Credit Institutions and Investment Firms (Miscellaneous Definitions) (Amendment) Regulations 2026

Baroness Neville-Rolfe Excerpts

Wednesday 15th April 2026 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, these instruments are being taken together and I shall address them accordingly in the light of the helpful introduction by the Minister. However, before turning to the specific provisions, I would like to raise some broader questions about the Government’s approach to financial services regulation.

First, on the matter of dynamic alignment with the European Union, there has been considerable speculation about whether the Government intend to pursue closer regulatory alignment with the EU in financial services. I would be grateful if the Minister could clarify the Government’s position on this. My understanding is that the City itself has moved away from enthusiasm for dynamic alignment, recognising that regulatory autonomy, properly exercised, offers competitive advantages that should not be lightly surrendered. There is also the important point about regulatory uncertainty, which the Minister mentioned and which we all know stifles growth and deters investment. Can the Minister therefore confirm whether dynamic alignment remains under active consideration in this area and, if so, in what form?

Secondly and relatedly, on progress with EU-related regulatory changes, the Government have previously indicated certain commitments regarding implementation timelines for their reforms. Can the Minister update the Committee on whether these commitments are being maintained and the proportion of EU-derived legislation that has already been replaced, and give some indication of the timescales involved?

I turn to the instruments themselves, which are technical but important for the direction of travel. The first instrument provides transitional relief for the new market risk internal model framework, inserting a one-year pause before full implementation, for reasons that the Minister has set out. The second instrument restates and domesticates EU capital requirements regulation definitions into UK statute, addressing what would otherwise be a gap when existing EU-derived definitions fall away.

I have several questions for the Minister, some of which come from a slightly different perspective to those from the noble Baroness, Lady Kramer. On the definitional instrument, any process of transposition carries some risk that meanings shift in translation. Has any assessment been made of that risk? Have the PRA and FCA reviewed the new definitions from an operational standpoint to identify any areas where domesticated versions could give rise to interpretive uncertainty?

On the transitional instrument, the fact that it is necessary at all implies something concerning about the readiness of firms, the complexity of the new framework or both. The Minister also mentioned developments overseas, but can he confirm whether the new market risk framework, once fully in force, will represent a material increase in compliance burdens? He will know that this is something I am always concerned about. What concrete steps are being taken during 2027 to ensure that firms will genuinely be ready for full implementation, other than finding themselves reaching for another transitional instrument in 12 months’ time?

I should also like to know how much additional regulatory capital banks are likely to have to hold under the new rules, when they are finally implemented. Last year, the Financial Policy Committee concluded— I thought, helpfully—that overall bank capital levels could be 1% lower. Did the FPC take the trading book changes we are discussing into account?

On the questions of regulatory capacity, is there a risk of a bottleneck in the PRA’s model approval process? Has the PRA assessed its own readiness to manage applications without that becoming a practical choke point? Alternatively, and if the answer to that is reassuring, is it because, given the complexity, only big banks with big trading desks will opt for model approval under FTRB?

Turning to broader international comparisons, how does the UK’s implementation timeline approach to approvals compare with other major jurisdictions? If our framework proves materially more demanding than equivalent regimes elsewhere, there is a genuine risk of competitive disadvantage in global wholesale markets.

I heard from some involved that our regulators feel good about implementing international rules, while the US—and, indeed, the EU—are less driven to comply quickly or in detail. Can the Minister give the Committee his assessment of where the UK stands in relation to its peers and reiterate his commitment to growth in financial services, which he mentioned in his introductory remarks?

Finally, on the power to extend the transitional period, can the Minister set out the criteria by which the Treasury would judge whether an extension is warranted and what signals would prompt the Government to consider using that power? The Minister said that it would be time-limited and used only if necessary, but I am not quite sure what that means.

The integrity of our prudential supervisory framework depends on sound legal foundations, as the noble Baroness, Lady Kramer, has always emphasised. These instruments appear to address that, but technical competence is not the same as strategic direction. As we build out a domestically rooted regulatory framework, the question of whether that framework is orientated toward competitiveness and growth, and not merely toward prudential conservatism, becomes pressing.

I was glad to hear the Minister mention both growth and the importance of SMEs, but the Committee will no doubt recall the report published by the Financial Services Regulation Committee on this subject and the good debate it prompted in Grand Committee, for which the Minister was sadly unable to be present. As several of us stated, the regulators are still too risk-averse and their culture needs to change. The report by that respected committee found that the competitiveness and growth objectives were “work in progress”.

In conclusion, is the Minister able to tell us how the Government are keeping up pressure on the regulators on these important objectives, and perhaps provide some live examples of what they are actually doing on competitiveness and growth?

[Lord Livermore (Lab)]

My Lords, I am grateful to both noble Baronesses for their extensive questions on these relatively modest SIs. I have some answers to the questions posed by the noble Baronesses. I do not have all the answers but I will, of course, write with the answers that I do not have to hand.

The noble Baroness, Lady Kramer, asked me, as we have debated many times in the past, about risk and growth. She knows my position on this. We are not undermining many of the incredibly important elements of a system that were put in place post financial crash. We are, though, seeking to tilt the system slightly more towards growth and away from regulating purely for risk.

The noble Baroness asked whether this was a race to the bottom to the lowest common denominator and whether we were undermining the strength of standards in the UK regulations. Of course, as she knows, it is an asset to the UK that the PRA is a global leader in promoting strong international standards, having played an important role in developing the Basel standards and now implementing those standards in the UK. The UK’s priority for Basel implementation has always been aligned implementation across the major jurisdictions, in particular the US. The UK is pressing ahead with implementation, as it has committed to do, while putting in place transitional measures to reduce operational complexity while the US finalises its approach.

The uncertainty surrounding the US implementation of Basel 3.1, particularly in relation to the market risk elements of their package, meant that a UK implementation date of 1 January 2027 would be materially out of line. Therefore, the decision was taken to delay the UK’s implementation of the market risk rules for new internal models to facilitate alignment of implementation dates as much as possible.

The noble Baroness asked whether we were adjusting to President Trump’s perspective. I do not believe that is the case at all. She asked me about delaying Basel to defend against CRD VI. The Treasury is aware of developments relating to Article 21c and is monitoring the position. The Treasury engages regularly with EU counterparts on a range of financial services and banking regulatory matters. Strengthening our relationships with international partners, including the EU, is a key focus of the Government’s financial services growth and competitiveness strategy.

The noble Baroness, Lady Neville-Rolfe, asked me initially about dynamic alignment with the EU. She will know that much of the commentary at the moment is speculation about the forthcoming King’s Speech, and I am obviously not going to comment on what may or may not be contained in it. Specifically on financial services and alignment with the EU, the UK is not directly linking our implementation with that of the EU. The UK has published its Basel package and continues to plan to implement a Basel package that aligns with international standards by 1 January 2030. However, if any jurisdiction releases proposals that may have a material impact on the competitiveness of the UK financial services sector, we will work closely with the PRA to address these impacts as needed.

The noble Baroness, Lady Neville-Rolfe, asked about definitions and whether they may be changed in any way. We consulted on the legislation at Mansion House last year and sought views from industry and the regulators to ensure that the effect of the definitions remained the same, and no issues were raised throughout that process. The noble Baroness also asked me about increasing admin burdens from market risk rules. The PRA has designed its Basel package to result in an overall capital level that remains stable and will be no more complex to comply with.

The noble Baroness also asked me how the PRA is ensuring that its model approval is effective. The PRA’s work is obviously supported by the Government. We support what it is doing to develop a more responsive and agile approach to banks, using its own internal risk models for capital requirements. This in turn could help improve competition and lending in a mortgage market, allowing banks to invest more into the UK. In March, the PRA set out changes to its approval processes for firms with existing models, including enhanced pre-application engagement, to help resolve difficult issues before formal submission, dedicated submission slots and a commitment to complete quality checks within four weeks and review complete applications within six months.

The noble Baroness also asked me about how UK banks will prepare for implementation. The UK has published proposals for Basel 3.1 which strengthen the resilience of our banking system and deliver the certainty banks need to finance investment and growth in the UK. This announcement is a positive example of the UK’s FSMA model of regulation, providing a package tailored to UK needs and a clear plan for implementation, giving banks the certainty they need to plan and invest for the long term.

The noble Baroness also asked me to restate my commitment to growth in financial services; I am more than happy to do that. I am aware that both noble Baronesses asked me a couple more questions that I do not have answers to immediately, but I promise I will write on the specifics of those. In the meantime, I commend the regulations to the Committee.