. The financial services regulators are activity contributing to this agenda. For example, the PRA is deleting redundant and duplicative data collections—its future banking data programme has reduced costs to firms by around £26 million annually so far—and the FCA has stripped out data requests for 36,000 firms. All this has been done without detracting from consumer protections or systemwide resilience.

Through the Bill, the Government are taking action to reduce the burden of regulation on businesses. This includes reforms to the senior managers and certification regime, which will enable the regulators to reduce the regulatory burden of the regime by 50% while maintaining its strong and effective framework for individual accountability. Imposing prescriptive statutory requirements on how the regulators gather information risks undermining effective supervision, which might bring serious risks. Regulators must be able to respond quickly to emerging risks, and sometimes that means requesting information in ways that cannot be neatly anticipated by legislation.

The Government agree that proportionality is hugely important, that unnecessary burdens should be avoided and that the regulators must be held properly to account for how they exercise the significant powers given to them by Parliament. But there is no evidence that these amendments are needed to ensure proportionality. They would risk constraining the regulators’ ability to do their jobs effectively, which would introduce risks into our financial system. I therefore ask the noble Baroness to withdraw her amendment.

Lord Stockwood (Lab)

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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 set out here are already achieved as a result of normal principles of public law. For example, for the FCA to comply with its statutory requirement to establish and maintain a CBA panel with specified functions, it must ensure that its panel has the appropriate information and data to perform those functions. A further explicit provision is unnecessary.

Amendments 119 and 129 also seek to require the CBA panels to keep the cumulative impact of rules under review. The Government understand the motivation behind this: no single CBA tells the whole story of the regulatory burden facing firms. The PRA’s CBA panel has itself noted that measuring cumulative costs is inherently challenging and would require substantial industry input and resource; it would be subject to constant revision, given the pace of policy development. This could, perversely, add to burdens on firms, by requiring an extensive data-gathering exercise to understand the cumulative impact. Further, focusing exclusively on the cumulative costs could lead to discounting the benefits associated with certain regulations, whether they accrue to consumers, wider society or firms themselves.

The FCA is already making progress by reporting its cumulative regulatory impact through its secondary international competitiveness and growth objective metrics. These include the total value of the equivalent annual net direct cost to business across all CBAs for policy statements published each year and the aggregate benefits of its policy work. The PRA’s CBA panel is already helping the PRA identify where costs may be disproportionate and could be reduced, which is targeted and effective. The Government’s view is that the right response is for the FCA and the PRA to build on these early steps by working with their expert CBA panels to further understand and assess the cumulative impact of regulation, not to mandate the work of the panels through legislation.

Lord Stockwood (Lab)

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I will have to write to the noble Baroness, because that is a very detailed question.

Lord Stockwood (Lab)

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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 guidance being issued, undermining the regulators’ ability to respond quickly to market developments, risks or firm failures.

The CBA panels are a hugely valuable and still-developing part of our regulatory architecture. The right approach is to allow them to mature and to hold regulators publicly accountable for how they respond to input from the panels, rather than embedding a detailed operational rulebook in primary legislation that will be inflexible in the face of ever-evolving circumstances. I therefore ask the noble Baroness to withdraw her amendment.

Baroness Neville-Rolfe (Con)

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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 central question is therefore not whether banks should hold capital but whether the UK requires materially more capital than comparable jurisdictions without a clear and evidenced stability justification. If we do, we are placing the UK at a competitive disadvantage: we are constraining lending, increasing borrowing costs, making it harder for firms to access finance and weakening growth, and doing so in a way that may not be required by international standards or by the actual risk profile of the system.

The analysis behind our policy suggests that the UK capital framework may materially exceed international Basel III requirements and competitor regimes. It has been suggested that the resulting constraint on UK banks’ lending and financing capacity could amount to £250 billion across overlapping capital requirements and £200 billion across leverage ratio constraints. Of course, not every pound of capital released would automatically translate into new lending—we understand that. Some may be used for business investment, dividends, buybacks or balance-sheet strengthening. The key point remains that capital deployed productively in the economy is preferable to capital trapped by a regulatory framework that is more restrictive than it needs to be.

We appreciate that the Government recognise this issue and have moved a little on it already. They have made the bank resolution regime more flexible, allowing the Bank of England to reduce or remove MREL for some firms where the new FSCS recapitalisation mechanism can substitute for pre-positioned loss-absorbing resources. Our proposal is a step to unlocking a lot more capital. We already require the PRA, in some contexts, to have regard to the UK’s relative standing against competitor jurisdictions, but that duty is incomplete. It does not apply across the whole capital framework and, in particular, it does not fully capture Pillar 2A, the PRA buffer or systemic buffers. The FPC has produced useful comparative analysis, but there is not yet a binding requirement for regular, systematic benchmarking against competitor jurisdictions.

Our proposed review is also about transparency. If regulators believe that the UK should impose higher requirements than comparable regimes then Parliament, industry and the public should be able to see the analysis behind that decision. That is how we preserve independence while improving accountability.

The amendment is part of a wider argument. Prudential regulation must be understood not only through the lens of stability but through the lens of growth, lending, and competitiveness. A capital framework that is more demanding than necessary does not make the economy stronger. It may make it less dynamic, less competitive and less able to support households and businesses, especially SMEs and scale-ups. I speak from experience as a director at a responsible and careful challenger bank, where the UK capital rules were a significant constraint on what we could do. They also consumed a great deal of management and board time.

I would like the Government to accept that the UK should not impose capital requirements above equivalent international competitor regimes, especially if there is no financial stability justification for doing so. The first step is to undertake the necessary analysis. Ours is a serious and responsible policy. It preserves regulatory independence and protects financial stability but recognises that excessive or unjustified capital requirements carry real economic costs. If we want growth, competitiveness and banks to support businesses and homebuyers, then we need a capital framework that is robust but not overrestrictive. That is the balance that our policy seeks to strike. I look forward to the Minister’s response.

Lord Stockwood (Lab)

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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.

Lord Stockwood (Lab)

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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 balance. In December 2025, the Financial Policy Committee reassessed the optimal level of system-wide bank capital, reducing its benchmark from 14% to 13% of risk-weighted assets.

For these reasons, while I understand the objective, this amendment is unnecessary and risks undermining the clarity and credibility of the current regime. We will come back to this discussion over the coming weeks. I therefore ask the noble Baroness to withdraw her amendment.

Baroness Neville-Rolfe (Con)

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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 ability to remain one of the world’s leading financial centres. I want to make it clear that I and my party support the UK financial services sector. We want the UK to be the place where firms choose to invest, lend, innovate and grow. That is especially true for SMEs, which have been referenced in discussion.

I repeat that ours is a serious and responsible approach: it protects independence while strengthening accountability and preserving resilience. It recognises that unnecessary overcapitalisation can constrain productive activity in the wider UK economy. Given the objective of growth, which I think is shared across the political divide, we hope that there will be further consideration on what is the right way forward. For now, I beg leave to withdraw the amendment.

Baroness Neville-Rolfe (Con)

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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 provide continuous expert institutional scrutiny of the FCA’s and PRA’s operations. What is needed is a mechanism through which the regulators can be reviewed, tested and held to account.

The problem is that we have an accountability gap. My noble friend Lady Noakes, from her unique position as chair of the committee, has highlighted the scale of the task that it now faces, so we need an independent source of analysis and expertise. The amendments in this group provide a number of serious and compelling proposals for how that might be done.

The amendment in the name of the noble Baroness, Lady Bowles, would provide for periodic independent reviews of the regulators. A recurring independent health check of the FCA, the PRA and the relevant Bank of England functions could help Parliament understand whether the regulatory system is working as intended, whether burdens are proportionate, whether the regulators are engaging properly, and whether firms and consumers are being treated fairly. I thought we had a good example of the problem in the earlier discussion on Sections 165 and 166.

The amendments in the name of my noble friend Lord Bridges propose a more permanent structure: an office for financial regulatory accountability. This is a valuable suggestion. As I understand it, the office would assess the FCA’s and PRA’s overall performance against their statutory objectives and regulatory principles. It would also analyse impact assessments for specific pieces of financial regulation in order to determine how those regulations contribute to the regulators’ objectives. As my noble friend Lady Lawlor suggested, their reports could include individual precedents and examples to bring problems to light. That is the sort of scrutiny we need.

The two parliamentary committees would have an important locus in scrutinising the reports from the office, improving overall parliamentary accountability while not getting in the regulators’ hair in a way that they are not set up to do. The proposed arrangements would also allow Parliament to see not only what concerns have been identified, but how the regulators intend to respond to them. Significantly, the office would be required to prioritise the analysis of regulations which restrict domestic competition, reduce the United Kingdom’s international competitiveness in financial services, create new compliance costs or have a significant impact on business and individuals in the UK economy —an excellent objective. As we heard from my noble friend Lord Bridges, it would not interfere with operational independence.

The regulators have become powerful institutions. They make rules, issue guidance, set expectations, supervise firms, authorise market entry, influence conduct and shape the competitiveness of one of the most important parts of the UK economy. As we heard from my noble friend Lady Noakes’s committee, they suffer from a culture of risk aversion, fuelled by the current system. It is no longer enough simply to say that the existing accountability mechanisms are adequate. There is clearly a deficit in oversight and that deficit becomes more serious as more power is transferred from Parliament and primary legislation to regulators and rulebooks.

If the Government are asking Parliament to accept that shift, they must accept the need for stronger accountability. Essential parliamentary scrutiny has to trump deregulation. The challenge is set for the Minister and I hope he will provide the clarity that we really need—a request that was echoed by the noble Baroness, Lady Donaghy, who, in another bit of history, I served under very happily on the EU Services Sub-Committee.

Lord Stockwood (Lab)

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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. There is of course nothing to stop the Financial Services Regulation Committee from calling up the CEOs of the FCA and the PRA, or the Governor of the Bank, to discuss their performance as frequently as that committee desires. It is also difficult to see where the panel would get its legitimacy from, when the Government and Parliament are responsible for democratic oversight and accountability for the regulators—the regulators that Parliament has vested with the responsibility for regulation of our financial services sector.

It is the Government’s view that the existing avenues for accountability are appropriate and sufficient, and that Parliament has the authority to do this in a way that no other body could. If Parliament wants to enhance the scrutiny of the regulators, it must consider how best to do that.

Amendments 133 to 139—including Amendment 135A —would, taken together, create a new statutory body, the office for financial regulatory accountability, charged with examining and reporting on the performance of the FCA and the PRA, supported by a charter setting out the Treasury’s regulatory objectives, with full information access rights and funding drawn from the regulators themselves. Such a body would complicate the accountability framework in a way that could dilute individual responsibility and accountability, and create significant additional costs. As such, the Government cannot support the amendments.

Since this proposal was last made, during the debates on the Financial Services and Markets Bill in 2023, the landscape has changed materially. The Financial Services Regulation Committee of this House was established precisely to provide sustained, expert parliamentary scrutiny of the regulators, and it has done so with considerable rigour. In the other place, the Treasury Select Committee continues to hold the FCA and the PRA to regular account. These are active, resourced bodies with the standing and powers to interrogate regulatory performance in depth. More importantly, as parliamentary committees, they have the constitutional authority to scrutinise and opine on the effectiveness of our independent regulators.

Creating a new statutory office alongside these structures would fragment accountability, rather than strengthen it. There is a risk that the existence of a parallel body would blur the lines of responsibility and create confusion about where the authoritative scrutiny sits.

Lord Stockwood (Lab)

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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.

Lord Stockwood (Lab)

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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.

Baroness Neville-Rolfe (Con)

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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 minimising the overall regulatory burden on regulated persons. That burden is not only the direct cost of complying with a new rule; it includes administrative burdens, reporting requirements, the costs of delay and the disproportionate impact that regulation can have on smaller firms and new entrants. If the Treasury, the FCA or the PRA considered that an increase in burden were necessary, our amendment would require them to publish reasons and an assessment of the expected effects on growth, competition, innovation and market entry.

Regulation should be judged by its practical economic effects. Does it make it harder for firms to grow? Does it reduce competition? Does it deter new entrants? Does it slow innovation? Does it make the UK a less attractive place to do business? Those questions matter because financial services are an internationally competitive sector, as we keep emphasising. If we allow our regulatory environment to become too complex, too expensive and too slow, firms and capital will go elsewhere.

The Bill is presented as part of a wider effort to make our regulatory framework more competitive and more supportive of growth, which we support. Amendment 166 would help make that ambition real. It would require the Government and regulators to keep the burden of regulation in view and to justify increases where they consider them necessary. This sort of provision does not exist in this regulatory area, although we have had amendments of this kind in other areas, in my experience. I hope that the Minister will engage constructively with the amendments in this group.