Lords Grand Committee
Wednesday 24th June 2026
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16:15
16:15
Speaker 2
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Speaker 2
My Lords. Open day two of the Financial Services and Markets Bill. Committee stage as. It's the first time I've spoken in committee. I declare my interest as set out in the register around technology as advisor variously to the Crown Estate, Endava plc, Simmons and Simmons LLP and as Non-Executive director of avalanche BVI Inc and the Avalanche Foundation. My Lords, I was hoping to take part in day one of your lordships deliberations on the bill, but unfortunately there was a direct clash with the Sporting Events Bill in the chamber.
I was hoping to be able to perform some kind of bill biathlon, but sadly, sadly, time. Time has clearly caught up with me and I find myself stuck on the track in there. But it is a pleasure to open day two of this bill. I will move amendment 47 A and speak to the other amendments in this group in my name, and I give more than a nod to the other amendments set out in this group. Can I thank my noble friend, Lady Neville-rolfe, for co-signing two of my amendments?In essence, these amendments can be seen as a connected group.
The intention set out in the bill is clear that the PSR is no more. Its functions to move over to the FCA. That's an objective which is defensible and is clear and has been communicated. The difficulty is that that's not what the Bill currently achieves. In many ways, these amendments could be summed up by Lost in Translation, because key elements of the functions of the PSR, not least those critical elements around competition and innovation haven't come over, and certainly haven't been reproduced in this bill to the same extent as they appear in their original statutory form.
And this is clearly a gap in the bill we have before us. Amendment 47 A suggests a payment systems panel. Amendment 47 A suggests a payment. Lost in translation in the bill that representation of those involved with those affected by payments has similarly disappeared, not come across from the wording which is in the originating. We have before us amendment 47 A suggests a payment systems panel. This goes to the second element of current lost in translation in the bill.
That representation of those involved with those affected by payments has similarly disappeared, not come across from the wording which is in the originating statute. And this is critically important not only because it doesn't fulfil the government's stated intention with these parts of the Bill. But secondly, when you think about it so much in life involves a payment, something is either started with a payment, ended with a payment, and if it is neither started nor ended with a payment odds on, it's probably a payment in its own right.
This needs to be put right in the bill, and I suggest the payment system panel achieves that. The remaining amendments in my name very much go to putting back those requirements, those obligations as set out in the originating statute around competition and innovation. The government has talked variously around the growth objective, and not least, the role that regulators have to play in it. Indeed, summoning regulators to number 11 for a regulator's showdown. I'm not sure what the collective noun for a group of regulators is, but it was certainly a gathering focused solely on growth.
Well, competition and innovation are critical to that growth objective. I suggest that this suite of amendments fills the gap, which is left in the existing draft of the bill. I very much look forward to the Minister's response. I look forward to the debate and the other amendments, all of which will be moved by those who have put them forward, all on similar and related issues. I beg to move.
I was hoping to be able to perform some kind of bill biathlon, but sadly, sadly, time. Time has clearly caught up with me and I find myself stuck on the track in there. But it is a pleasure to open day two of this bill. I will move amendment 47 A and speak to the other amendments in this group in my name, and I give more than a nod to the other amendments set out in this group. Can I thank my noble friend, Lady Neville-rolfe, for co-signing two of my amendments?In essence, these amendments can be seen as a connected group.
The intention set out in the bill is clear that the PSR is no more. Its functions to move over to the FCA. That's an objective which is defensible and is clear and has been communicated. The difficulty is that that's not what the Bill currently achieves. In many ways, these amendments could be summed up by Lost in Translation, because key elements of the functions of the PSR, not least those critical elements around competition and innovation haven't come over, and certainly haven't been reproduced in this bill to the same extent as they appear in their original statutory form.
And this is clearly a gap in the bill we have before us. Amendment 47 A suggests a payment systems panel. Amendment 47 A suggests a payment. Lost in translation in the bill that representation of those involved with those affected by payments has similarly disappeared, not come across from the wording which is in the originating. We have before us amendment 47 A suggests a payment systems panel. This goes to the second element of current lost in translation in the bill.
That representation of those involved with those affected by payments has similarly disappeared, not come across from the wording which is in the originating statute. And this is critically important not only because it doesn't fulfil the government's stated intention with these parts of the Bill. But secondly, when you think about it so much in life involves a payment, something is either started with a payment, ended with a payment, and if it is neither started nor ended with a payment odds on, it's probably a payment in its own right.
This needs to be put right in the bill, and I suggest the payment system panel achieves that. The remaining amendments in my name very much go to putting back those requirements, those obligations as set out in the originating statute around competition and innovation. The government has talked variously around the growth objective, and not least, the role that regulators have to play in it. Indeed, summoning regulators to number 11 for a regulator's showdown. I'm not sure what the collective noun for a group of regulators is, but it was certainly a gathering focused solely on growth.
Well, competition and innovation are critical to that growth objective. I suggest that this suite of amendments fills the gap, which is left in the existing draft of the bill. I very much look forward to the Minister's response. I look forward to the debate and the other amendments, all of which will be moved by those who have put them forward, all on similar and related issues. I beg to move.
16:20
Speaker 1
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Speaker 1
Schedule two, page 72. Line 11 at end. Insert the words as printed on the marshalled list. My Lords, I'll speak to my amendment 48. It addresses a simple but important point the quality of regulation depends upon the quality of consultation and at present, consultation periods vary unpredictably. Son run for many weeks. Others, even on significant policy shifts, have been compressed into days. That inconsistency makes a system difficult for firms to plan around.
Inaccessible for consumer groups, individuals, and challenging for Parliament to scrutinise. And I am a serial responder to. Consultations have been for over 20 years, not just on financial services. And I have experienced this difficulty myself. The Lords Financial Services Regulation Committee, on which I serve, along with several other members who are present in this committee, heard extensive evidence on this and in our report, Growing Pains. We concluded that the FCA and PRA need a better understanding of the lived experience of regulated firms coping with consultations, policy statements.
Dear CEO letters and the plethora plethora of regulatory tools now used. And that's a polite way of saying that the system is overloaded and fragmented. This amendment introduces proportionate, predictable windows 4 to 6 weeks for minor changes and 6 to 8 weeks for material ones. I seem to recall that in Brussels, the time allowed was two months, and for more complicated things and extension available of three months. So it would also be in line with that. So not out of line with international thinking.
It also sets out the factors regulators must consider when deciding whether a proposal is minor or material, and that embeds proportionality but without rigidity. And I must say. I also envisage that there could be, again, the opportunity for extensions in difficult cases, and the FCA quite often do do that, but usually quite late after you've had a panic. Crucially, regulators may depart from these winter windows. As I've said, in exceptional circumstances. But they must explain why that is.
Transparency, not constraint. It ensures that urgency can be accommodated but not used as a blanket justification for compressed consultation. Predictable consultation matters because it's the only point where parliament, industry, consumer groups, individuals and civil society generally can influence policy and rule making. If windows are unpredictable or too short, smaller firms and resource constrained consumer bodies are effectively excluded. Trade associations cannot consult their members, and their responses are important, as we know that many firms are reluctant to respond directly for fear of being seen as criticising regulators and suffering supervisory consequences.
Various advisory panels have their place, of course, but they are not a substitute for open consultation. They rely on the knowledge of individuals, not the pooled experience of the market or the public industry has asked for this amendment, which tells us something important. The current system is not working as it should. Consultation should not be a matter of luck or timing. It should be predictable, fair and transparent. This. This amendment supports better engagement and better outcomes.
It's a modest but essential part of the culture change that the Lords Committee called for. And I hope that the government will look upon it favourably.
Inaccessible for consumer groups, individuals, and challenging for Parliament to scrutinise. And I am a serial responder to. Consultations have been for over 20 years, not just on financial services. And I have experienced this difficulty myself. The Lords Financial Services Regulation Committee, on which I serve, along with several other members who are present in this committee, heard extensive evidence on this and in our report, Growing Pains. We concluded that the FCA and PRA need a better understanding of the lived experience of regulated firms coping with consultations, policy statements.
Dear CEO letters and the plethora plethora of regulatory tools now used. And that's a polite way of saying that the system is overloaded and fragmented. This amendment introduces proportionate, predictable windows 4 to 6 weeks for minor changes and 6 to 8 weeks for material ones. I seem to recall that in Brussels, the time allowed was two months, and for more complicated things and extension available of three months. So it would also be in line with that. So not out of line with international thinking.
It also sets out the factors regulators must consider when deciding whether a proposal is minor or material, and that embeds proportionality but without rigidity. And I must say. I also envisage that there could be, again, the opportunity for extensions in difficult cases, and the FCA quite often do do that, but usually quite late after you've had a panic. Crucially, regulators may depart from these winter windows. As I've said, in exceptional circumstances. But they must explain why that is.
Transparency, not constraint. It ensures that urgency can be accommodated but not used as a blanket justification for compressed consultation. Predictable consultation matters because it's the only point where parliament, industry, consumer groups, individuals and civil society generally can influence policy and rule making. If windows are unpredictable or too short, smaller firms and resource constrained consumer bodies are effectively excluded. Trade associations cannot consult their members, and their responses are important, as we know that many firms are reluctant to respond directly for fear of being seen as criticising regulators and suffering supervisory consequences.
Various advisory panels have their place, of course, but they are not a substitute for open consultation. They rely on the knowledge of individuals, not the pooled experience of the market or the public industry has asked for this amendment, which tells us something important. The current system is not working as it should. Consultation should not be a matter of luck or timing. It should be predictable, fair and transparent. This. This amendment supports better engagement and better outcomes.
It's a modest but essential part of the culture change that the Lords Committee called for. And I hope that the government will look upon it favourably.
16:25
Speaker 3
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Speaker 3
My Lords. I've got a number of amendments in this group that relate to the PSR, and I'll run through those. But before I do that, I wanted to comment on amendment 47, a move by the noble Lord, Lord Holmes of Richmond. I must say I'm attracted by the idea of a payment systems panel. Payment systems are such a critical part of our financial services structure. They used more often by more people and more businesses than any other financial service.
If they go wrong or become too expensive, or fail to prevent fraud or error, effectively, the impacts on individuals and businesses would be very significant. And the abolition of the PSR does risk dilution of attention to payment systems. So the creation of a panel does have very real merit. And I'll listen to the noble Lord. The minister's answer with interest. I will also be interested to hear why the payment systems competition objective in the bill is missing elements that were originally included in the financial Services Banking Banking Reform Act 2013.
As the noble Lord, Lord Holmes has already pointed out. To move on to my amendments, my amendment 49 is simply a request for clarification and understanding. I've read it a number of times, and I've been struggling to understand the double negative in subsection two D little two of clause one. Three one z three. But I think I now understand that it means that any system that includes any arrangements using digital settlement assets may be a payment system, even if that system's primary purpose is not that of enabling persons to transfer funds.
So my question is, is that correct?If so, why is that?Why do we treat systems that are not primarily primarily intended to be used for the transfer of funds, but which include digital settlement assets differently to systems that do not include digital settlement assets?Amendments 50, 51, 52 and 53 are all related and are designed to reduce the discretion of the Treasury to designate or not designate a payment system as a regulated payment system. As it stands, the Bill gives the Treasury complete discretion.
The bill sets out when the Treasury may designate a payment system to be regulated, but whether it does so is entirely at its discretion, subject only to some consultations. And if it doesn't wish to designate a payment system as a regulated payment system, it doesn't even need to consult. Similarly, clause 131 Z six gives it complete discretion to withdraw any designation at will, at any time. Why does that matter?Well, my Lords, that might be best illustrated by a completely hypothetical and obviously completely made up example.
Stablecoins are generally recognised as being primarily a payment system. So let us imagine that there might be a politician who has received a donation of, I don't know, shall we say, £5 million from an overseas billionaire who is a major shareholder in the world's leading stablecoin issuer?Perhaps that politician may not have registered such a donation. Let's imagine that that politician gains a position of influence over the Treasury and feels that the interests of his benefactor might be assisted if stablecoins, or indeed a particular stablecoin, were not designated as a regulated payment system.
The bill, as drafted, would allow exactly that to happen. Does the noble Lord, the minister, agree with me that that feels somewhat inappropriate and open to potential abuse?Amendments would reduce that discretion so that the Treasury must, must not, may designate a payment system to be regulated. Payment system. If they're satisfied that any deficiency in the design of the system or any disruption of its operation would be likely to have serious consequences for those who use or are likely to use the services provided by participants in the system, and they would have to withdraw a designation if satisfied that those grounds are no longer met.
My last amendment, amendment 55, is another clarification, and I recognise it may not be required prior to being abolished. The PSR doesn't have a secondary competitiveness and growth objective like the FCA's. It does have an objective to promote effective competition. Competition in the market for payment systems and services, and an innovation objective. But those are different things. As it becomes part of the FCA, I wasn't clear when I read this. If the regulation of payment systems will become subject to the FCA's wider set of objectives or not, and this amendment aims to put that beyond doubt.
But perhaps the noble Lord, the minister could confirm the position.
If they go wrong or become too expensive, or fail to prevent fraud or error, effectively, the impacts on individuals and businesses would be very significant. And the abolition of the PSR does risk dilution of attention to payment systems. So the creation of a panel does have very real merit. And I'll listen to the noble Lord. The minister's answer with interest. I will also be interested to hear why the payment systems competition objective in the bill is missing elements that were originally included in the financial Services Banking Banking Reform Act 2013.
As the noble Lord, Lord Holmes has already pointed out. To move on to my amendments, my amendment 49 is simply a request for clarification and understanding. I've read it a number of times, and I've been struggling to understand the double negative in subsection two D little two of clause one. Three one z three. But I think I now understand that it means that any system that includes any arrangements using digital settlement assets may be a payment system, even if that system's primary purpose is not that of enabling persons to transfer funds.
So my question is, is that correct?If so, why is that?Why do we treat systems that are not primarily primarily intended to be used for the transfer of funds, but which include digital settlement assets differently to systems that do not include digital settlement assets?Amendments 50, 51, 52 and 53 are all related and are designed to reduce the discretion of the Treasury to designate or not designate a payment system as a regulated payment system. As it stands, the Bill gives the Treasury complete discretion.
The bill sets out when the Treasury may designate a payment system to be regulated, but whether it does so is entirely at its discretion, subject only to some consultations. And if it doesn't wish to designate a payment system as a regulated payment system, it doesn't even need to consult. Similarly, clause 131 Z six gives it complete discretion to withdraw any designation at will, at any time. Why does that matter?Well, my Lords, that might be best illustrated by a completely hypothetical and obviously completely made up example.
Stablecoins are generally recognised as being primarily a payment system. So let us imagine that there might be a politician who has received a donation of, I don't know, shall we say, £5 million from an overseas billionaire who is a major shareholder in the world's leading stablecoin issuer?Perhaps that politician may not have registered such a donation. Let's imagine that that politician gains a position of influence over the Treasury and feels that the interests of his benefactor might be assisted if stablecoins, or indeed a particular stablecoin, were not designated as a regulated payment system.
The bill, as drafted, would allow exactly that to happen. Does the noble Lord, the minister, agree with me that that feels somewhat inappropriate and open to potential abuse?Amendments would reduce that discretion so that the Treasury must, must not, may designate a payment system to be regulated. Payment system. If they're satisfied that any deficiency in the design of the system or any disruption of its operation would be likely to have serious consequences for those who use or are likely to use the services provided by participants in the system, and they would have to withdraw a designation if satisfied that those grounds are no longer met.
My last amendment, amendment 55, is another clarification, and I recognise it may not be required prior to being abolished. The PSR doesn't have a secondary competitiveness and growth objective like the FCA's. It does have an objective to promote effective competition. Competition in the market for payment systems and services, and an innovation objective. But those are different things. As it becomes part of the FCA, I wasn't clear when I read this. If the regulation of payment systems will become subject to the FCA's wider set of objectives or not, and this amendment aims to put that beyond doubt.
But perhaps the noble Lord, the minister could confirm the position.
16:29
Speaker 4
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Speaker 4
I'm going to make a few comments on the on amendments in this in this group and speak particularly to my two amendments, 54 and 57. Can I say very generally, I agree with the amendments that are in this group. Baroness Bowles I think in looking for consistency in the consultation period, unless someone's been on the you know, the other side of a consultation period, not setting it but trying to respond to it, the actual real life difficulties of the inconsistency, frankly, are often a barrier. They're not just an annoyance, but amendment 47 A in the name of Lord Holmes, that a yes, indeed, it makes sense to have a payment systems panel in an issue like this.
We need to make sure there's the full range of views that are experience taking. Taking a look at such a crucial piece of the financial plumbing that. And in 55, I could not understand why ease of use should have been removed from the competition objective. I mean, that made no sense. If you're thinking about people and consumers that are. I don't know. Perhaps the government will think that it could possibly, um, explain that. And I very much support.
Lord Faulks that it had struck me and I didn't do anything about it, and I should have. But the his amendment 49, which deals with this, um. Basically capacity to, to, to exclude digital payment assets from definitions in payment systems just seemed fundamentally wrong. That's where moving in the direction of digital that these are coherent parts of the payment system. And it's going to be relevant to the two amendments that I'm about to discuss. So my amendment 54 recognises we're in a fast changing world.
We are increasingly in a time in which the payment system is made up of many more entities than just the conventional players. And now there are new schemes, platforms, exchanges, and all kinds of services that are coming on stream and are key. And many of those are digital. Amendment A 54 emphasises the FCA must, in its service users objective focus on consumers. A much clearer term than users that. So we've seen in the past that consumers get lost in this overall definition of users, and it requires the FCA to look at the issues of inclusion, redress, access to cash choice and interoperability.
From the perspective of the consumer in this increasingly complex world, many consumers, as they move, as we move forward, are just simply going to be bemused. And a simple answer, a simple example arose for me when, very recently I spoke to an American firm planning to offer payroll services in the UK using 100% stablecoin. They're very confident that they're going to be in place very shortly after the regulations are approved. By the FCA. Now, how does an employee receiving 100% of their salary in stablecoin turn that into cash at an ATM?Obviously, there are huge issues of access to cash, interoperability and the question of who will pay for the necessary software and hardware changes.
Amendment 57 carries on with this theme and also picks up an earlier group. And that's the need for all participants, including tech companies, to pay their fair share. All participants in the payment system. And that's why the definition of payment system really matters and should not exclude digital assets as as the payments world changes so significantly, financial inclusion will be a far more complex issue, and it is untenable for the cost of this to fall just on the banks. And my amendment makes it clear that every participant across all recognised payment systems must step up.
We need a level playing field. The intent of these really quite simple amendments is to help overcome the incredibly fragmented and confusing payments landscape in the UK, particularly when you look at it from the perspective of the consumer. It's an obstacle course, and frankly, the general confusion and fragmentation. Let's overseas entities take advantage of us. I am very troubled that the national payments vision from the Bank of England doesn't have digital assets in scope. Now, the Bank has just issued its policy announcement on systemic stablecoin on Monday, and it does say that its work will be in parallel with the national payments vision.
But I'm still trying to work out why the two are not properly linked together and coherent. Um, and there are new players in this field, and some of them are asserting that we need a single sovereign payment system to respond to core consumer needs and to join up the dots with consumers at its heart. I met with the Canadian company Interac, and that's exactly what happens in Canada. So there are international examples, and those don't seem to be under consideration in any of the material that I've been looking at.
We need to make sure there's the full range of views that are experience taking. Taking a look at such a crucial piece of the financial plumbing that. And in 55, I could not understand why ease of use should have been removed from the competition objective. I mean, that made no sense. If you're thinking about people and consumers that are. I don't know. Perhaps the government will think that it could possibly, um, explain that. And I very much support.
Lord Faulks that it had struck me and I didn't do anything about it, and I should have. But the his amendment 49, which deals with this, um. Basically capacity to, to, to exclude digital payment assets from definitions in payment systems just seemed fundamentally wrong. That's where moving in the direction of digital that these are coherent parts of the payment system. And it's going to be relevant to the two amendments that I'm about to discuss. So my amendment 54 recognises we're in a fast changing world.
We are increasingly in a time in which the payment system is made up of many more entities than just the conventional players. And now there are new schemes, platforms, exchanges, and all kinds of services that are coming on stream and are key. And many of those are digital. Amendment A 54 emphasises the FCA must, in its service users objective focus on consumers. A much clearer term than users that. So we've seen in the past that consumers get lost in this overall definition of users, and it requires the FCA to look at the issues of inclusion, redress, access to cash choice and interoperability.
From the perspective of the consumer in this increasingly complex world, many consumers, as they move, as we move forward, are just simply going to be bemused. And a simple answer, a simple example arose for me when, very recently I spoke to an American firm planning to offer payroll services in the UK using 100% stablecoin. They're very confident that they're going to be in place very shortly after the regulations are approved. By the FCA. Now, how does an employee receiving 100% of their salary in stablecoin turn that into cash at an ATM?Obviously, there are huge issues of access to cash, interoperability and the question of who will pay for the necessary software and hardware changes.
Amendment 57 carries on with this theme and also picks up an earlier group. And that's the need for all participants, including tech companies, to pay their fair share. All participants in the payment system. And that's why the definition of payment system really matters and should not exclude digital assets as as the payments world changes so significantly, financial inclusion will be a far more complex issue, and it is untenable for the cost of this to fall just on the banks. And my amendment makes it clear that every participant across all recognised payment systems must step up.
We need a level playing field. The intent of these really quite simple amendments is to help overcome the incredibly fragmented and confusing payments landscape in the UK, particularly when you look at it from the perspective of the consumer. It's an obstacle course, and frankly, the general confusion and fragmentation. Let's overseas entities take advantage of us. I am very troubled that the national payments vision from the Bank of England doesn't have digital assets in scope. Now, the Bank has just issued its policy announcement on systemic stablecoin on Monday, and it does say that its work will be in parallel with the national payments vision.
But I'm still trying to work out why the two are not properly linked together and coherent. Um, and there are new players in this field, and some of them are asserting that we need a single sovereign payment system to respond to core consumer needs and to join up the dots with consumers at its heart. I met with the Canadian company Interac, and that's exactly what happens in Canada. So there are international examples, and those don't seem to be under consideration in any of the material that I've been looking at.
16:35
Speaker 5
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Speaker 5
Grateful for bringing forward this group of amendments, which raised several very important questions about the future shape of payments regulation. Once the payment systems regulator is brought within the FCA. And I'm particularly grateful to my noble friend Lord Holmes for introducing amendments 47 A and 101 A with simplicity and clarity, and I note the support from my noble friend, the noble Lords, Lord, Lord Valk, and. And the noble lady, Lady Cramer. Despite the arguments of the noble lady, Lady Cramer, I don't favor extending the FCA service user objective to include inclusion, consumer address or access to cash and indeed, I'm against a levy for such purposes.
In any event, payment system systems operators don't deal with customers. That is done by the financial services firms. I'm more receptive to the amendment from the noble Lord, Lord Oaks, about applying the secondary growth and competitiveness objective to the regulation of payment system. Does the noble Lord the minister, intend to do this, and can it be done by the proposed regulations, or does it need to go into this bill?I should add that, as with so much in the bill, the framework is broad while the substance is left to later regulations, and that's a real concern, is it leaves a lacuna in parliamentary accountability.
We've been through the arguments on consumer credit and in-person banking, but I logged them again for good order. I also want to address two central themes running through the group. First, the need for proper industry engagement and accountability in regulation making, and secondly, the question of whether the new regime is sufficiently clear and future proofed. On the first point, we welcome the amendments which seek to strengthen consultation requirements and ensure adequate time for meaningful industry engagement. As the noble Baroness Lady Bowles set out in her amendment 48, that has a dual effect.
The first is that it increases transparency and accountability for regulators. If regulators are required to consult properly, explain their reasoning, engage with those affected and publish clear strategies, then we have a better chance of understanding not only what they're doing, but why they are doing it. The point is also clearly a concern for other noble lords about the extent of discretion afforded to the Treasury in designating and designating payment systems. The second is that this would ensure that those affected by regulation have a meaningful opportunity to input in our deliberations on this bill, our discussions with and our discussions with industry.
Indeed, it has become very clear that the regulatory environment seems to be planned and developed at some distance from the firms that are expected to comply. Regulations and handbooks and guidance may make sense to people sitting in the FCA or the PRA, but do not always make sense to those at the coalface. The firms, the compliance teams, payment providers and market participants. They have to interpret them to implement them and live with the operational consequences. And in this case, those with an interest goes way beyond the regulator's normal clients.
For example, we've had concerns expressed by the retailers who are usually quick to spot practical problems, as I remember so well when at Tesco, we were introducing the euro into our businesses in Ireland and elsewhere because of inadequate consultation. The timing was wrong with training and it changes needed during the busy Christmas period. It's a recipe for cost and chaos. It's a real problem if regulation is developed in a silo away from the experience of the market. Participants, then even well-intentioned regulation can become impractical, disproportionate, or poorly targeted.
We end up with a regulator and the regulated working from different understandings of how the market actually functions. And that's why I hope the noble, noble Lord, the minister, will look constructively at those amendments which seek to strengthen consultation, transparency and meaningful engagement with both professional bodies and market participants. Without proper planning, there is a risk to growth and indeed the UK's reputation on payment system, which has generally been good. The second major issue is the question of what exactly is covered by the regime.
Is the Bill regulating the market as it exists today, or is it preparing the UK for the market as it will exist in a few years time?We will speak about digital finance and digital assets in later groups, but the point is highly relevant here. As the noble Lady Cramer has mentioned, if this bill to modernise and improve regulation, why does it feel in places as though it's being designed for a market that may already be out of date?We have the legal system, the financial services expertise, the markets, the professional services ecosystem and the technology capability to be a world leader.
But leadership requires clarity and confidence from government, and I don't think we're yet seeing enough of either in this bill. So that brings me to the wider point about accountability and scope, which was raised on Monday. If the PSR functions are to be absorbed into the FCA, how will this new regime be properly held to account, and how will the government ensure that payments regulation does not simply become one more area lost within the wider FCA structure?So I should be grateful if, in addition to my initial questions about growth, competitiveness and the level of delegation, the Minister could address three points.
First, how will the government ensure industry and professional bodies are brought into the regulation making process early enough for their input to make a meaningful difference?Second, how will the government ensure that the new regime is sufficiently clear and future proofed to capture new forms of payments and digital finance, rather than regulating for the market of the past?And thirdly, how will the new payments regime be held to account once it sits within the FCA?And what mechanisms will exist to ensure that Parliament, industry and consumers can properly scrutinise its operations?There is a lot of clarity needed in relation to this part of the Bill, which we of course support in principle, and I very much look forward to the minister's replies.
In any event, payment system systems operators don't deal with customers. That is done by the financial services firms. I'm more receptive to the amendment from the noble Lord, Lord Oaks, about applying the secondary growth and competitiveness objective to the regulation of payment system. Does the noble Lord the minister, intend to do this, and can it be done by the proposed regulations, or does it need to go into this bill?I should add that, as with so much in the bill, the framework is broad while the substance is left to later regulations, and that's a real concern, is it leaves a lacuna in parliamentary accountability.
We've been through the arguments on consumer credit and in-person banking, but I logged them again for good order. I also want to address two central themes running through the group. First, the need for proper industry engagement and accountability in regulation making, and secondly, the question of whether the new regime is sufficiently clear and future proofed. On the first point, we welcome the amendments which seek to strengthen consultation requirements and ensure adequate time for meaningful industry engagement. As the noble Baroness Lady Bowles set out in her amendment 48, that has a dual effect.
The first is that it increases transparency and accountability for regulators. If regulators are required to consult properly, explain their reasoning, engage with those affected and publish clear strategies, then we have a better chance of understanding not only what they're doing, but why they are doing it. The point is also clearly a concern for other noble lords about the extent of discretion afforded to the Treasury in designating and designating payment systems. The second is that this would ensure that those affected by regulation have a meaningful opportunity to input in our deliberations on this bill, our discussions with and our discussions with industry.
Indeed, it has become very clear that the regulatory environment seems to be planned and developed at some distance from the firms that are expected to comply. Regulations and handbooks and guidance may make sense to people sitting in the FCA or the PRA, but do not always make sense to those at the coalface. The firms, the compliance teams, payment providers and market participants. They have to interpret them to implement them and live with the operational consequences. And in this case, those with an interest goes way beyond the regulator's normal clients.
For example, we've had concerns expressed by the retailers who are usually quick to spot practical problems, as I remember so well when at Tesco, we were introducing the euro into our businesses in Ireland and elsewhere because of inadequate consultation. The timing was wrong with training and it changes needed during the busy Christmas period. It's a recipe for cost and chaos. It's a real problem if regulation is developed in a silo away from the experience of the market. Participants, then even well-intentioned regulation can become impractical, disproportionate, or poorly targeted.
We end up with a regulator and the regulated working from different understandings of how the market actually functions. And that's why I hope the noble, noble Lord, the minister, will look constructively at those amendments which seek to strengthen consultation, transparency and meaningful engagement with both professional bodies and market participants. Without proper planning, there is a risk to growth and indeed the UK's reputation on payment system, which has generally been good. The second major issue is the question of what exactly is covered by the regime.
Is the Bill regulating the market as it exists today, or is it preparing the UK for the market as it will exist in a few years time?We will speak about digital finance and digital assets in later groups, but the point is highly relevant here. As the noble Lady Cramer has mentioned, if this bill to modernise and improve regulation, why does it feel in places as though it's being designed for a market that may already be out of date?We have the legal system, the financial services expertise, the markets, the professional services ecosystem and the technology capability to be a world leader.
But leadership requires clarity and confidence from government, and I don't think we're yet seeing enough of either in this bill. So that brings me to the wider point about accountability and scope, which was raised on Monday. If the PSR functions are to be absorbed into the FCA, how will this new regime be properly held to account, and how will the government ensure that payments regulation does not simply become one more area lost within the wider FCA structure?So I should be grateful if, in addition to my initial questions about growth, competitiveness and the level of delegation, the Minister could address three points.
First, how will the government ensure industry and professional bodies are brought into the regulation making process early enough for their input to make a meaningful difference?Second, how will the government ensure that the new regime is sufficiently clear and future proofed to capture new forms of payments and digital finance, rather than regulating for the market of the past?And thirdly, how will the new payments regime be held to account once it sits within the FCA?And what mechanisms will exist to ensure that Parliament, industry and consumers can properly scrutinise its operations?There is a lot of clarity needed in relation to this part of the Bill, which we of course support in principle, and I very much look forward to the minister's replies.
16:41
Speaker 6
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Speaker 6
My Lord, I am grateful to the noble Lords, Lord Holmes and Lord, for. And the noble Baroness, Lady Cramer and Lady Bowles, for tabling these amendments, and to the noble Lords who have spoken in this part of the debate, I will speak first. The amendments concerning the regulation of payment systems. I will then turn to amendment 48, tabled by Baroness Bowles, which raises a separate issue concerning the consultation processes of the FCA and PRA. Payment systems are clearly critical economic infrastructure.
I think there's no doubt they must be secure and resilient, but they must also support competition, innovation and good outcomes for the households and businesses that rely on them. That is the purpose of this bill. It consolidates the payment services regulator's functions within the FCA to create a more coherent framework. This is an institutional reform and should not be seen as weakening of consumer protection, competition, regulation or indeed regulatory standards. The PSR has been effective in driving competition and innovation among payments firms, but the current framework is too fragmented.
Fragmented. The bill will reduce the number of regulators that firms need to engage with. But, my Lords, it is worth also stating this is not something the government has rushed into. The government consulted on this proposal almost a year ago, in September 2025, and has been working on the details ever since. We published a detailed response in April of this year. Throughout this process, the government has been clear the intention is not to fundamentally change how this part of the sector is regulated.
This is about changing who regulates it in order to produce a more streamlined system. And so when I respond to each amendment, I hope my noble Lords can keep this in mind. I hope to reassure noble Lords that the Bill already provides the right framework. I first turn to amendment 47 a. I understand the desire is to ensure payment specific expertise and the interests of the users and industry are heard in the FCA. However, the government does not consider a new statutory payment system panel to be necessary.
This is because the bill ensures that the FCA's general duty to consult in relation to its general policies and practices includes participants in regulated payment systems, including those who use or are likely to use services provided. Participants in payment systems. We believe this ensures their views will be considered without needing to recreate separate structures within the newly simplified regulatory framework. Turn to amendment 49. I understand the concern about whether systems that involve digital settlement assets fall within the definition of a payment system.
The bill attempts to be clear that they can and are capable of designation, even where enabling enabling the transfer of funds is not the primary purpose. Reflecting how they may support payment activity within wider platforms. Amendments 50 to 53 seek to make designation mandatory once the relevant payment systems definition and the designation threshold is met, and restrict the Treasury's discretion to revise or withdraw designation notices. The government does not consider that appropriate payment. Has already stated are technologically dynamic. The Treasury must retain discretion to assess the circumstances and regulate proportionately, taking into account the relevant factors making designation automatic or withdrawal too restrictive could introduce rigidity and unintended consequences.
The bill therefore preserves the existing position whereby the Treasury may designate a system where it meets the definition of a payment system and only do so where the relevant threshold is met. Amount is determined. It is appropriate to maintain a designation regime for payment systems because it facilitates more targeted and proportionate regulation. 54 concerns the service user objective. I recognise the importance of inclusion, redress, access and cash access to cash choice and interoperability. As mentioned, however, the bill gives the FCA a broad service user objective alongside innovation and competition objectives equivalent in substance to those held by the PSR listing.
Specific matters in statute risk narrowing that objective and limiting future flexibility on the issues the amendment raises. Action is already being taken. The FCA has a statutory responsibilities on access to Cash App fraud. Reimbursement protections will be preserved and taken up by the FCA, and wider payments reform, including progressing open banking and next generation retail payments. Infrastructure will support greater choice interoperability and better outcomes for end users. Amendment 55 concerns the FCA's objectives. The government considers this amendment unnecessary.
I can reassure the noble Lord that the bill already applies. FCA Strategic objective, competition, duty and secondary international competitiveness and growth objective to payment systems regulation. The FCA's payment system objectives are based on the Ssa's existing objectives and remain the right basis for payment systems regulation, ensuring the FCA can promote competition and innovation while acting in the interests of service users. Amendments 55 A, 55 B and 55 C seek to amend the FCA's Payment Systems competition objective. I agree that the FCA must be able to consider user access and market entry by infrastructure and.
I think there's no doubt they must be secure and resilient, but they must also support competition, innovation and good outcomes for the households and businesses that rely on them. That is the purpose of this bill. It consolidates the payment services regulator's functions within the FCA to create a more coherent framework. This is an institutional reform and should not be seen as weakening of consumer protection, competition, regulation or indeed regulatory standards. The PSR has been effective in driving competition and innovation among payments firms, but the current framework is too fragmented.
Fragmented. The bill will reduce the number of regulators that firms need to engage with. But, my Lords, it is worth also stating this is not something the government has rushed into. The government consulted on this proposal almost a year ago, in September 2025, and has been working on the details ever since. We published a detailed response in April of this year. Throughout this process, the government has been clear the intention is not to fundamentally change how this part of the sector is regulated.
This is about changing who regulates it in order to produce a more streamlined system. And so when I respond to each amendment, I hope my noble Lords can keep this in mind. I hope to reassure noble Lords that the Bill already provides the right framework. I first turn to amendment 47 a. I understand the desire is to ensure payment specific expertise and the interests of the users and industry are heard in the FCA. However, the government does not consider a new statutory payment system panel to be necessary.
This is because the bill ensures that the FCA's general duty to consult in relation to its general policies and practices includes participants in regulated payment systems, including those who use or are likely to use services provided. Participants in payment systems. We believe this ensures their views will be considered without needing to recreate separate structures within the newly simplified regulatory framework. Turn to amendment 49. I understand the concern about whether systems that involve digital settlement assets fall within the definition of a payment system.
The bill attempts to be clear that they can and are capable of designation, even where enabling enabling the transfer of funds is not the primary purpose. Reflecting how they may support payment activity within wider platforms. Amendments 50 to 53 seek to make designation mandatory once the relevant payment systems definition and the designation threshold is met, and restrict the Treasury's discretion to revise or withdraw designation notices. The government does not consider that appropriate payment. Has already stated are technologically dynamic. The Treasury must retain discretion to assess the circumstances and regulate proportionately, taking into account the relevant factors making designation automatic or withdrawal too restrictive could introduce rigidity and unintended consequences.
The bill therefore preserves the existing position whereby the Treasury may designate a system where it meets the definition of a payment system and only do so where the relevant threshold is met. Amount is determined. It is appropriate to maintain a designation regime for payment systems because it facilitates more targeted and proportionate regulation. 54 concerns the service user objective. I recognise the importance of inclusion, redress, access and cash access to cash choice and interoperability. As mentioned, however, the bill gives the FCA a broad service user objective alongside innovation and competition objectives equivalent in substance to those held by the PSR listing.
Specific matters in statute risk narrowing that objective and limiting future flexibility on the issues the amendment raises. Action is already being taken. The FCA has a statutory responsibilities on access to Cash App fraud. Reimbursement protections will be preserved and taken up by the FCA, and wider payments reform, including progressing open banking and next generation retail payments. Infrastructure will support greater choice interoperability and better outcomes for end users. Amendment 55 concerns the FCA's objectives. The government considers this amendment unnecessary.
I can reassure the noble Lord that the bill already applies. FCA Strategic objective, competition, duty and secondary international competitiveness and growth objective to payment systems regulation. The FCA's payment system objectives are based on the Ssa's existing objectives and remain the right basis for payment systems regulation, ensuring the FCA can promote competition and innovation while acting in the interests of service users. Amendments 55 A, 55 B and 55 C seek to amend the FCA's Payment Systems competition objective. I agree that the FCA must be able to consider user access and market entry by infrastructure and.
16:46
16:47
16:47
16:47
Speaker 6
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Speaker 6
Amendments 55A55B and 55 C seek to amend the FCA's payment systems competition objective. I agree that the FCA must be able to consider user access and market entry by infrastructure and payment system providers. The bill already achieves that. The FCA payment systems objectives are intended to be the equivalent in substance and scope to the Ssa's existing objectives. Lord Holmes and Lord were asked about drafting differences between FCA and the PSR objectives, changes in drafting of the FCA's payment systems. Objectives are for simplification only.
The FCA's payment system objectives retain the substance of the Ssa's objectives and turning to amendment 57, the government is committed to improving financial inclusion, but a new levy on payment systems for participants is not the right mechanism. The better course is target targeted and proportionate action, including the government's financial inclusion strategy and the recent allocation of £132.5 million in dormant assets. Funding to fair for all finance and an on amendment 101 a. The bill already provides for the secondary competitiveness and growth objective to apply to the payment systems general functions.
Any report on that secondary objective would include its application to Payment Systems regulation as appropriate. As mentioned, the government therefore considers the amendment unnecessary and is satisfied that the Bill already gives the FCA the right objectives to support innovation, competition and growth. Lastly, I come to amendment 48, which seeks to introduce maximum and minimum lengths for the consultations undertaken by the FCA and PRA. I understand the desire to ensure that where regulation regulators consult on proposed rule changes, stakeholders have a fair opportunity to consider the proposals and respond properly.
However, this amendment would impose a rigid statutory timetable on consultations which will cover a very wide range of issues that vary considerably in complexity, urgency and market impact. The government's view is appropriate to allow the regulators to determine the appropriate consultation period, rather than being time bound set in primary legislation to. The questions. Lord Vovo is right in how we describe the interpretation of the drafting, and I commend him for skill in reading in a very technical provision which I personally have had difficulty in, as well.
As part of that, he asked why payment systems that involve digital assets are treated differently. This reflects the particular characteristics of digital settlement assets and the way that the market is developing, and it reflects the existing arrangements under the PSR framework. The bill preserves flexibility to bring relevant systems within the scope of payment systems regulation, where they support payment activity. That does not mean automatic regulation. A system must still be designated by HMT before the FCA's main powers apply. This approach ensures the new framework is both future proof and proportionate.
Um Baroness never raised the issue of consultations with industry. The FCA works closely with industry and the bill sets out clear consultation requirements on the FCA to support this as it takes on this new role. Um, my Lords, as I said at the start, I can accept these amendments, but I appreciate the spirit of where they come from. The bill is aimed at ensuring we have the right institutional framework for this part of the sector, while ensuring we do not weaken those consumer protections.
I therefore ask the noble Lord to withdraw his amendment.
The FCA's payment system objectives retain the substance of the Ssa's objectives and turning to amendment 57, the government is committed to improving financial inclusion, but a new levy on payment systems for participants is not the right mechanism. The better course is target targeted and proportionate action, including the government's financial inclusion strategy and the recent allocation of £132.5 million in dormant assets. Funding to fair for all finance and an on amendment 101 a. The bill already provides for the secondary competitiveness and growth objective to apply to the payment systems general functions.
Any report on that secondary objective would include its application to Payment Systems regulation as appropriate. As mentioned, the government therefore considers the amendment unnecessary and is satisfied that the Bill already gives the FCA the right objectives to support innovation, competition and growth. Lastly, I come to amendment 48, which seeks to introduce maximum and minimum lengths for the consultations undertaken by the FCA and PRA. I understand the desire to ensure that where regulation regulators consult on proposed rule changes, stakeholders have a fair opportunity to consider the proposals and respond properly.
However, this amendment would impose a rigid statutory timetable on consultations which will cover a very wide range of issues that vary considerably in complexity, urgency and market impact. The government's view is appropriate to allow the regulators to determine the appropriate consultation period, rather than being time bound set in primary legislation to. The questions. Lord Vovo is right in how we describe the interpretation of the drafting, and I commend him for skill in reading in a very technical provision which I personally have had difficulty in, as well.
As part of that, he asked why payment systems that involve digital assets are treated differently. This reflects the particular characteristics of digital settlement assets and the way that the market is developing, and it reflects the existing arrangements under the PSR framework. The bill preserves flexibility to bring relevant systems within the scope of payment systems regulation, where they support payment activity. That does not mean automatic regulation. A system must still be designated by HMT before the FCA's main powers apply. This approach ensures the new framework is both future proof and proportionate.
Um Baroness never raised the issue of consultations with industry. The FCA works closely with industry and the bill sets out clear consultation requirements on the FCA to support this as it takes on this new role. Um, my Lords, as I said at the start, I can accept these amendments, but I appreciate the spirit of where they come from. The bill is aimed at ensuring we have the right institutional framework for this part of the sector, while ensuring we do not weaken those consumer protections.
I therefore ask the noble Lord to withdraw his amendment.
16:50
Speaker 5
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Speaker 5
Question of consultation. We're being asked to have a high degree of delegation with this change of governance for the regulator, he seems to be sure that the regulator is going to consult the right people at the right time and meaningfully. It seems extraordinary to leave so much discretion with the regulators, particularly, as I explained, when they're moving into very new areas. He's rejected the idea of a panel, which would be one way of getting expertise into the system. And I wonder if he would think a little bit further about this.
16:50
16:51
Speaker 2
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Speaker 2
I thank all noble Lords who have taken part in this very important debate. Key themes that ran through all of it, and indeed, the Minister's response is the question of clarity or the lack thereof. And it's certainly the case that as a consequence of these changes currently drafted, there is less clarity as to payment systems representation, less clarity as to how the competition and innovation requirements will be satisfied in a broader context. I fully support the comments of Lord Voe on his amendments, and I would come to the important amendment of Lady Boles.
I'm disappointed the minister didn't take the opportunity to offer a consultation about consultations, but the reality is this the minister could take this opportunity to bring clarity where currently exists, both increasing and varying levels of opacity and just unnecessary levels of control in the hands of the regulator. And we've seen this in financial services in recent bills that we've considered it, but it goes beyond financial services to this sense of. Leaving regulators with greater powers as a consequence of significant statutes passed as opposed to Parliament debating and determining these decisions, which in no sense would tie the regulators hands.
In fact, I believe Baroness Boles amendment would assist the regulators because it would bring clarity as to how to operate these consultations. There's a significant issue with consultations in financial services. There's a significant issue with government consultations across the piece. It's not a party political point. It's been the case for years. This is an opportunity to bring clarity to this and enable more firms, more individuals, more perspectives to be brought into what would then be better consultations and better outcomes as a result of that consultation process.
So I very much look forward to Baroness Ball's bringing her amendment back at report. I think it's strong, and I think it wouldn't be letting too many cats out of too many bags. Even though I stand with a Labrador at my feet to say that I think this won't be the last that we've seen of a number of these amendments. But for now, I beg leave to withdraw.
I'm disappointed the minister didn't take the opportunity to offer a consultation about consultations, but the reality is this the minister could take this opportunity to bring clarity where currently exists, both increasing and varying levels of opacity and just unnecessary levels of control in the hands of the regulator. And we've seen this in financial services in recent bills that we've considered it, but it goes beyond financial services to this sense of. Leaving regulators with greater powers as a consequence of significant statutes passed as opposed to Parliament debating and determining these decisions, which in no sense would tie the regulators hands.
In fact, I believe Baroness Boles amendment would assist the regulators because it would bring clarity as to how to operate these consultations. There's a significant issue with consultations in financial services. There's a significant issue with government consultations across the piece. It's not a party political point. It's been the case for years. This is an opportunity to bring clarity to this and enable more firms, more individuals, more perspectives to be brought into what would then be better consultations and better outcomes as a result of that consultation process.
So I very much look forward to Baroness Ball's bringing her amendment back at report. I think it's strong, and I think it wouldn't be letting too many cats out of too many bags. Even though I stand with a Labrador at my feet to say that I think this won't be the last that we've seen of a number of these amendments. But for now, I beg leave to withdraw.
16:54
16:54
Speaker 7
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Speaker 7
Pleasure that the amendment be withdrawn?Amendment by. Leave. Withdrawn. Amendment 48. Baroness Bowles not moved, not moved. Amendments 49 to 53. Lord Foulkes not moved en bloc. Thank you. Amendment 54. Baroness Kramer not moved. I am so sorry. Amendment 55. Lord Brooke's not moved. Amendments 55 to 55. See Lord Holmes not moved en bloc, not moved en bloc.
We come now to amendment 56. Lord Stockwood.
We come now to amendment 56. Lord Stockwood.
16:56
Speaker 6
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Speaker 6
I beg to move. Amendment 56. My Lords, the purpose of the government amendments in this group is to ensure that the relevant provisions of the Bill operate clearly, consistently and in line with the government's originally original policy intent. They are technical and corrective in nature and do not change the underlying policy of the Bill. However, I believe it is important that my noble Lords understand that the purpose of this amendment so I can. So you can agree that they are minor and technical, and so I'll explain them briefly.
Amendments 56 to 60 and 63. These amendments make minor technical corrections to schedule two of the bill, which, taken with clause 13, abolishes the payment systems regulator and gives broadly equivalent functions to the FCA. Amendment 56 removes a duplicative provision from new section 131 Z nine, which has already covered by the section 131 Z one nine. Amendment 60 corrects a cross reference so that the bill refers to the FCA payment system powers. When setting out how the Competition and Markets Authority is to determine and appeal amendment 61, 62 and 63 ensure that references to the chair of the PSR, which would be obsolete after the PSR is abolished, are deleted in the correct places in schedule 171ZA to the Financial Services and Markets Act 2000, which concerns the FCA's constitution and governance.
I will now turn to amendments 143 and 145. Once again, these are minor and technical amendments. Amendments 143 and 144 ensure that section 66 A of the Fisma is amended in a coherent and orderly way, regardless of whether the amendments that section made by clause 27 is commenced first, or the amendment to that section made by clause 36 is commenced. First amendment 145 amends. Subsection four of the new section 55AA inserted by clause 29, bracket three, to ensure that the language used there is consistent with the language used elsewhere with Fisma, the amendment simply replaces the words is in force with has effects.
These amendments do not change the policy or legal effect of the affected clauses. These are drafting amendments for purposes of coherence and consistency only. I will now turn to amendments 147 150 relating to clause 33, clause 33 allows firms to apply for a senior approval, subject to conditions or a limited period known as permitted conditional applications. This helps support a more flexible approvals process. Amendments 147 to 150 are technical amendments, which fix an error in the original drafting and ensure that the framework operates as intended.
Without these amendments, there is risk that decisions are not properly formalised and that the period for determining applications is not applied consistently, consistently. Hundred and 47 and 149 provide that the period for determining permitted conditional applications is the same as for other senior manager applications. Amendments 148 and 150 provide that regulators must give written notice when they approve a permitted conditional application, and taken together, these amendments ensure the statutory framework works clearly and consistently, consistently in practice. Summary the Group of government amendments makes technical corrections to ensure that the bill works as intended.
I hope the noble Lords will join me in supporting these amendments.
Amendments 56 to 60 and 63. These amendments make minor technical corrections to schedule two of the bill, which, taken with clause 13, abolishes the payment systems regulator and gives broadly equivalent functions to the FCA. Amendment 56 removes a duplicative provision from new section 131 Z nine, which has already covered by the section 131 Z one nine. Amendment 60 corrects a cross reference so that the bill refers to the FCA payment system powers. When setting out how the Competition and Markets Authority is to determine and appeal amendment 61, 62 and 63 ensure that references to the chair of the PSR, which would be obsolete after the PSR is abolished, are deleted in the correct places in schedule 171ZA to the Financial Services and Markets Act 2000, which concerns the FCA's constitution and governance.
I will now turn to amendments 143 and 145. Once again, these are minor and technical amendments. Amendments 143 and 144 ensure that section 66 A of the Fisma is amended in a coherent and orderly way, regardless of whether the amendments that section made by clause 27 is commenced first, or the amendment to that section made by clause 36 is commenced. First amendment 145 amends. Subsection four of the new section 55AA inserted by clause 29, bracket three, to ensure that the language used there is consistent with the language used elsewhere with Fisma, the amendment simply replaces the words is in force with has effects.
These amendments do not change the policy or legal effect of the affected clauses. These are drafting amendments for purposes of coherence and consistency only. I will now turn to amendments 147 150 relating to clause 33, clause 33 allows firms to apply for a senior approval, subject to conditions or a limited period known as permitted conditional applications. This helps support a more flexible approvals process. Amendments 147 to 150 are technical amendments, which fix an error in the original drafting and ensure that the framework operates as intended.
Without these amendments, there is risk that decisions are not properly formalised and that the period for determining applications is not applied consistently, consistently. Hundred and 47 and 149 provide that the period for determining permitted conditional applications is the same as for other senior manager applications. Amendments 148 and 150 provide that regulators must give written notice when they approve a permitted conditional application, and taken together, these amendments ensure the statutory framework works clearly and consistently, consistently in practice. Summary the Group of government amendments makes technical corrections to ensure that the bill works as intended.
I hope the noble Lords will join me in supporting these amendments.
16:58
16:58
Speaker 8
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Speaker 8
Given the noble. The Minister notice that I intend to object to these amendments, and therefore they will. If he puts it, I will object, and therefore they will not pass. It's been the custom of our House that For they will not pass. It has been the custom of our House that when the government table. Amendments to bills that they notify actually all members of the House, because the government can't determine which particular peers might be interested in the amendments that they table to particular, explaining the amendments.
It may well be that some of these amendments are technical and mean simply the correction of errors. But members of your lordships House should have the opportunity to consider that properly. I only became aware of this late last week when I suddenly realised that several government amendments had been put down. These and others, and I had had no letter, and I don't believe anybody else has had a letter. And so because of that, I think we ought to maintain the customary practices of your lordships House.
As I say, I will be objecting to these amendments if they are put.
It may well be that some of these amendments are technical and mean simply the correction of errors. But members of your lordships House should have the opportunity to consider that properly. I only became aware of this late last week when I suddenly realised that several government amendments had been put down. These and others, and I had had no letter, and I don't believe anybody else has had a letter. And so because of that, I think we ought to maintain the customary practices of your lordships House.
As I say, I will be objecting to these amendments if they are put.
16:59
Speaker 9
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Speaker 9
By Lords, I will speak briefly to the government amendments in this group and declare my interest as the director of South Molton Street Capital, which is regulated by the FCA, and thank the noble Lord the Minister, for explaining so clearly these amendments, as he describes them, as minor technical amendments and descriptions around making language consistent with Fsma. But notwithstanding that, at the outset, I should say that we we welcome these amendments insofar as they are intended to make the bill clearer. Correct cross-references, remove duplications and ensure that the legislation works as intended.
The amendments before us are technical in character and where they improve the coherence and operability of the Bill, we do not object to them. Following the words of my noble friend, I want to raise a broader procedural point because I think it matters for how this committee is able to scrutinise the bill properly. We understand that not all local Lords who have taken a close interest in this Bill were engaged by the Department on these government amendments. That is a concern. I would be grateful if the Minister could give us a clear commitment that, ahead of future stages, the government will make every effort to engage not only with the opposition frontbench but with noble Lords across the committee who have raised substantive concerns and to provide timely written explanations of any further government amendments.
I understand that my noble friend Baroness Noakes, will be writing to the noble Lord, the Minister, about the way in which the government have handled engagement and oversight around these amendments and given the reservations of my noble friend and of her committee, it is right that we do not agree to these amendments today, but rather see them as reintroduced a report as a matter of principle.
The amendments before us are technical in character and where they improve the coherence and operability of the Bill, we do not object to them. Following the words of my noble friend, I want to raise a broader procedural point because I think it matters for how this committee is able to scrutinise the bill properly. We understand that not all local Lords who have taken a close interest in this Bill were engaged by the Department on these government amendments. That is a concern. I would be grateful if the Minister could give us a clear commitment that, ahead of future stages, the government will make every effort to engage not only with the opposition frontbench but with noble Lords across the committee who have raised substantive concerns and to provide timely written explanations of any further government amendments.
I understand that my noble friend Baroness Noakes, will be writing to the noble Lord, the Minister, about the way in which the government have handled engagement and oversight around these amendments and given the reservations of my noble friend and of her committee, it is right that we do not agree to these amendments today, but rather see them as reintroduced a report as a matter of principle.
17:01
Speaker 6
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Speaker 6
My Lords, I'm. Happy to apologise to the noble Baroness for any mix up. It's my understanding that it was not necessary to do an open letter for only a handful of technical amendments. That in mind, we believe that the amendments we're proposing are minor and technical in nature and tabled in good time before the first Committee debate. They are drafting errors, duplicate, remove, duplicate and obsolete provisions and ensure that the relevant provisions in the Bill and Fisma operate clearly and consistently.
Um, I trust my explanation as given the noble Baroness information she needs, but I will draw the amendment for now and we'll bring it back at report.
Um, I trust my explanation as given the noble Baroness information she needs, but I will draw the amendment for now and we'll bring it back at report.
17:01
Speaker 7
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Speaker 7
Amendment. An amendment by leave. Withdrawn. Amendment 57. Baroness Kramer. Not not moved. Amendments 58 to 59. Lord Holmes not moved en bloc. Not moved. Amendment 59. Lord Vaux not moved. Amendment 60 to 64. Lord Stockwood are these withdrawn en bloc?Withdrawn. En en. Bloc. Withdrawn. I think I will just check.
Is it your lordship's pleasure that the amendment be withdrawn?Amendment is by leave withdrawn. Amendment 64. Lord Foulkes not moved, not moved. The question is that schedule two be the second schedule to the bill. As many as that opinion will say content. The contrary. Not content. The contents have it in clause 14, amendment 64. A Lord Holmes of Richmond.
Is it your lordship's pleasure that the amendment be withdrawn?Amendment is by leave withdrawn. Amendment 64. Lord Foulkes not moved, not moved. The question is that schedule two be the second schedule to the bill. As many as that opinion will say content. The contrary. Not content. The contents have it in clause 14, amendment 64. A Lord Holmes of Richmond.
17:04
17:04
17:04
17:05
Speaker 2
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Speaker 2
I'm back in the room. It's a pleasure to open this group of amendments, and in many ways, it builds on the first group. This bill is light on the use of technology and light on the use of intelligence between the regulators, who are spread across the financial services landscape. As my noble friend Lady Neville-rolfe said in responding to the first group, in many ways, this bill feels like it's written for a time which is already rapidly evaporating. There are new payment mechanisms, new financial instruments, in fact, new products which are already dominating key parts of the market.
It would seem to make sense to have provision to have more intelligent sharing across the regulators and indeed the broader landscape. Modern modern technologies are being deployed by both participants and indeed bad actors in this arena. Thus, it would seem to make sense to have combined activity, connected action, and shared intelligence amongst the regulators. And indeed within that, to bring technology such as AI and other technologies to bear in achieving that. I look forward to the debate on this amendment and others in this group, and indeed, the minister's response.
It would seem to make sense to have provision to have more intelligent sharing across the regulators and indeed the broader landscape. Modern modern technologies are being deployed by both participants and indeed bad actors in this arena. Thus, it would seem to make sense to have combined activity, connected action, and shared intelligence amongst the regulators. And indeed within that, to bring technology such as AI and other technologies to bear in achieving that. I look forward to the debate on this amendment and others in this group, and indeed, the minister's response.
17:06
17:06
Speaker 11
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Speaker 11
To speak to amendment 64, B and 69 A in this group, which are in my name. They direct attention to matters arising from the provisions in clause 14, which are of great concern to the Law Society and the Law Society of Scotland. My Lords, I apologise to the noble Lord, the Minister for the late arrival. They were based on draft amendments that were not sent to me until Monday of this week, and I'm grateful to the table office for their help in the drafting of them at short notice.
The background to these amendments is as follows. The Law Society and the Law Society of Scotland are both regulatory authorities. Their current regulatory role includes responsibility for supervising the compliance by solicitors in their respective jurisdictions, with the UK's anti-money laundering and counter-terrorism financing frameworks. They are therefore supervisory authorities of the kind referred to in the amendment to section 49 of the Sanctions and Anti-Money Laundering Act, 2018, which is set out in in clause 14, two of the bill. But the regulation of anti-money laundering and counter-terrorism financing is only just part of the responsibilities that these two societies exercise as regulators.
Solicitors play an important role in tackling economic crime. The society's role as an AML supervisory body is a key component of their function. As regulators of the solicitor profession. This is a task which both societies take very seriously. I am told that the Law Society of Scotland employs a team of dedicated specialists with detailed and up to date knowledge of the trends in economic crime and the risks that are associated with the provision of legal services. And I have no reason to think that the way in which the Law Society of England and Wales handles its its responsibilities is any different.
The effect of the amendments proposed in clause 14 would be to transfer through regulations which we have not yet seen. The front AML supervision of the solicitor profession to the Financial Conduct Authority. The FCA, as the Single professional services regulator, the Law Society believes that this will amount to. And I use their words, a seismic shake up and up and down the country. The. These matters. I beg your pardon. However, the society's AML and CI obligations are regulated and it risks sending shockwaves through the sector.
Adapting to this change has the potential to direct attention, resources and time from supporting clients and developing the solicitors, businesses businesses with effects that would be quite hard to cope with. The Law Society of Scotland strongly opposes this change. Their point is that it will lead to the duplication of systems of regulation. On the one hand, the society will continue to have its role as the profession's regulator. On the other hand, there will be the FCA solicitor firms, large and small, will have in the future to deal with them both, increasing the time spent and the cost of being regulated.
This will bear heavily, especially on the small firms in the remoter areas of Scotland, which often operate on very narrow margins. The population is thinly spread in these areas, and so are the firms that exist to provide essential legal services there to the people who need them. Much, of course, will depend on how the FCA approaches its task, but anything that might lead to the disappearance of these firms due to the consequences would be very much to be regretted. That is what lies behind the Law Society of Scotland's objection.
The Law Society for England and Wales, for its part, is concerned, concerned without a clear statement of their position by the Treasury and the FCA. Parliament is being asked to legislate for powers to enable the detail of the reforms to be enacted that remain unclear, and the sector has not yet seen my amendment 64 B focuses on the points that are of particular concern. I shall mention in relation to each one as briefly as I can, the questions as to which answers are sought from the noble Lord.
The Minister. Subsection 1CA asks that the regulations be proportionate and risk based. The question is whether the FCA intends to import its banking model into the process for all solicitors firms, small as well as large, or instead to take a risk based approach. Should not the supervision in regard to this profession be tailored to the risks posed by the different sectors within IT?Firms vary from the very small, with perhaps one partner in a remote part of Scotland, on the one hand to the very large international firms found in the City of London.
How will the government ensure that the small firms, small high street firms up and down the country are not disproportionately burdened by the system that they propose to operate?Subsection 1CB seeks appropriate protections for legal, professional privilege and client confidentiality. Can the minister confirm that nothing will be done under clause 14 that will weaken legal professional privilege, which has a vital role in securing access to justice?The Solicitors Regulation Authority of the Law Society in England and Wales at present keeps all ELP material confidential. It may only be used for investigation and enforcement ceedings against the solicitor or the firm that it regulates, regulates.
It may not be used in relation to proceedings that may be taken against its clients. Will the FCA follow the Law Society's practice, and will it also accommodate the duty of confidentiality, which underpins much legal work, and will it respect the obligations of the solicitor or the firm to the court?Subsection one D seeks to avoid duplication. It is feared that the Treasury will seem to use a broader system of regulation than the current regime, with the risk that this will duplicate the the Solicitors Regulation Authority oversight, create unnecessary burdens and delay routine transactions.
What practical mechanisms can be put in place to prevent solicitors from being subjected to overlapping requirements from both the FCA and the SRA?Subsection one D lastly calls for an impact assessment. How can the appropriate of these powers be judged without seeing the underlying underlying regime?Will the regulations be accompanied by assessments of their impact on those who are to be subjected to the system of supervision for which they provide?What estimate has been made of the compliance costs for these law firms?Will the powers be compatible with the way that legal services are regulated in Scotland, which has a different legal system from that in England and Wales?And that does my amendment 69 AA it asks for a review of AML and CTF supervision within three years, and a report which includes an assessment of each of the points to which I have drawn attention.
I do not expect the noble Lord Minister to answer my questions this evening. I've set them out because I hope it may form the basis for some discussion. If the noble Lord is willing to meet with me at some point before. Report so that we can go over these thoughts of greater leisure and in more detail. My Lords, I beg to move.
The background to these amendments is as follows. The Law Society and the Law Society of Scotland are both regulatory authorities. Their current regulatory role includes responsibility for supervising the compliance by solicitors in their respective jurisdictions, with the UK's anti-money laundering and counter-terrorism financing frameworks. They are therefore supervisory authorities of the kind referred to in the amendment to section 49 of the Sanctions and Anti-Money Laundering Act, 2018, which is set out in in clause 14, two of the bill. But the regulation of anti-money laundering and counter-terrorism financing is only just part of the responsibilities that these two societies exercise as regulators.
Solicitors play an important role in tackling economic crime. The society's role as an AML supervisory body is a key component of their function. As regulators of the solicitor profession. This is a task which both societies take very seriously. I am told that the Law Society of Scotland employs a team of dedicated specialists with detailed and up to date knowledge of the trends in economic crime and the risks that are associated with the provision of legal services. And I have no reason to think that the way in which the Law Society of England and Wales handles its its responsibilities is any different.
The effect of the amendments proposed in clause 14 would be to transfer through regulations which we have not yet seen. The front AML supervision of the solicitor profession to the Financial Conduct Authority. The FCA, as the Single professional services regulator, the Law Society believes that this will amount to. And I use their words, a seismic shake up and up and down the country. The. These matters. I beg your pardon. However, the society's AML and CI obligations are regulated and it risks sending shockwaves through the sector.
Adapting to this change has the potential to direct attention, resources and time from supporting clients and developing the solicitors, businesses businesses with effects that would be quite hard to cope with. The Law Society of Scotland strongly opposes this change. Their point is that it will lead to the duplication of systems of regulation. On the one hand, the society will continue to have its role as the profession's regulator. On the other hand, there will be the FCA solicitor firms, large and small, will have in the future to deal with them both, increasing the time spent and the cost of being regulated.
This will bear heavily, especially on the small firms in the remoter areas of Scotland, which often operate on very narrow margins. The population is thinly spread in these areas, and so are the firms that exist to provide essential legal services there to the people who need them. Much, of course, will depend on how the FCA approaches its task, but anything that might lead to the disappearance of these firms due to the consequences would be very much to be regretted. That is what lies behind the Law Society of Scotland's objection.
The Law Society for England and Wales, for its part, is concerned, concerned without a clear statement of their position by the Treasury and the FCA. Parliament is being asked to legislate for powers to enable the detail of the reforms to be enacted that remain unclear, and the sector has not yet seen my amendment 64 B focuses on the points that are of particular concern. I shall mention in relation to each one as briefly as I can, the questions as to which answers are sought from the noble Lord.
The Minister. Subsection 1CA asks that the regulations be proportionate and risk based. The question is whether the FCA intends to import its banking model into the process for all solicitors firms, small as well as large, or instead to take a risk based approach. Should not the supervision in regard to this profession be tailored to the risks posed by the different sectors within IT?Firms vary from the very small, with perhaps one partner in a remote part of Scotland, on the one hand to the very large international firms found in the City of London.
How will the government ensure that the small firms, small high street firms up and down the country are not disproportionately burdened by the system that they propose to operate?Subsection 1CB seeks appropriate protections for legal, professional privilege and client confidentiality. Can the minister confirm that nothing will be done under clause 14 that will weaken legal professional privilege, which has a vital role in securing access to justice?The Solicitors Regulation Authority of the Law Society in England and Wales at present keeps all ELP material confidential. It may only be used for investigation and enforcement ceedings against the solicitor or the firm that it regulates, regulates.
It may not be used in relation to proceedings that may be taken against its clients. Will the FCA follow the Law Society's practice, and will it also accommodate the duty of confidentiality, which underpins much legal work, and will it respect the obligations of the solicitor or the firm to the court?Subsection one D seeks to avoid duplication. It is feared that the Treasury will seem to use a broader system of regulation than the current regime, with the risk that this will duplicate the the Solicitors Regulation Authority oversight, create unnecessary burdens and delay routine transactions.
What practical mechanisms can be put in place to prevent solicitors from being subjected to overlapping requirements from both the FCA and the SRA?Subsection one D lastly calls for an impact assessment. How can the appropriate of these powers be judged without seeing the underlying underlying regime?Will the regulations be accompanied by assessments of their impact on those who are to be subjected to the system of supervision for which they provide?What estimate has been made of the compliance costs for these law firms?Will the powers be compatible with the way that legal services are regulated in Scotland, which has a different legal system from that in England and Wales?And that does my amendment 69 AA it asks for a review of AML and CTF supervision within three years, and a report which includes an assessment of each of the points to which I have drawn attention.
I do not expect the noble Lord Minister to answer my questions this evening. I've set them out because I hope it may form the basis for some discussion. If the noble Lord is willing to meet with me at some point before. Report so that we can go over these thoughts of greater leisure and in more detail. My Lords, I beg to move.
17:13
Speaker 3
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Speaker 3
My Lords, can I add some comments to the noble Lord Hope and what he is trying to achieve here?I put on record I in my register of interest. I'm a chartered accountant, chartered tax adviser. So very, very well versed with the burdens, I suppose, of the AML regulations in smaller practice. And I think these are burdens that we all suffer almost on a daily basis. Just the, the attempt to move money between one very regulated institution in the UK to another very regulated institution in the UK.
I think we've all suffered it where you're transferring funds from one to another. And yet the receiving institution requires the same questions all over again. The proofs of, of source of funds that the original organisation asked in the UK, when you put those funds into that institution. I have to say that the AML regulations have frankly got out of control, and I think it is time and we could do it within this bill to actually streamline what has become a real blockage in in the UK.
I had a quite ridiculous situation recently in purchasing a property. They wanted a proof of funds for a transaction that I'd conducted in 1992, and I struggled to find that because it had long gone through the shredder, as one might imagine. But, um, no closer to home, we do have a network of 22 professional bodies which are registered for AML. You know, all of that whole ambit of, of requirements. And, um, the firm that I'm still associated with no longer a partner, uh, one of those consultants that one becomes after the end and one is busy in the House of Lords.
We are registered with the ICW and what the beauty of that regulation is that the ICW, the Chartered Institute of Tax. And just as Lord hope the the legal institutions, they know the risks that are within the sector, that those institutions are working within. And more than that. When a practice I refer to an accountancy practice has a regular um review and visit from the Institute to make sure that everything is working well in terms of audit, regulation and general practice management. Uh, that's institution, the ICW inspector also examines our AML.
Um, what we are doing, are we doing it properly?Are we doing it adequately?Now the worry here is what will happen on one of those visits that will happen within the legal services industry, within chartered accountants, within tax advisers and other maybe, maybe trust providing bodies. Will they then will their bodies that they are professionally subscribed to be doing that check?And then the institution waits for yet another knock on the door from the FCA to do a similar check. Now, I would have hoped that this legislation gives us the opportunity to cut through a bit of the nonsense and actually to strengthen what the professional bodies are doing and actually do very well.
I know there there was the, um, I know this is this is full of acronyms. This whole legislation. It's the OPBAS which trying to find what it actually meant. It was the office for Professional Body anti-money laundering supervision, uh, under the FCA. Uh, I frankly have to say before this legislation, I was unaware that the OPBAS actually exists, but we already have a body within the FCA that was charged to look at the whole issue of AML and anti-money laundering and anti-terrorist financing rules.
And yet it has been proven not to have done a lot. And yet that FCA sub institution is now going to be, uh, I assume, withdrawn. And the FCA going to do its sort of function through legislative procedure. And we hope there's going to be a better outcome. I find that a little bit peculiar. Now, my request, and I think this will develop as we go into report stage, is that we look at this all over again and actually see professional bodies have been doing this very adequately for a very long time.
And it goes along with that maxim, if it ain't broke, why are we trying to fix it?But I'll leave those remarks there.
I think we've all suffered it where you're transferring funds from one to another. And yet the receiving institution requires the same questions all over again. The proofs of, of source of funds that the original organisation asked in the UK, when you put those funds into that institution. I have to say that the AML regulations have frankly got out of control, and I think it is time and we could do it within this bill to actually streamline what has become a real blockage in in the UK.
I had a quite ridiculous situation recently in purchasing a property. They wanted a proof of funds for a transaction that I'd conducted in 1992, and I struggled to find that because it had long gone through the shredder, as one might imagine. But, um, no closer to home, we do have a network of 22 professional bodies which are registered for AML. You know, all of that whole ambit of, of requirements. And, um, the firm that I'm still associated with no longer a partner, uh, one of those consultants that one becomes after the end and one is busy in the House of Lords.
We are registered with the ICW and what the beauty of that regulation is that the ICW, the Chartered Institute of Tax. And just as Lord hope the the legal institutions, they know the risks that are within the sector, that those institutions are working within. And more than that. When a practice I refer to an accountancy practice has a regular um review and visit from the Institute to make sure that everything is working well in terms of audit, regulation and general practice management. Uh, that's institution, the ICW inspector also examines our AML.
Um, what we are doing, are we doing it properly?Are we doing it adequately?Now the worry here is what will happen on one of those visits that will happen within the legal services industry, within chartered accountants, within tax advisers and other maybe, maybe trust providing bodies. Will they then will their bodies that they are professionally subscribed to be doing that check?And then the institution waits for yet another knock on the door from the FCA to do a similar check. Now, I would have hoped that this legislation gives us the opportunity to cut through a bit of the nonsense and actually to strengthen what the professional bodies are doing and actually do very well.
I know there there was the, um, I know this is this is full of acronyms. This whole legislation. It's the OPBAS which trying to find what it actually meant. It was the office for Professional Body anti-money laundering supervision, uh, under the FCA. Uh, I frankly have to say before this legislation, I was unaware that the OPBAS actually exists, but we already have a body within the FCA that was charged to look at the whole issue of AML and anti-money laundering and anti-terrorist financing rules.
And yet it has been proven not to have done a lot. And yet that FCA sub institution is now going to be, uh, I assume, withdrawn. And the FCA going to do its sort of function through legislative procedure. And we hope there's going to be a better outcome. I find that a little bit peculiar. Now, my request, and I think this will develop as we go into report stage, is that we look at this all over again and actually see professional bodies have been doing this very adequately for a very long time.
And it goes along with that maxim, if it ain't broke, why are we trying to fix it?But I'll leave those remarks there.
17:18
17:18
Speaker 4
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Speaker 4
To make some comments on the, uh, on, on the on the amendments that have been discussed and then speak to the amendments in my name. That's, um, that I have some sympathy with the issues that have been raised by Lord Hope, and I hope very much that the minister can clear up this issue of professional privilege and client confidentiality, because it seems to me that is not in any way interpretable from the legislation or the explanatory notes, and it absolutely is key that, um, that I, I also see a see that.
Uh, Baroness Neville-rolfe and Lord Altrincham of have moved an amendment 69 a um to. Uh to, to require a report on the, on the sort of transfer process and that seems very sensible and Lord hope calling for a review of anti-money laundering and counter-terrorism financing supervision within three years. So all of those make some sense to me, but I particularly wanted to, uh, look at Lord Holmes of Richmond's Amendment 64 a because I think it actually hits part of the problem on the head. And this is an amendment which seeks, in effect, to require more effective intelligence sharing between supervisory authorities.
And I think, my Lord, it's that failure of intelligence sharing that many people consider to be the fundamental underlying cause of many of the problems that we have today. And it's not very clear that this, uh, that the proposals the government is bringing for actually that the easiest way in which to remedy that. But I will say more on that a little bit later. Now, for my amendments in this group, I have to thank the Chartered Institute of Taxation and the Association of Taxation Technicians, both for clarifying issues and for proposing legal language.
But, my Lords, despite all the steps we've taken over recent years, London remains the global centre of choice for laundering dirty money, whether from crime, sanctions busting or political corruption. Estimates are that 40% of all laundered money globally goes through the City of London or the Crown dependencies up to £325 billion a year. And, my Lords, the primacy of the London Money Laundromat is not, I think, an accolade we wish to retain. Now, part of the problem has been the fragmentation of oversight by 25 separate public and professional bodies, supervising not just financial institutions, but the many enablers ranging from accountants to solicitors to property agents and service companies.
In 2018, the government set up within the FCA what it hoped would be the answer. The office for Professional Body Anti-Money laundering supervision, which Lord Mackinlay described and which I call op bars, which makes it an acronym and not an initialization, I gather that's. But, uh, it put in place to oversee the 22 professional body supervisors, not the public ones, but the professional body supervisors. And it has had some real successes. I think we need to acknowledge that. But it hasn't been as effective as we hoped.
And that goes back to the issue that was raised by Lord Holmes. They're no longer in his place. That the primary reason for this, in most people's opinion, seems to be relatively poor communication that, uh, and cooperation between op bars and the law enforcement agencies. And frankly, I can't find anything in this bill that begins to deal with that. Now, one approach to remedying this situation would have been to a given op base, proper resources, and more teeth that instead, the government has decided that the FCA should take on directly or supervisory responsibility for anti-money laundering and counter-terrorism financing.
And I think many in the professional bodies are very correctly worried that the FCA lacks the expertise and capacity to carry out the role it's being given, which is much more complex than just enforcement. Many of the firms that the FCA will supervise on these AML issues are small to tiny, and the FCA has no significant history of supervising small and tiny firms and no understanding of the different operations and pressures of these entities, all of their specialist activities. The firms and this has been one of the strengths of the professional bodies need compliance support.
They need education. They need expert helplines. They need hand-holding. They need guidance from a supervisor that knows their business model. So my amendments 65 to 69 should be seen as sort of part of a whole and are collectively intended to try and tackle this problem and to clarify and ensure a workable transition process. Amendment 65 addresses education, guidance and guidance and compliance support. 66 requires a proper transition timetable. 67 requires the FCA to have the necessary expertise and experience in tax, accounting, legal services and trust and company service provision.
It doesn't at the moment, 68 requires transparency on supervisory costs and the fees the FCA will levy. 69 requires a report in six months on how effective the new anti-money laundering system is. Frankly, I think all of this should have been on the face of the bill, and none of it actually should be controversial. Once again, we have a situation where the government seeks to pass primary legislation that gives ministers and regulators a blank sheet of paper to fill in as they wish, with secondary legislation.
And at this point, as far as I can understand, I was looking and I couldn't find it. We don't even have a promise to publish the regulations for consultation.
Uh, Baroness Neville-rolfe and Lord Altrincham of have moved an amendment 69 a um to. Uh to, to require a report on the, on the sort of transfer process and that seems very sensible and Lord hope calling for a review of anti-money laundering and counter-terrorism financing supervision within three years. So all of those make some sense to me, but I particularly wanted to, uh, look at Lord Holmes of Richmond's Amendment 64 a because I think it actually hits part of the problem on the head. And this is an amendment which seeks, in effect, to require more effective intelligence sharing between supervisory authorities.
And I think, my Lord, it's that failure of intelligence sharing that many people consider to be the fundamental underlying cause of many of the problems that we have today. And it's not very clear that this, uh, that the proposals the government is bringing for actually that the easiest way in which to remedy that. But I will say more on that a little bit later. Now, for my amendments in this group, I have to thank the Chartered Institute of Taxation and the Association of Taxation Technicians, both for clarifying issues and for proposing legal language.
But, my Lords, despite all the steps we've taken over recent years, London remains the global centre of choice for laundering dirty money, whether from crime, sanctions busting or political corruption. Estimates are that 40% of all laundered money globally goes through the City of London or the Crown dependencies up to £325 billion a year. And, my Lords, the primacy of the London Money Laundromat is not, I think, an accolade we wish to retain. Now, part of the problem has been the fragmentation of oversight by 25 separate public and professional bodies, supervising not just financial institutions, but the many enablers ranging from accountants to solicitors to property agents and service companies.
In 2018, the government set up within the FCA what it hoped would be the answer. The office for Professional Body Anti-Money laundering supervision, which Lord Mackinlay described and which I call op bars, which makes it an acronym and not an initialization, I gather that's. But, uh, it put in place to oversee the 22 professional body supervisors, not the public ones, but the professional body supervisors. And it has had some real successes. I think we need to acknowledge that. But it hasn't been as effective as we hoped.
And that goes back to the issue that was raised by Lord Holmes. They're no longer in his place. That the primary reason for this, in most people's opinion, seems to be relatively poor communication that, uh, and cooperation between op bars and the law enforcement agencies. And frankly, I can't find anything in this bill that begins to deal with that. Now, one approach to remedying this situation would have been to a given op base, proper resources, and more teeth that instead, the government has decided that the FCA should take on directly or supervisory responsibility for anti-money laundering and counter-terrorism financing.
And I think many in the professional bodies are very correctly worried that the FCA lacks the expertise and capacity to carry out the role it's being given, which is much more complex than just enforcement. Many of the firms that the FCA will supervise on these AML issues are small to tiny, and the FCA has no significant history of supervising small and tiny firms and no understanding of the different operations and pressures of these entities, all of their specialist activities. The firms and this has been one of the strengths of the professional bodies need compliance support.
They need education. They need expert helplines. They need hand-holding. They need guidance from a supervisor that knows their business model. So my amendments 65 to 69 should be seen as sort of part of a whole and are collectively intended to try and tackle this problem and to clarify and ensure a workable transition process. Amendment 65 addresses education, guidance and guidance and compliance support. 66 requires a proper transition timetable. 67 requires the FCA to have the necessary expertise and experience in tax, accounting, legal services and trust and company service provision.
It doesn't at the moment, 68 requires transparency on supervisory costs and the fees the FCA will levy. 69 requires a report in six months on how effective the new anti-money laundering system is. Frankly, I think all of this should have been on the face of the bill, and none of it actually should be controversial. Once again, we have a situation where the government seeks to pass primary legislation that gives ministers and regulators a blank sheet of paper to fill in as they wish, with secondary legislation.
And at this point, as far as I can understand, I was looking and I couldn't find it. We don't even have a promise to publish the regulations for consultation.
17:24
Speaker 5
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Speaker 5
Speak to the clause 14, stand apart notice and amendment 69 in my name and that of my noble friend, Lord Altrincham. I'm also grateful to my noble friend Lord Holmes and the. No, the noble and learned Lord. Lord Hope of Craighead. I have to say it's a particular pleasure to welcome him to the chamber and to this Bill and the noble, uh, Baroness Lady Cramer, for bringing forward a number of, um, useful amendments in this group. My noble friend Lord McKinley of Richborough, um I think is is right to stand up and summarise the concerns and nonsenses of the money laundering regulations in general, which we should try and address as part of reform.
We would certainly support that. We haveto ask is whether the government's chosen mechanism is sufficiently clear, proportionate and workable. At present, I am concerned that it is not. Clause 14 represents a major structural change. Moving frontline AML supervision for professional services from the existing professional body supervisors to the FCA. The bill will allow the extension of FCA supervision on money laundering to civil. New areas indeed, 22 bodies in all, as we've heard, that include solicitors, law firms, accountants and trust and company service providers, and in practice, estate agents.
Yet, as with so much in this bill, the framework is broad. While the substance is left to later regulations, and that is a real concern. My amendment 69 seeks to address that in part by requiring the Treasury's report to Parliament on the process for transferring responsibilities under clause 14. That report would force the government to set out how the transfer will work in practice, what steps will be taken to manage the transition, how costs will be assessed, how duplication will be avoided and how the FCA will acquire and maintain the necessary sector expertise.
All points that have been raised in debate. We've heard very serious concerns from industry and professional bodies about spiralling costs, duplication and regulatory uncertainty. The Law Society has described the proposal as a seismic shake up in how law firms and their AML obligations are regulated. It is warned that the change risks diverting attention, resources and time away from supporting clients and growing businesses towards adapting to a new and uncertain compliance regime, and that concern should be taken seriously. The government and the FCA should be seeking to simplify requirements, reduce duplication and minimise compliance burden while maintaining strong safeguards against economic crime.
The risk of duplication is particularly important. Solicitors are already subject to a distinct regulatory framework. They have professional obligations, ethical duties, responsibilities to the court, duties under the rule of law and obligations around client confidentiality and legal professional privilege. If the FCA is now to be added into that landscape as a supervisor, the government must explain precisely how the new system will avoid overlapping or conflicting expectations. Like the noble lady, Lady Cramer. I'm particularly concerned about sector expertise.
If the FCA is to take on these responsibilities, it must have people within it who understand the professions and bodies. They will be supervising it. It must understand how law firms operate, how client accounts work, how professional privilege functions, and how smaller or high street firms differ from large practices. Costs are another major concern. I'd like to emphasise this point that follows. Small and high street firms are worried that a move to FCA supervision may result in higher fees and new compliance costs.
Many of these firms are already under pressure. They serve individuals, they serve families, they serve small businesses in communities across the country. If the effect of this reform is to impose disproportionate new costs on them, that could have real consequences for access to legal services. The FCA does not understand how to deal with thousands and thousands of such firms. We also need to understand how regional capacity will be maintained. Professional services are not confined to London. It's one of their charms.
AML risks and compliance responsibilities exist across the whole country, and the existing professional body model has the advantage of sector specific and in many cases, locally embedded knowledge. There's also a specific territorial issue. As we've heard from the noble and learned Lord. Lord Hope, the Law Society of Scotland has opposed the change and raised concerns about the compatibility of FCA supervision with the regulation of legal services in Scotland. The government need to explain how these reforms will interact with devolved and existing statutory frameworks, and how they will avoid creating a two track or conflicting regulatory regime.
Lord Hope also emphasised the SME issue, and it seems that that's a particular difficulty in Scotland. The wider concern behind our clause 14 stand part notice and amendment 69 is that Parliament is being asked to legislate now for powers whose practical effect will become clear only later. And of course, I've already challenged this approach elsewhere in the bill. Industry is telling us that the lack of certainty is leading to pre-emptive behaviour, which is negatively affecting the sector, and firms are trying to plan for a regime whose shape they don't yet know and are having to make difficult assumptions.
The minister has presented this as a deregulatory bill and we have been very supportive on that basis. However, once the compliance costs of this change are added, I fear that will be reversed since the costs will be spread across the country and into big and even more important, smaller organisations and firms. My fear is that this move could kill vital service sector growth as those affected struggle with change. Now the noble Lord, Lord, Hope and Lord, Lord, Hope had a very. Powerful list of questions.
Um. I also have some questions, some of which overlap and which I would very much appreciate an answer to for a full report, perhaps in a letter. Will the government ensure that the transfer of responsibilities does not lead to duplication between the FCA, existing regulators and professional bodies?Second, what assessment has been made of the likely cost impact of this change on firms, particularly the small and high street practices, the estate agents, the accountants and so on?Third, how will the FCA acquire and retain the necessary sector expertise?Fourth, when will the government set out a clear timetable for implementation?People do need to know when these new rules are likely to come in.
And fifth, how will the government ensure that professional obligations. Legal. Professional privilege. Client confidentiality and the distinct framework of legal practice are properly protected and six how will the government address the concerns raised in Scotland and ensure that the new regime does not cut across devolved or existing statutory arrangements?I've spoken at length because the government need to show that this reform will be proportionate, sector sensitive and practical. Clause 14 is too vague. Too much is being left to later regulation, and the sector is being asked to prepare for regime whose shape remains unclear.
And indeed, in a in a in an industry that is rapidly changing, as we've heard from the noble, noble friend, Lord Holmes. This, my Lords, is an area we'll need to return to at report. But some helpful answers would make that process easier.
We would certainly support that. We haveto ask is whether the government's chosen mechanism is sufficiently clear, proportionate and workable. At present, I am concerned that it is not. Clause 14 represents a major structural change. Moving frontline AML supervision for professional services from the existing professional body supervisors to the FCA. The bill will allow the extension of FCA supervision on money laundering to civil. New areas indeed, 22 bodies in all, as we've heard, that include solicitors, law firms, accountants and trust and company service providers, and in practice, estate agents.
Yet, as with so much in this bill, the framework is broad. While the substance is left to later regulations, and that is a real concern. My amendment 69 seeks to address that in part by requiring the Treasury's report to Parliament on the process for transferring responsibilities under clause 14. That report would force the government to set out how the transfer will work in practice, what steps will be taken to manage the transition, how costs will be assessed, how duplication will be avoided and how the FCA will acquire and maintain the necessary sector expertise.
All points that have been raised in debate. We've heard very serious concerns from industry and professional bodies about spiralling costs, duplication and regulatory uncertainty. The Law Society has described the proposal as a seismic shake up in how law firms and their AML obligations are regulated. It is warned that the change risks diverting attention, resources and time away from supporting clients and growing businesses towards adapting to a new and uncertain compliance regime, and that concern should be taken seriously. The government and the FCA should be seeking to simplify requirements, reduce duplication and minimise compliance burden while maintaining strong safeguards against economic crime.
The risk of duplication is particularly important. Solicitors are already subject to a distinct regulatory framework. They have professional obligations, ethical duties, responsibilities to the court, duties under the rule of law and obligations around client confidentiality and legal professional privilege. If the FCA is now to be added into that landscape as a supervisor, the government must explain precisely how the new system will avoid overlapping or conflicting expectations. Like the noble lady, Lady Cramer. I'm particularly concerned about sector expertise.
If the FCA is to take on these responsibilities, it must have people within it who understand the professions and bodies. They will be supervising it. It must understand how law firms operate, how client accounts work, how professional privilege functions, and how smaller or high street firms differ from large practices. Costs are another major concern. I'd like to emphasise this point that follows. Small and high street firms are worried that a move to FCA supervision may result in higher fees and new compliance costs.
Many of these firms are already under pressure. They serve individuals, they serve families, they serve small businesses in communities across the country. If the effect of this reform is to impose disproportionate new costs on them, that could have real consequences for access to legal services. The FCA does not understand how to deal with thousands and thousands of such firms. We also need to understand how regional capacity will be maintained. Professional services are not confined to London. It's one of their charms.
AML risks and compliance responsibilities exist across the whole country, and the existing professional body model has the advantage of sector specific and in many cases, locally embedded knowledge. There's also a specific territorial issue. As we've heard from the noble and learned Lord. Lord Hope, the Law Society of Scotland has opposed the change and raised concerns about the compatibility of FCA supervision with the regulation of legal services in Scotland. The government need to explain how these reforms will interact with devolved and existing statutory frameworks, and how they will avoid creating a two track or conflicting regulatory regime.
Lord Hope also emphasised the SME issue, and it seems that that's a particular difficulty in Scotland. The wider concern behind our clause 14 stand part notice and amendment 69 is that Parliament is being asked to legislate now for powers whose practical effect will become clear only later. And of course, I've already challenged this approach elsewhere in the bill. Industry is telling us that the lack of certainty is leading to pre-emptive behaviour, which is negatively affecting the sector, and firms are trying to plan for a regime whose shape they don't yet know and are having to make difficult assumptions.
The minister has presented this as a deregulatory bill and we have been very supportive on that basis. However, once the compliance costs of this change are added, I fear that will be reversed since the costs will be spread across the country and into big and even more important, smaller organisations and firms. My fear is that this move could kill vital service sector growth as those affected struggle with change. Now the noble Lord, Lord, Hope and Lord, Lord, Hope had a very. Powerful list of questions.
Um. I also have some questions, some of which overlap and which I would very much appreciate an answer to for a full report, perhaps in a letter. Will the government ensure that the transfer of responsibilities does not lead to duplication between the FCA, existing regulators and professional bodies?Second, what assessment has been made of the likely cost impact of this change on firms, particularly the small and high street practices, the estate agents, the accountants and so on?Third, how will the FCA acquire and retain the necessary sector expertise?Fourth, when will the government set out a clear timetable for implementation?People do need to know when these new rules are likely to come in.
And fifth, how will the government ensure that professional obligations. Legal. Professional privilege. Client confidentiality and the distinct framework of legal practice are properly protected and six how will the government address the concerns raised in Scotland and ensure that the new regime does not cut across devolved or existing statutory arrangements?I've spoken at length because the government need to show that this reform will be proportionate, sector sensitive and practical. Clause 14 is too vague. Too much is being left to later regulation, and the sector is being asked to prepare for regime whose shape remains unclear.
And indeed, in a in a in an industry that is rapidly changing, as we've heard from the noble, noble friend, Lord Holmes. This, my Lords, is an area we'll need to return to at report. But some helpful answers would make that process easier.
17:33
Speaker 6
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Speaker 6
My Lords, I am grateful for the noble ladies, Baroness Kramer and Baroness Neville Rolfe, as well as the noble Lords Lord Altrincham, Lord Holmes of Richmond and Lord Hope of Craighead. These amendments relating to implementation of anti-money laundering and counter-terrorism financing supervision reform. I'd be more than happy to meet Lord Hope to discuss his points in detail before the report stage. And thank you for that kind offer, and I'm more than happy to write to the noble lady. Baroness Neville-rolfe, on her questions as well, although I'll cover professional privilege in my response here later in just a couple of moments as well.
I recognise the concerns that sit behind these amendments on this topic, and we all want to get this right. However, the government does not believe that these additional statutory requirements are necessary. I will start by setting out why clause four should stand as part of the bill, because the UK is a global financial hub, we face heightened vulnerability. Illicit finance has already been mentioned. The UK has a robust set of anti-money laundering rules, but the supervision of those rules is to simply not consistent.
The government understands the burden of compliance, but the government's recent statutory instrument made money laundering regulation more proportionate by ensuring that requirements are enforced when and where risks are highest and are reduced where they are not. In October 2025, the government announced their intention to reform the supervision framework, with the FCA becoming the supervisor of compliance with anti-money laundering and counter-terrorism financing rules. Professional service firms. Clause 14 is designed to support this transition and ensure that the new supervisory regime can function effectively. It's worth restating that we believe the vast majority of companies take seriously the responsibility to ensure their clients funds are clean, and we're grateful for their efforts.
But they are important gatekeepers in protecting the integrity of the UK economy. This reform brings professional services firms in line with other regulated sectors, such as financial services, which are already overseen by the public sector supervisor. This is fair and proportionate. The government has recently published its updated anti-money laundering and counter-terrorism financing, National Risk Assessment. It found that all professional services in scope of this reform remain high risk for money laundering. Based on an extensive analysis of the available available evidence and intelligence.
Clause 14 is essential to ensure effective implementation of the supervision reforms. Without it, the government would lose the ability to make important provision in respect to cooperation and information sharing between the FCA and professional bodies. Ongoing cooperation between the FCA professional bodies will be key in ensuring that firms reform is effective. It's been mentioned by many of the noble Lords today. It will mean that additional burdens on firms, including dual regulation and issues around enforcement, are minimised. But without this, implementation of reform will be less effective and firms will likely face additional burdens which the government is determined to avoid.
The government's objective is to simplify and strengthen the fragmented supervisory system, improve consistency across sectors and support a more effective action against economic crime. Effective supervision depends on robust cooperation and information sharing between supervisors and other partners across the wider AML, CTF framework. Cooperation and information sharing mechanisms will ensure that additional burdens on firms, including dual regulation and issues around enforcement, are minimised, and addressing key concerns raised by stakeholders. Clause 14 provides the basis on which those future arrangements can be established. The government therefore considers clause 14 essential and strongly supports its inclusion in the Bill.
And just to re-emphasise the objective here, this is about simplifying and strengthening a fragmented supervisory system, improving consistency across the legal and accounting sectors, and ensuring firms are supervised to a consistently high standard. There is no proposal to introduce new anti-money laundering obligations on businesses. I will now turn to amendment 65 and 67, which are concerned with whether firms will continue to receive appropriate support and when the FCA will possess sufficient sector specific expertise raised by many noble Lords. Today, the government agrees that these are important issues.
However, they are already central to implementation planning. The Treasury's recent consultation on the FCA's duties, powers and accountability demonstrated the importance of stakeholders placed on sector expertise, guidance and engagement. So the government has been clear that the implementation must involve the development of specialist expertise within the FCA and close engagement with existing supervisors and representative bodies. The FCA also starts from a strong foundation. It has supervised firms for AML, CTF purposes and oversees legal and accountancy professional body supervision through the Official Office for the Professional Body Anti-Money Laundering Supervision.
This gives the FCA a substantial experience. Both both AML, CTF supervision and the professional services landscape. The FCA will also ensure that those clarity practitioners on sector specific issues, such as guidance on the treatment of documents covered by legal professional privilege. The government has also recognised the value of practitioner expertise consultation strongly. Strongly supported practitioner led guidance and the government has indicated that within its response to the consultation, published on June 18th this year, the engagement with sector experts and existence guidance guidance bodies will remain an important feature of the future regime.
The government, therefore, agrees with the importance of preserving sector expertise and ensuring firms continue to receive effective support. However, these issues are already being addressed through the implementation planning, continued engagement with existing supervisors and representative bodies, the development of specialist capability within the FCA and future guidance arrangements. The government does not believe that additional statutory obligations on either the Treasury or the FCA are necessary to achieve those objectives. Turn to amendment 65 B and 69 A, which reflect important stakeholder concerns surrounding the need for proportionality and a risk based approach.
Appropriate protections for legal, professional privilege and client confidentiality, and the need to minimise duplication, and the impact on supervised persons. These concerns were raised by respondents to the recent consultation, and the government agrees that they are very important issues. Amendment 64 B would require regulations made under new powers to consider proportionality and risk based approach to supervision and appropriate projections. Appropriate protections for legal, professional privilege and client confidentiality, as well as avoid duplication between regulators. It would also require the Treasury to publish an impact assessment prior to making regulations.
However, the money laundering regulations mirrors the legislation, which provides the supervision of the regime already provides protections in respect of the need for risk based approach and legal professional privilege. The risk based approach underpins our supervision regime and has already set out in legislation, and the government took additional steps to ensure that the existing regulations are proportionate to changes made by statutory instrument. On the 9th of June 2026, the mills are kept under regular review to ensure they are proportionate. Both Lord Hope and Baroness Kramer have particularly asked me to cover this point, so I'll take the opportunity to do so.
The FCA will not be able to compel disclosure of legally privileged material under new responsibilities. The FCA will provide guidance to ensure privileged material is appropriately protected during supervisory activity. That is because this government is committed to respecting the distinctive obligations that the legal sector have. Regulation 72 of the Mlis provides explicit protection for legal professional privilege. This will apply to regulations made under the new power conferred by clause 14 of this Bill. And finally, the power in clause 14 of this Bill will ensure that the reciprocal cooperation and information sharing between supervisors and professional bodies is central to the new regime, minimising duplication regulations made under the new power in clause 14 will be subject to the draft affirmative procedure.
In making regulations, the government considers the impact on firms and this is formally set out in our published Regulatory Impact Assessment. Therefore, the additional requirement introduced by amendment 64 B would be duplicative of this process. Amendment 69 would require the Treasury to review regulations made under the new power in clause 14 within three years of them being made, and to lay before Parliament. A report summarizing the conclusions of that review. The government is already required to review the Millers at intervals not exceeding five years, and a requirement would also apply to regulations made under the new powers in clause 14.
As a result of this, the government regularly reviews the regulations to ensure that they are effective and proportionate and to respond to emerging threats. This is evidenced by regular updates made to the regulations via secondary legislation, with the most recent changes being made this month, and the government's aim is to minimise duplication and burdens on firms and to protect legal, professional privilege and client confidentiality will be the most important factors when considering reviewing existing regulations. Consideration of these issues is already fundamental to our supervision regime, and the regulations themselves are consistently reviewed to ensure that they continue to be fit for purpose.
Therefore, the government considers these additions to be unnecessary. Turning to amendment 66 and 69, these amendments, ultimately concerned with readiness and implementation. They seek assurances that the FCA will be capable of supervising professional service firms across different regions of the UK, and that the reform will proceed according to a clear timeline. The government shares the objective of ensuring the implementation is successful and whilst significant implementation planning is already taking place, substantial work will continue ahead of commencement. The government consistently recognise that this requires careful preparation, phase delivery, detailed transition planning and close collaboration with existing supervisors.
The government has also been clear that the effective implementation will require the development of sector specific and jurisdiction specific expertise, including a strong understanding of the legal sector, as mentioned, and a professional services firm to all sizes across all parts of the United Kingdom. HMG will work closely with the relevant bodies in Scotland and Northern Ireland to ensure that implementation reflects the distinctiveness of their legal system and is aligned with existing legislative and regulatory framework. This has already been managed through governance and business planning. The FCA already operates nationwide and has confirmed that it anticipates having a significant presence for the new regime in its offices outside of London, to ensure it has capacity to supervise these additional sectors.
However, the government does not believe that placing reporting requirements or implementation timetables in primary legislation is the right approach. Implementation of this reform is complex programme involving complex systems development, recruitment, training and funding arrangements and transition planning, and the government must retain sufficient flexibility to ensure that these activities are delivered effectively. However. That does not mean that firms will be left without certainty. The government is already working closely with the FCA, HMRC and existing supervisors in order to ensure reform is implemented in an orderly way, including ensuring that businesses are clear about when transition will occur and have sufficient time to prepare for change.
A statutory timetable of risks becoming outdated may constrain the government's ability to manage implementation in the most effective manner. Excuse me. Furthermore, the detailed provisions on supervision reform will ultimately be delivered through future secondary legislation. This means the government retains control over commencement and can ensure that functions are only conferred once appropriate implementation preparations have been completed. I'll now turn to amendment 69 a. Acknowledges this amendment would require the Treasury to lay before Parliament on the implementation of supervision reform before the act comes into force, the government fully recognises the importance of transparency and effective implementation.
The issues identified in the amendment, including transition arrangements, proportionality of burdens on firms, support for the supervised population and stakeholder engagement, are all important considerations and have already being addressed through implementation planning. As I've already set out, implementation planning has been a priority throughout the development of these reforms. The government is working closely with the FCA, HMRC, existing supervisors and representative bodies to ensure that transitional arrangements are effective and that firms have sufficient clarity and time to prepare for change. However, the government does not believe that requiring further statutory report before commencement is necessary.
These reforms will be implemented through secondary legislation, which will provide appropriate parliamentary scrutiny while preserving the flexibility needed to manage complex transition program effectively. The government, therefore, does not consider this amendment necessary. I now turn to amendment 68. The amendment seeks to greater certainty regarding supervisory fees and the impact of reform on firms, especially small firms. The government recognises the importance of ensuring that the future supervisory framework remains proportionate, particularly on smaller firms. However, detailed fee arrangements will necessarily be developed alongside implementation, planning and stakeholder engagement.
The future supervisory model will be funded through supervisory fees, as is standard through regulatory practice, but the government is also committed to substantial, substantial start up and transition funding through the Economic Crime Levy to facilitate implementation and support the development of the new regime, which will be achieved via the funding authority in clause 148. The government remains committed to engaging closely with all stakeholders. Implementation develops and to ensure that the future framework is proportionate and sustainable. We therefore do not consider additional statutory requirement necessary.
Amendment 64 A seeks to expand the power to make regulations providing for cooperation and information sharing to cover the FCA, Ofcom, the National Crime Agency, the National Economic Crime Centre and other law enforcement agencies, and the government fully recognizes the importance of effective cooperation across the UK's economic crime framework, AML CTF supervision relies on close coordination between supervisors, law enforcement agencies and other parties responsible for tackling illicit finance. The money laundering regulations, the relevant secondary legislation in this place already provide for extensive information sharing powers between AML, CTF supervisors, including the FCA, the Treasury, law enforcement agencies and companies House.
These powers may be used to tackle money laundering and terrorist financing, or to preserve the integrity of the international financial system for law enforcement purposes or otherwise fulfil the relevant body's regulatory functions under the Money Laundering Regulations. Clause 14 ensures that the FCA will be able to cooperate fully and effectively with professional bodies after they cease to have AML, CTF supervisory functions. Following the implementation of AML, CTF supervisory reform. However, provision of wider cooperation between the FCA and law enforcement bodies is not needed since this has already provided in provided for in the Money Laundering regulations.
Therefore, while the government agrees that appropriate arrangements for information sharing and operational cooperation will be important to successful implementation, we do not consider this amendment necessary. My Lords, I hope I've explained the purposes behind clause 14 and responded to your amendments to your satisfaction. I asked the noble Lord to withdraw his amendment.
I recognise the concerns that sit behind these amendments on this topic, and we all want to get this right. However, the government does not believe that these additional statutory requirements are necessary. I will start by setting out why clause four should stand as part of the bill, because the UK is a global financial hub, we face heightened vulnerability. Illicit finance has already been mentioned. The UK has a robust set of anti-money laundering rules, but the supervision of those rules is to simply not consistent.
The government understands the burden of compliance, but the government's recent statutory instrument made money laundering regulation more proportionate by ensuring that requirements are enforced when and where risks are highest and are reduced where they are not. In October 2025, the government announced their intention to reform the supervision framework, with the FCA becoming the supervisor of compliance with anti-money laundering and counter-terrorism financing rules. Professional service firms. Clause 14 is designed to support this transition and ensure that the new supervisory regime can function effectively. It's worth restating that we believe the vast majority of companies take seriously the responsibility to ensure their clients funds are clean, and we're grateful for their efforts.
But they are important gatekeepers in protecting the integrity of the UK economy. This reform brings professional services firms in line with other regulated sectors, such as financial services, which are already overseen by the public sector supervisor. This is fair and proportionate. The government has recently published its updated anti-money laundering and counter-terrorism financing, National Risk Assessment. It found that all professional services in scope of this reform remain high risk for money laundering. Based on an extensive analysis of the available available evidence and intelligence.
Clause 14 is essential to ensure effective implementation of the supervision reforms. Without it, the government would lose the ability to make important provision in respect to cooperation and information sharing between the FCA and professional bodies. Ongoing cooperation between the FCA professional bodies will be key in ensuring that firms reform is effective. It's been mentioned by many of the noble Lords today. It will mean that additional burdens on firms, including dual regulation and issues around enforcement, are minimised. But without this, implementation of reform will be less effective and firms will likely face additional burdens which the government is determined to avoid.
The government's objective is to simplify and strengthen the fragmented supervisory system, improve consistency across sectors and support a more effective action against economic crime. Effective supervision depends on robust cooperation and information sharing between supervisors and other partners across the wider AML, CTF framework. Cooperation and information sharing mechanisms will ensure that additional burdens on firms, including dual regulation and issues around enforcement, are minimised, and addressing key concerns raised by stakeholders. Clause 14 provides the basis on which those future arrangements can be established. The government therefore considers clause 14 essential and strongly supports its inclusion in the Bill.
And just to re-emphasise the objective here, this is about simplifying and strengthening a fragmented supervisory system, improving consistency across the legal and accounting sectors, and ensuring firms are supervised to a consistently high standard. There is no proposal to introduce new anti-money laundering obligations on businesses. I will now turn to amendment 65 and 67, which are concerned with whether firms will continue to receive appropriate support and when the FCA will possess sufficient sector specific expertise raised by many noble Lords. Today, the government agrees that these are important issues.
However, they are already central to implementation planning. The Treasury's recent consultation on the FCA's duties, powers and accountability demonstrated the importance of stakeholders placed on sector expertise, guidance and engagement. So the government has been clear that the implementation must involve the development of specialist expertise within the FCA and close engagement with existing supervisors and representative bodies. The FCA also starts from a strong foundation. It has supervised firms for AML, CTF purposes and oversees legal and accountancy professional body supervision through the Official Office for the Professional Body Anti-Money Laundering Supervision.
This gives the FCA a substantial experience. Both both AML, CTF supervision and the professional services landscape. The FCA will also ensure that those clarity practitioners on sector specific issues, such as guidance on the treatment of documents covered by legal professional privilege. The government has also recognised the value of practitioner expertise consultation strongly. Strongly supported practitioner led guidance and the government has indicated that within its response to the consultation, published on June 18th this year, the engagement with sector experts and existence guidance guidance bodies will remain an important feature of the future regime.
The government, therefore, agrees with the importance of preserving sector expertise and ensuring firms continue to receive effective support. However, these issues are already being addressed through the implementation planning, continued engagement with existing supervisors and representative bodies, the development of specialist capability within the FCA and future guidance arrangements. The government does not believe that additional statutory obligations on either the Treasury or the FCA are necessary to achieve those objectives. Turn to amendment 65 B and 69 A, which reflect important stakeholder concerns surrounding the need for proportionality and a risk based approach.
Appropriate protections for legal, professional privilege and client confidentiality, and the need to minimise duplication, and the impact on supervised persons. These concerns were raised by respondents to the recent consultation, and the government agrees that they are very important issues. Amendment 64 B would require regulations made under new powers to consider proportionality and risk based approach to supervision and appropriate projections. Appropriate protections for legal, professional privilege and client confidentiality, as well as avoid duplication between regulators. It would also require the Treasury to publish an impact assessment prior to making regulations.
However, the money laundering regulations mirrors the legislation, which provides the supervision of the regime already provides protections in respect of the need for risk based approach and legal professional privilege. The risk based approach underpins our supervision regime and has already set out in legislation, and the government took additional steps to ensure that the existing regulations are proportionate to changes made by statutory instrument. On the 9th of June 2026, the mills are kept under regular review to ensure they are proportionate. Both Lord Hope and Baroness Kramer have particularly asked me to cover this point, so I'll take the opportunity to do so.
The FCA will not be able to compel disclosure of legally privileged material under new responsibilities. The FCA will provide guidance to ensure privileged material is appropriately protected during supervisory activity. That is because this government is committed to respecting the distinctive obligations that the legal sector have. Regulation 72 of the Mlis provides explicit protection for legal professional privilege. This will apply to regulations made under the new power conferred by clause 14 of this Bill. And finally, the power in clause 14 of this Bill will ensure that the reciprocal cooperation and information sharing between supervisors and professional bodies is central to the new regime, minimising duplication regulations made under the new power in clause 14 will be subject to the draft affirmative procedure.
In making regulations, the government considers the impact on firms and this is formally set out in our published Regulatory Impact Assessment. Therefore, the additional requirement introduced by amendment 64 B would be duplicative of this process. Amendment 69 would require the Treasury to review regulations made under the new power in clause 14 within three years of them being made, and to lay before Parliament. A report summarizing the conclusions of that review. The government is already required to review the Millers at intervals not exceeding five years, and a requirement would also apply to regulations made under the new powers in clause 14.
As a result of this, the government regularly reviews the regulations to ensure that they are effective and proportionate and to respond to emerging threats. This is evidenced by regular updates made to the regulations via secondary legislation, with the most recent changes being made this month, and the government's aim is to minimise duplication and burdens on firms and to protect legal, professional privilege and client confidentiality will be the most important factors when considering reviewing existing regulations. Consideration of these issues is already fundamental to our supervision regime, and the regulations themselves are consistently reviewed to ensure that they continue to be fit for purpose.
Therefore, the government considers these additions to be unnecessary. Turning to amendment 66 and 69, these amendments, ultimately concerned with readiness and implementation. They seek assurances that the FCA will be capable of supervising professional service firms across different regions of the UK, and that the reform will proceed according to a clear timeline. The government shares the objective of ensuring the implementation is successful and whilst significant implementation planning is already taking place, substantial work will continue ahead of commencement. The government consistently recognise that this requires careful preparation, phase delivery, detailed transition planning and close collaboration with existing supervisors.
The government has also been clear that the effective implementation will require the development of sector specific and jurisdiction specific expertise, including a strong understanding of the legal sector, as mentioned, and a professional services firm to all sizes across all parts of the United Kingdom. HMG will work closely with the relevant bodies in Scotland and Northern Ireland to ensure that implementation reflects the distinctiveness of their legal system and is aligned with existing legislative and regulatory framework. This has already been managed through governance and business planning. The FCA already operates nationwide and has confirmed that it anticipates having a significant presence for the new regime in its offices outside of London, to ensure it has capacity to supervise these additional sectors.
However, the government does not believe that placing reporting requirements or implementation timetables in primary legislation is the right approach. Implementation of this reform is complex programme involving complex systems development, recruitment, training and funding arrangements and transition planning, and the government must retain sufficient flexibility to ensure that these activities are delivered effectively. However. That does not mean that firms will be left without certainty. The government is already working closely with the FCA, HMRC and existing supervisors in order to ensure reform is implemented in an orderly way, including ensuring that businesses are clear about when transition will occur and have sufficient time to prepare for change.
A statutory timetable of risks becoming outdated may constrain the government's ability to manage implementation in the most effective manner. Excuse me. Furthermore, the detailed provisions on supervision reform will ultimately be delivered through future secondary legislation. This means the government retains control over commencement and can ensure that functions are only conferred once appropriate implementation preparations have been completed. I'll now turn to amendment 69 a. Acknowledges this amendment would require the Treasury to lay before Parliament on the implementation of supervision reform before the act comes into force, the government fully recognises the importance of transparency and effective implementation.
The issues identified in the amendment, including transition arrangements, proportionality of burdens on firms, support for the supervised population and stakeholder engagement, are all important considerations and have already being addressed through implementation planning. As I've already set out, implementation planning has been a priority throughout the development of these reforms. The government is working closely with the FCA, HMRC, existing supervisors and representative bodies to ensure that transitional arrangements are effective and that firms have sufficient clarity and time to prepare for change. However, the government does not believe that requiring further statutory report before commencement is necessary.
These reforms will be implemented through secondary legislation, which will provide appropriate parliamentary scrutiny while preserving the flexibility needed to manage complex transition program effectively. The government, therefore, does not consider this amendment necessary. I now turn to amendment 68. The amendment seeks to greater certainty regarding supervisory fees and the impact of reform on firms, especially small firms. The government recognises the importance of ensuring that the future supervisory framework remains proportionate, particularly on smaller firms. However, detailed fee arrangements will necessarily be developed alongside implementation, planning and stakeholder engagement.
The future supervisory model will be funded through supervisory fees, as is standard through regulatory practice, but the government is also committed to substantial, substantial start up and transition funding through the Economic Crime Levy to facilitate implementation and support the development of the new regime, which will be achieved via the funding authority in clause 148. The government remains committed to engaging closely with all stakeholders. Implementation develops and to ensure that the future framework is proportionate and sustainable. We therefore do not consider additional statutory requirement necessary.
Amendment 64 A seeks to expand the power to make regulations providing for cooperation and information sharing to cover the FCA, Ofcom, the National Crime Agency, the National Economic Crime Centre and other law enforcement agencies, and the government fully recognizes the importance of effective cooperation across the UK's economic crime framework, AML CTF supervision relies on close coordination between supervisors, law enforcement agencies and other parties responsible for tackling illicit finance. The money laundering regulations, the relevant secondary legislation in this place already provide for extensive information sharing powers between AML, CTF supervisors, including the FCA, the Treasury, law enforcement agencies and companies House.
These powers may be used to tackle money laundering and terrorist financing, or to preserve the integrity of the international financial system for law enforcement purposes or otherwise fulfil the relevant body's regulatory functions under the Money Laundering Regulations. Clause 14 ensures that the FCA will be able to cooperate fully and effectively with professional bodies after they cease to have AML, CTF supervisory functions. Following the implementation of AML, CTF supervisory reform. However, provision of wider cooperation between the FCA and law enforcement bodies is not needed since this has already provided in provided for in the Money Laundering regulations.
Therefore, while the government agrees that appropriate arrangements for information sharing and operational cooperation will be important to successful implementation, we do not consider this amendment necessary. My Lords, I hope I've explained the purposes behind clause 14 and responded to your amendments to your satisfaction. I asked the noble Lord to withdraw his amendment.
17:48
17:48
Speaker 5
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Speaker 5
The minister sits down. AM I too late since it. Is. Since its committee. I have a couple of points I wanted to raise with the Minister before we finish on this important section. First, I do think the industry needs some idea of the time frame for these reviews and for the implementation of the changes. Now, it may be that that already exists in ministerial statements. It would be extremely helpful if the minister could look into that and let us know.
You know, we've had experience of the Defence Investment plan and it is the uncertainty that's created when you don't know that major changes are being made, it's bad for the sector. Secondly, on parliamentary privilege, a very, um, niche point. Does the plans to protect that apply to in-house counsel as well as external legal counsel?Um, small companies like estate agents, um, would not want to have to employ expensive solicitors and lawyers if they don't need to.
You know, we've had experience of the Defence Investment plan and it is the uncertainty that's created when you don't know that major changes are being made, it's bad for the sector. Secondly, on parliamentary privilege, a very, um, niche point. Does the plans to protect that apply to in-house counsel as well as external legal counsel?Um, small companies like estate agents, um, would not want to have to employ expensive solicitors and lawyers if they don't need to.
17:49
17:50
Speaker 7
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Speaker 7
As the noble Lord, Lord Holmes is not here to withdraw his amendment, I will take it that his amendment is withdrawn. Is it your lordships pleasure that the amendment be withdrawn?Amendment by. Leave withdrawn. Amendment 64. Be. Lord hope of Craighead. Not moved, not moved. The question is that clause 14 stand part of the bill. As many as of that opinion will say content. In the contrary, not content.
The contents have it. Amendments 65 to 69 not moved en bloc. Baroness Kramer not moved. Amendment 69. A Baroness Neville-rolfe not moved, not moved. Amendment 69 a Lord Hope of Craighead not moved. The question is that clause 15 stand part of the bill. As many as that will say content. The contrary not content. The contents have it. We come now to amendment 69. Be Lord Ashcombe.
The contents have it. Amendments 65 to 69 not moved en bloc. Baroness Kramer not moved. Amendment 69. A Baroness Neville-rolfe not moved, not moved. Amendment 69 a Lord Hope of Craighead not moved. The question is that clause 15 stand part of the bill. As many as that will say content. The contrary not content. The contents have it. We come now to amendment 69. Be Lord Ashcombe.
17:52
Speaker 10
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Speaker 10
My Lords. Unfortunately, I like the noble Lord, Lord Volks of Harrowden, as you mentioned on Monday, was unable to speak at second reading, but I'm delighted to be back in time to speak at the committee stage of this bill. I declare my interest as an employee of Marsh, an FCA regulated firm. I wish to speak to the amendments in my name. Amendment 69 B and 73 A in this group, which proposes that our financial regulators move from a five year to three years strategic planning cycle.
At its heart, this is a straightforward proposition. Regulators must keep pace with the world they regulate in financial services. The rate of change is accelerated to such an extent that a five year strategy can quickly become outdated. When the FCA and PRA last set their strategies, few could have anticipated the speed and scale of developments that followed the volatility seen in digital assets. The rapid emergence of artificial intelligence in financial decision making, the growing importance of cyber resilience to financial stability, and the impact of geopolitical tensions on global markets have all evolved far more quickly than expected.
Yet regulators remain bound by frameworks conceived for a very different environment. A three year cycle offers a more realistic and proportionate approach. It is not an arbitrary shift. It better reflects the pace of change in financial services, aligns more closely with the Treasury's spending review cycle and mirrors the planning horizons adopted by many firms. It also corresponds more closely to the time it takes for innovation to move from novelty to something requiring clear regulatory oversight. Some may argue that a five year cycle provides greater stability, but stability should not be confused with rigidity.
AG that is clearly out of date does not offer certainty. It risks losing credibility, true stability lies in a framework that is regularly reviewed and refreshed so that it remains relevant and dependable. A shorter cycle unnecessarily disrupt. Create unnecessary disruption. It would not require regulators to constantly change direction. Rather, it would ensure that their strategies are revisited at appropriate intervals and updated where necessary. That strikes the right balance between continuity, continuity and responsiveness. There is a practical consideration industry participants have consistently, consistently highlighted that five year strategies can be overtaken by events well before their conclusion, making it harder for firms to plan with confidence.
In reality, regulators have already had to adapt to shocks, whether economic, political or technological. Outside the normal review cycle. For that reason, this is not a radical proposal. It's a pragmatic one. It is important that financial regulation does not rely on a planning horizon that no longer reflects the realities of the market. The FCA and PRA are strong institutions, but even the most capable regulators cannot be expected to operate effectively within five years. Strategies in a period of such rapid change, a three year cycle is a measured reform.
It would help ensure that regulation remains responsive, credible and accountable while fully respecting the independence of our regulators. My Lords, these are probing amendments and as such, I would like to ask the Minister why the government chose to fix five year periods for strategy reviews, which I believe are too long, and look forward to his thoughts on this. I also support the amendments in the name of my noble friend Baroness Noakes and the noble lady, Baroness Bowles of Berkhampstead. Uh, my lords, I beg to move.
At its heart, this is a straightforward proposition. Regulators must keep pace with the world they regulate in financial services. The rate of change is accelerated to such an extent that a five year strategy can quickly become outdated. When the FCA and PRA last set their strategies, few could have anticipated the speed and scale of developments that followed the volatility seen in digital assets. The rapid emergence of artificial intelligence in financial decision making, the growing importance of cyber resilience to financial stability, and the impact of geopolitical tensions on global markets have all evolved far more quickly than expected.
Yet regulators remain bound by frameworks conceived for a very different environment. A three year cycle offers a more realistic and proportionate approach. It is not an arbitrary shift. It better reflects the pace of change in financial services, aligns more closely with the Treasury's spending review cycle and mirrors the planning horizons adopted by many firms. It also corresponds more closely to the time it takes for innovation to move from novelty to something requiring clear regulatory oversight. Some may argue that a five year cycle provides greater stability, but stability should not be confused with rigidity.
AG that is clearly out of date does not offer certainty. It risks losing credibility, true stability lies in a framework that is regularly reviewed and refreshed so that it remains relevant and dependable. A shorter cycle unnecessarily disrupt. Create unnecessary disruption. It would not require regulators to constantly change direction. Rather, it would ensure that their strategies are revisited at appropriate intervals and updated where necessary. That strikes the right balance between continuity, continuity and responsiveness. There is a practical consideration industry participants have consistently, consistently highlighted that five year strategies can be overtaken by events well before their conclusion, making it harder for firms to plan with confidence.
In reality, regulators have already had to adapt to shocks, whether economic, political or technological. Outside the normal review cycle. For that reason, this is not a radical proposal. It's a pragmatic one. It is important that financial regulation does not rely on a planning horizon that no longer reflects the realities of the market. The FCA and PRA are strong institutions, but even the most capable regulators cannot be expected to operate effectively within five years. Strategies in a period of such rapid change, a three year cycle is a measured reform.
It would help ensure that regulation remains responsive, credible and accountable while fully respecting the independence of our regulators. My Lords, these are probing amendments and as such, I would like to ask the Minister why the government chose to fix five year periods for strategy reviews, which I believe are too long, and look forward to his thoughts on this. I also support the amendments in the name of my noble friend Baroness Noakes and the noble lady, Baroness Bowles of Berkhampstead. Uh, my lords, I beg to move.
17:55
17:55
17:56
Speaker 8
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Speaker 8
70. 71. 73. 74 and 76 in my name. And I thank the noble Lord, Lord Vaux of Harrowden, for adding his name to amendments 70, 73, and 76. My Lords, at first sight, clause 16 looks like a bit of motherhood and apple pie legislation. After all, what is not to like about five year strategies?It's what most businesses do in the UK and internationally. A closer look at clause 16, however, does reveal a bit of a mess.
The position we have at the moment is that the PRA is required to determine a strategy, and it does this by way of annual business plans. There is no requirement in statute for the FCA to do anything, but it has routinely issued annual plans and last year it issued a five year strategy as well. So this is clearly a slightly messy area and the government are right to try and tidy it up. I fear, however, that the solution in clause 16 will make things worse.
First, the requirement for a strategy seems to be a static one, requiring a five year strategy to be set and then replaced when the five years have nearly run out a subsection. Of. Of. New subsections. Of new sections one J, z, a, and two E being inserted by clause 16 do envisage that the strategies can be revised or replaced, but it is unclear what the trigger for that is, other than when the Treasury issues new recommendations. In a remit letter.
And the business world strategies are kept under review and are often revisited annually and certainly more often than five years. So clause 16, I believe, needs a positive requirement for the regulators to keep their strategies under review, if only to confirm their continuing validity. My noble friend Lord Ashcombe, amendment 64 A and 73 A partly get around the problem by shortening the period, but his amendments still envisage a static strategy. So it would be three years and then two years and nine months you'd do another one, which I don't think is a very satisfactory approach to drawing up strategies.
Now the. Notes explain that these strategies are expected to be like high level. I quote high level and focus on the FCA's and the Pra's top priorities, which is fine, but not very useful to the regulated firms who want to know how the regulator's actions will affect them in practice. Now, if these five year plans are anything like the FCA's five year strategy, all 20 pages of it full of drawings and photographs and big letters, firms will be very disappointed. The FCA's four priorities of being a smarter regulator, fighting financial crime, supporting growth and helping consumers is so high level that it means nothing to regulated firms.
Now, at the moment, both the regulators do set out detail annually when they what they plan to do for the following year. So can the minister say whether this will continue once this bill becomes law?Because there will be no requirement in law for either the FCA or the PRA. As a consequence of this bill. And I think given the lightweight content of the FCA's five year plan and the government's intentions for only high level strategies, it would be a serious error if the regulators were not required to publish their detailed annual plans as well.
So these are deficiencies in clause 15, but 16. But they are not covered by specific amendments, mainly because when I drew up my amendments, I was working on the naive premise that asking for a five year strategy was a sound, if unexciting, proposition. And as I've explained, I now see that as flawed in in many ways. And for that reason, I fully support the noble Baroness, Lady Bowles. Clause 16 Stan. And I'm sorry that I did not have time to add my name to it.
Turning to the amendments that I have tabled, I will start with amendment 70, which requires the FCA's strategic priorities to include its secondary competitiveness and growth. Objective. The equivalent provision for the PRA in new section two E is inserted by. Clause 16 says that the strategic priorities of the PRA include. Secondary objectives, whereas, the drafting of the new clause one J, z a for the FCA does not extend to the secondary objective, the minister has helpfully written to me today to say that the government sort of accepts that, but they will work up their own amendment, and I thank him for that.
And I look forward to seeing the text of that ahead of report. Amendment 71 and 74 amend new clauses one J, z a and two E, so that the FCA and the PRA are required to consult persons affected by the strategy, including, of course, the firms that they regulate now. One of the apparent aims of this bill is to eliminate or reduce consultation by the regulators, and we will come on to more of that later. In clause 16, consultation is simply ignored. This would be bad practice for any regulator, but it is incredibly bad practice where the regulators have such a big impact on the firms, which together comprise the largest sector in our economy.
Now, I am sure that the regulators have been whispering in the ears of ministers that they would love to do all the things that ministers want them to do, if only they didn't have so many pesky requirements to do boring things like consultation with the wealth creators in the economy. Shame on ministers if they are taken in by that.
The position we have at the moment is that the PRA is required to determine a strategy, and it does this by way of annual business plans. There is no requirement in statute for the FCA to do anything, but it has routinely issued annual plans and last year it issued a five year strategy as well. So this is clearly a slightly messy area and the government are right to try and tidy it up. I fear, however, that the solution in clause 16 will make things worse.
First, the requirement for a strategy seems to be a static one, requiring a five year strategy to be set and then replaced when the five years have nearly run out a subsection. Of. Of. New subsections. Of new sections one J, z, a, and two E being inserted by clause 16 do envisage that the strategies can be revised or replaced, but it is unclear what the trigger for that is, other than when the Treasury issues new recommendations. In a remit letter.
And the business world strategies are kept under review and are often revisited annually and certainly more often than five years. So clause 16, I believe, needs a positive requirement for the regulators to keep their strategies under review, if only to confirm their continuing validity. My noble friend Lord Ashcombe, amendment 64 A and 73 A partly get around the problem by shortening the period, but his amendments still envisage a static strategy. So it would be three years and then two years and nine months you'd do another one, which I don't think is a very satisfactory approach to drawing up strategies.
Now the. Notes explain that these strategies are expected to be like high level. I quote high level and focus on the FCA's and the Pra's top priorities, which is fine, but not very useful to the regulated firms who want to know how the regulator's actions will affect them in practice. Now, if these five year plans are anything like the FCA's five year strategy, all 20 pages of it full of drawings and photographs and big letters, firms will be very disappointed. The FCA's four priorities of being a smarter regulator, fighting financial crime, supporting growth and helping consumers is so high level that it means nothing to regulated firms.
Now, at the moment, both the regulators do set out detail annually when they what they plan to do for the following year. So can the minister say whether this will continue once this bill becomes law?Because there will be no requirement in law for either the FCA or the PRA. As a consequence of this bill. And I think given the lightweight content of the FCA's five year plan and the government's intentions for only high level strategies, it would be a serious error if the regulators were not required to publish their detailed annual plans as well.
So these are deficiencies in clause 15, but 16. But they are not covered by specific amendments, mainly because when I drew up my amendments, I was working on the naive premise that asking for a five year strategy was a sound, if unexciting, proposition. And as I've explained, I now see that as flawed in in many ways. And for that reason, I fully support the noble Baroness, Lady Bowles. Clause 16 Stan. And I'm sorry that I did not have time to add my name to it.
Turning to the amendments that I have tabled, I will start with amendment 70, which requires the FCA's strategic priorities to include its secondary competitiveness and growth. Objective. The equivalent provision for the PRA in new section two E is inserted by. Clause 16 says that the strategic priorities of the PRA include. Secondary objectives, whereas, the drafting of the new clause one J, z a for the FCA does not extend to the secondary objective, the minister has helpfully written to me today to say that the government sort of accepts that, but they will work up their own amendment, and I thank him for that.
And I look forward to seeing the text of that ahead of report. Amendment 71 and 74 amend new clauses one J, z a and two E, so that the FCA and the PRA are required to consult persons affected by the strategy, including, of course, the firms that they regulate now. One of the apparent aims of this bill is to eliminate or reduce consultation by the regulators, and we will come on to more of that later. In clause 16, consultation is simply ignored. This would be bad practice for any regulator, but it is incredibly bad practice where the regulators have such a big impact on the firms, which together comprise the largest sector in our economy.
Now, I am sure that the regulators have been whispering in the ears of ministers that they would love to do all the things that ministers want them to do, if only they didn't have so many pesky requirements to do boring things like consultation with the wealth creators in the economy. Shame on ministers if they are taken in by that.
18:01
Speaker 10
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Speaker 10
Amendments also include consultation with anyone else affected by the strategies, not only those they regulate. My Lords, this should be non-negotiable. My amendment 73 and 76 concern the Treasury's recommendations to the FCA and the PRA. Now, under section 1JA of Fisma, the Treasury has the power to make recommendations to the FCA on a lot of things, including how to advance its operational objectives, how to discharge its competitive and growth objectives, and the application of the regulatory principles. And there is a slightly shorter list for the PRA in section 33 of the 20.
Sorry, the 2009 Banking Act, clause six. 16 eviscerates these provisions so that the Treasury's power of recommendation now extends only to the flimsy five year strategies required by clause 16. So when I table those amendments, I described them as probing. So I thought that because I thought it would be interesting to hear why the Treasury, which had previously carefully specified the areas in which it could make recommendations to the regulators, has decided that it only wants to do these high level things. Now, if I were being uncharitable, which of course I'm not, I would suspect the Treasury of wanting to ensure that no blame for anything which happens in the regulators can ever be pinned at the Treasury's door.
My Lords, this clause also appears to run against the grain of recent developments, such as the half yearly so-called performance review meetings between the Economic Secretary and the regulators. What is the purpose of such meetings?If the Treasury can take no action like making recommendations once they've had the meeting?This is another reason to oppose clause 16 standing part of the bill. And in conclusion, I should also say that I support amendments 72 and 76 in the name of the noble Baroness, Lady Wills of Berkhamsted.
Sorry, the 2009 Banking Act, clause six. 16 eviscerates these provisions so that the Treasury's power of recommendation now extends only to the flimsy five year strategies required by clause 16. So when I table those amendments, I described them as probing. So I thought that because I thought it would be interesting to hear why the Treasury, which had previously carefully specified the areas in which it could make recommendations to the regulators, has decided that it only wants to do these high level things. Now, if I were being uncharitable, which of course I'm not, I would suspect the Treasury of wanting to ensure that no blame for anything which happens in the regulators can ever be pinned at the Treasury's door.
My Lords, this clause also appears to run against the grain of recent developments, such as the half yearly so-called performance review meetings between the Economic Secretary and the regulators. What is the purpose of such meetings?If the Treasury can take no action like making recommendations once they've had the meeting?This is another reason to oppose clause 16 standing part of the bill. And in conclusion, I should also say that I support amendments 72 and 76 in the name of the noble Baroness, Lady Wills of Berkhamsted.
18:03
Speaker 1
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Speaker 1
My lord. I'll speak to amendment 72 and 75 and to my opposition to clause 16, standing part of the Bill. But I also support the other amendments in this group and their intentions. And I think we could actually talk quite a lot longer about all of them. Now, my amendment 72 and 75 require the regulator's long term strategies to include a review of their royal rule books, with the aim of identifying outdated or unnecessary requirements. That is a sensible and uncontroversial, uncontroversial idea.
No one disputes that the regulatory rule book should be kept under review, or that unnecessary or duplicative requirements should not be removed. Indeed, the FCA's own handbook review consultation acknowledges that parts of the rule book are outdated, unclear or internally inconsistent. So I hope that this review idea can be taken up. However, these amendments presently sit within clause 16 and that's where the problem lies. Clause 16 creates a statutory duty for the FCA and the PRA to produce long term strategies.
In principle, that's not objectionable. Regulators have produced strategy documents before, and it's entirely proper that ministers should be able to input as long as it's transparent. But there are also other problems that have been elaborated by the noble lady, Baroness Noakes, and I don't need to repeat those. But what the fact is that in practice, clause 16 is the delegation engine for clause 17. It is part of a process of downgrading the day to day requirements. The regulatory principles on rule making into a commentary in a five year strategy document.
This is a profound change in the constitutional architecture of financial regulation. What were once operational regulatory principles enforceable by judicial review, even if that route is rarely pursued, become strategic aspirations influenced by ministers and challengeable by others, and reviewed only every five years. The long term strategy is being used as a vehicle to downgrade regulatory principles and apply them in a minimalist, non-operational way. Just talk. No walk. 16 is to remain, then it must be made significantly better and not simply operate as a Trojan horse.
The key thing about regulatory principles is how to make them sensibly relate to operational matters. And I say sensibly, because that hasn't happened. That is the problem. It may work for some of them to be dealt with more thematically, but rather more regularly than five yearly intervals. But others do need consideration at the rule making and supervisory level. And while ministers are meant to stay clear of day to day operational interference, like the lady, the noble Lady, Baroness Noakes, I query whether clause 16.
Over restricts ministerial input. 2000 has always had a difficult settlement. Keep government away from day to day decisions. But as the financial crisis showed, it is inescapable that the buck stops with government. And I don't think that clause 16 strikes the right balance there. Now, momentarily, let's return to my amendment 72 and 75. Um, and they point to a rule book review. And as I have already said in a previous group, and as noted by the Lords Financial Service Regulation Committee, it is effectively the regulators system that is cluttered, fragmented and difficult to navigate.
In fact, a lot harder to navigate than a few regulatory principles that the regulators complain about. And which are the only way to challenge that regulatory clutter. Looking again at the Lords committee report, a central finding was that culture change, not structural tinkering, is what is needed. Regulators must be clearer, more predictable and more proportionate in how they exercise their powers. The clause 16 regulatory strategy does not deliver that. It substitutes what were enforceable operational requirements about proportionality with unenforceable talk.
It does rather look as though the regulators will avoid having to step up to the mark. They did not much like the committee's report or its suggestions of culture change. And as we'll discuss when we get to clause 17. In the words of one commentator. It looks like the regulators have done a job on the Parliament. Clause 16 is not about transparency, nor new as suggesting a strategy document. It is just a vehicle to diminish the accountability and effectiveness of the regulatory principles, and I oppose it.
No one disputes that the regulatory rule book should be kept under review, or that unnecessary or duplicative requirements should not be removed. Indeed, the FCA's own handbook review consultation acknowledges that parts of the rule book are outdated, unclear or internally inconsistent. So I hope that this review idea can be taken up. However, these amendments presently sit within clause 16 and that's where the problem lies. Clause 16 creates a statutory duty for the FCA and the PRA to produce long term strategies.
In principle, that's not objectionable. Regulators have produced strategy documents before, and it's entirely proper that ministers should be able to input as long as it's transparent. But there are also other problems that have been elaborated by the noble lady, Baroness Noakes, and I don't need to repeat those. But what the fact is that in practice, clause 16 is the delegation engine for clause 17. It is part of a process of downgrading the day to day requirements. The regulatory principles on rule making into a commentary in a five year strategy document.
This is a profound change in the constitutional architecture of financial regulation. What were once operational regulatory principles enforceable by judicial review, even if that route is rarely pursued, become strategic aspirations influenced by ministers and challengeable by others, and reviewed only every five years. The long term strategy is being used as a vehicle to downgrade regulatory principles and apply them in a minimalist, non-operational way. Just talk. No walk. 16 is to remain, then it must be made significantly better and not simply operate as a Trojan horse.
The key thing about regulatory principles is how to make them sensibly relate to operational matters. And I say sensibly, because that hasn't happened. That is the problem. It may work for some of them to be dealt with more thematically, but rather more regularly than five yearly intervals. But others do need consideration at the rule making and supervisory level. And while ministers are meant to stay clear of day to day operational interference, like the lady, the noble Lady, Baroness Noakes, I query whether clause 16.
Over restricts ministerial input. 2000 has always had a difficult settlement. Keep government away from day to day decisions. But as the financial crisis showed, it is inescapable that the buck stops with government. And I don't think that clause 16 strikes the right balance there. Now, momentarily, let's return to my amendment 72 and 75. Um, and they point to a rule book review. And as I have already said in a previous group, and as noted by the Lords Financial Service Regulation Committee, it is effectively the regulators system that is cluttered, fragmented and difficult to navigate.
In fact, a lot harder to navigate than a few regulatory principles that the regulators complain about. And which are the only way to challenge that regulatory clutter. Looking again at the Lords committee report, a central finding was that culture change, not structural tinkering, is what is needed. Regulators must be clearer, more predictable and more proportionate in how they exercise their powers. The clause 16 regulatory strategy does not deliver that. It substitutes what were enforceable operational requirements about proportionality with unenforceable talk.
It does rather look as though the regulators will avoid having to step up to the mark. They did not much like the committee's report or its suggestions of culture change. And as we'll discuss when we get to clause 17. In the words of one commentator. It looks like the regulators have done a job on the Parliament. Clause 16 is not about transparency, nor new as suggesting a strategy document. It is just a vehicle to diminish the accountability and effectiveness of the regulatory principles, and I oppose it.
18:09
Speaker 5
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Speaker 5
I've added my name to three of the amendments in the group tabled by the Noble lady, Baroness Noakes. And to be honest, I'm not quite sure why I didn't add my name to the other two, and I should have done so I apologise. She's already explained these with her usual clarity, so I won't. I'll try hard not to repeat what she said so briefly with respect to amendment 70. I was going to say that I assumed that the omission from the FCA's strategic priorities of its secondary objective was an oversight, and the noble lady, Baroness Noakes, has kindly shared with me an email she received from the minister that effectively confirms that, and that that will be sorted out in a later stage.
Could I just very gently say to the minister that when he writes to noble Lords. Uh, it should be copied to all who have signed an amendment. Um, with respect to amendment 73 and 76, I will listen with interest as to why the Treasury should only be able to make recommendations to the FCA and the PRA in relation to the long term strategies, i.e. every five years. I suspect the Treasury would come to to to regret that restriction. I've also added my support to Baroness Bowles's amendments 72 and 75, both of which would require the FCA and PRA to carry out a review of their regulations as part of the five year strategy process, with a view to eliminating any unnecessary regulations.
My Lords rulebooks have a habit of growing, um, of being added to um. Scope has a tendency to creep. So a five year bring clean must be a good thing. Um, and I think would be a good discipline, which I would wholeheartedly support. And I'll just finish by saying that I share the reservations that have already been raised about the whole of clause 16. But was this.
Could I just very gently say to the minister that when he writes to noble Lords. Uh, it should be copied to all who have signed an amendment. Um, with respect to amendment 73 and 76, I will listen with interest as to why the Treasury should only be able to make recommendations to the FCA and the PRA in relation to the long term strategies, i.e. every five years. I suspect the Treasury would come to to to regret that restriction. I've also added my support to Baroness Bowles's amendments 72 and 75, both of which would require the FCA and PRA to carry out a review of their regulations as part of the five year strategy process, with a view to eliminating any unnecessary regulations.
My Lords rulebooks have a habit of growing, um, of being added to um. Scope has a tendency to creep. So a five year bring clean must be a good thing. Um, and I think would be a good discipline, which I would wholeheartedly support. And I'll just finish by saying that I share the reservations that have already been raised about the whole of clause 16. But was this.
18:11
18:12
Speaker 7
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Speaker 7
Very substantial transfer of power, as has been mentioned by Baroness Neville-rolfe from Parliament and from existing regulators such as the PSR and the 22 professional bodies with specialised knowledge of the sectors. As we discussed earlier. This reflects a high degree of centralisation of regulatory supervision, which may lead to a lack of clarity and in some cases, as Lord McKinley mentioned, double regulation for small firms. And as Baroness Bowles mentioned earlier, the system is already overloaded. So in this context, given the extensive proposed changes and the real possibility of unintended consequences, it would seem that government should consider the setting of strategy for the future as a very important component of the bill.
While I support all the amendments in this group, I would emphasise the need for consultation with regulated firms and the regular review of the rule books, as provided specifically in amendment 71, 72, 74 and 75. The Bill provides does provide for the publication of a document and indeed consultation with one party. The Court of Directors of the Bank of England is specifically mentioned as a party that will be consulted, but seemingly not with any regulated firm, despite the fact that regulated firms could clearly be very, very helpful in the setting of long term strategy.
So amendment 71 and 74, proposed by Baroness Noakes would seem essential additions to the Bill, as would amendments 72 and 75, proposed by Baroness Bowles and Lord vote.
While I support all the amendments in this group, I would emphasise the need for consultation with regulated firms and the regular review of the rule books, as provided specifically in amendment 71, 72, 74 and 75. The Bill provides does provide for the publication of a document and indeed consultation with one party. The Court of Directors of the Bank of England is specifically mentioned as a party that will be consulted, but seemingly not with any regulated firm, despite the fact that regulated firms could clearly be very, very helpful in the setting of long term strategy.
So amendment 71 and 74, proposed by Baroness Noakes would seem essential additions to the Bill, as would amendments 72 and 75, proposed by Baroness Bowles and Lord vote.
18:13
Speaker 9
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Speaker 9
A word of. Support in favour of these amendments, my Lords, this industry. Financial services is one of the most innovatory and dynamic industries in this country and has led the world in its imaginative, entrepreneurial approach for centuries. Now, what we are seeing, and I think I'm glad to follow the noble Lord, is the centralisation of regulation in one ever greater regulatory body. This will mean that the slowest ships of the regulatory convoy will determine the pace and for these reasons, I think it is imperative that the strategic review takes account and much more regularly than every five years of the updating of a business actions and business transactions and tools used by the sector.
And that, as my noble friend Baroness Noakes has pointed out, that it talks to the people, the people who are the wealth creators, that it will regulate. And for these reasons, and for all the reasons that have been, um, enunciated. In the course of this short debate, including um Baroness Bowles's, I support these regulations, these amendments, sorry.
And that, as my noble friend Baroness Noakes has pointed out, that it talks to the people, the people who are the wealth creators, that it will regulate. And for these reasons, and for all the reasons that have been, um, enunciated. In the course of this short debate, including um Baroness Bowles's, I support these regulations, these amendments, sorry.
18:15
Speaker 6
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Speaker 6
I support the amendments that are that are in this group. Um, I think Baroness Bowles has hit on the fundamental reason for my very strong opposition that a and that is the constitutional issue. So, um, by chance and I'm not going to use a name because it wouldn't be fair. I happen to speak to a senior regulator in the financial services sector, not shortly after the bill came out, and we started looking at its clauses. And that person said to me, ah, but in the long term strategy, we will be able to explain to people in detail why we are doing what we choose to do.
And that, to me, absolutely summed up the issue as a whole. There was no concept at all that there would be parliamentary insight, parliamentary oversight, that there would be engagement. This was simply going to be a much better vehicle to explain to people that why certain things that had been identified as necessary were necessary and were going to happen. No sense of challenge anywhere at all. And I do think this is a really dangerous way for us to move our legislation.
My Lords, I'm grateful.
And that, to me, absolutely summed up the issue as a whole. There was no concept at all that there would be parliamentary insight, parliamentary oversight, that there would be engagement. This was simply going to be a much better vehicle to explain to people that why certain things that had been identified as necessary were necessary and were going to happen. No sense of challenge anywhere at all. And I do think this is a really dangerous way for us to move our legislation.
My Lords, I'm grateful.
18:16
18:16
18:16
18:16
Speaker 6
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Speaker 6
We are sympathetic to the broad purpose of requiring regulators to think strategically, but if the. Regulatory strategies are to be meaningful, they must not simply become static. Documents published every few years and then left on the shelf as my noble friend Lady Noakes has said, this is not the way we do it in business. Common practice. Um is for five year strategies and reviewed annually and annual plans. So I turn to the amendment tabled by my noble friend Lord Ashcombe, which would reduce the strategy period from five years to three years.
I mean, he's right. Markets can change very quickly as we keep hearing. And a five year strategy risks being set in stone for too long, unless the minister. Is able to clarify that the plans will be regularly updated, if not a short period, such as three years has, I think real benefits. Perhaps Minister could explain why five years has been chosen. And how he believes that the strategies will remain agile and flexible. I was delighted that the minister said he was prepared to accept amendment 70 on competitiveness and growth.
As I've said several times, growth. The UK financial services sector is key to growth more generally. Regulation should say how the government or the regulator understands that objective, how they are giving effect to it and how their regulatory approach is supporting growth in the market. Because the UK has a large and dynamic financial services sector. My noble friend Lady Lawler emphasized that point, which we shouldn't forget and we can't assume that its international position is guaranteed. So regulation regulation has a direct effect on investment, on innovation, on listings, on lending, on market depth, and the attractiveness attractiveness of the UK as a place to do business.
And so if regulators aren't required to think explicitly about this, then the growth objective risks being honoured, I think in theory, but neglected in practice. I mean, 71 or 74 on consultation are very welcome. As we've said in previous groups, bringing experts into the room in a timely way is a vitally important part of the regulatory process. Now, the boards of regulators, in my view, have a part to play in the strategic plans, but my recollection is that those engaged in regulated companies were actually excluded from the non-executive roles on the PRA and FCA.
Is this still the case?My own board experience is that conflicts of interest can be managed, and I believe regulators would benefit from current knowledge from the industry, particularly given these new statutory strategies and the digital changes we keep referring to. And of course, expansion of the scope of the regulator of of the FCA. So I'd like to hear from the minister what the current rules are. Perhaps in a letter, as I haven't raised the point with him before. I also support the principle behind amendment 72 and 75 in the name of the lady noble lady, Lady Bowes, they would require the FCA and PRA to review their rule books and explain how they will simplify or remove rules that are outdated, unnecessary or duplicative.
Regulation, as has been said, tends to accumulate new rules and duties are added. But old rules are not always removed. Guidance, expectations and supervisory practice develop over time. A long term strategy should not only be about what new initiative the regulators want to pursue, it should also be about what the regulator can simplify. If a regular rule book review is done with a view to making regulation less burdensome and cheaper to operate, and supportive of growth, that would be a very positive step.
The amendments on Treasury recommendations also raise a serious question about accountability and regulator independence. There is, of course, a balance to be struck. We don't want day to day political interference in regulatory decisions, but nor should independent regulators operate without clear strategic accountability to parliament and to the government of the day. As my noble friend Lord Massey and the noble Lady Cramer have explained in better way than I can, the government should explain why the Treasury's recommendation making power is framed as it is, why it is limited in the way proposed and how ministers expect to operate in practice.
And finally, on clause 16, Stan part. I understand the concerns raised in debate. The value of that clause will depend entirely on whether the strategic strategy's produced are meaningful, responsive and capable of being scrutinised if they become generic documents with broad statements of aspiration, they will add little. If they provide clear commitments, measurable priorities, proper engagement with growth and competitiveness, and a disciplined approach to reviewing the rule book. They will be useful. I very much look forward to a full response to the points that have been raised from the noble Lord, the Minister.
I mean, he's right. Markets can change very quickly as we keep hearing. And a five year strategy risks being set in stone for too long, unless the minister. Is able to clarify that the plans will be regularly updated, if not a short period, such as three years has, I think real benefits. Perhaps Minister could explain why five years has been chosen. And how he believes that the strategies will remain agile and flexible. I was delighted that the minister said he was prepared to accept amendment 70 on competitiveness and growth.
As I've said several times, growth. The UK financial services sector is key to growth more generally. Regulation should say how the government or the regulator understands that objective, how they are giving effect to it and how their regulatory approach is supporting growth in the market. Because the UK has a large and dynamic financial services sector. My noble friend Lady Lawler emphasized that point, which we shouldn't forget and we can't assume that its international position is guaranteed. So regulation regulation has a direct effect on investment, on innovation, on listings, on lending, on market depth, and the attractiveness attractiveness of the UK as a place to do business.
And so if regulators aren't required to think explicitly about this, then the growth objective risks being honoured, I think in theory, but neglected in practice. I mean, 71 or 74 on consultation are very welcome. As we've said in previous groups, bringing experts into the room in a timely way is a vitally important part of the regulatory process. Now, the boards of regulators, in my view, have a part to play in the strategic plans, but my recollection is that those engaged in regulated companies were actually excluded from the non-executive roles on the PRA and FCA.
Is this still the case?My own board experience is that conflicts of interest can be managed, and I believe regulators would benefit from current knowledge from the industry, particularly given these new statutory strategies and the digital changes we keep referring to. And of course, expansion of the scope of the regulator of of the FCA. So I'd like to hear from the minister what the current rules are. Perhaps in a letter, as I haven't raised the point with him before. I also support the principle behind amendment 72 and 75 in the name of the lady noble lady, Lady Bowes, they would require the FCA and PRA to review their rule books and explain how they will simplify or remove rules that are outdated, unnecessary or duplicative.
Regulation, as has been said, tends to accumulate new rules and duties are added. But old rules are not always removed. Guidance, expectations and supervisory practice develop over time. A long term strategy should not only be about what new initiative the regulators want to pursue, it should also be about what the regulator can simplify. If a regular rule book review is done with a view to making regulation less burdensome and cheaper to operate, and supportive of growth, that would be a very positive step.
The amendments on Treasury recommendations also raise a serious question about accountability and regulator independence. There is, of course, a balance to be struck. We don't want day to day political interference in regulatory decisions, but nor should independent regulators operate without clear strategic accountability to parliament and to the government of the day. As my noble friend Lord Massey and the noble Lady Cramer have explained in better way than I can, the government should explain why the Treasury's recommendation making power is framed as it is, why it is limited in the way proposed and how ministers expect to operate in practice.
And finally, on clause 16, Stan part. I understand the concerns raised in debate. The value of that clause will depend entirely on whether the strategic strategy's produced are meaningful, responsive and capable of being scrutinised if they become generic documents with broad statements of aspiration, they will add little. If they provide clear commitments, measurable priorities, proper engagement with growth and competitiveness, and a disciplined approach to reviewing the rule book. They will be useful. I very much look forward to a full response to the points that have been raised from the noble Lord, the Minister.
18:22
Speaker 8
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Speaker 8
My lords, I. Will begin by explaining the government's purpose behind clause 16 and why it should stand as part of the Bill. The government has often heard feedback calling for the regulatory system to have an overhaul of an overall long term strategy with clear goals, where the regulators consider the cumulative impacts of their policies and the interaction between supervision and rule making. Forms introduced by clause 16 are intended to address this feedback and improve transparency around the regulator's long term direction and focus, which government considers will support effective oversight and scrutiny of the regulator's.
Clause 16 requires the FCA and the PRA to each prepare and publish long term strategies so stakeholders, including regulated firms, can better understand the regulator's approach to the sector. And so the government and Parliament fully understand the regulator's priorities and can more effectively hold them to account for how they are translating their objectives into actions and results. When the government consulted on this proposal, it received strong support. 83% of respondents supported and agreed that the regulators, taking a more strategic and cohesive approach would benefit the sector by helping firms know what to expect.
I've listened carefully to the concerns raised by the noble lady and the other noble lords. However, the government remains firmly of the view that clause 16 will support scrutiny. This is done by requiring a clear, long term strategic overview. Clause 16 will help the sector understand and plan more effectively for regulatory, regulatory initiatives and help interested parties to engage with the regulators at a strategic level. Without clause 16, there would be no requirement for the regulator to set out in one place their long term priorities and approach for advancing their objectives.
The aim of the strategy is to make it easier, not harder, for Parliament and stakeholders to scrutinise whether the regulator's actions are coherent and aligned with the framework Parliament has set. 70, the government agrees with. Baroness Noakes that the FCA secondary international competitiveness and growth objectives should be central to the formulation of its long term strategy. Growth is the number one priority for this government and the financial services sector, as many people have noted, is key to delivering this. The government has always intended the FCA's long term strategy to set out its priorities for advancing its international competitiveness and growth objectives.
We are looking into this point to determine if this is fully clear within the drafting of the clause, and are open to table an amendment, a report stage. Should we determine this is needed?I thank the noble lady for bringing this to my attention and commit to keeping her informed. And other noble Lords. As this consideration progresses, I turn to amendment 69 B and 73. A Lord Ashton particularly asked me to explain the government's thinking on the time periods here, as did the noble lady, Baroness Neville-rolfe.
My Lords, the government has set out the length of the strategy as five years because, as people have noted, it is a standard time period for organisational strategies, very common in the business world as many noble Lords will appreciate. It also aligns with the standard parliamentary terms and therefore the requirement for Treasury to issue recommendations to the regulators at least once per Parliament. However, the government recognises the financial services markets can evolve quickly and it's important that regulators strategic documents remain current and useful. Baroness Noakes asked me how these strategies would be kept under review.
The bill. The Bill provides flexibility for the regulators to revise or publish the new strategy within the five year period, if the circumstances require it, or to publish a strategy for a shorter period in time than five years. If they do the latter, it will need to be with an explanation about why this is appropriate. The five years is therefore a maximum interval, not a requirement to wait five years before making a change. For example, the bill requires the regulators to consider whether they need to update their strategy or issue a new one whenever new Treasury recommendations are issued.
The government's view is that this strikes the right balance between providing a long term, stable framework and allowing regulators to respond when market, economic or regulatory conditions change, turn to amendment 73 and 76. The government approaches is deliberate. The need for the regulators to take account of Treasury recommendations. Our strategic level, rather than at the level of general functions, has been carefully considered. And the new framework. The Treasury's recommendations to the regulators regarding its economic priorities will inform the development of their strategic priorities.
This is aligned with the change, by the way, the regulatory principles will be applied, and I hope that demonstrates the government's confidence that influencing the regulators strategies is an effective mechanism for ensuring that they have an appropriate focus and are performing well. And further to this, the framework has been carefully designed to ensure that Treasury recommendations are taken fully into account. As I mentioned earlier, regulators must consider updating or producing a new strategy whenever the Treasury sends a new recommendation letter, the regulators will continue to be obliged to respond annually to the Treasury on their actions.
In response to the recommendations separate to the strategy document. This will support continued transparency and accountability regarding how the regulators are taking into account government recommendations, and I'll. Turn to amendment 72 and 75. Yes.
Clause 16 requires the FCA and the PRA to each prepare and publish long term strategies so stakeholders, including regulated firms, can better understand the regulator's approach to the sector. And so the government and Parliament fully understand the regulator's priorities and can more effectively hold them to account for how they are translating their objectives into actions and results. When the government consulted on this proposal, it received strong support. 83% of respondents supported and agreed that the regulators, taking a more strategic and cohesive approach would benefit the sector by helping firms know what to expect.
I've listened carefully to the concerns raised by the noble lady and the other noble lords. However, the government remains firmly of the view that clause 16 will support scrutiny. This is done by requiring a clear, long term strategic overview. Clause 16 will help the sector understand and plan more effectively for regulatory, regulatory initiatives and help interested parties to engage with the regulators at a strategic level. Without clause 16, there would be no requirement for the regulator to set out in one place their long term priorities and approach for advancing their objectives.
The aim of the strategy is to make it easier, not harder, for Parliament and stakeholders to scrutinise whether the regulator's actions are coherent and aligned with the framework Parliament has set. 70, the government agrees with. Baroness Noakes that the FCA secondary international competitiveness and growth objectives should be central to the formulation of its long term strategy. Growth is the number one priority for this government and the financial services sector, as many people have noted, is key to delivering this. The government has always intended the FCA's long term strategy to set out its priorities for advancing its international competitiveness and growth objectives.
We are looking into this point to determine if this is fully clear within the drafting of the clause, and are open to table an amendment, a report stage. Should we determine this is needed?I thank the noble lady for bringing this to my attention and commit to keeping her informed. And other noble Lords. As this consideration progresses, I turn to amendment 69 B and 73. A Lord Ashton particularly asked me to explain the government's thinking on the time periods here, as did the noble lady, Baroness Neville-rolfe.
My Lords, the government has set out the length of the strategy as five years because, as people have noted, it is a standard time period for organisational strategies, very common in the business world as many noble Lords will appreciate. It also aligns with the standard parliamentary terms and therefore the requirement for Treasury to issue recommendations to the regulators at least once per Parliament. However, the government recognises the financial services markets can evolve quickly and it's important that regulators strategic documents remain current and useful. Baroness Noakes asked me how these strategies would be kept under review.
The bill. The Bill provides flexibility for the regulators to revise or publish the new strategy within the five year period, if the circumstances require it, or to publish a strategy for a shorter period in time than five years. If they do the latter, it will need to be with an explanation about why this is appropriate. The five years is therefore a maximum interval, not a requirement to wait five years before making a change. For example, the bill requires the regulators to consider whether they need to update their strategy or issue a new one whenever new Treasury recommendations are issued.
The government's view is that this strikes the right balance between providing a long term, stable framework and allowing regulators to respond when market, economic or regulatory conditions change, turn to amendment 73 and 76. The government approaches is deliberate. The need for the regulators to take account of Treasury recommendations. Our strategic level, rather than at the level of general functions, has been carefully considered. And the new framework. The Treasury's recommendations to the regulators regarding its economic priorities will inform the development of their strategic priorities.
This is aligned with the change, by the way, the regulatory principles will be applied, and I hope that demonstrates the government's confidence that influencing the regulators strategies is an effective mechanism for ensuring that they have an appropriate focus and are performing well. And further to this, the framework has been carefully designed to ensure that Treasury recommendations are taken fully into account. As I mentioned earlier, regulators must consider updating or producing a new strategy whenever the Treasury sends a new recommendation letter, the regulators will continue to be obliged to respond annually to the Treasury on their actions.
In response to the recommendations separate to the strategy document. This will support continued transparency and accountability regarding how the regulators are taking into account government recommendations, and I'll. Turn to amendment 72 and 75. Yes.
18:27
Speaker 12
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Speaker 12
The Minister just talked about the way in which Treasury will make recommendations, and the regulator must take them into account. I didn't hear the word Parliament anywhere in that. Where is the capacity for parliamentary regulators recommendations and the. Oversight that would make sure they were taken into account, or is that now completely. Is the purpose of this legislation to make sure that doesn't exist?
18:28
Speaker 8
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Speaker 8
I think this is part of a broader discussion, I'm informed, is that this is taking into account the existing practices as part of the reviews and overview should be taking place. So, um, unless we decide in the in the following debates that needs amendment upon the overview. This this, this applies to the current regulatory framework. And as the, as the, as the oversight currently exists. The regulator.
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Speaker 8
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Speaker 8
So I think again. So I don't get confused about this. My understanding is this is already the existing practice. But let me take this away and right back to the. The noble ladies, just to confirm I have this exactly correct. But what we're trying not to do is differ from existing practice as it exists today. But let me write to you to clarify that.
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Speaker 1
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Speaker 1
Understand what happens if the strategy is perhaps right and the rules are wrong. What happens then?Because it does happen. I mean, we have, as I've called it before, the example that keeps on giving. When the FCA got the motor finance rules wrong. So what happens then when there is no way to correct it because it's got you know, the strategy might be right to treat customers fairly. And the rules produce something that is patently unfair.
How can that be changed?Because there's nothing to measure against now the principles of God.
How can that be changed?Because there's nothing to measure against now the principles of God.
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Speaker 8
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Speaker 8
I'm going to have to come back to these points at a later date. I mean, this is a broader conversation around oversight. And obviously there's a consideration and points being made outside the chamber around oversight more clearly. So if you'll allow me just to come back to the point, but I think this is going to come up in further debates both in and outside the committee stage. Turning to amendments 72 and 75, the government agrees that regulation should be proportionate and supports the objectives behind these amendments.
Indeed, the Bill forms part of the government's effort broader effort to reduce the burdens of regulation on businesses, ensuring that the UK has a regulatory environment that supports growth while maintaining high standards. The government has made a commitment to committing an administrative burden on regulation by 25% by the end of this Parliament. The financial services regulators are actively contributing to this agenda. For example, the PRA is implementing new insurance reporting requirements that will cut paperwork by one third, contributing to savings for firms of £66 million per year.
And the FCA has proposed removing some transaction reporting that would save firms over £100 million per year. But the government does not think it would be appropriate to impose a requirement that every long term strategy must include a full review of all regulations, and a plan for eliminating them. A universal rule review exercise each time a strategy is prepared or revised would not be proportionate, and would reduce the regulator's capacity to focus on other priorities. Their requirements in Fsma, which require the regulators to keep their rules under review and to publish statements on policy, on their approach to reviewing the rules.
The government considers. This is proportionate approach. Amendments 71 and 74 seek to require the FCA and the PRA when preparing their revising their long term strategies to consult persons they consider would be affected, including those they regulate. I understand the intention behind these amendments. If the regulators are to produce long term strategies that are meaningful and credible, is clearly important, that they are informed by engagement with those who are affected by them. The government has a clear expectation that the regulator's strategies will be informed by engagement.
Indeed, the Bill forms part of the government's effort broader effort to reduce the burdens of regulation on businesses, ensuring that the UK has a regulatory environment that supports growth while maintaining high standards. The government has made a commitment to committing an administrative burden on regulation by 25% by the end of this Parliament. The financial services regulators are actively contributing to this agenda. For example, the PRA is implementing new insurance reporting requirements that will cut paperwork by one third, contributing to savings for firms of £66 million per year.
And the FCA has proposed removing some transaction reporting that would save firms over £100 million per year. But the government does not think it would be appropriate to impose a requirement that every long term strategy must include a full review of all regulations, and a plan for eliminating them. A universal rule review exercise each time a strategy is prepared or revised would not be proportionate, and would reduce the regulator's capacity to focus on other priorities. Their requirements in Fsma, which require the regulators to keep their rules under review and to publish statements on policy, on their approach to reviewing the rules.
The government considers. This is proportionate approach. Amendments 71 and 74 seek to require the FCA and the PRA when preparing their revising their long term strategies to consult persons they consider would be affected, including those they regulate. I understand the intention behind these amendments. If the regulators are to produce long term strategies that are meaningful and credible, is clearly important, that they are informed by engagement with those who are affected by them. The government has a clear expectation that the regulator's strategies will be informed by engagement.
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Speaker 1
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Speaker 1
It seems to me that you're not doing anything to challenge the burden of regulation on firms. You're challenging your you're reducing the obligations on the regulator. Now, when you reduce the obligations on the regulator. To, for example, to be proportionate and so forth. The corollary of that is that they are unrestricted in the way that they can then increase the burdens on firms. That may not be the talk, but that is the consequence of the legal construct that we're now looking at.
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Speaker 8
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Speaker 8
Again, I think there's a broad philosophical point being made about trusting the FCA and the regulators in this. And I'm going we're going to come back to this in further debates. I think it is a. It's a view that I understand and we need to greater. We need to develop this through the process of the debate. But that is not that's definitely not the intention is to give them free range, to be able to make laws randomly. So I think we're going to have to come back to that in further parts of the committee, if that's okay.
18:36
Speaker 12
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Speaker 12
Then in this complex, just when I'm looking at that clause 16, that's a subsection. Um, seven a. Strategy may be revised by publishing a revised version of the strategy as the minister confirming there is no. It says it in the explanatory notes. There is no consultation that goes with that revision process.
18:37
Speaker 8
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Speaker 8
That is correct. Amendment 71 and 74 seek to require the FCA and the PRA when preparing or revising their long term strategies to consult persons they consider would be affected, including those they regulate. The government has a clear expectation that regulatory strategies will be informed by engagement with industry, consumer representatives and other stakeholders. However, the statutory consultation requirement would lead to long delays between a new government setting direction through a recommendation letter and the regulators putting a strategy in place. A number of the noble Lords, including the noble Ladies, Baroness Kramer Noakes, have asked the government's remit or work under the new system.
The FCA and the PRA will now be required to have regard to their remit. Letters when producing or updating long term strategies, the regulators will continue to be required to respond annually to remit letters, setting out the actions they will take response to, and the noble lady, Baroness Neville Rolfe, asked about non-executive directors. I will write to us this. I do not have the answer to hand, my Lords, the accountability of the financial services regulators is clearly an important matter of huge interest to the House.
I have heard a range of views today on exactly what they should look like, and will continue to debate this issue. Um, as is evident in later clauses. However, regardless of the views on the wider matters of transparency accountability, I am confident that the majority will agree that long term strategies will add to our understanding of regulators strategic priorities, and the approach must be a good thing. On face value, I therefore ask clause 16 should stand as part of the bill.
The FCA and the PRA will now be required to have regard to their remit. Letters when producing or updating long term strategies, the regulators will continue to be required to respond annually to remit letters, setting out the actions they will take response to, and the noble lady, Baroness Neville Rolfe, asked about non-executive directors. I will write to us this. I do not have the answer to hand, my Lords, the accountability of the financial services regulators is clearly an important matter of huge interest to the House.
I have heard a range of views today on exactly what they should look like, and will continue to debate this issue. Um, as is evident in later clauses. However, regardless of the views on the wider matters of transparency accountability, I am confident that the majority will agree that long term strategies will add to our understanding of regulators strategic priorities, and the approach must be a good thing. On face value, I therefore ask clause 16 should stand as part of the bill.
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Speaker 8
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Speaker 8
I think I think what the clause is trying to represent is that's the starting point, and there is definitely work to do, and it needs to be improved. Well, I think I think what we've set out in the in the in the answer to the question is that there's clearly a need for greater transparency and greater thinking around what the five year plan looks like and the interaction with the with the Treasury is the is the hope that we can get it to a position where greater clarity and greater certainty and long term planning, but it will be an emergent process to ensure that is improved on.
18:38
Speaker 10
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Speaker 10
Put to the Minister that this um clause has no specificity around that. No. No ability for the Treasury to agree the format or the content of a five year plan. No requirement for consultation, no requirement for involvement of parliamentary committees or anything like that. So we're we're asked to be sort of giving a blank check with these rather vague requirements. Some words in the explanatory notes about the government expects these to be high level, which is why I asked the minister's reflections on what is clearly a very high level.
Um, document. Put out by the FCA. Um, and I'm not getting any sense of what it is that is likely to come out as a response, as a response to that, uh, link to. It is my second question I did ask when I spoke what the minister's response was would be to whether or not annual plans were required. At the moment, both regulators produce annual plans for what they're going to do in the year, and that provides a very rich source of information for the regulated community on what they can expect.
Now, if if we're going to have those sorts of levels of detail, it may not matter if an airy fairy, five year strategy document is produced. Full of drawings and pictures and stuff like that. This may not matter at all. Um, but if we're not going to have anything else and this bill takes out the one existing requirement on the PRA to produce annual plans, then we have a problem.
Um, document. Put out by the FCA. Um, and I'm not getting any sense of what it is that is likely to come out as a response, as a response to that, uh, link to. It is my second question I did ask when I spoke what the minister's response was would be to whether or not annual plans were required. At the moment, both regulators produce annual plans for what they're going to do in the year, and that provides a very rich source of information for the regulated community on what they can expect.
Now, if if we're going to have those sorts of levels of detail, it may not matter if an airy fairy, five year strategy document is produced. Full of drawings and pictures and stuff like that. This may not matter at all. Um, but if we're not going to have anything else and this bill takes out the one existing requirement on the PRA to produce annual plans, then we have a problem.
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Speaker 10
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Speaker 10
So can I can I conclude my remarks with a plea to the minister?He's he's he's taken away a number of issues arising from this debate where he's going to be writing. I think he's going to be writing us one big letter or several, uh, medium sized letters. Um, it is normal when something as contentious as this arises for all members of the committee to be copied on any, any such letters and not simply the one noble Lord who raised a specific query.
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Speaker 11
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Speaker 11
I think there are a number of flaws which have been extremely well demonstrated, uh, from, from all noble lords on this side of the the chamber. I thank the noble Lord, the Minister, for his answer to my question. I'm also extremely grateful to noble friend Baroness Noakes for improving my amendment significantly. Talking about annual plans, which I think is quite correct, but I think it is imperative that we still continue to have parliamentary oversight on the regulators. I think that is important.
And, my Lords, from the discussion we've had this afternoon, there is no doubt about it that this clause has got a number of legs still in it, and the horse race is going to continue for some time. We look forward to coming back at report for that, I'm sure, but with that, I beg leave to withdraw my amendments.
And, my Lords, from the discussion we've had this afternoon, there is no doubt about it that this clause has got a number of legs still in it, and the horse race is going to continue for some time. We look forward to coming back at report for that, I'm sure, but with that, I beg leave to withdraw my amendments.
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Speaker 14
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Speaker 14
The amendment is by leave. Withdrawn. Amendment 70. Baroness Noakes not moved. Amendment 71. Baroness Noakes, amendment 72, Baroness Bowles not moved. Amendment 73. Baroness Noakes. Amendment 73. A Lord Ashcombe not moved. Amendment 74. Baroness Noakes not moved. Amendment 75 Baroness Bowles. Amendment 76 Baroness Noakes not moved. The question is that clause 16 stand part of the bill.
As many as that opinion shall say content the contrary not content. The contents have it after clause 16. Baroness Noakes, amendment 77.
As many as that opinion shall say content the contrary not content. The contents have it after clause 16. Baroness Noakes, amendment 77.
18:45
Speaker 10
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Speaker 10
I rise to move amendment 77, which calls for a review of the regulatory principles in section three B of Fisma. And I'm grateful to the noble Lord, Lord Vaux, for adding his name to the amendment. Calls for the Treasury to review the regulatory principles and in particular, identify. Those which are duplicated or are no longer required. Now, as we've already discussed this in outline, and we'll discuss further in a later group next week. Fisma currently requires the FCA and the PRA to have regard to the regulatory principles in their general functions.
But clause 17 downgrades this that have regards by confining them to the new five year strategy documents. When your lordships Financial Services Regulation Committee reported on the secondary competitiveness and growth objectives for the PRA and the FCA last year, it took eight pages of our report to describe the web of objective objectives, principles and have. Regards which the regulators have to live with. In fact, the eight pages covered only some of the. Have regards. The FCA told us that they had around 80 have regards on top of the Chancellor's remit letters and the regulatory principles themselves, and the PRA said that their number was 25 in my amendment 77 probably should have required a review of all of the.
Have regards, and if I bring this amendment back a report, I may well extend it to that. For Committee, my amendment is focused on the regulatory principles because. Via clause 17, these have become a contentious part of the bill. There are currently eight regulatory principles in section three B, plus a vestigial reference to a ninth. And they include some very significant ones, such as proportionality, which we will also be discussing later in committee. Now, there were seven in the first iteration of Fisma, but they've been changed many times over the years, and only three of the current principles directly read across to the original list, namely efficiency and economy, proportionality and consumer responsibility, which suggests that not all of the three B principles are enduring in nature.
I think we should expect the regulatory principles to represent the essential elements of how regulation should operate in practice, and have some form of enduring quality. I think it's relatively clear that section three B of Fisma does not meet that test. It's useful to compare and contrast with the regulatory principles set out in the Legislative and Regulatory Reform Act of 2006, to which we will also be returning in a later group. Now, that is admirably succinct and says that regulatory activities should be transparent, accountable, proportionate and consistent.
And they should also be targeted only at cases in which action is needed. So while the 2006 act does apply to the financial services regulators, several of the requirements in the 2006 act are duplicated in section three B, now, the Regulatory Reform Act applies to all regulators, not just the financial services ones. And so any additional principles or additional wording around principles in Fisma should be justified as being essential for financial services regulation. The current list includes the desirability of publishing information as a means to advance objectives.
The actual wording is much more convoluted than that, but that's the sense. Now, I'm sure that the publication of information could be quite a useful tool in regulation, but is it an enduring regulatory principle to which the regulators must have regard?I think not. One of the section three B principles is that consumers should take responsibility for their decisions, which would be good, and it would be good if the FCA did have regard to that. But the exact same wording is also found in the have regards for the consumer protection objective in section one C of Fisma.
So section three B contains duplications. And I do not believe that the climate change principle, which I think found its way into the list in the. Via the 2023 act, is a regulatory principle at all in the sense of describing an essential element of how regulation should operate in practice as. Drafted this so-called principle refers to the need to comply with the net zero target, but only where the regulators think that it is relevant to regulation. I know this will not necessarily please all those who've been trying to get a green objectives anywhere in legislation, but it cannot be an essential element of regulation if the regulator has to decide whether or not it is relevant.
Now, I could go on. In relation to the current regulatory principles, but I won't for now. But I will be challenging all of those who have tabled amendments to this bill, trying to add new regulatory principles to justify why and how they are an essential and enduring element of regulation, as opposed to a current object of interest. Now, I have much sympathy for the regulators who have to navigate an array of have regards as they do their work. The whole have regard area really could do with a review, which is what I initially thought that the Government's Leeds reform was going to do.
And that is clearly outstanding business. My amendment, as I said earlier, starts with the regulatory principles, but that is not by any means the whole of the problem. I beg to move.
But clause 17 downgrades this that have regards by confining them to the new five year strategy documents. When your lordships Financial Services Regulation Committee reported on the secondary competitiveness and growth objectives for the PRA and the FCA last year, it took eight pages of our report to describe the web of objective objectives, principles and have. Regards which the regulators have to live with. In fact, the eight pages covered only some of the. Have regards. The FCA told us that they had around 80 have regards on top of the Chancellor's remit letters and the regulatory principles themselves, and the PRA said that their number was 25 in my amendment 77 probably should have required a review of all of the.
Have regards, and if I bring this amendment back a report, I may well extend it to that. For Committee, my amendment is focused on the regulatory principles because. Via clause 17, these have become a contentious part of the bill. There are currently eight regulatory principles in section three B, plus a vestigial reference to a ninth. And they include some very significant ones, such as proportionality, which we will also be discussing later in committee. Now, there were seven in the first iteration of Fisma, but they've been changed many times over the years, and only three of the current principles directly read across to the original list, namely efficiency and economy, proportionality and consumer responsibility, which suggests that not all of the three B principles are enduring in nature.
I think we should expect the regulatory principles to represent the essential elements of how regulation should operate in practice, and have some form of enduring quality. I think it's relatively clear that section three B of Fisma does not meet that test. It's useful to compare and contrast with the regulatory principles set out in the Legislative and Regulatory Reform Act of 2006, to which we will also be returning in a later group. Now, that is admirably succinct and says that regulatory activities should be transparent, accountable, proportionate and consistent.
And they should also be targeted only at cases in which action is needed. So while the 2006 act does apply to the financial services regulators, several of the requirements in the 2006 act are duplicated in section three B, now, the Regulatory Reform Act applies to all regulators, not just the financial services ones. And so any additional principles or additional wording around principles in Fisma should be justified as being essential for financial services regulation. The current list includes the desirability of publishing information as a means to advance objectives.
The actual wording is much more convoluted than that, but that's the sense. Now, I'm sure that the publication of information could be quite a useful tool in regulation, but is it an enduring regulatory principle to which the regulators must have regard?I think not. One of the section three B principles is that consumers should take responsibility for their decisions, which would be good, and it would be good if the FCA did have regard to that. But the exact same wording is also found in the have regards for the consumer protection objective in section one C of Fisma.
So section three B contains duplications. And I do not believe that the climate change principle, which I think found its way into the list in the. Via the 2023 act, is a regulatory principle at all in the sense of describing an essential element of how regulation should operate in practice as. Drafted this so-called principle refers to the need to comply with the net zero target, but only where the regulators think that it is relevant to regulation. I know this will not necessarily please all those who've been trying to get a green objectives anywhere in legislation, but it cannot be an essential element of regulation if the regulator has to decide whether or not it is relevant.
Now, I could go on. In relation to the current regulatory principles, but I won't for now. But I will be challenging all of those who have tabled amendments to this bill, trying to add new regulatory principles to justify why and how they are an essential and enduring element of regulation, as opposed to a current object of interest. Now, I have much sympathy for the regulators who have to navigate an array of have regards as they do their work. The whole have regard area really could do with a review, which is what I initially thought that the Government's Leeds reform was going to do.
And that is clearly outstanding business. My amendment, as I said earlier, starts with the regulatory principles, but that is not by any means the whole of the problem. I beg to move.
18:49
18:49
18:49
Speaker 5
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Speaker 5
Lord, Lord Wilson, happy by being very brief. Um, our report, the report of the committee was, I think one of the things that came out was, was the proliferation of principles have regards. ET cetera. ET cetera. ET cetera. It's ripe for a review and an overhaul. And I agree with the noble lady, Baroness Noakes.
18:50
18:50
Speaker 12
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Speaker 12
Um I very much suspect that Baroness Noakes and I would find significant differences in our ideal list of the regulatory principles in section three B, one of fisma that I will argue in the next group for have regard to the risks of the private credit market, financial stability in Group eight. My colleagues will argue for a have regard on sustainability and in Group ten for I have regard on financial inclusion. Now these are all probing amendments, but they reflect the need for principles to be reviewed and debated and potentially changed by Parliament so that a review would have input from the regulators, from the government.
But the final decision would rest with Parliament, as it has always done in primary legislation. Um, now, of course, picking up one of the issues that Baroness Noakes made about durability, constant churn is unacceptable, and it would leave the regulators and the financial sector in confusion. And none of us wishes for that. But I think on the whole, we can look back and say that Parliament has behaved responsibly. Not everybody likes all of the principles that, uh, but the financial system has not had difficulty in.
The regulators have not had difficulty that, uh, in delivering or considering and making sure it's, it's having regard to those particular principles, particularly when, uh. Financial stability is at stake. But to me, what underlies all this is the democratic process. I don't believe that principles can be abdicated to a regulator, which is what happens with this bill. They go off into the long term strategy that I believe this is for Parliament. And I would very much always support a review.
Parliament has that right and it has that responsibility. Now, I will say that some of us rather suspect that the removal of the principles to the five year strategy has been to provide a covert way to diminish the climate change principles. That's a Baroness Noakes, whom I respect, would move them through the front door. That. But for many of us there is a strong suspicion that this is removing them through the back door so that the government does not get the opprobrium that would follow from groups that are concerned about net zero and climate change.
That's a some in the financial services sector actually very dedicated to achieving climate change targets. But there are also plenty of voices that regard every climate change target and every net zero as a cost and a regulatory burden that it seems to me those voices have had very strong sway with this government. So, um, my Lords, that I suspect, frankly, we would never have had the climate change principles in amongst the principles had it not been for Mark Carney. And I very much doubt they will, in any substance, survive as part of the long term strategy, unless there's something of a volte face in attitudes.
As we keep going through very extreme weather conditions, and it becomes apparent that there is a huge financial cost and a huge risk to financial stability from the extreme weather conditions and the consequence that damage to our overall economic circumstances. Um, my Lords, that's a. As I say, if the government wishes to change the principles, then I say do it through the front door in the way that Baroness Noakes proposes. Raise the issues, tell Parliament that it wishes to make changes, argue in favour of those changes.
But that is a very fundamental and different approach from taking principles which I suspect it dislikes moving them to a long term strategy so that they will, over time, dwindle, but without visibility and any parliamentary input.
But the final decision would rest with Parliament, as it has always done in primary legislation. Um, now, of course, picking up one of the issues that Baroness Noakes made about durability, constant churn is unacceptable, and it would leave the regulators and the financial sector in confusion. And none of us wishes for that. But I think on the whole, we can look back and say that Parliament has behaved responsibly. Not everybody likes all of the principles that, uh, but the financial system has not had difficulty in.
The regulators have not had difficulty that, uh, in delivering or considering and making sure it's, it's having regard to those particular principles, particularly when, uh. Financial stability is at stake. But to me, what underlies all this is the democratic process. I don't believe that principles can be abdicated to a regulator, which is what happens with this bill. They go off into the long term strategy that I believe this is for Parliament. And I would very much always support a review.
Parliament has that right and it has that responsibility. Now, I will say that some of us rather suspect that the removal of the principles to the five year strategy has been to provide a covert way to diminish the climate change principles. That's a Baroness Noakes, whom I respect, would move them through the front door. That. But for many of us there is a strong suspicion that this is removing them through the back door so that the government does not get the opprobrium that would follow from groups that are concerned about net zero and climate change.
That's a some in the financial services sector actually very dedicated to achieving climate change targets. But there are also plenty of voices that regard every climate change target and every net zero as a cost and a regulatory burden that it seems to me those voices have had very strong sway with this government. So, um, my Lords, that I suspect, frankly, we would never have had the climate change principles in amongst the principles had it not been for Mark Carney. And I very much doubt they will, in any substance, survive as part of the long term strategy, unless there's something of a volte face in attitudes.
As we keep going through very extreme weather conditions, and it becomes apparent that there is a huge financial cost and a huge risk to financial stability from the extreme weather conditions and the consequence that damage to our overall economic circumstances. Um, my Lords, that's a. As I say, if the government wishes to change the principles, then I say do it through the front door in the way that Baroness Noakes proposes. Raise the issues, tell Parliament that it wishes to make changes, argue in favour of those changes.
But that is a very fundamental and different approach from taking principles which I suspect it dislikes moving them to a long term strategy so that they will, over time, dwindle, but without visibility and any parliamentary input.
18:54
Speaker 15
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Speaker 15
My Lords, this is a welcome amendment because it raises important questions about the structure of our regulatory framework and in particular, about whether the regulatory principles set out in section three B of Fisma the eight principles remain coherent, useful and properly calibrated to the circumstances in which we now find ourselves. Over time, Fisma has accumulated objectives, secondary objectives, regulatory principles have regard, duties, reporting requirements and consultation obligations. Some of those are individually sensible. Many of them were introduced for good reasons, but taken together, there is a real risk of regulatory layering.
Duties are added, principles are added and new obligations are placed on regulators. But very little is ever taken away. Result is a framework that is increasingly complex and where. It is not always clear which duties genuinely drive regulatory behaviour and which simply sit on the statute book without translating into meaningful change. The amendment asks the Treasury to to review whether those principles are duplicative, whether they remain necessary, and whether the framework could be simplified or improved. There is also a wider question, which was raised by the Financial Services Regulation Committee in its report last year about whether these sorts of duties actually translate into anything meaningful in practice.
It is one thing for Parliament to place a duty on a regulator to have regard to a particular principle or consideration as, as my noble friend Baroness Noakes mentioned, that's exactly what the LEAs reforms is trying to streamline. It's quite another for that duty to shape decisions in a clear, measurable and accountable way. Needless complexity matters for firms as well as for regulators. A complicated regulatory framework does not stay confined to the regulator. It filters down into consultations, supervisory expectations, compliance systems, legal advice and business decisions.
If the statutory framework is unclear or duplicative, the burden ultimately falls on the firms that have to comply with it at a. Time when we are asking financial services to support growth, investment and competitiveness. We should be especially alert to unnecessary regulatory complexity. The UK's high regulatory standards are not in question, but there is a question as to whether the framework through which those standards are delivered is as clear, efficient and proportionate as it can be. I therefore hope the Minister will engage constructively with the amendment.
I would be grateful if he could explain how far the principles have already been reviewed in preparation for this bill. In the light of the Financial Services Committee's comments, does the government accept that the accumulation of regulatory principles and duties can create complexity?And do they believe the existing section three principles remain fit for purpose?This amendment raises a valuable point. I look forward to hearing the minister's response.
Duties are added, principles are added and new obligations are placed on regulators. But very little is ever taken away. Result is a framework that is increasingly complex and where. It is not always clear which duties genuinely drive regulatory behaviour and which simply sit on the statute book without translating into meaningful change. The amendment asks the Treasury to to review whether those principles are duplicative, whether they remain necessary, and whether the framework could be simplified or improved. There is also a wider question, which was raised by the Financial Services Regulation Committee in its report last year about whether these sorts of duties actually translate into anything meaningful in practice.
It is one thing for Parliament to place a duty on a regulator to have regard to a particular principle or consideration as, as my noble friend Baroness Noakes mentioned, that's exactly what the LEAs reforms is trying to streamline. It's quite another for that duty to shape decisions in a clear, measurable and accountable way. Needless complexity matters for firms as well as for regulators. A complicated regulatory framework does not stay confined to the regulator. It filters down into consultations, supervisory expectations, compliance systems, legal advice and business decisions.
If the statutory framework is unclear or duplicative, the burden ultimately falls on the firms that have to comply with it at a. Time when we are asking financial services to support growth, investment and competitiveness. We should be especially alert to unnecessary regulatory complexity. The UK's high regulatory standards are not in question, but there is a question as to whether the framework through which those standards are delivered is as clear, efficient and proportionate as it can be. I therefore hope the Minister will engage constructively with the amendment.
I would be grateful if he could explain how far the principles have already been reviewed in preparation for this bill. In the light of the Financial Services Committee's comments, does the government accept that the accumulation of regulatory principles and duties can create complexity?And do they believe the existing section three principles remain fit for purpose?This amendment raises a valuable point. I look forward to hearing the minister's response.
18:57
Speaker 8
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Speaker 8
My Lords, I'm grateful for the noble Lords for the thoughtful contribution to this debate. Um, and it's clearly something that animates a lot of discussion. I'd like to particularly acknowledge Baroness Noakes and the work of the Financial Services Regulation Committee in effectively scrutinising the work of the regulators, is an important work, and through this process, we intend to be able to support that and not diminish it in any way. It's been clear from the contributions and the second reading debate that the noble Lords have placed a strong emphasis on getting the regulatory principles right, and the government also takes this matter very seriously.
Amendment 77 would require the Treasury to carry out and lay before Parliament a review of the regulatory principles in section three B, one of Fisma, and I'm sympathetic to the efforts to streamline the process of making regulation and to giving regulators a clear and manageable set of issues to focus on. However, the government has already considered this question and carried out a review of the regulatory principles as well as the other have regards mentioned by the noble lady, Baroness Noakes. The government committed to this review in the Regulation Action Plan published in March 2025 and carried out the review with a view to identifying opportunities to rationalise those principles.
As a result of that review, the government concluded that each regulatory principles in the Financial Services and Markets Act 2000 is individually important, that they do not materially overlap with each other or with other requirements set out in legislation, and that they play an important role in providing transparency and support in the government and Parliament's oversight of the regulators. However, the government also found that the way they have regards can reduce the regulator's ability to act strategically and without clear focus. Currently, the way principles operate, resulting in production of large volumes of information that do little to support effective overall scrutiny of the regulator's performance.
That is why the government has drafted the measures in the Bill with a view to rationalise and how regulators take these regulatory principles into account, without amending the principles themselves. The government recognised that this is an area where there is significant interest. Issues related to this amendment will continue to be debated during the passage of the bill, and there'll be an opportunity to discuss these in greater detail. A further statutory review, beginning after Royal Assent, would duplicate the work the government has already undertaken.
I will come back to the noble Lords question, specifically in writing, if I haven't covered them today or later on in the debate. I therefore ask the Baroness to withdraw her amendment.
Amendment 77 would require the Treasury to carry out and lay before Parliament a review of the regulatory principles in section three B, one of Fisma, and I'm sympathetic to the efforts to streamline the process of making regulation and to giving regulators a clear and manageable set of issues to focus on. However, the government has already considered this question and carried out a review of the regulatory principles as well as the other have regards mentioned by the noble lady, Baroness Noakes. The government committed to this review in the Regulation Action Plan published in March 2025 and carried out the review with a view to identifying opportunities to rationalise those principles.
As a result of that review, the government concluded that each regulatory principles in the Financial Services and Markets Act 2000 is individually important, that they do not materially overlap with each other or with other requirements set out in legislation, and that they play an important role in providing transparency and support in the government and Parliament's oversight of the regulators. However, the government also found that the way they have regards can reduce the regulator's ability to act strategically and without clear focus. Currently, the way principles operate, resulting in production of large volumes of information that do little to support effective overall scrutiny of the regulator's performance.
That is why the government has drafted the measures in the Bill with a view to rationalise and how regulators take these regulatory principles into account, without amending the principles themselves. The government recognised that this is an area where there is significant interest. Issues related to this amendment will continue to be debated during the passage of the bill, and there'll be an opportunity to discuss these in greater detail. A further statutory review, beginning after Royal Assent, would duplicate the work the government has already undertaken.
I will come back to the noble Lords question, specifically in writing, if I haven't covered them today or later on in the debate. I therefore ask the Baroness to withdraw her amendment.
18:59
18:59
Speaker 10
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Speaker 10
Brief debate on what is, I think, an important area. Um. The government Minister said that the government have already reviewed the regulatory principles and found them to be absolutely fine. I find actually quite remarkable given the fact that they clearly do duplicate other requirements. And some are actually, frankly, almost incomprehensible. Um, and they've, they've grown up over the years in, in various ways, uh, but the burden of my remarks, as the minister knows, was the, the. The proliferation of have regards, um, not just the regulatory principles which we will be debating in the context of the, the government's clear desire to downgrade the way in which they operate and to reduce the ability of Parliament to hold the regulators to account.
We will return to that issue. I do think it's an important area that government have looked. At again, because if they say they all have regards. Um. And there are many of them throughout Fisma, I cannot believe that they've come to the conclusion that no change is required to the, to, to the legislation. It's just, it just beggars belief. Um, because they are um. Clearly overlapping in some areas and restated in, in others.
Um, so I continue to believe that a proper review should be undertaken. I will remind myself what the government's so-called review already has actually found, because I'm not sure I can remember the details of that at the moment. So between now and report, I will be checking up on that. But I as I indicated earlier, I may well be reducing. Returning to this theme, uh, at report, if not with this specific amendment, but with that, I beg leave to withdraw.
We will return to that issue. I do think it's an important area that government have looked. At again, because if they say they all have regards. Um. And there are many of them throughout Fisma, I cannot believe that they've come to the conclusion that no change is required to the, to, to the legislation. It's just, it just beggars belief. Um, because they are um. Clearly overlapping in some areas and restated in, in others.
Um, so I continue to believe that a proper review should be undertaken. I will remind myself what the government's so-called review already has actually found, because I'm not sure I can remember the details of that at the moment. So between now and report, I will be checking up on that. But I as I indicated earlier, I may well be reducing. Returning to this theme, uh, at report, if not with this specific amendment, but with that, I beg leave to withdraw.
19:01
Speaker 12
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Speaker 12
Lordships pleasure that this amendment be withdrawn. It is by leave withdrawn in clause 17, amendment 78. Baroness Kramer. Lords. Um, this is very much a probing amendment, but I thought it's an issue which we ought to raise. And this bill seemed to be an appropriate time to raise it. That's a it's an issue we've hardly touched on, frankly, in Parliament. Private credit markets are a phenomenon which have surged since the crash of 2008.
Market based finance accounts for around half of the UK and global financial sector assets, according to the Bank of England. Global private market assets are estimated at $18 trillion in 2025. They have never been tested at that scale, and the complexity by a broad based macroeconomic shock in a high interest rate environment. And I say that as a quote from the speech this year by Sarah Breeden, deputy governor of the Bank of England. At the same time, public debt is close to post-war highs, not just in the UK but globally, making it more difficult to respond to any financial shocks.
In the UK, the banking sector, people sometimes see the private credit sector as if it's distinct from other parts of finance. In the UK, the banking sector has lent to private credit funds at a scale to provide them with liquidity, with pretty much no transparency to evaluate the quality of funds. There is clearly co-investing and interconnections through derivatives. I cannot find good data to work out where the exposure lies, but there have been enough articles raising warning signs that I'm very convinced that there is something serious here that has to be looked at.
The UK pension funds have invested heavily in private assets. The Universities Superannuation Scheme has 7.8 billion in private credit exposure. Institutional providers such as Ptpt Investment Management have launched schemes specially for the use of UK pension schemes. The mansion House accord encourages even more investment into these private markets. As I listened to the Pensions Minister during the passage of the Pension Schemes Bill, I was listening. I was hearing what sounded like claims that these private assets were high return, low risk assets and perfect for pensioners with very little savings.
That's a and it's because of such a naive understanding of private credit, um, that it was so important amongst other reasons. That's why protecting the fiduciary duty of pension trustees that are dominated, that, uh, in, in the, uh, in the passage of the pension schemes, bill and Baroness Noakes and Baroness Bowles were instrumental in making sure that that fiduciary duty remained primary. But the insurance companies are deep into this, too. According to the Bank of England, in evidence to the Lords Financial Services Regulation Committee, the interconnections between private markets and the life insurance sector have grown considerably, with analysis by the IMF showing that approximately 35% of assets held by U.S.
life insurers and approximately 23% of those held by UK life insurers, were allocated to private credit. My Lord, it's clear that if the private credit market goes wrong, it clearly goes wrong for the whole financial sector.
Market based finance accounts for around half of the UK and global financial sector assets, according to the Bank of England. Global private market assets are estimated at $18 trillion in 2025. They have never been tested at that scale, and the complexity by a broad based macroeconomic shock in a high interest rate environment. And I say that as a quote from the speech this year by Sarah Breeden, deputy governor of the Bank of England. At the same time, public debt is close to post-war highs, not just in the UK but globally, making it more difficult to respond to any financial shocks.
In the UK, the banking sector, people sometimes see the private credit sector as if it's distinct from other parts of finance. In the UK, the banking sector has lent to private credit funds at a scale to provide them with liquidity, with pretty much no transparency to evaluate the quality of funds. There is clearly co-investing and interconnections through derivatives. I cannot find good data to work out where the exposure lies, but there have been enough articles raising warning signs that I'm very convinced that there is something serious here that has to be looked at.
The UK pension funds have invested heavily in private assets. The Universities Superannuation Scheme has 7.8 billion in private credit exposure. Institutional providers such as Ptpt Investment Management have launched schemes specially for the use of UK pension schemes. The mansion House accord encourages even more investment into these private markets. As I listened to the Pensions Minister during the passage of the Pension Schemes Bill, I was listening. I was hearing what sounded like claims that these private assets were high return, low risk assets and perfect for pensioners with very little savings.
That's a and it's because of such a naive understanding of private credit, um, that it was so important amongst other reasons. That's why protecting the fiduciary duty of pension trustees that are dominated, that, uh, in, in the, uh, in the passage of the pension schemes, bill and Baroness Noakes and Baroness Bowles were instrumental in making sure that that fiduciary duty remained primary. But the insurance companies are deep into this, too. According to the Bank of England, in evidence to the Lords Financial Services Regulation Committee, the interconnections between private markets and the life insurance sector have grown considerably, with analysis by the IMF showing that approximately 35% of assets held by U.S.
life insurers and approximately 23% of those held by UK life insurers, were allocated to private credit. My Lord, it's clear that if the private credit market goes wrong, it clearly goes wrong for the whole financial sector.
19:04
Speaker 4
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Speaker 4
It has serious liquidity issues. Anyone who picks up a newspaper can see that firms like Blackstone, Oaktree, Apollo, Morgan Stanley and that's just a few are now limiting redemptions or indeed refusing redemptions. We cannot ignore the caring. The canary in the mine. Now the. The FSR Committee of the Lords published a report that. On this sector in January. Private markets are known unknowns and. At the end of that process, and I give some credit to the committee, the Bank of England announced that it would conduct a system wide exploratory scenario that will involve the banks, insurers, private equity companies and pension fund investors.
But on a voluntary basis. It will report in 2027. I think the committee is to be commended for focusing on the issues in this sector, but I do not think this satisfies a reasonable standard of parliamentary scrutiny and reflection of parliamentary responsibility to the public to make sure that we avoid another major financial crash. So my amendment is simply designed to put pressure on the Bank of England to get proper answers, and I'm still disturbed that it thinks it will only do so on a voluntary basis.
It's a. I would hope this bill as a whole can be amended to restore proper Democratic oversight, and then Parliament could engage with finding a solution. That's a. And at this moment in time, I think one of the reasons so few people in our. Both houses are aware of the concerns of. The issue is that there is virtually no vehicle for a debate for consideration and for action. Now, the second part of my amendment 78 addresses a problem which I have never heard widely discussed.
If the private credit market goes bad and the banks, because they are entangled with that market, begin to divest loans, what happens to small businesses dependent on bank credit?We saw this behaviour in 2008 after the crash, banks continued to fund the big companies but found every way possible, many of them legal, but I would consider unethical to call in loans to small companies in loan agreements that that were being paid in full and on time. There would be a covenant somewhere in the documents that said that if loan to property values fell below a certain level, the loan could be called.
And I am pretty sure that the small business never really thought that was a significant that a paragraph in its loan agreement. But it proved the trigger. And we saw basically every major bank exercise that. And the FCA refused to act. And it has always held the line that the regulatory perimeter means that it cannot offer protection to small businesses. But instead that caveat emptor applies. Now, to me, this is untenable in the complex world of finance that we have today.
And I do want the regulators to take a proper look at this whole issue of the regulatory perimeter. If we are to go into a cycle that of financial shocks.
But on a voluntary basis. It will report in 2027. I think the committee is to be commended for focusing on the issues in this sector, but I do not think this satisfies a reasonable standard of parliamentary scrutiny and reflection of parliamentary responsibility to the public to make sure that we avoid another major financial crash. So my amendment is simply designed to put pressure on the Bank of England to get proper answers, and I'm still disturbed that it thinks it will only do so on a voluntary basis.
It's a. I would hope this bill as a whole can be amended to restore proper Democratic oversight, and then Parliament could engage with finding a solution. That's a. And at this moment in time, I think one of the reasons so few people in our. Both houses are aware of the concerns of. The issue is that there is virtually no vehicle for a debate for consideration and for action. Now, the second part of my amendment 78 addresses a problem which I have never heard widely discussed.
If the private credit market goes bad and the banks, because they are entangled with that market, begin to divest loans, what happens to small businesses dependent on bank credit?We saw this behaviour in 2008 after the crash, banks continued to fund the big companies but found every way possible, many of them legal, but I would consider unethical to call in loans to small companies in loan agreements that that were being paid in full and on time. There would be a covenant somewhere in the documents that said that if loan to property values fell below a certain level, the loan could be called.
And I am pretty sure that the small business never really thought that was a significant that a paragraph in its loan agreement. But it proved the trigger. And we saw basically every major bank exercise that. And the FCA refused to act. And it has always held the line that the regulatory perimeter means that it cannot offer protection to small businesses. But instead that caveat emptor applies. Now, to me, this is untenable in the complex world of finance that we have today.
And I do want the regulators to take a proper look at this whole issue of the regulatory perimeter. If we are to go into a cycle that of financial shocks.
19:08
19:09
19:09
19:09
19:09
Speaker 6
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Speaker 6
Follow the noble lady, Baroness Kramer, with what may be the most important amendment that we're going to discuss at committee, and I hope we might discuss it report as well. Um, because as the noble lady said, um, there is a huge, uh, lack. Of discussion of this issue in Parliament. Whereas if you go to the pages of the Financial Times, for example, you will see pretty well every day. Um, pretty alarming reports. Um, and pretty strong headlines expressing concern about this issue.
Um, now I'm aware that we're operating under heatwave conditions, as is the rest of the nation. Um, as with our credit system, we've all been puffed up by a lot of hot air. Um, which indeed has been financed, much of it by our, by our financial system. Um, so I will be quite brief. Um, but I just want to pick up a couple of points that the noble lady said. I think the really powerful argument that a voluntary engagement with a stress test is really just, um, you know, laughable with a sick kind of laugh.
Um, we know what voluntary regulation has done in so many different areas of our business sectors. Um, and um, that's not the way to be going forward. And the other thing is I think the noble lady talked about pension funds, particularly investing in private credit and the very grave concerns that that raises and some quite a bit of research that indicates that actually the people who are profiting from this are the managers and the companies and pension funds are getting the same or lower returns as they are from other investments.
But I thought the most useful way I could add to this was I just been through the Financial Times, private credit headlines just for this month. And this is a representative selection of them. Are insurers becoming dangerously addicted to private credit ratings?A question mark headline to which the answer is clearly given in the article is yes. Apollo's flagship private credit fund, hit by 17% redemption requests. BlackRock Private Credit Fund honoring less than 40% of redemption requests. Partners, Group limits withdrawals at private equity fund for wealthy individuals.
Cliff waters flagship private credit fund redemption requests hit 17%. I'm. Rather than expound at length, I'm going to refer noble Lords to a single book. Uh, the title of this book is This Time is Different Eight Centuries of Financial Folly, by Cameron Reinhart and Kenneth Rogoff. Um. There is no reason to think that will be different to what we've been at before. Um, private credit is a new structure of a very, very familiar form. And we've seen what happens with these kind of new financial engineering structures.
And the noble lady here is doing a really important job, um, of at least starting us on a discussion of this, a discussion that should be held at much, much greater length in the main chamber. And that should be worrying us all.
Um, now I'm aware that we're operating under heatwave conditions, as is the rest of the nation. Um, as with our credit system, we've all been puffed up by a lot of hot air. Um, which indeed has been financed, much of it by our, by our financial system. Um, so I will be quite brief. Um, but I just want to pick up a couple of points that the noble lady said. I think the really powerful argument that a voluntary engagement with a stress test is really just, um, you know, laughable with a sick kind of laugh.
Um, we know what voluntary regulation has done in so many different areas of our business sectors. Um, and um, that's not the way to be going forward. And the other thing is I think the noble lady talked about pension funds, particularly investing in private credit and the very grave concerns that that raises and some quite a bit of research that indicates that actually the people who are profiting from this are the managers and the companies and pension funds are getting the same or lower returns as they are from other investments.
But I thought the most useful way I could add to this was I just been through the Financial Times, private credit headlines just for this month. And this is a representative selection of them. Are insurers becoming dangerously addicted to private credit ratings?A question mark headline to which the answer is clearly given in the article is yes. Apollo's flagship private credit fund, hit by 17% redemption requests. BlackRock Private Credit Fund honoring less than 40% of redemption requests. Partners, Group limits withdrawals at private equity fund for wealthy individuals.
Cliff waters flagship private credit fund redemption requests hit 17%. I'm. Rather than expound at length, I'm going to refer noble Lords to a single book. Uh, the title of this book is This Time is Different Eight Centuries of Financial Folly, by Cameron Reinhart and Kenneth Rogoff. Um. There is no reason to think that will be different to what we've been at before. Um, private credit is a new structure of a very, very familiar form. And we've seen what happens with these kind of new financial engineering structures.
And the noble lady here is doing a really important job, um, of at least starting us on a discussion of this, a discussion that should be held at much, much greater length in the main chamber. And that should be worrying us all.
19:12
Speaker 2
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Speaker 2
The noble lady was kind enough to refer to the committee, I chair, and I thought I'd just offer a few comments on on this area. Um, first of all, I, in line with what I said in the previous group of amendments, I don't believe that the this is a regulatory principle, uh, in any real sense, and certainly not directed just at the PRA and the FCA, for example, the, um, the system wide exploratory scenario, which the noble Baroness, um, referred to is being undertaken by the financial stability arm of the bank when she referenced Sarah Breeden.
And that is her area and she is not in the PRA or, or the FCA. Um the noble Baroness lady. I'll read out some um some headlines from the Financial Times and she's quite right. There's, there's a lot of noise around private credit. It is all based in the US at the moment. Um now what starts in America comes to the UK is one of the things that's often said, but I think there are quite a lot of differences between, uh, what has happened in the United States and the ones that have actually seriously gone wrong in the United States.
And what has happened here, and it is actually encouraging that the Bank of England. Has actually taken the initiative, the only country in the world to carry out the system wide exploratory stress. Now, there was criticism that this was voluntary, and that is because there are the, the the players in the private credit market are not regulated organisations. So they have no obligation under the existing law to provide information. But it is my understanding that the degree of involvement of those organisations which are not directly regulated by the PRA or the FCA, um or in relation to the activities that we're talking about, uh, have taken part.
And as my understanding that the degree of involvement has been satisfactory, one of the things I was going to consider tabling for, uh, the, this committee, um, was whether or not the, the Bank of England had sufficient powers to get the information from the non-regulated sector if they needed to. And I would be grateful if the noble Lord, the minister would reflect on that question. Um, because all the time the information is adequately obtained, um, voluntarily. I don't see any need to um. To legislate for it.
And I'm not just not aware of whether or not there's a backstop power. And I ran out of brain power to find out how to draft an amendment to find out about that. So I'm grateful for the noble Baroness giving me a cue to raise that as an issue. Um, there are a lot of issues that arise in relation to the, the impact of private credit on the existing um regulated organisations, banks, insurance companies. Um, but I think it's also fair to say that while we, there isn't a complete transparency on what the, for example, the second order impact would be if there was a stress in this situation.
There is a lot of awareness and supervisory engagement with the key players, as explained to us during the conduct of the inquiry that my committee undertook. Um, and the, the, the committee did not find such a scary situation as has been portrayed by other members of the committee this afternoon.
And that is her area and she is not in the PRA or, or the FCA. Um the noble Baroness lady. I'll read out some um some headlines from the Financial Times and she's quite right. There's, there's a lot of noise around private credit. It is all based in the US at the moment. Um now what starts in America comes to the UK is one of the things that's often said, but I think there are quite a lot of differences between, uh, what has happened in the United States and the ones that have actually seriously gone wrong in the United States.
And what has happened here, and it is actually encouraging that the Bank of England. Has actually taken the initiative, the only country in the world to carry out the system wide exploratory stress. Now, there was criticism that this was voluntary, and that is because there are the, the the players in the private credit market are not regulated organisations. So they have no obligation under the existing law to provide information. But it is my understanding that the degree of involvement of those organisations which are not directly regulated by the PRA or the FCA, um or in relation to the activities that we're talking about, uh, have taken part.
And as my understanding that the degree of involvement has been satisfactory, one of the things I was going to consider tabling for, uh, the, this committee, um, was whether or not the, the Bank of England had sufficient powers to get the information from the non-regulated sector if they needed to. And I would be grateful if the noble Lord, the minister would reflect on that question. Um, because all the time the information is adequately obtained, um, voluntarily. I don't see any need to um. To legislate for it.
And I'm not just not aware of whether or not there's a backstop power. And I ran out of brain power to find out how to draft an amendment to find out about that. So I'm grateful for the noble Baroness giving me a cue to raise that as an issue. Um, there are a lot of issues that arise in relation to the, the impact of private credit on the existing um regulated organisations, banks, insurance companies. Um, but I think it's also fair to say that while we, there isn't a complete transparency on what the, for example, the second order impact would be if there was a stress in this situation.
There is a lot of awareness and supervisory engagement with the key players, as explained to us during the conduct of the inquiry that my committee undertook. Um, and the, the, the committee did not find such a scary situation as has been portrayed by other members of the committee this afternoon.
19:15
Speaker 7
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Speaker 7
My Lord. My Lords, this amendment raises an important question about private credit and how our regulatory framework should respond to emerging risks in modern financial markets, and I look forward to. The minister's tactful comments, uh, given. On this amendment, given that the noble Baroness, Lady Cramer, spoke so well in favour of private credit and first day of committee in Group five, and here we are on the problems of private credit. On the second day of committee, the. The noble Lord.
The Minister will. Will be extraordinarily tactful in handling that. Uh, we will, of course, have a wider debate on clause 17 and the regulatory principles in future groups. And this amendment touches on some of those broader questions. But the specific issue here raised here. Private credit is an important and timely one. Private credit has grown considerably as a feature of modern financial markets. It's actually grown partly as a consequence, of course, of regulation.
So we're dealing now with regulation of a consequence of regulation as the markets have evolved. It can provide an important source of finance outside traditional banking channels, supporting businesses which need capital to invest, develop and grow. For that reason, we should be careful not to respond to its expansion in a way which unnecessarily restricts access to safe and productive credit. Indeed, the Financial Services Regulation Committee concluded in their report earlier this year that private credit has developed rapidly and plays a useful economic role that is particularly important at a time when we want firms to invest, expand and access to finance as they need.
We should not create a regulatory environment in which the answer to every emerging market development is simply more regulation, without proper regard to the consequences. Indeed, the government has been keen to support private equity through greater investment from assets like pension funds in the UK. If it wants this sector to continue developing, it must ensure that regulation supports rather than restricts access to credit for consumers who choose to use these products. At the same time, it is right to recognise that financial markets do not stand still.
The system changes over time and the regulatory framework must remain alert to those changes. Areas such as private credit and old bank finance, digital finance and other fast moving parts of the system all demonstrate the need for regulation that reflects the market as it is developing, not simply the market as it looked when early legislation was drafted. Point, therefore, is one of balance. We need a market that is dynamic, innovative and capable of providing finance to the businesses on which growth depends. But we also need a regulatory framework that is sufficiently up to date to understand and monitor emerging risks.
We should also keep in mind that risk can never be eliminated entirely. The role of regulation should not be to remove all risk from the system, but to ensure that risks are properly understood, proportionately managed and developed with an eye to supporting economic development and growth. For those reasons, we will listen carefully to the Minister's response.
The Minister will. Will be extraordinarily tactful in handling that. Uh, we will, of course, have a wider debate on clause 17 and the regulatory principles in future groups. And this amendment touches on some of those broader questions. But the specific issue here raised here. Private credit is an important and timely one. Private credit has grown considerably as a feature of modern financial markets. It's actually grown partly as a consequence, of course, of regulation.
So we're dealing now with regulation of a consequence of regulation as the markets have evolved. It can provide an important source of finance outside traditional banking channels, supporting businesses which need capital to invest, develop and grow. For that reason, we should be careful not to respond to its expansion in a way which unnecessarily restricts access to safe and productive credit. Indeed, the Financial Services Regulation Committee concluded in their report earlier this year that private credit has developed rapidly and plays a useful economic role that is particularly important at a time when we want firms to invest, expand and access to finance as they need.
We should not create a regulatory environment in which the answer to every emerging market development is simply more regulation, without proper regard to the consequences. Indeed, the government has been keen to support private equity through greater investment from assets like pension funds in the UK. If it wants this sector to continue developing, it must ensure that regulation supports rather than restricts access to credit for consumers who choose to use these products. At the same time, it is right to recognise that financial markets do not stand still.
The system changes over time and the regulatory framework must remain alert to those changes. Areas such as private credit and old bank finance, digital finance and other fast moving parts of the system all demonstrate the need for regulation that reflects the market as it is developing, not simply the market as it looked when early legislation was drafted. Point, therefore, is one of balance. We need a market that is dynamic, innovative and capable of providing finance to the businesses on which growth depends. But we also need a regulatory framework that is sufficiently up to date to understand and monitor emerging risks.
We should also keep in mind that risk can never be eliminated entirely. The role of regulation should not be to remove all risk from the system, but to ensure that risks are properly understood, proportionately managed and developed with an eye to supporting economic development and growth. For those reasons, we will listen carefully to the Minister's response.
19:18
Speaker 14
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Speaker 14
Kramer's focus on the vulnerabilities in the private credit system. Whilst the government is clear that the growth of private credit has brought benefits to the real economy, we and the financial regulators are very conscious of the potential vulnerability in the sector as well. Just last month, the Chancellor and the governor of the Bank of England joined their fellow G7 finance ministers and central bank governors in agreeing that potential risks in the private credit ecosystem. A call for continued monitoring, including the interconnections with banks and insurers.
Bernice Kramer's amendment, would require the PRA and the FCA to consider private credits. Interactions with the wider financial system. In all cases where the regulatory principles are engaged, their decision making could be unlawful. I can assure her that the regulators are already working to understand deeply these vulnerabilities and to address them where necessary. This work does not require placing additional duties on the regulators. But just to highlight the existing work of those regulators first, the Bank of England's Financial Policy Committee has been focused on risks of private markets for many years now, and the Chancellor's most recent letter to the FEC asked that that work continues.
I would specifically note the. Bank's system wide exploratory scenario on private markets, the. Suez. As if we needed another acronym. This is examining how the stress scenario could affect the UK's private markets ecosystem and interconnected banks, insurers and pension funds with significant participation across the industry, the UK system wide regulator, the Bank of England's Financial Policy Committee, is the right authority to carry out this work, and its findings will be laid before Parliament when it is complete. For its part, the FCA also maintains a close focus on these risks.
This includes includes in their firm level supervision, where specific issues are identified, targeted interventions follow. We also welcome the FCA's work to improve visibility of risks and data availability through its reviews of the Alternative Investment Fund Managers Directive framework and its effort to raise standards on conflicts of interest, valuation practices and risk management. I note the concerns over the FSA's regulatory perimeter, but I also emphasise that the marketing of funds in the UK is indeed subject to regulatory UK regulatory requirements. Protecting UK investors and further, the PRA continues to assess and mitigate risks from private markets to the banks and insurers it regulates.
This includes their 2024 thematic review of private equity based private equity related financing activities with banks. And finally, given the cross-border nature of private credit ecosystem, the bank and the FCA are actively engaged in the international work. This includes the Financial Stability Board, which the Bank of England governor chairs. The government believes that under our regulatory framework, vulnerabilities in private credit are being understood and addressed where needed. But there is, of course, much room to improve. I therefore ask the noble lady to withdraw this amendment.
Bernice Kramer's amendment, would require the PRA and the FCA to consider private credits. Interactions with the wider financial system. In all cases where the regulatory principles are engaged, their decision making could be unlawful. I can assure her that the regulators are already working to understand deeply these vulnerabilities and to address them where necessary. This work does not require placing additional duties on the regulators. But just to highlight the existing work of those regulators first, the Bank of England's Financial Policy Committee has been focused on risks of private markets for many years now, and the Chancellor's most recent letter to the FEC asked that that work continues.
I would specifically note the. Bank's system wide exploratory scenario on private markets, the. Suez. As if we needed another acronym. This is examining how the stress scenario could affect the UK's private markets ecosystem and interconnected banks, insurers and pension funds with significant participation across the industry, the UK system wide regulator, the Bank of England's Financial Policy Committee, is the right authority to carry out this work, and its findings will be laid before Parliament when it is complete. For its part, the FCA also maintains a close focus on these risks.
This includes includes in their firm level supervision, where specific issues are identified, targeted interventions follow. We also welcome the FCA's work to improve visibility of risks and data availability through its reviews of the Alternative Investment Fund Managers Directive framework and its effort to raise standards on conflicts of interest, valuation practices and risk management. I note the concerns over the FSA's regulatory perimeter, but I also emphasise that the marketing of funds in the UK is indeed subject to regulatory UK regulatory requirements. Protecting UK investors and further, the PRA continues to assess and mitigate risks from private markets to the banks and insurers it regulates.
This includes their 2024 thematic review of private equity based private equity related financing activities with banks. And finally, given the cross-border nature of private credit ecosystem, the bank and the FCA are actively engaged in the international work. This includes the Financial Stability Board, which the Bank of England governor chairs. The government believes that under our regulatory framework, vulnerabilities in private credit are being understood and addressed where needed. But there is, of course, much room to improve. I therefore ask the noble lady to withdraw this amendment.
19:21
Speaker 4
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Speaker 4
To withdraw this amendment. But I did want to get this. Um, that's on the agenda. And I think it's one that we need to continue. Can I say to the government, don't be complacent that in this situation, um, a few weeks before we had the crash in 2008 that everybody in government would have told you how well the financial sector was functioning. That's. So a being a cynic can be quite helpful. I am particularly concerned about the impact on small businesses when we run into the next financial shock, because there will be one that's.
And that regulatory perimeter is a serious issue that the government should be looking at. So I don't know if you can get the regulators to voluntarily look at it. And as far as they're concerned, Parliament really is only a place you go to explain, not where you take instruction. So I am concerned about these issues I'm looking forward to Baroness Noakes's amendment that's on private credit. That's when it comes later in this bill. And with that, I beg to withdraw.
And that regulatory perimeter is a serious issue that the government should be looking at. So I don't know if you can get the regulators to voluntarily look at it. And as far as they're concerned, Parliament really is only a place you go to explain, not where you take instruction. So I am concerned about these issues I'm looking forward to Baroness Noakes's amendment that's on private credit. That's when it comes later in this bill. And with that, I beg to withdraw.
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Speaker 4
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Speaker 4
Pleasure that this amendment be withdrawn. It is by leave withdrawn in clause 17, amendment 79. Baroness Kramer. Is it?To me again with another, uh, another issue that I want to raise. It doesn't look like it necessarily looking at this amendment, but actually there's another constitutional amendment. And stablecoin are coming. As I said in this House before, I'm not King Canute, but I am concerned that both the industry and the regulators treat stablecoin as merely a change in plumbing in the payment system.
I understand the desire for the UK to be an attractive place for stablecoin companies, and the need to build a substantial sterling stablecoin sector. What concerns me is that at scale it has huge consequences for liabilities to be carried by the taxpayer and also determines who has their hands on the levers of economic power. I'm not going to pursue that. Last issue would take about another ten minutes in the House, I think is beyond coping with that. But the FCA will publish regulations for the Non-systemic stablecoin players in October.
But on Monday, the Bank of England launched its policy statement and draft rules for systemic stablecoin. Document is clearly a loosening of rules previously under discussion, but my attention was grabbed by the bank's confirmation that it will introduce a central bank liquidity facility for systemic stablecoin. In other words, if there is a run on stablecoin, the taxpayer is on the hook. It's true that liquidity facilities are offered to the banks, but to extend this to stablecoin is a major decision that I am not saying that it's right or that it's wrong, but I am saying that a decision on this scale, with the liabilities that are consequent is above the pay grade of the regulator.
This should be a decision in which Parliament is fully engaged.
I understand the desire for the UK to be an attractive place for stablecoin companies, and the need to build a substantial sterling stablecoin sector. What concerns me is that at scale it has huge consequences for liabilities to be carried by the taxpayer and also determines who has their hands on the levers of economic power. I'm not going to pursue that. Last issue would take about another ten minutes in the House, I think is beyond coping with that. But the FCA will publish regulations for the Non-systemic stablecoin players in October.
But on Monday, the Bank of England launched its policy statement and draft rules for systemic stablecoin. Document is clearly a loosening of rules previously under discussion, but my attention was grabbed by the bank's confirmation that it will introduce a central bank liquidity facility for systemic stablecoin. In other words, if there is a run on stablecoin, the taxpayer is on the hook. It's true that liquidity facilities are offered to the banks, but to extend this to stablecoin is a major decision that I am not saying that it's right or that it's wrong, but I am saying that a decision on this scale, with the liabilities that are consequent is above the pay grade of the regulator.
This should be a decision in which Parliament is fully engaged.
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Speaker 2
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Speaker 2
So regulation Committee has also been looking at stablecoin. So I have a few words to, to say on on the, on the topic. Um, I'll, I'll go back to my point. This is not a regulatory principle that can be applied by the FCA and the PRA. It's really very little to do with the FCA and the PRA. This is the the financial stability part of the Bank of England that has issued the policy. Um the backstop is just one part of the arrangements, as the noble Baroness will be aware.
There's also a very significant part of the um. The assets of the um. The stablecoin issuers need to be held in Unremunerated. Form at the Bank of England, 30%, which is a very significant amount of money. And so if the noble Baroness is worried about the cost to the taxpayer, she might also reflect on the. The gain to the taxpayer for all the time. There isn't a crisis when the Bank of England has access to free money.
Uh, which is part of the the whole deal, the stablecoin package needs to be looked at as a whole rather than pick out one small part of it. The noble brands may still disagree with it, but it is a calibrated package. Balancing the risks, including, uh, keeping 1 to 1 asset backing, um, which will also go a long way to allaying the noble Baroness concerns.
There's also a very significant part of the um. The assets of the um. The stablecoin issuers need to be held in Unremunerated. Form at the Bank of England, 30%, which is a very significant amount of money. And so if the noble Baroness is worried about the cost to the taxpayer, she might also reflect on the. The gain to the taxpayer for all the time. There isn't a crisis when the Bank of England has access to free money.
Uh, which is part of the the whole deal, the stablecoin package needs to be looked at as a whole rather than pick out one small part of it. The noble brands may still disagree with it, but it is a calibrated package. Balancing the risks, including, uh, keeping 1 to 1 asset backing, um, which will also go a long way to allaying the noble Baroness concerns.
19:27
Speaker 12
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Speaker 12
I agree with the noble Baroness, Lady Cramer, that digital assets are a serious issue and that they deserve proper scrutiny. I think we commented from a slightly different perspective, and indeed, I note the point made by my noble friend Lady Noakes, that this doesn't really matter for regulatory principles. This week, as we've heard, the Bank of England published its final policy statement and draft Code of Practice for systemic sterling stablecoins. I think this may go some way in supporting institutional scale up, but we were concerned by the general reaction, which has been that the fundamentals haven't changed and that the prevailing regime we are left with could still leave UK issuers less attractive internationally.
We're very grateful for the work of the Financial Services Committee yet again. It features in almost every part of this bill um under. My noble friend Lady Noakes, and with the help of a very distinguished committee in their report, uh, stablecoins waiting for regulation, they make clear that the UK, in their view, is lagging behind the US and EU on stablecoin regulation, stablecoins and other forms of digital money are no longer simply niche products or theoretical innovations. They have the potential to become part of the wider payments and financial infrastructure.
The danger now, I think, is that we risk creating, or at least allowing to persist, a regulatory gray zone. Firms need clarity on the duties, expectations and requirements they will have to meet, and that is why we're calling for a much clearer digital asset strategy from from the government. We need ministers to take a position of leadership in this area. Um, it's not enough, I think, simply to. To respond to developments as they arise in different parts of the digital stratosphere.
So we've tabled amendments alongside the noble Lord, Lord Granger, who is somewhat expert in this area and isn't here today to probe the government on the wider question of digital assets and digital finance strategy will come to those amendments in a later group. But I don't really want to preempt that debate now, and not at this late hour. With so few people in the committee on such a hot day. I think this amendment touches on the same underlying point, actually, that the government need to provide clarity.
They need to provide certainty. They need to provide leadership, whatever that is. So I'd be grateful if the minister could perhaps briefly explain the government's position on stablecoins and how they will help growth and competitiveness for this, uh, to respond to the point that Lady Cramer has rightly raised.
We're very grateful for the work of the Financial Services Committee yet again. It features in almost every part of this bill um under. My noble friend Lady Noakes, and with the help of a very distinguished committee in their report, uh, stablecoins waiting for regulation, they make clear that the UK, in their view, is lagging behind the US and EU on stablecoin regulation, stablecoins and other forms of digital money are no longer simply niche products or theoretical innovations. They have the potential to become part of the wider payments and financial infrastructure.
The danger now, I think, is that we risk creating, or at least allowing to persist, a regulatory gray zone. Firms need clarity on the duties, expectations and requirements they will have to meet, and that is why we're calling for a much clearer digital asset strategy from from the government. We need ministers to take a position of leadership in this area. Um, it's not enough, I think, simply to. To respond to developments as they arise in different parts of the digital stratosphere.
So we've tabled amendments alongside the noble Lord, Lord Granger, who is somewhat expert in this area and isn't here today to probe the government on the wider question of digital assets and digital finance strategy will come to those amendments in a later group. But I don't really want to preempt that debate now, and not at this late hour. With so few people in the committee on such a hot day. I think this amendment touches on the same underlying point, actually, that the government need to provide clarity.
They need to provide certainty. They need to provide leadership, whatever that is. So I'd be grateful if the minister could perhaps briefly explain the government's position on stablecoins and how they will help growth and competitiveness for this, uh, to respond to the point that Lady Cramer has rightly raised.
19:29
Speaker 14
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Speaker 14
November 79th would require the FCA and PRA to assess the impact on the taxpayer of any provision of backstop arrangements by the Bank of England to private stablecoin when exercising their general function. I support the Noble Ladies goal to ensure that all government and Bank of England activity provides good value for the taxpayer. The Bank of England already has a duty established in the Joint Memorandum of Understanding between HMG to ensure value for money by minimizing costs and risks to its capital, the Bank of England proposals for backstop facility would allow systematic stablecoin issuers to monetize their sterling denominated UK government debt securities in exceptional scenarios where they might not otherwise be able to do so.
Help mitigate potential potential financial stability risks. The bank has also indicated that access to any such backstop lending facility would only be eligible for solvent and viable systemic stablecoin issuers. The government is working closely with the Bank of England to ensure the regime for systemic stablecoins, considers a wide range of factors, including value for money for the taxpayers, maintaining financial stability, and the UK's international competitiveness. I also note that the draft as drafted, the amendment is placed in requirements on the FCA and PA to consider the Bank of England's regulatory regime when making decisions which would be inappropriate, as the FCA emperor are independent bodies with their own objectives.
That said, effective cooperation between the regulators is, of course important. I therefore ask the noble lady to withdraw this amendment.
Help mitigate potential potential financial stability risks. The bank has also indicated that access to any such backstop lending facility would only be eligible for solvent and viable systemic stablecoin issuers. The government is working closely with the Bank of England to ensure the regime for systemic stablecoins, considers a wide range of factors, including value for money for the taxpayers, maintaining financial stability, and the UK's international competitiveness. I also note that the draft as drafted, the amendment is placed in requirements on the FCA and PA to consider the Bank of England's regulatory regime when making decisions which would be inappropriate, as the FCA emperor are independent bodies with their own objectives.
That said, effective cooperation between the regulators is, of course important. I therefore ask the noble lady to withdraw this amendment.
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