Criminal Justice Act 1988 (Offensive Weapons) (Amendment, Surrender and Compensation) (England and Wales) Order 2025
(2 days, 21 hours ago)
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Lord Hanson of Flint
That the Grand Committee do consider the Criminal Justice Act 1988 (Offensive Weapons) (Amendment, Surrender and Compensation) (England and Wales) Order 2025.
Relevant document: 23rd Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
The Minister of State, Home Office (Lord Hanson of Flint) (Lab)
My Lords, the order before us seeks to add ninja swords to the list of prohibited offensive weapons by amending the Criminal Justice Act 1988 (Offensive Weapons) Order 1988 to include them. I will briefly set out the context for why the Government have brought the order forward. The Government have already taken robust action to introduce a ban on zombie-style knives and zombie-style machetes, which came into force last September. We are also strengthening enforcement and prevention as part of the Government’s safer streets mission, and there will be further new measures before the House of Lords very shortly in the Crime and Policing Bill, which is currently going through the House of Commons.
This legislation to ban ninja swords was a government manifesto commitment last July and responds to tireless campaigning by the family of Ronan Kanda, who was just 16 when he was fatally stabbed by a ninja sword in 2022. We are taking this action in honour of Ronan’s memory, but also in recognition of the remarkable courage and determination shown by his loved ones, led by his mother, Pooja Kanda, alongside her daughter, Nikita Kanda, and other family members. I take this opportunity to pay tribute to their family. I cannot imagine what it is like to suffer such a terrible loss, yet, having suffered that loss, they have gone on to campaign for changes that will make our society safer. For that, they have my admiration and respect and, I hope, that of the whole Committee.
Although there have been relatively few fatal attacks involving ninja swords compared with other bladed weapons, there is no doubt that such swords can be lethal. Under Section 141 of the Criminal Justice Act 1988, it is an offence to possess, import, manufacture, sell, hire, offer for sale or hire, expose, or possess for the purposes of sale or hire, a weapon specified in an order made under that section. Using the order-making powers in Section 141(2) of that Act, the Government now add ninja swords, through this order, to the list of prohibited offensive weapons to which Section 141 applies.
These weapons—ninja swords—are defined as a sword with a blade between 14 inches and 24 inches in length, with one straight cutting edge and a tanto-style point. The length the Government have chosen is in order to exclude knives and tools used for legitimate purposes, such as many kitchen knives and other types of knife. To be within the scope of the ban, the article will also have the features specified in paragraph 1A, namely that the sword will have a primary cutting edge, a secondary cutting edge and a blunt spine with either a tanto-style point or a reverse tanto-style point. These terms are further defined in detail in the legislation.
Although it is right that we take the strongest possible action to prevent violence and stop dangerous weapons getting into the wrong hands, we are not seeking to criminalise law-abiding citizens. We are confident that the definition of ninja swords does not include tools traditionally used in agriculture or other farming, gardening or outdoor activities. We have included in the legislation defences to cover a range of circumstances, including where the article in question is one of historical importance; is owned for a permitted activity, such as sports or legitimate martial arts practice; or is made by hand. Antiques are already exempted from the scope of Section 141 of the Criminal Justice Act 1988, so the order before the Committee is very specific and tightly defined.
I have a couple of further points to make. Parts 3 and 4 of the order provide for a surrender and compensation scheme, through which owners of the weapons in scope of the order will be able to surrender them. The order has a territorial scope of England and Wales only, but I very much hope that the local devolved Governments in Northern Ireland and Scotland will take similar action to ensure that ninja swords are prohibited across the United Kingdom. To that effect, Home Office officials are in discussion with the Governments in Northern Ireland and Scotland, but, obviously, that is a matter for them.
To conclude, the risk of these dangerous swords being used for crime and violence is not one that we are prepared to tolerate. The manifesto commitment, endorsed last year in the July general election, commits the Government to halving knife crime in a decade as part of our wider safer streets mission. Banning ninja swords is an important step towards this and towards removing weapons from circulation. I commend the order to the Committee.
Baroness Doocey (LD)
My Lords, we believe that this ban is proportionate and we support it. Sword-related deaths are rare but even one, such as the tragic loss of Ronan Kanda, is too many. I join the Minister in his admiration for the family and how they have behaved. However, for this ban to be truly effective, it must be robust and well implemented. I have a number of concerns; I would be grateful if the Minister could address them when he winds up.
First, if the people we most need to reach are not even aware of this ban or the surrender scheme, they are unlikely to have the desired impact. The Youth Endowment Fund says that this was a key failing of the previous scheme to ban zombie knives. Even some individuals working in this field were apparently unaware of the process. Clear and targeted communication is essential. Can the Minister outline how the Government will ensure that those who are the hardest to reach, who may not be easily identified or contacted, are made aware of these changes?
Secondly, I have a real concern that people surrendering zombie knives were asked to provide their personal details. Youth workers believe that this prevented many people coming forward, in particular those possessing weapons illegally, who already distrust the police completely. Will people be asked to provide their personal details this time?
Can the Minister clarify why the ban is limited to blades of up to 24 inches? Although most ninja swords are between 14 and 24 inches, knife enthusiasts are already bragging online that blades longer than 24 inches will remain legal. Was this intended to protect legitimate uses? From what the Minister said in his introduction, I assume that it was. If so, does the legitimate use exemption not already provide adequate protection? Is the Minister confident that criminals will not simply switch to longer blades to evade the law, which they seem to suggest online they would or should do?
I also want to ask about the exemption for fantasy swords. After the zombie knife ban, the BBC found that retailers were still selling them by claiming that they were for cosplay and could not cause harm unless modified. Is the Minister confident that this exemption will not create a similar loophole?
Furthermore, the legislation is narrowly drawn. The Home Office itself acknowledges that it may simply shift demand to other types of swords. It is unclear whether most swords used in recent homicides would even be covered by these new rules. What mechanism will be in place to review the effectiveness of this ban after it comes into force?
Finally, this law will make a difference only if it is enforced. The Clayman review suggests that the police currently lack the training, expertise and resources to police this effectively. Can the Minister provide information on how enforcement will be strengthened and what steps are being taken to improve police capability?
I would be grateful if the Minister would address these issues when he winds up.
Lord Lucas (Con)
My Lords, I join the Minister’s expressions of gratefulness towards the family of Ronan Kanda for the way that they have taken forward this campaign. I also thank the Minister and his Home Office team for the really careful way that the order has been drafted. They have considered thoroughly the representations made by members of the antique trade, collectors, historical re-enactment groups and martial art practitioners, when the easiest thing would have been to have a blanket ban on every straight-bladed sword. This would have criminalised people involved in land management, antique collecting, living history and sporting activities. I am therefore very grateful for the care and trouble that the Home Office team have taken.
I am confident that this definition is precise and specific to just these swords, but it is complex in nature and needs to be accompanied by illustrated guidance notes, as was done with zombie knives. A great deal of very well-informed amateur effort is available to help the Home Office compile these notes. Perhaps, given the enthusiasm in some bits of this Government for AI and the progress that they are making, we could equip each constable with an app on their phone that, based on the detailed knowledge that can be provided, the illustrations and other details, would enable instant identification—at least in principle—for police officers, who would not have to receive deep, separate training. Maybe there is something that we can do here to improve enforcement. There is so much complexity in this area that the idea that we are going to train constables in how to recognise whether a knife is within or without this legislation is not practical, but there are ways in which it can be done.
I am delighted that the Government have recognised the importance of historical items by including defences that are identically worded to those in previous legislation. The role of amateur collectors and people who are interested in preserving our history is really important at a time when museums are strapped for cash and resources. That being recognised and supported is enormously appreciated.
I hope that we will—well, I am sure that we will—have an opportunity when the Crime and Policing Bill comes through the House to consider extending this defence consistently across the entire area of historical weapons. There is a set of inconsistencies at the moment, particularly around World War II items, such as the sort of stuff that the SOE used—I declare an interest as someone who is descended from the political head of the SOE. It is really important that this aspect of our history is preserved. There will be an opportunity with that Bill—not, as I say, to extend the idea of the legislation but to extend its ambit—to make sure that what has been done in this order can be extended to weapons of historical significance generally.
Lord Davies of Gower (Con)
My Lords, I begin by making it clear that we support the order before the Committee. The use of offensive weapons, such as so-called ninja swords, in violent crime is a matter of profound concern, and we recognise the devastating circumstances that led to this legislative action. The tragic death of Ronan Kanda was a heartbreak that no family should have to experience. We pay tribute to his family’s dignified and determined campaign, and acknowledge the Government’s response in bringing forward this measure.
As the Minister outlined, the order makes it an offence to manufacture, sell, import or possess ninja swords, a specific category of bladed weapon characterised by their tanto-style points and multiple cutting edges. It also introduces a surrender and compensation scheme modelled on the previous amnesty for zombie knives and machetes. These are measured and proportionate steps, and we recognise the effort that has gone into ensuring that this is a targeted and carefully drafted order.
However, we must consider what else is necessary and required beyond this intervention if we are serious about tackling the wider and more complex challenge of knife crime. We must be clear about what the order can and cannot achieve. Banning a specific category of weapon, although entirely sensible, will not address the root cause of knife crime. Tragically, those intent on violence will find other means. We must not fall into the trap of believing that legislation alone—in particular, legislation focused on the design or appearance of a blade—can resolve a problem that is systemic and growing in scale.
Lord Hanson of Flint (Lab)
My Lords, I am grateful for noble Lords’ comments and broad support for the order. I will deal with the noble Lord, Lord Lucas, first before I take the comments from both the opposition Front Benches. I am grateful for the noble Lord’s support for the exemptions. As he said, the Government have worked hard to ensure that we target knives and materials that are used for criminal and dangerous purposes and not for business purposes, as historical artefacts or, indeed, for historical antique purposes. I welcome his comments on that.
The noble Lord will know that Ministers considered illustrated guidance on the type of knife that would be covered by the order. That will be a publicly available. He made an interesting point about how we give that to police officers in a form that is understandable by them. He mentioned the interesting concept of putting things on an app. We can always reflect on those things, but it is important that police officers know exactly what is in place and exactly what type of knife is covered by the order. I will take away his comments and examine them in detail.
I welcome the support of the noble Baroness, Lady Doocey, for the order. She asked a number of key questions. She asked how we deal with those who are hardest to reach. We have published guidance and made a public announcement in May that we are doing this. A number of bins will be placed in key locations across the United Kingdom for surrender of knives during the amnesty period, between 1 July and 1 August. We have also commissioned a mobile surrender van to go around certain key areas where we believe there has been a high prevalence of knife crime. However, she is right that we need to raise public awareness. It is already an offence to carry a knife in public, but there might be people who do not realise that and will not want to fall foul of the law.
The noble Baroness asked whether people surrendering knives would have to supply personal details. I assure her that nobody has to supply personal details if they surrender a knife. If they wish to have compensation for the knife that they are surrender then, self-evidently, we will need an address and bank details to process the compensation accordingly. If an individual wishes to turn up at a police station during the amnesty period and deposit the knife then they do not have to give their details should they not wish to, but, self-evidently, they do for compensation.
The definition of the knife that we have settled on—14 to 24 inches—is because that type of knife is most commonly used. There are larger knives, but crime with longer swords is extremely rare, and we have again tried to be proportionate in the legislation. We have determined that up to 24 inches is important, and the description of ninja swords in the legislation strikes the right balance between banning the type of ninja swords we have seen on the streets while protecting the interests that the noble Lord, Lord Lucas, mentioned in his contribution.
The noble Baroness mentioned retailers trying to circumvent the law by describing their knife in a different way. Once the order comes into effect and ninja swords are banned, selling them will be an offence. We are providing defences for sale of those items, such as historical significance, being antiques, agricultural use or business use—even, dare I say it, use for theatrical performances and the production of films and television programmes—but there is a clear defence. We believe that the order provides details of the offence if an individual sells a ninja knife and tries to pass it off as something else, or defines it as not a ninja knife. It will then be up to the police to arrest and the CPS to determine whether to prosecute, for prosecutions to go forward, and for the courts to determine whether that defence was appropriate. I go back to the basic first principle: once ninja swords are banned, selling them will be an offence. I hope that reassures her.
The noble Baroness mentioned whether banning this type of weapon would transfer activity to other types of weapons. These are stark and terrible figures, but it may help to say that between April 2023 and April 2024, 262 people were killed as a result of the type of activity that we have been talking about. Kitchen knives were the bladed item that caused the highest number of homicides, with 109 people dying as a result of them. Only four people were killed with zombie knives in that year; 18 were killed with machetes, six with flick-knives, five with hunting knives, 48 with other knives, four with other sharp instruments, one with an axe, and 13 with Rambo-style military knives. A range of knives are already used. I will come on to the points that the noble Lord, Lord Davies, made in a moment, but we are trying to put some energy into the zombie knife ban following the very important campaign by Ronan’s family. Obviously, kitchen knives are domestic knives that are used for domestic purposes, and that is very difficult to address accordingly.
The other point that the noble Baroness made was around police training, expertise and resources. It is already an offence to carry a knife in public, and the police can enforce the legislation in this area. The order makes it an offence to possess a ninja sword in private. The police are not going to go knocking on every door in the United Kingdom saying, “Have you got a ninja sword?”, but if there is a police intervention into a property about another matter then possession of a ninja sword in that property might well be an example of where that offence is taken forward. It might well be that the police enter the property of an individual whom they believe might have been seen on a street carrying a sword, and then find the sword. However, this is about possession of a ninja sword in private, predominantly, because carrying that weapon in public is already an offence. I hope that helps the noble Baroness.
I welcome the support for the order by the noble Lord, Lord Davies. He is absolutely right that it is proportionate and reasonable. He is also right that we need to look at the wider issue of knife crime as a whole in the community at large. He asked about the resources we have put in. Neighbourhood policing is a great investment by this Labour Government, who will put an extra £1 billion into policing as a whole this year. We anticipate increasing the number of neighbourhood police to 3,000 this year and, we hope, to 12,000 to 13,000 by the end of this Parliament. Neighbourhood police are, basically, community-based police officers who will be able to pick up intelligence, know their community, work closely with other individuals and, I hope, look at where there are pressures on knife crime to find collective solutions with other agencies, including youth support.
The Government are investing in youth hubs, which are one of our manifesto commitments. We have set up a coalition to tackle knife crime, on which we will work with a number of experts in this area, including youth organisations. In particular, the Young Futures programme is a key part of our mission to keep our streets safe. The noble Lord raises important issues. The Government have emerging and current plans to put additional investment into youth work. In particular, the knife-enabled robbery task force that we established will look at some of the root causes of knife crime. Ultimately, we have to tackle the long-term culture of younger people, in particular, carrying knives as a matter of course. Death sometimes arises through people carrying knives as a mechanism of defence, when all it ends up doing is causing attacks against themselves.
I hope, with those comments, that the Committee will be able to approve the order. It is a useful addition to the potential activities that government and police forces can undertake to prevent knife crime, and I commend it to the Committee.
Motion agreed.
National Security Act 2023 (Foreign Activities and Foreign Influence Registration Scheme: Exemptions for Certain Foreign Power Investment Funds, Education, Government Administration and Public Bodies) Regulations 2025
(2 days, 21 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Hanson of Flint
That the Grand Committee do consider the National Security Act 2023 (Foreign Activities and Foreign Influence Registration Scheme: Exemptions for Certain Foreign Power Investment Funds, Education, Government Administration and Public Bodies) Regulations 2025.
Relevant document: 23rd Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
The Minister of State, Home Office (Lord Hanson of Flint) (Lab)
My Lords, I am grateful to the Committee for allowing us to debate the four regulations relating to the foreign influence registration scheme as a single unit, but if noble Lords wish to discuss individual matters relating to them then we can do so. I know that, before I came to this House, noble Lords were instrumental in scrutinising and improving the foreign influence registration scheme during the passage of the National Security Act, and I am grateful for their consideration to date. There are four instruments to cover; I hope I can speak to them for possibly a little bit longer than I might normally have done just to outline where we are.
Noble Lords will know that, on 1 April, the Government announced the foreign influence registration scheme—FIRS, as I will call it—which I can confirm will go live on 1 July 2025. The Government also announced recently that Russia would join Iran on the enhanced tier of the scheme. FIRS, as set out in Part 4 of the National Security Act 2023, will serve as a critical tool in our efforts to deter and disrupt hostile state activity. It will also enhance transparency around the influence exerted by foreign powers in our democratic process.
As noble Lords will know, the scheme is underpinned by three principal objectives. The first is transparency. The scheme will require individuals who undertake certain activities on behalf of foreign powers to declare them. Where such activities constitute political influence, the relevant details will be published on a public register, ensuring openness and accountability.
The second objective is deterrence. The scheme requires those engaged in malign activities for foreign powers either to cease such contact or to register it formally with the Government.
The final objective is disruption. Failure to disclose relevant associations with foreign powers is an offence. This will be enforced by law enforcement, which can take decisive action against those who seek to conceal foreign state involvement. I hope that that broad principle is welcomed by the Committee; I know that it is.
I turn to the four instruments before us. First, on Russia and Iran, the first two sets of regulations specify the entirety of the Iranian and Russian states on the enhanced tier of the scheme. This means, for Iran, the Supreme Leader; the whole of the Government, including the Islamic Revolutionary Guard Corps; the Islamic Consultative Assembly of Iran; and the judiciary of Iran. For Russia, this includes the President of Russia; Cabinet Ministers; government ministries; regional Governments; the judiciary; and the legislature.
As my colleague, Dan Jarvis, the Minister for Security, set out in a Statement to the House of Commons:
“The Iranian regime is targeting dissidents, and media organisations and journalists reporting on the regime’s violent oppression. It is also no secret that there is a long-standing pattern of the Iranian intelligence services targeting Jewish and Israeli people internationally”.—[Official Report, Commons, 4/3/25; col. 195.]
As noble Lords will know, Russia poses an acute threat to UK security. In recent years, its hostile acts have included the deadly nerve agent attack that we witnessed in Salisbury, espionage, arson, and cyberattacks, including the targeting of UK parliamentarians through spear phishing campaigns.
Specifying Russia and Iran on the enhanced tier will mean that anyone acting at their direction in the United Kingdom will face a choice: either they declare their activities to the UK Government or they risk five years’ imprisonment. That choice is down to them from the beginning of the scheme on 1 July. Both sets of regulations include a statutory five-year review period and a grace period for those who are in ongoing arrangements at the point of the scheme coming into force in order to allow them to register arrangements without there being a need to impact on legitimate activities.
We have also set a number of exemptions in the scheme. This set of regulations introduces four new exemptions to the scheme. These exemptions, which sit alongside those already set out in primary legislation, are designed to uphold the principle of proportionality. They reduce the burden of registering routine or already transparent activities while ensuring that the scheme remains focused on addressing genuine risks. For example, these regulations include an exemption from the political influence tier of the scheme for a foreign power investment fund; this is intended to cover sovereign wealth funds and certain public pension funds.
Then there are three exemptions from the enhanced tier. First, there is an exemption for funded study arrangements, such as scholarships awarded by foreign Governments. Secondly, there is an exemption for activities related to government administrative and technical services, such as those concerning nationality, immigration and tax-related services. Thirdly, there is an exemption for public bodies and arrangements to which they are party.
Each of these exemptions has been carefully and narrowly defined to prevent the creation of loopholes that could be exploited for malign purposes. For example, a student from Russia or Iran on a government-funded scholarship would be exempt only in relation to activities directly connected to their course of study. Any other activity undertaken on behalf of those states would still require registration.
The final set of regulations concerns the operation of the public register, and I will talk a little now about publication. In my view, that is central to delivering the scheme’s transparency objectives. The regulations set out the categories of information that will be published on the register. They are carefully limited to what is necessary to fulfil the scheme’s transparency aims, while ensuring appropriate safeguards for individual privacy. By default, registrations relating to political influence activities will appear on the public register. Where activities extend beyond political influence, they are registered on the enhanced tier and will not be published. It is important to emphasise that individuals and organisations that register under the scheme, and whose details appear on the public register, are acting responsibly and in support of transparency.
The regulations also set out the information that may not appear on the register where it has been demonstrated that publication would be prejudicial to the safety or interests of the UK, or to the prevention of crime, a criminal investigation or criminal proceedings; where it would put an individual’s safety at risk; or where it could result in the disclosure of commercially sensitive information.
Lastly, the regulations also provide for information to remain on the public register for a period of 10 years following the conclusion of the relevant activity. This retention period is particularly important for identifying long-term trends and patterns in foreign influence.
There is legitimate activity, of course, and I want to be clear that the scheme does not seek to deter that legitimate activity. Registering with the scheme does not mean that an individual is doing anything wrong, nor that they must cease their activities. We are also taking steps to ensure that registration remains as straightforward and simple as possible, and that those affected by the scheme are aware of what they need to do to comply.
To conclude—I apologise for giving great detail on the four instruments before the Committee—self-evidently, the first duty of the Government is to keep our country safe; I know that view is shared across the Committee. That is why the Prime Minister placed national security at the heart of his plan for change. It is also why we are supporting the police and intelligence services to confront and combat the threats we face, including those from foreign states. The measures before us are among our decisive steps to bring into force the foreign influence registration scheme. I look forward to comments and questions from noble Lords, and I commend the regulations to the Committee.
Viscount Stansgate (Lab)
My Lords, I will not detain the Committee for long. I am in favour of the foreign influence registration scheme and I well remember when the Act went through the House in 2023. I support the transparency that my noble friend the Minister talked about, and I hope that this works. I echo what my noble friend said towards the end of his remarks, which is that registration in itself does not mean that someone is doing something wrong, but it will be part and parcel of what we hope will be a successful series of measures in support of the Act.
I will raise a few items in the order in which they are laid before us, which is not quite the order in which my noble friend took us through them. The first relates to the exemptions for certain foreign power investment funds and so on. I understand—my noble friend made this point—that the exemptions are designed to ensure proportionality by reducing the amount of routine activity required. I am all in favour of increasing the transparency of foreign-power influence over UK democracy.
I refer to Regulation 3 which exempts financial arrangements to provide financial support to students in FE and HE. It says and uses the phrase
“where foreign powers give directions to the student or to the education provider”.
I hope my noble friend will not mind if I ask exactly what that phrase means.
The National Security Act 2023 (Foreign Activities and Foreign Influence Registration Scheme: Publication) Regulations 2025 are very important. I do not know how big a website we will end up with. Regulation 3 provides a whole series of exemptions. They seem to add up to quite a lot and made me wonder whether we might end up with so much of the information being exempt that it might not yield very much. What is the procedure for the Secretary of State to exercise one or more of these exemptions under Regulation 3 of that SI?
On the regulations on Iran, I entirely understand—and this goes with the regulations on Russia—why Parts 1 and 2 cover the areas of official and government organisations and so on. In relation to the impact on businesses, charities and smaller micro-businesses, which the Explanatory Memorandum acknowledges will be the case, there are figures given about how long it will take to register—it is only £9.67 and so on. The draft impact assessment states that:
“Registrations are likely to be completed by an employee in a Human Resources or legal compliance department”.
Forgive me, but it seems that many micro-businesses do not have human resources or legal service operatives, so can my noble friend tell us whether that might prove to be a problem?
On the last regulations, those in relation to Russia, the Explanatory Memorandum states:
“Without this instrument, it would only be necessary for people acting at the direction of Russia to conduct political influence activity in the UK to register with FIRS”.
That would not be enough. What in these regulations might be helpful in relation to the daily cyberattacks conducted on the UK? We have reason to believe that they emanate from hostile actors that might be based in Russia or acting on behalf of a hostile state.
Finally, this is not in any of the regulations in this group, but I noticed the Secondary Legislation Scrutiny Committee has asked—and I ask now—why, at the moment, has China not been the subject of this SI process? Can the Minister give some idea of the Government’s thinking at the moment about whether China might in future, and, if so, when, come within the purview of the operation of the Act that we are discussing and the regulations that seek to give it effect?
Lord Cryer (Lab)
My Lords, I am very grateful to the Minister for bringing these SIs to the Grand Committee. Like my noble friend, I shall speak briefly about one or two points, in my case, specifically about Iran and the provisions that apply to Iran and, more specifically, about the effectiveness of the Islamic Revolutionary Guard Corps, which has developed a notorious reputation over the past 30 or 40 years. It came along with the revolution in 1979 and has established itself as an arm of the Iranian state since then.
I particularly want to talk about Iran for one reason: Iran is probably the only significant world power that is effectively run by clerical fascists. I cannot think of a parallel country. It is a state that uses proxies all over the world. We all know about Hamas and Hezbollah, but there are other proxies, and this has been covered extensively in the mainstream press. The IRGC uses criminal gangs to further its aims in this country and other countries across Europe and the world.
I have two questions for the Minister. Can he confirm that anybody who does not register a relationship with the Iranian state, who fails to register an interest or a connection, will be committing a criminal act and be subject to criminal prosecution? Does that also apply to anybody who has a clear relationship with an IRGC or Iranian state proxy, for instance Hezbollah or Hamas?
Would that also apply to others? For instance, there have been parliamentarians in the past—I hope that there are none now, but there probably are—who have accepted money from PressTV. They will have to register that in the normal way, but do they also have to register it under the provisions of the statutory instruments that we are talking about today?
Lord Purvis of Tweed (LD)
My Lords, it is a pleasure to follow the noble Lord, Lord Cryer. I have a high level of sympathy with the points that he raised. Indeed, when we discussed the Iran sanctions regime in Grand Committee, many of those arguments were made and made powerfully. I hope that the Minister will respond to that specific point. I also associate myself with the questions asked by the noble Viscount, Lord Stansgate. I want to expand on a couple of them and ask some further supplementary questions.
First, I thank the Minister for outlining in clear terms the instruments. There are areas where I agree with him very strongly. The FIR scheme, which was passed as a result of considerable cross-party work, is one that I and my party support. As a veteran of each stage of that Bill, now Act, and all of the discussions there, I am very pleased that the Government are now in a position to bring this scheme into effect. It is an important measure. I thank the officials for their work in putting it together because its importance will rely on the fact that it is both reliable and enforceable; it therefore has to be right. I know that there has previously been some debate around the speed at which the Government are doing it but, from my point of view, it was always about getting it right.
On implementation, it is interesting to see these measures. I will ask a couple of questions relating to them. As the Minister indicated, we previously discussed in the Chamber the announcement that Iran and Russia and their state entities are to be on the first enhanced tier list. I will come to China in a moment. I am content on the publication of information under Sections 65, 68 and 70, as these regulations state, but can the Minister say a bit more about how searchable they will be and how easily accessible they will be on GOV.UK? I know that there will be an online portal. Can the Minister say a little more about that? The value of them will be in how transparent and accessible they are, rather than just being available online, but that is a minor consideration.
I now want to ask a couple of questions with regards to publication. The regulations state that, in terms of one of the exemptions from publication, the Secretary of State will be able to make a decision if a person will have information published about them that is likely to be seriously prejudicial to commercial interests. I would suspect that anybody who does not wish their information to be published, even if they have to do so under threat of prosecution, will state that that information is prejudicial to their commercial interests.
I hope that the Minister is able to say that that is an extremely high bar and it will be very hard to litigate, because what I want to see avoided is anybody who is in a position of seeking to hide the information, having been forced to register it, then having a whole phalanx of lawyers to state what the commercial interests may well be. That will drive a coach and horses through the principle of the transparency of this. I hope the Minister can reassure me on that point.
I will come back to some of the aspects of the exemptions in a moment, but first, on Iran, I am satisfied, as I said in the Chamber in response to the Statement. I hope that the Minister will take very seriously the points raised in the Chamber. It was referenced in the impact assessment of the regulations:
“Iran may introduce reciprocal measures to monitor the overseas activities of the UK government. Persons could be prosecuted if engaged in unregistered arrangements or activity, even if the activity itself is legitimate. There is a potential risk of discrimination and exclusion against the diaspora of Iranians living in the UK”.
What proactive work is being done, given that the Home Office has recognised that there may well be a threat to the diaspora within the UK? How has that community been contacted in advance of the scheme being put into operation, given the fact that the risk has already been identified? I hope that the Government are doing this, because we have already seen—as the Minister is well aware, and as we debated in the Chamber—the reach of the Iranian regime within the UK and the threat to those who have sought asylum from it.
The same will apply to Russia: the same risk assessment was provided for Russia, of course. I should state that I have a slight interest when discussing Russia and Russian sanctions, given that I have been sanctioned. I appreciate that the guidance is being issued, but can the Minister confirm that, for the bodies listed in the regulations, any commercial or legal entities in the UK that are providing services for these entities will equally come under the remit of the Part 1 and 2 bodies in the legislation? There should be no loopholes for UK-based entities providing services for those entities because, as we know, Russia and Iran are expert at seeking to circumvent arrangements that the UK puts in place.
I noticed that the impact assessment, under “Rationale for intervention”, mentions
“certain academic and research activities which are directed by the government of Iran”,
and it is similar for Russia. That leads me on to the exemptions. The Government have identified that “academic and research activities” are a tool that is being used, and they are now bringing forward an exemption for them. I do not understand this, and I hope the Minister can say in very clear terms the rationale behind exempting exactly those areas of activity which the rationale in the regulations cites as reasons for their being brought in. I hope that we will be able to have a bit more clarity when it comes to the exemptions. It is important because we know that these very areas, which include academia, research and the use of sovereign funds, and those that are facilitating the investment and advice of those sovereign funds, are exactly the instruments by which we have seen attempted foreign interference. The area where we have seen that on “an epic scale” is from China.
That leads me to the point that the noble Viscount, Lord Stansgate, indicated with regard to China. This week, we have been debating the Government’s strategic defence review. It starts with reference to China supporting the Russian war of aggression on Ukraine. We know that the director-general and the former director-general of MI5 have referred on the record to the enormous efforts that the CCP and the Chinese Government have deployed with regard to espionage and attempted espionage in the UK. In October 2023, the director-general went public and said that more than 20,000 people in the UK had been approached covertly by Chinese spies. We know that that pace has accelerated since then, but the Government do not believe it is warranted for China state enterprises or state entities to register their activities under the enhanced tier.
The noble Viscount quite rightly quoted the Secondary Legislation Committee of this House, which drew to our attention the threat posed by China, and the Home Office’s response as to why China is not on the enhanced tier list. The Secondary Legislation Scrutiny Committee quoted the Home Office saying, and this may be in the Minister’s notes:
“Countries are considered separately for specification on the enhanced tier and decisions are made based on a robust evidence base”.
I have not seen any evidence base published by the Government as to why China would not be on an enhanced tier, given the “epic scale” of its attempts not only to subvert our institutions but to co-opt them to act in espionage. The director-general of MI5 gave examples of more than 20 instances where China was actively seeking to use UK companies and universities, through investments and learning agreements, to access sensitive information and technology. The Government are proposing to exempt those exact areas from these measures, and I do not know why.
The Minister also referenced the exemption of sovereign wealth funds. This piqued my interest, because I raised this during the passage of Bill. I raised it in January 2023 when I specifically cited the
“sovereign wealth fund of a state, which might or might not be listed on a stock exchange and which may or may not, in effect, be a private sector arm of the interests of a foreign power”.—[Official Report, 11/1/23; col. 1476.]
I sought clarification from the Minister in the previous Government with regard to that, and I was told that sovereign wealth funds would be within the scope of this legislation. I just cannot understand why this Government have changed the assurance that I received from the previous Government, so that sovereign wealth funds will no longer be part of this. The deployment and the investment of sovereign wealth funds and pension funds in key UK infrastructure is of course something that we should focus on, whether or not it is part of the information to be published. I hope very much that Chinese investment, sovereign wealth funds and pension funds, and also the lack of published information for those who will claim some form of commercial sensitivity, will not be used to circumvent what we worked very hard to achieve, which is to prevent the kind of interference that the Government have said they are concerned about. I hope that before we are asked to support these regulations in the Chamber, we are given very clear reassurances, so that my concerns can be assuaged.
Lord Davies of Gower (Con)
My Lords, these four draft regulations represent the next step in operationalising the foreign influence registration scheme established under Part 4 of the National Security Act 2023, a piece of legislation introduced by the previous Conservative Government. I am sure that the Minister will be pleased to hear that we support these instruments. They provide essential tools better to protect our national security from covert foreign influence, a matter of the utmost importance.
As the Minister explained, the regulations are designed to enhance transparency, deter malign activity and enable earlier disruption of potentially harmful arrangements directed by hostile states. In an increasingly complex and contested geopolitical environment, this is both necessary and timely.
Lord Purvis of Tweed (LD)
The noble Lord has obviously made a decision that, even though China is not on the enhanced tier, Confucius institutions, Chinese pension funds and Chinese state funds will now be exempted. I assume that the Conservatives support that.
Lord Davies of Gower (Con)
Indeed—I think I will cover that point as I go along.
Although we support the intent and scope of these measures, scrutiny must not end there. These regulations are not purely technical instruments; they go to the heart of how the UK responds to evolving and increasingly sophisticated state threats. It is in that spirit that I raise three points.
First, the omission of China from the enhanced tier is quite simply a glaring absence. There is now consistent cross-party consensus, reflected in previous debates in both Houses and across the intelligence community, that China poses a systemic and strategic challenge to the United Kingdom. China has targeted Members of this Parliament, launched cyberattacks on UK institutions and engaged in covert activity on British soil. In 2021, it sanctioned two Members of this House and, in 2024, the Government publicly attributed malicious cyber campaigns against MPs and the Electoral Commission to the Chinese state. These are not isolated incidents; they are part of a wider sustained pattern. Given this record, it is difficult to understand why China has not yet been put under the enhanced tier of this scheme.
The Government have stated that they do not comment on individual countries, and that designations are made on a case-by-case basis. However, this is not about speculation but about providing clarity and strategic coherence in our approach to national security. The public and Parliament are entitled to understand the rationale behind such decisions, particularly when the state in question has been repeatedly named by the intelligence community as a principal source of hostile activity. Indeed, the Home Office’s own professional guidance lists Russia, Iran and China as the foremost state-based threats. The director-general of MI5 has echoed this view, as has already been said this afternoon. So why the inconsistency? What message does it send, either to those carrying out covert activities or to our international partners, when a state widely recognised as a threat is excluded from a scheme specifically designed to counter exactly this kind of behaviour? I therefore urge the Government to reconsider this decision, or at the very least to provide a clearer public explanation of their current position.
On enforcement and oversight, effective implementation is vital and registration requirements must be communicated clearly. Guidance must be accessible, and enforcement must be proportionate and consistent across sectors and regions. Can the Minister confirm that the necessary resources are in place to support enforcement, and that compliance will be monitored in a structured and transparent manner? We note that Section 82 of the National Security Act 2023 requires the Secretary of State to publish an annual report on the scheme’s operation, which is welcome, but can the Minister confirm whether that report will include an assessment of the effectiveness of the current exemptions, and whether further exemptions or additional country designations are under active consideration?
Finally, although this scheme is a welcome development, we must acknowledge that it is only one part of a much broader challenge. Hostile states are adapting constantly. Disinformation, cyber interference, economic coercion and influence operations now span multiple domains. Responding effectively demands not just new legal frameworks but a whole of government approach, with sustained investment in resilience, cross-sectoral co-ordination and continued international alignment.
In conclusion, we support these measures, which are necessary, appropriate and overdue, but they must be implemented in a manner that is robust, proportionate and responsive to the evolving nature of state threats—not just today but in the years ahead. We remain concerned about the exclusion of China from the enhanced tier. We urge the Government to keep this matter under close and continuous review, and to act with greater transparency about the strategic direction of our national security posture.
Lord Hanson of Flint (Lab)
My Lords, I am grateful both to the contributors to this short debate and for the broad support that has been given for the regulations before the Committee. I will try to answer each noble Lord in turn. There might be a bit of overlap, because some of the issues that have been raised do overlap, but I will try to cover the points raised by each noble Lord in turn.
I shall start with my noble friend Lord Stansgate, who mentioned cyber and cyberattacks. I assure him that the security services, the agencies, the Home Office and the UK Government are acutely aware of hostile states potentially undertaking attacks, and of criminal gangs doing the same. Significant work, which my noble friend would not expect me to talk about in public, is ongoing to ensure the safety and security of our citizens. I give him that assurance as a whole.
My noble friend asked in particular about the exemptions for students and the impact on small businesses or small organisations. I will take the latter first. The registration process is designed to be as simple as possible—this touches on a point mentioned by the noble Lord, Lord Davies. The Home Office anticipates that the process should take a maximum of 30 minutes. We are not expecting small businesses or micro-businesses to register in large numbers if they are in direct relationships with foreign powers, but—again, this goes to a point made by a number of noble Lords—there is comprehensive guidance online to support the registrant and their process, and to support individuals and larger organisations. The proof of the pudding will be in the eating, self-evidently, but we are confident that that will be a relatively simple process from 1 July onwards. Again, I put out the hand of friendship to all noble Lords: if there is feedback downstream on how the scheme operates, from any perspective that is brought to their attention, we would welcome it.
My noble friend Lord Stansgate also asked for clarification on the education exemption. Where someone is in an arrangement with a foreign power and is completing a course in further study, they do not necessarily need to register activities, but it is reasonable to complete the course of education; to uphold the reputation of the provider; to meet the standards of conduct expected by the providers of financial assistance; and to notify any person of personal information. Again, I hope that that is helpful.
My noble friend Lord Stansgate and the noble Lords, Lord Purvis of Tweed and Lord Davies of Gower, mentioned China. I may as well hit that point and discuss it at this time. I think that they all know the answer to the question they asked, but I will give it in the phraseology I have to use. Each country is considered on its merits and no decisions have been made. Countries are considered separately for specification and decisions are made on evidence.
On China more broadly, we have been clear as a Government that we are going to take a consistent, long-term, strategic approach to managing the UK’s relations with China. This means co-operating where we can, competing where we need to and challenging robustly where we must, including on areas of national security. However, each country is considered on its merits and no decisions have been made. The regulations before the Committee highlight two specific nations where we believe there is a significant threat—Russia and Iran—which is why we have brought them forward. I hope that helps my noble friend Lord Stansgate on his points.
I am pleased to see my noble friend Lord Cryer continuing his long interest in issues related to Iran. I know that he has raised this in the Chamber on a number of occasions. He asked what happens if there is a failure to register. That will be a criminal offence in the event of an individual’s activities coming to light linked to a registered nation under the regulations before us today and will carry a potential penalty of five years’ imprisonment. That is not for me to judge. That is for the courts to judge and the police to prosecute, but that is certainly part of this issue today.
My noble friend mentioned in particular the impact on parliamentarians. There is no requirement for parliamentarians who are being lobbied to register with the scheme, and that allows the democratic process to continue. He commented on proscription and mentioned Hamas. Hamas is not specified. The regulations would cover anyone in a relationship with the IRGC in Iran but, as ever, for any organisation, at any time, the Government keep under review the question of proscription. At the moment, this is where we are, but we keep everything under review at all times accordingly. As my noble friend will know, the arrests on 17 May of three Iranian nationals who have been charged with offences under the National Security Act show that the Government are consistent. That matter will go before the courts and be determined by the judiciary in due course.
My noble friend also mentioned proxies. Although I have touched on this, I think it is important that I say that it is the person who is in a relationship with the foreign power who has to register. Therefore, those who are proxies are within the scheme, for example, companies acting under the direction of the Russians or the Iranians. If the proxy is not registered, then the person in the UK acting on their behalf could well be committing an offence. Again, it is our intention to ensure that we act in the interests of national security and of the United Kingdom as a whole.
The noble Lord, Lord Purvis, raised a number of points. Again, I am grateful for his broad support and thank him for that support to date and in getting the legislation in this House in the past. He mentioned commercial interests and asked whether this is a high bar. Let me, I hope, reassure him that the Government’s intention is that it should be a high bar. UK companies providing services to bodies listed will have to register. The exemptions are carefully crafted to ensure that what is out of scope is as narrow as possible, while still fulfilling the scheme’s aim. We have put in place exemptions on sovereign wealth funds, which he talked about. The exemption for sovereign wealth funds is not about prioritising growth over national security as national security remains the first priority of Government, but about ensuring that the scheme remains proportionate. The link between a sovereign wealth fund and a foreign power is inherently transparent, so requiring them to register with the scheme would bring very limited benefits. I hope that answers his point.
Lord Purvis of Tweed (LD)
I am grateful to the Minister. On one hand I can understand it, on the other hand, I just disagree with him, respectfully. Sovereign wealth funds are not just one thing that is obvious to see. Sovereign wealth funds can be extraordinarily broad in their scope, their legal complexity and their financial instruments, which can be spread across a number of different jurisdictions. That is why they are used by state entities. We seek to have good relationships with some, because we want them to invest in the UK, but others are used for the very reason of their complexities. I just do not understand the rationale of the Government to have a blanket exemption for any fund that is principally owned by a sovereign Government. That is notwithstanding the further dilution of the share capital that the Government are now proposing, from 25% to 100%. I do not understand the rationale for this.
Lord Hanson of Flint (Lab)
Well, we may end up having an honest disagreement, and that is fair. That is what politics is about; sometimes we do not necessarily agree. The exemptions that the Government have brought forward today match the exemptions contained in the primary legislation. They include routine diplomatic activity, recognised news publishers and legal activities carried out by lawyers. These were the exemptions introduced through the regulations being debated today. They ensure, we think, that the scheme’s requirements remain proportionate to the threats that we face. We have been very public about those threats in this debate, in the House of Commons and in the regulations.
Viscount Stansgate (Lab)
On the subject of exceptions, in Regulation 6 of the statutory instrument on publication, for example, how is Parliament going to know the extent of the exemptions that have been granted? On the face of it, we will not know.
Lord Hanson of Flint (Lab)
If my noble friend allows me a moment’s reflection on that detail, I will respond to him with a fuller, meaningful reply. I believe that we are going to be transparent in all of this. The whole purpose of these regulations is to provide transparency and ensure that we tackle national security and give proportionate responses. Colleagues and I will reflect on the point he has made and I will respond to him in detail if I can.
Lord Purvis of Tweed (LD)
This is our only opportunity to debate this in detail—by the way, I do not detract from the Minister’s intent at all. I have two questions. First, forgive my ignorance, but do the exemptions also apply—
Lord Hanson of Flint (Lab)
I have not quite finished my responses to the noble Lord yet.
Lord Purvis of Tweed (LD)
Well, does he wish to do that now? I will then be able to ask him the question about it. Do the exemptions apply to the enhanced-tier activities too? The policy rationale in the Explanatory Memorandum cites academia and economic activity, and the Government are proposing to exempt those. My second point was that, if he wanted to write to the noble Viscount and myself in advance of us being asked to approve these in the Chamber, that would be of benefit.
Lord Hanson of Flint (Lab)
I am trying to explain to my noble friend and to the noble Lord, Lord Purvis of Tweed, that we have put exemptions in. I have explained in my opening speech what those exemptions are and have indicated that they are meant to be designed to be proportionate. If there are points that the noble Lord and my noble friend wish to press further, I will try to answer those today, but I have just indicated that I will reflect on those to see whether I can give further guidance prior to the end of this contribution. If we are not able to do that, then I will ensure that, before this is brought before the House on Monday or Tuesday next week—whichever day the final regulations are presented—we will have clarification on those points in the hands of my noble friend and the noble Lord, Lord Purvis. I am trying, as ever, to be helpful.
The noble Lord also asked the question about how accessible public registration will be. Information on only the political tier will be published. It will be accessible via an online register, which will be linked to the registration portal. It will be on GOV.UK, and there will be filters to support those searching.
Again, I say to the noble Lord that the purpose of that transparency, and the whole purpose of these regulations, is to ensure that the Government register concerns on areas of international security, look at where that registration and influence is and flush out that influence in terms of individuals who are currently operating potentially in a covert way but will, in future, have to register, with the details published online. If they are not registered and are subsequently found to be operating, they will have to face the force of the law in the courts on those issues.
The noble Lord also asked who decides and who polices the exemptions. That is a broad area of concern for him, I think. The exemptions have been set out in the regulations that we have laid. If an individual does not meet the exemption criteria, they must register their arrangement with Iran or Russia. If they do not register that arrangement, they will commit a criminal offence. There are existing measures to address risks associated with international students as a whole.
On the question from the noble Lord, Lord Purvis, about the exemptions applying to the enhanced tier, there will be an annual report that will set out the exemptions under regulation. There will be different exemptions according to each tier. When I look later today at Hansard—which is always helpful to Ministers—I will reflect on what has been said by my noble friend and the noble Lord, Lord Purvis of Tweed, on that issue. If my response today has not met their concerns, I will ensure that they have a letter in their hand by Monday morning. I will hold myself to that over the weekend.
I think I have covered most of the points that have been made by the noble Lord, Lord Davies, in our discussion today. Although I did not refer directly to him and the points that he raised, I think that I have covered elsewhere the issues that he raised on exemptions, China and so on. I hope that I have satisfied him.
In summary, I thank my noble friends Lord Cryer and Lord Stansgate and the noble Lords, Lord Purvis of Tweed and Lord Davies of Gower, for their contributions. I hope that they have clarity that the purpose of these regulations is to provide protections on national security for UK citizens from malign foreign influences of countries that are undertaking activity in the United Kingdom that is causing disruption to indigenous citizens of those countries who live here and to the United Kingdom as a whole. The purpose is to provide openness and transparency around the links between the Iranian regime or the Russian regime and individuals who are operating on their behalf. The regulations are an improvement on where we are now and give clarity. They provide exemptions, but we believe that those exemptions are proportionate. I commend these regulations to the Committee.
National Security Act 2023 (Foreign Activities and Foreign Influence Registration Scheme: Publication) Regulations 2025
(2 days, 21 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Hanson of Flint
That the Grand Committee do consider the National Security Act 2023 (Foreign Activities and Foreign Influence Registration Scheme: Publication) Regulations 2025.
Relevant document: 23rd Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
National Security Act 2023 (Foreign Activities and Foreign Influence Registration Scheme: Specified Persons) (Iran) Regulations 2025
(2 days, 21 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Hanson of Flint
That the Grand Committee do consider the National Security Act 2023 (Foreign Activities and Foreign Influence Registration Scheme: Specified Persons) (Iran) Regulations 2025.
Relevant document: 23rd Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
National Security Act 2023 (Foreign Activities and Foreign Influence Registration Scheme: Specified Persons) (Russia) Regulations 2025
(2 days, 21 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Hanson of Flint
That the Grand Committee do consider the National Security Act 2023 (Foreign Activities and Foreign Influence Registration Scheme: Specified Persons) (Russia) Regulations 2025.
Relevant document: 23rd Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
Pension Fund Clearing Obligation Exemption (Amendment) Regulations 2025
(2 days, 21 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Wilson of Sedgefield
That the Grand Committee do consider the Pension Fund Clearing Obligation Exemption (Amendment) Regulations 2025.
Relevant document: 25th Report from the Secondary Legislation Scrutiny Committee
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
My Lords, the regulations being introduced today will remove the time limit on a temporary exemption which pension funds currently have from clearing standardised over-the-counter derivatives contracts, such as interest rate swaps, through a central counterparty. This means that the exemption will continue indefinitely, ending the need for the Government to renew it every two years if we conclude that this is necessary. The draft regulations will help UK pensioners by supporting pension funds’ ability to invest in assets which generate returns for their benefit. Maintaining the exemption is also in line with the Government’s priorities to increase productive investment by pension funds to support economic growth.
Central counterparties, or CCPs, are a type of financial market infrastructure used by firms to reduce risks when trading on financial markets. They sit between the buyers and sellers of financial instruments, providing assurance that contractual obligations will be fulfilled. They do this by collecting collateral, known as margin, from all their users that can be used to cover any shortfall if a default occurs. The process of transacting through a CCP is known as clearing. In 2009, G20 countries agreed that certain standard derivatives contracts should be cleared through CCPs to help reduce risks in the financial system. In the EU, this was implemented through legislation and is known as the clearing obligation. At the time, it was decided that pension funds should be exempted from this obligation. This was because of the particular challenges that pension funds would face in meeting CCP margin requirements.
CCPs require variation margin, collateral which covers price movements on derivatives contracts, to be posted in cash. Pension funds do not usually hold large cash reserves, as they invest the large majority of their resources in assets, such as gilts and corporate bonds, to provide returns for pension holders. This means that meeting the requirement to post variation margin in cash can be more difficult for pension funds to meet than for other firms. Requiring them to clear their derivatives could cause them to increase their cash holdings, reducing their investment in other assets and their ability to generate returns for future pensioners. The UK assimilated the clearing obligation and this exemption in UK domestic law through the European Union (Withdrawal) Act 2018. The exemption was initially designed as a temporary measure, but it has since been extended several times. The Government currently need to lay secondary legislation every two years if we conclude that it is necessary to extend the exemption.
The Government extended the exemption most recently in June 2023 and noted that it would be desirable to put in place a long-term policy approach to remove the need for future temporary extensions. That is what these draft regulations seek to achieve. The Treasury has since conducted a review of the exemption, working closely with the UK financial services regulators. The review also gathered input from industry stakeholders through a call for evidence which was launched in November 2023. The review found that requiring pension funds to clear derivatives could potentially bring financial stability benefits, such as reducing counterparty risk, and could enhance resilience to shocks by increasing pension funds’ cash buffers.
However, the review also identified concerns from some market participants that removing the exemption could increase pressure on the liquidity management of pension funds, particularly under stressed market conditions, which could increase financial stability risk. The review also found strong evidence that pension funds would need to hold more cash and reduce investment in more productive assets if the exemption were removed. This could reduce their returns, potentially impacting the retirement benefits of future pensioners. This would be inconsistent with the objectives of the Government’s wider growth reforms—including the pensions investment review, the final report of which was published last week, which seeks to unlock productive investment by pension funds to support economic growth.
Lord Davies of Brixton (Lab)
I thank my noble friend the Minister for his clear and helpful introduction of these regulations.
I just have two issues to raise; it would overegg them to describe them as issues of concern, but we need to recognise them. First, these clearing obligations are there to protect investors. The level of risk is materially increased by removing those obligations; we need to understand that. On balance, it may still be a reasonable thing to do, but we need to recognise that there is risk involved.
The second, bigger issue is that the Pension Schemes Bill, which was published an hour ago—I am holding it in my hand—makes significant on pension schemes in terms of the investments that they hold and the way in which they undertake their investment policy. It needs to be recognised that this very minor measure is part of that more general review, which will take place because of the Bill. I was very glad to hear my noble friend the Minister report that the policy will be kept under review. The fact that we have this pensions Bill means that it will inevitably be part of that process. The whole thing needs to fit together both to provide the investments that secure members’ benefits and to provide members with the reassurance that their money is being kept well.
Baroness Neville-Rolfe (Con)
My Lords, I thank the Minister for bringing this important debate before the Grand Committee today. While technical in nature, the debate strikes at the very heart of our pensions system. It concerns the management of risk, the generation of returns for pension schemes and the financial security of our country. Derivatives play a crucial role in the operation of pension funds. They allow for efficient exposure to asset classes without necessitating the purchase of the underlying assets. They enable tactical asset allocation decisions to be executed more swiftly and cost-effectively than physical rebalancing and, through leverage, they offer the ability to increase market exposure without tying up significant amounts of capital. I know all of this from my experience as a trustee of the Tesco pension fund some years ago. Above all, derivatives are essential because pension funds face long-term liabilities that are highly sensitive to changes in interest rates, to inflation and to currency fluctuations.
These instruments are vital in managing such risks, especially in an uncertain and volatile world. Interest rate swaps hedge against fluctuations in interest rates that affect the valuation of liabilities. Inflation swaps protect against unexpected shifts in inflation, which is especially relevant where pensions are index-linked. Currency forwards and options manage foreign exchange risk where assets or liabilities are denominated in non-sterling currencies. It is the management of risk more than anything else that justifies their inclusion in the portfolio strategies of pension funds and, as the noble Lord, Lord Davies of Brixton, said, the level of risk is materially increased by this regulation. He also rightly referred to the Pension Schemes Bill, which has only just been published. I am afraid that due to other commitments, I have not yet had time to study it.
Since the European Market Infrastructure Regulation was introduced in 2012, pension funds have been granted an exemption from the central clearing obligation, recognising their unique challenge in meeting margin requirements as central counterparties. Pension funds operate on a long-term, illiquid investment model, and this fundamentally mismatches the short-term, high-frequency liquidity demands of CCPs, particularly under stressed market conditions.
Will the Minister outline the contingency plans in place should the absence of mandatory clearing suddenly appear to increase the risk of counterparty defaults?
I have to say that the exemption from these insurance-type arrangements of a CCP carries its own risks. The Government bear a heavy responsibility to maintain confidence in a financial system upon which livelihoods depend. The government review mentioned by the Minister concluded that removing the exemption could impair the ability of pension funds to invest in productive assets. That must be weighed carefully against the imperative of effective risk management. Can the Minister clarify how bilateral arrangements will be monitored for resilience, given that derivatives are no longer subject to central clearing? He talked about keeping this under review, which I think was helpful.
Our financial markets are deeply embedded in the global system. Can the Minister explain how this move aligns with international financial regulatory frameworks and, indeed, with the EU and US, which have slightly different rules from the UK? Furthermore, has the Minister assessed the potential reputational impact on the UK’s standing in international markets, particularly in the context of post-G20 commitments to mandatory central clearing, which the Minister referred to? Finally, will the Minister publish the underlying risk analysis or cost benefit assessment that supports the decisions to go for an indefinite extension period? Without such transparency, it is difficult to understand how the Government have reached their conclusion and indeed why they have chosen this policy path.
The current impact assessment states that the measure
“mitigates the risk of disruption to the market”
that might occur if pension funds were required to restructure their investment strategies “at short notice”. This would be ahead of the exemptions expiring, which happens to be 18 June—the week after next. However, this is a narrow, short-term cost analysis. I am interested in the wider picture of longer-term cost versus the benefits of alternative systems, so I very much look forward to the Minister’s response on whether he is willing to publish his cost-benefit assessment or, perhaps, to say bit more about the detail.
I urge the Minister to engage deeply with the concerns raised and to provide reassurance that the Government’s decision rests on a sound and transparent evidential foundation. We are dealing with an important subject and a risk that, as I am sure we all agree, needs to be properly managed in the interests of UK plc.
Lord Wilson of Sedgefield (Lab)
I thank the noble Baroness, Lady Neville-Rolfe, and my noble friend Lord Davies of Brixton for their contributions and questions. First, to answer them both, one thing that the Government are after is growth, obviously, but the other thing is financial stability; both of their contributions referred to that. This is a key priority for the Government. However, the evidence on whether removing the exemption would generate direct financial stability benefits was mixed. For example, some responses to the call for evidence noted that removing the exemption could make stress events worse by increasing liquidity pressures on pension funds. In contrast, the Government found strong evidence that pension funds would need to hold more cash and reduce investment in productive assets if the exemption were removed.
On the other issues, such as how the underlying risk will change and how we will keep that under review, the statutory instrument provides long-term clarity for market participants, which is very important in terms of the policy position. This will help with long-term planning of investment strategies by pension funds to meet their future liabilities. As I have noted, the Government will keep this policy under review in co-ordination with the UK regulatory authorities. If there are changes to market dynamics or wider government reforms that have a material impact on the value of mandatory central clearing for pension funds, the Government may reassess this issue.
On the increased burden on pension funds, this policy maintains the status quo. Removing the exemption would have placed more strain on pension funds. This gives assurance to the pension markets around the long-term consistency in our policy approach.
Finally, on the international market, our market is different from those of the EU and the United States as far as pensions are concerned. The response to the call for evidence indicated that the UK defined benefit market is structurally different from that of other jurisdictions, such as the US and the European Union, so it is appropriate that we take a different decision on this issue. The Government are committed to maintaining our high standards of regulation and financial services, including adhering to relevant international standards, where appropriate. In the US, pension schemes tend to be of shorter duration. There is also a larger and more diverse corporate bond market, which can be used for hedging; this means that the derivatives are used less there than they are in the UK.
I hope that these answers are what noble Lords are looking for.
Baroness Neville-Rolfe (Con)
That is very helpful—particularly on the international side. One does need to look at this in an international context; nowadays, we are so aware of the ups and downs of global markets. However, the Minister did not answer the question about the impact assessment. It may be that he does not have an answer today, but this is something that I am often concerned about because I think that good cost-benefit analysis is vital to good government. I made the point that the cost-benefit analysis that we got was a rather short-term thing; it would be very helpful to have a response on that.
Lord Wilson of Sedgefield (Lab)
Basically, what we are doing is maintaining the status quo. Things have been like this for several years now; we are just ensuring that the status quo continues into the future. We will review it if we need to, such as if the dynamics in the market change, but what we are offering is consistency for the industry. That is an important aspect of this statutory instrument.
Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025
(2 days, 21 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Wilson of Sedgefield
That the Grand Committee do consider the Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025.
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
My Lords, financial services fulfil a vital role for people and businesses across the UK and the Government are committed to ensuring high standards of customer protection. These regulations form part of this commitment by strengthening protections for customers, including consumers, businesses and charities, when their bank accounts or other payment services are terminated by their provider.
While decisions to terminate services are generally commercial decisions, customers must be treated fairly. Noble Lords will be aware that concerns have been raised in this area over recent years. This has included concerns about services being terminated on the basis of customers’ lawful beliefs and political opinions. The Government are clear that customers should not see services terminated due to lawful freedom of expression. There are already laws that prohibit providers discriminating against UK consumers on these grounds. However, in other areas existing legislation does not always provide appropriate protection and is not sufficiently clear.
Currently, payments legislation contains no obligation on providers to explain why they are terminating payment services, making it difficult for customers to understand the reasons for terminations, rectify issues or know whether to bring a complaint against their provider’s decision. Furthermore, the current requirement that providers must give customers at least two months’ notice does not always provide customers sufficient time to manage the impacts of a termination and, where needed, find an alternative provider. These regulations make changes to address these issues.
Specifically, the regulations will amend the Payment Services Regulations 2017 to require providers to give customers a longer notice period of at least 90 days before terminating a payment services contract and a sufficiently detailed and specific explanation so the customer understands why it is being terminated. Providers must also advise the customer of how to complain to their provider and of any right they have to complain to the Financial Ombudsman Service. The regulations also clarify ambiguities in legislation to ensure that these new protections are applied consistently. There are some exceptions to the new requirements, mainly so that providers can continue to meet other legal requirements.
Lastly, the regulations make equivalent changes to the Payment Accounts Regulations 2015 so that people who apply for and use basic bank accounts will benefit from the new rules. These changes will increase transparency for customers, ensuring that they understand providers’ decisions and have more time and information to make a complaint or find an alternative provider. The changes will take effect from 28 April 2026 and apply to the termination of payment services contracts that are concluded for an indefinite period and entered into on or after that date.
I know that the Secondary Legislation Scrutiny Committee raised this measure as an instrument of interest in its 25th report, published on 15 May. I am grateful for the consideration the Committee has given this legislation, and I shall respond to the points it raised.
First, the Government acknowledge that there have been concerns about customers being debanked on the basis of their lawful beliefs and political opinions, and that this formed part of what initially led to a review of legislation in this area. Since coming into office, this Government have taken a fresh look at the issue from a broader perspective. As I said earlier, providers are already prohibited from discriminating against UK consumers based on their lawful beliefs and political opinions, but there are shortcomings in wider legislation that governs how providers terminate payment services contracts. The Government are therefore taking a wider approach to strengthen legislation and to enhance fairness and transparency for all customers more generally.
Secondly, regarding the length of the 90-day notice period and the implementation period for the instrument, the Government’s approach is based on extensive engagement. We have sought to balance strengthening the protections for customers with minimising the burdens on firms.
In conclusion, these regulations would make important changes to ensure that customers are treated fairly, while respecting providers’ rights to make commercial decisions. I hope that the Grand Committee will endorse these reforms. I look forward to the debate and beg to move.
Baroness Neville-Rolfe (Con)
My Lords, I welcome the opportunity to speak on this statutory instrument in this brief debate. We note that these regulations build on previous legislation and arise from a consultation that began under the previous Conservative Government in July 2023.
I agree with the Minister that the extension of the minimum notice period for contract termination from two months to 90 days is a prudent and welcome measure. Even more significant is the requirement for payment service providers to provide detailed and specific reasons for termination, thereby enhancing transparency and fairness and discouraging needless debanking; we all saw the unfortunate effect of Coutts’ closure of Nigel Farage’s account. Additionally, informing customers of their right to complain to the Financial Ombudsman Service is a useful safeguard.
I have two problems with these regulations. First, I am concerned by the wide-ranging exemptions to the new rules—“exceptions” is probably the right word. These include the anti-money laundering requirements and the suspicion of serious crime, as well as the possible commission of a public order or harassment offence. These are substantial exceptions that could be the subject of unfair debanking, with the accused unable to know what it is claimed he or she has done wrong. I therefore welcome the change in the threshold from “reasonable belief” to “reasonable grounds to suspect” for serious crime exceptions following consultation, but I wonder whether this is enough.
I should add that small and medium-sized businesses are not exempted from the new requirements. What targeted support or guidance will be provided to help these providers manage the increased compliance burden? These measures could cause problems for businesses already under pressure from NICs and the prospect of new regulation. We all want fairness but the net cost to businesses is £6.4 million a year, by the normally prudent Treasury estimates. This means a net present value of minus £55.4 million.
In the light of this, how do the Government plan to monitor and evaluate these regulations over time to ensure that the extended notice periods and disclosure obligations generally lead to better outcomes for consumers, rather than creating additional administrative burdens for the suppliers of financial services? Can the Government also clarify how conflicts between these termination requirements and other legal obligations on payment service providers will be managed, especially where other laws might take precedence? What mechanisms will be in place to resolve such conflicts fairly and transparently?
Secondly, the main problem for consumers of payment services is not being able to secure a bank account at all. I know this from my own family’s experience of being denied banking, reducing the scope for moving to a different, more competitive bank. This is on grounds such as being a publicly exposed person, which is our experience; selling arms, which it seems wrong to exclude given our growing defence needs; or ungrounded fear by the provider of money laundering. What is the Government’s position on this difficult area of securing a bank account?
I look forward to the Minister’s response and to continued engagement with the Government and regulators to ensure that these important reforms deliver tangible and lasting benefits for payment service users.
Lord Wilson of Sedgefield (Lab)
I thank the noble Baroness for her speech and those questions. These are important regulations which clarify the situation we have lived under over the last few years, as far as this issue is concerned.
On the several points and questions she has raised, I will answer the last one first, which was about access to banking services. The Government recognise the vital role that financial services provide; that is why we have introduced these new rules. The Government are focused on account closures as a priority. We continue to monitor wider access to bank account provision but recognise this is largely a commercial matter. Some 120 banking hubs have opened; another 200-plus will be opened in the next few years. That is not the limit or the target; it could go beyond that, but it depends on what LINK, which provide them, wants to do. It is, obviously, an ongoing issue. We want to ensure everybody has access to them.
On the new requirements that the noble Baroness suggested, there are important public policy reasons for the exemptions, which are necessary to enable payment service providers to continue to discharge other legal obligations or manage complex scenarios—for example, in relation to financial crime.
On the question of whether we will publish guidance, the Financial Conduct Authority, as the relevant regulator, will update the guidance to reflect the legislative changes. The Government have worked closely with industry, law enforcement and regulatory partners to ensure that expectations of payment service providers are clear.
With that, I think I have covered all the questions. I conclude by saying that the Government are committed to ensuring high standards of customer protection and financial inclusion across the financial services sector. These regulations make important changes but address long-standing concerns about protection given to customers when their bank accounts or other payment services are terminated by their providers. This increased amount of notice and transparency will make it easier for customers to understand and manage the impact of their provider’s decisions, and to make a complaint or find an alternative provider where necessary. The changes will help deliver fairer outcomes and support the Government’s ambitions to deliver for working people. I hope the Committee will join me in supporting the regulations.
Baroness Neville-Rolfe (Con)
My Lords, I was a little disappointed about the response on two points. One is on this business of small and medium-sized businesses. The Minister rightly referred to the FCA as the body that is responsible for guidance. It is supposed to care about small businesses and growth, following the letter that the Chancellor wrote to them. The Minister mentioned that there are more small and new businesses in the pipeline; that is good news. Small business spectacles are important, both for financial service providers and, indeed, for unfortunate customers who are trying to get bank accounts.
That was the second point: perhaps it was not possible as I did not give notice of the question, which is not the subject of these regulations, but he did not inform us as to what the latest is on helping people to open a bank account. His objective is the same as mine: to make sure that everybody can do that. He may know from discussion with other parliamentarians that the publicly exposed person issue has been a big one, and there are other issues. I would be interested to be referred to an update on how we are getting on on getting people to open bank accounts. It is important, in societies, for people to have bank accounts and not to be excluded. It is a great pity that it is so difficult, if you are a publicly exposed person, to move banks. That seems unfortunate.
Lord Wilson of Sedgefield (Lab)
I think these regulations help clarify all that. As far as small and medium-sized businesses are concerned, the Treasury Select Committee published figures in 2024 on the termination of business accounts in 2023. They were sourced from eight UK banks. The Treasury estimates that, on average, around 64% of business accounts were terminated due to suspicious activity or financial crime, due diligence or fraud, 10% were terminated because of dormancy and less than 1% for political exposure or other issues. We can all amplify the politically exposed people, and we know it is important, but the vast majority of closures and issues that we have are with financial crime and due diligence.
On the other question, we all want everyone who wants to have a bank account to have one. The decision to provide banking services is generally a commercial one by providers. I have already mentioned that 120 to 150, I think, banking hubs have been opened already, and a lot more will be opened. It is not a target. Once we get there, we can probably open more, but that has to be in consultation with the industry. The Government want to ensure that customers are treated fairly when providers decide to withdraw those services. We are focused on account terminations as a priority, given the material impact that a loss of banking services could have on a business already in operation. More widely, the Government continue to monitor evidence in relation to accessing banking services and welcome the FCA’s work in this area.
Baroness Neville-Rolfe (Con)
My Lords, I am reassured. It is good to have the figure for politically exposed debanking of 1%, although the significance depends on the total figure for the number of cases. It is more about when people are trying to get bank accounts. I think that the Farage event has led to a degree of understanding that it is important not to debank people who are already customers. What I think is less well understood is how when people who are, for example, politically exposed try to get a bank account, they have difficulties. I hope the regulators such as the FCA think about this because we want to try to make sure that people can have proper bank accounts. If there is any more material on that side of things, I give notice that I would be very interested in it, though I appreciate that I sprung this question on the Minister today although it is not the subject of the regulations.
Lord Wilson of Sedgefield (Lab)
I think increasing the time period from 60 days to 90 days and banks now having to write to the customer to say, “These are the reasons why we have this issue with your bank account” and, where it is appropriate and where they can, having to say that they can refer it to the ombudsman all helps. Obviously, this will be kept under review, but I think it is an important improvement on where we were in previous regulations.