Financial Services and Markets Bill [HL]

Baroness Neville-Rolfe Excerpts

Committee stage
Monday 6th July 2026 Grand Committee

[Baroness Noakes (Con)]

My Lords, I will just comment briefly. I completely agree with the notion that wholesale markets and retail markets should be dealt with separately for the reasons that have been given. I am less than clear that a structural solution, such as the one proposed by my noble friend Lord Hunt of Wirral, is the right one. I think that the problem is deeper; it lies in the construction of FSMA because the FCA is given a consumer protection objective that makes no differentiation between wholesale and retail markets . The meaning of “consumer” is generic and there is no understanding that there are radically different markets for retail and wholesale participants. All that means that the burden of treating these markets differently falls on the applicability of the proportionality principle in Section 3B, which we have discussed many times and is due to be downgraded under the current proposals. I do not know what the answer is, but I suspect that, in legislative terms, it is a deeper answer than simply setting up a separate division within the FCA because the construction of FSMA simply does not accommodate easily the fact that there are two quite different types of market.

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to my noble friends Lord Hunt and Lord Ashcombe for bringing forward Amendments 142A and 142C. We have heard from industry that there is often insufficient clarity around whether retail or wholesale regulatory standards apply in particular cases. That lack of clarity matters because it means that firms can find themselves applying regulatory standards, processes and levels of prudence that go above and beyond what is required simply because they are concerned that the boundary is not clear. That is why the proposals from my noble friends Lord Ashcombe and Lord Hunt of Wirral for a clearer statutory distinction are important. Any threshold would, of course, need to be carefully considered, but the principle is right. Firms should know which rules apply to which clients. Regulators should avoid applying retail-style requirements to wholesale clients unless that is genuinely proportionate.

I also welcome the broader point behind Amendment 142A, which would create a dedicated wholesale markets and firms division within the FCA. The case for that amendment in a highly competitive global industry, as my noble friend Lord Hunt explained, is that wholesale markets require specialist expertise and a regulatory culture that understands institutional, professional and capital markets activity. If the FCA is regulating retail consumer markets, with lots of SMEs, and complex wholesale markets at the same time, it must have the internal structure and expertise to apply the right approach to each. The noble Baroness, Lady Bowles, a member of the Lords committee, rightly suggested that consumer preference has become a problem mindset in the wholesale area. My noble friend Lady Noakes explained that that followed from the way that FSMA was set up. Interestingly, the noble Baroness, Lady Bowles, cited MAS in Singapore, where regulation is split by target market. Another member of the committee, the noble Lord, Lord Vaux, rightly called for proportionality, which was endorsed by my noble friend Lord Holmes. This is complicated, but it is important that we look at these amendments seriously.

Amendments 165 and 173 are in my name and that of my noble friend Lord Altrincham. These raise the related but distinct question of whether the FCA is operationally ready to take on the significant new functions being handed to it under the Bill. This is a matter for the FCA, as it is an independent regulator, but the fact is that some do not trust it, including those in the payments and consumer credit industries who will be new or largely new to its fiat.

We need a plan to show what will happen and when in all cases where the regulator is taking over responsibilities from elsewhere—which, on reflection, I should have added to our amendment. We also need to know how many staff the FCA plans to add and the accommodation arrangements. The industry pays for our regulators, and the latter should spend every pound as carefully as if it were their own. In time, we would hope to see some economies of scale as the proposed changes drive efficiency. The Explanatory Notes for the Bill explain that because the FCA will take over AML supervision of legal service providers, accountants and trust company service providers, it will need significant preparatory work, including the hiring and training of staff and establishing necessary IT infrastructure. We need more clarity on that point, and particularly on ensuring service standards and value for money.

The point behind Amendment 165 is simple: before significant new FCA functions are commenced, a report would look at FCA staffing and resourcing; systems capability; the impact on authorisation, supervision and enforcement timeliness; the effect on service standards for firms and consumers; and any mitigation measures considered necessary by the Treasury and the FCA. That would have the benefit of allowing Parliament and its committees to examine the plans.

One example that has been raised with us is the movement of the Payment Systems Regulator into the FCA. Firms have told us that there is very limited clarity about the timeline for that transition, the operational arrangements, the treatment of existing PSR work, the continuity of functions and how the FCA will absorb these responsibilities without disruption. They do not see that as a satisfactory position.

I thank my noble friend Lady Lawlor for her support and for her amendment to my amendment. It makes a valuable point about the importance of training staff to ensure a smooth transition, and I very much agree with this from my experience in business and in government.

I look forward to hearing from the Minister, first, on how we can better avoid duplication and the excess caution that is sometimes caused by the existing overlap between retail and wholesale at the FCA, and, secondly, on his view on how Parliament and stakeholders can best scrutinise plans for the handover of new areas of responsibility to the FCA.

[Lord Stockwood (Lab)]

My Lords, the FCA currently regulates around 42,000 businesses of different shapes and sizes in the UK, across a wide range of different activities. It is incredibly important, therefore, that the FCA has in place the right structures, with adequate resources and governance, and the right people with the right skills to fulfil its role effectively.

Amendment 142A would require the FCA to develop a dedicated division to undertake its regulatory activities with regard to wholesale market participants. Amendment 142C would require the Treasury to introduce a statutory definition of “retail and wholesale clients”. The purpose of this would be to ensure that regulators avoid applying retail-focused requirements to wholesale clients, except where proportionate and appropriate.

I recognise the intention behind these amendments. I am aware that this point about distinguishing between retail and wholesale activities was made by the committee in its report, Growing Pains. Wholesale markets are a vital part of the UK’s financial services sector. The Government fully agree that regulation of those markets must be proportionate, targeted and internationally competitive. But we must be careful about embedding the distinction between retail and wholesale in law. The distinction between retail and wholesale activity is important, but it is not always absolute. For this reason, the FCA needs to be able to regulate proportionately across the markets it oversees, with it being called on to explain the decisions it makes so that they can be scrutinised properly.

The Government agree that the FCA must ensure that its retail-focused rules do not unduly affect wholesale activity. Last July, in her Mansion House speech, the Chancellor tasked the FCA with assessing the impact of the consumer duty to provide more certainty on its scope and application to wholesale firms, addressing a key concern raised by the wholesale sector. In response, the FCA committed to four workstreams aimed at removing disproportionate burdens on wholesale firms and giving firms the confidence to comply with their obligations in a proportionate way, avoiding overcompliance.

I remind noble Lords that those four workstreams were for the FCA, first, to clarify its supervisory approach when firms work together to manufacture products for retail customers; secondly, to consult on its client categorisation to reset how firms distinguish between retail and professional clients; thirdly, to consult on removing businesses with non-UK customers from the duty’s scope; and, fourthly, to consult on the wider scope and proportionality of the duty.

The FCA published consultations on the first two of these workstreams at the end of 2025. Last week, it published a further consultation proposing to remove businesses with non-UK customers from the duty’s scope, as well as proposing wider changes to the proportionality of the duty. In the light of the work that is under way, I do not think that we need to amend the Bill to embed a distinction on which the FCA is already acting.

I turn to Amendments 165, 165A and 173. I have listened carefully to the arguments that have been made. I agree that it is important that we are confident that the FCA is ready to take on its new functions. There are many benefits associated with consolidation: it reduces the number of separate regulators with which businesses need to deal, it promotes consistency of approach between different areas, and it builds on expertise within effective regulators.

As I said earlier, the FCA is responsible for ensuring that it has the resources and capability it needs to advance its objectives and implement any new responsibilities it is given. It also has the powers it needs to do so: it is able to set its own budget, in order to secure the resources it needs, and to set its own pay scales so that it can hire the talent and expertise it needs. However, I reassure noble Lords that the Treasury does not simply confer new additional responsibilities on the FCA without careful and close engagement between organisations.

For example, the Government and the FCA are working closely on reforms to anti-money laundering and counterterrorism supervision in order to ensure that the FCA is ready to take on this new responsibility. The Government are providing funding from the economic crime levy to support the implementation of the reform and to build the capability and sector-specific expertise that is needed, alongside close engagement with existing supervisors and stakeholders.

The Treasury has also worked closely with the FCA and PSR on the reforms to payment systems regulation. The FCA already has extensive familiarity with the payments ecosystem and is actively preparing for taking on its responsibilities for payment systems regulation from the PSR through a phased transition. The Government are confident about the FCA’s operational readiness and will continue to work with regulators to support them in implementing this change.

I hope I have reassured the Committee on how the Government have engaged with the FCA to make sure it is ready to take on the functions that this Bill will give it, and that the right set of actions is being taken on wholesale regulation. I ask the noble Lord, Lord Hunt, to withdraw his amendment.

[Baroness Neville-Rolfe (Con)]

I am grateful for some of the reassurances that the Minister has given, but the one area that it is difficult for business to cope with is not knowing when these things are going to happen; it is the timelines that are the problem. The Minister may want to reflect on that.

[Lord Stockwood (Lab)]

I am actually speaking to the FCA next week, so I will get some clarity on that and feed back to the Committee.

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[Baroness Kramer (LD)]

My Lords, the noble Lord, Lord Mackinlay, makes so much sense to me on this issue. Having gone through the struggles of probate, I think that anything that will make it easier and more straightforward is good. I have worried since the announcement of the change that came with the last Budget, which brought pension pots into inheritance tax, that all kinds of consequences would significantly follow because most people who thought that they had a fairly straightforward settlement upon death will now find that they have handed a very complex picture on to their executors.

I want to put in a plea from personal experience: where there are people who have more than one nationality, or tax residency in one country and nationality in another, the nightmare becomes even more acute. I am not an adviser but I will give this advice: if one is aware that someone close is likely to die, it has almost become necessary to create a separate savings account to deal with all the relevant tax payments because it is so long before probate can be completed, particularly if that is in more than one jurisdiction. I felt at one point that I virtually lived at Kingston Crown Court because I was so often having to get new and updated copies of the death certificate to satisfy some new requirement from someone somewhere else. That is a painful and difficult time, but what the noble Lord, Lord Mackinlay, suggests seems straightforward and effective. Even if it deals with only one small piece, that is something.

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to my noble friend Lord Mackinlay of Richborough for tabling Amendment 142B. I am especially sorry to hear of the difficulties that he faced with his father’s estate. That is typical. When people die, their loved ones and executors often have a difficult time, and one of those difficulties is the delay that they often encounter with probate, as I know from family experience, and as we have heard from the noble Baroness, Lady Kramer.

There is both an emotional toll and a worry as to how to pay any IHT within the six-month window. Hopes that this might be extended by the Chancellor to 12 months have now been dashed, so this is a timely amendment. As I understand it, the issue is that, when someone dies, their bank, building society or investment accounts are frozen. Executors may then need to pay inheritance tax before probate can be granted, but they may need probate in order to access the funds from which that tax would be paid. The IHT423 direct payment scheme is designed to address that problem by allowing inheritance tax to be paid directly from the deceased’s bank, building society or investment account to HMRC before probate is granted. The difficulty, as we have heard, is that participation in that scheme is not consistent across all relevant financial institutions. That situation may mean that people have to find funds elsewhere, use personal savings, as we have heard, arrange borrowing or enter into more complicated interim arrangements.

The amendment rightly seeks consistency. It would require the FCA to make rules ensuring that the relevant regulated financial institutions facilitated the payment of inheritance tax through the IHT423 direct payment scheme. There may of course be operational legal issues that the Government will want to consider, but the basic principle seems right: if inheritance tax must be paid before probate, it would be in the interest of all if this inconsistency could be sorted out as a matter of urgency.

We should bear in mind that the interest mounts up at a punitive rate—4% above base rate, so that is 7.75% at present—and that it affects thousands of households every year. The Minister will know that more generally it will be a difficult year for those paying IHT, with IHT payable on pension pots from April 2027. That is all the more reason to show flexibility and sort out this issue, and to use the Bill to do so if that is necessary. I look forward to hearing what the Minister has to say.

[Lord Stockwood (Lab)]

My Lords, Amendment 142B would require the FCA to ensure that financial institutions that are registered or regulated by the FCA facilitate the payment of inheritance tax by executors before probate is obtained through the direct payment scheme.

I appreciate that the purpose of this amendment is to make it easier for estates to pay inheritance tax. I am sorry to hear of the issues that the noble Lord, Lord Mackinlay, has had with the current system and I am very happy to take that up with HMRC to explore why M&G Prudential is not a member of the current scheme.

I can assure your Lordships from the research for this question that HMRC internal analysis suggests that most taxpaying estates are already able to fund at least a first instalment of inheritance tax before applying for probate. The direct payment scheme allows executors to ask banks, building societies or investment account providers to pay some or all of the inheritance tax due from the deceased person’s accounts. The scheme works well in its current voluntary form and provides an important mechanism to help executors pay any tax that is due.

We need to be very careful here. Releasing funds from a deceased person’s estate before probate is granted carries risk for financial institutions. Those institutions need to ensure that those payments can be made lawfully. The current system enables financial institutions to assess whether it is appropriate to make payments directly to HMRC on a case-by-case basis, ensuring that institutions make payment only if satisfied that the personal representative is indeed acting on behalf of the deceased’s estate and that they are releasing those funds correctly. FCA rules cannot put this issue aside as it is a matter of the wider law. Financial institutions would need to ensure that making these payments is appropriate whatever the FCA rules say. This would leave financial institutions on an uncertain legal footing.

I understand the spirit of this amendment but I do not agree that it is the right solution, and the existing voluntary scheme is working well on the whole. But I will definitely pass on the point the noble Lord raised about HMRC and will come back to him on that. I therefore ask the noble Lord to withdraw the amendment.

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I say to the Committee, and to the Minister, that I hope the Government will return in early course saying that this anomaly, which has been created unintentionally in the Supreme Court, as I understand it, will be resolved and that one page, or something like it, will soon be made law.

[Baroness Neville-Rolfe (Con)]

My Lords, this has been an interesting discussion, with cases put forcefully by the noble Baroness, Lady Bowles, and the noble Lord, Lord Carlisle of Berriew, so I approach the issue with some caution. But I will be reading the noble Lord’s article, particularly in view of my contribution to getting to the bottom of the Post Office injustices.

I recognise that third-party litigation funding can support access to justice in some cases, but we also need to be clear-eyed about the risks. An expanded litigation funding and claims management industry could fuel speculative low-merit or mass litigation against businesses. It could increase legal costs, insurance costs and settlement pressure. The purpose of reform should therefore be to protect genuine claimants and promote access to justice, without creating a larger litigation finance industry.

Bringing litigation funding within the FCA perimeter would undoubtedly create a more formal framework of oversight, and we know that there are bad apples in the industry. However, there is a danger that FCA regulation could have the opposite effect to the one intended. It could professionalise and legitimise litigation funding as a normal financial service. It would give funders and claims management firms a form of regulatory kitemark, allowing them to say that they are FCA regulated and therefore giving the market a greater sense of safety, respectability and permanence.

That may sound attractive from an oversight perspective, but if the result is that the market expands, that more claims are funded and that more speculative group actions are brought against productive businesses, we will have solved one problem only by creating another. In any event—this is the important point—I do not believe that this is a matter for the FCA or for the Bill, nor am I sure that a Treasury review of claims management services is the right way to take this forward.

The noble Baroness, Lady Bowles, described some of the challenges that need to be addressed. The noble Lord, Lord Carlile, has highlighted the risk of a conflict of interest on fees. Any such review would need to look not only at the impact of the PACCAR judgment but at other forms of redress through the courts, ombudsmen, the criminal cases review board and public inquiries. We need to compare costs to those claimed against, including businesses, and the benefits to those who seek redress.

The implications for the legal system mean that it goes way beyond the reach of this Bill and it is not in the spirit of reducing unnecessary burdens or improving the regulatory framework for existing financial institutions and those coming under the FCA and PRA umbrella. It is more a matter, as we have heard, for the Ministry of Justice, as the Bill Office apparently seems to advise. I share the noble Lord’s frustration with scope in trying to put amendments down to Bills; we have all been there. Having said that, I look forward to hearing how the Minister views these things and what he thinks can be done.

[Lord Stockwood (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Bowles, and the noble Lord, Lord Carlile, for tabling these amendments on the regulation of claims management services and litigation funding agreements. I am grateful to the noble Lord, Lord Carlile, for bringing this issue to my attention when we spoke two weeks ago, and I will continue those constructive conversations outside the Room. I recognise the importance of clarity in the regulation of claims management services and litigation funding agreements, particularly in light of the concerns that have been raised following the 2023 Supreme Court judgment in PACCAR. The Government recognised the urgency of addressing these issues.

Amendment 142D is targeted at bringing litigation funding within the FCA’s regulatory perimeter. The Government agree that the proportionate regulation of litigation funding could improve standards, transparency and protection for litigants who may be in a vulnerable position, but I do not think the FCA is the right body to take this role. We should not move to what would be a significant decision lightly, especially as this issue has already been considered by the Civil Justice Council. Instead, the Government will introduce proportionate regulation of litigation funding agreements. This model is recommended by the respected, independent Civil Justice Council, where courts assess whether agreements meet regulatory requirements. If not, they would not be enforceable. This approach follows other methods for funding civil litigation.

Amendment 172B would require the Treasury to conduct and publish within 12 months of Royal Assent a review into the regulation of claims management services and litigation funding. The 2023 Supreme Court judgment on PACCAR introduced uncertainty about whether litigation funding arrangements remain enforceable. It also brought to light concerns about whether they are always fair and transparent for claimants using them. The Government have committed to remove this uncertainty and ensure these agreements work fairly for all.

Since the Supreme Court’s judgment, the Civil Justice Council has reviewed litigation funding and published its report in 2025. The Government are taking action accepting the council’s two primary recommendations. First, the Government will legislate to clarify that litigation funding agreements are not damages-based agreements and do not need to comply with the requirements of the regulatory regime for damages-based agreements to be enforceable. Secondly, the Government will introduce proportionate regulation of litigation funding agreements. This is the right approach, and we are working urgently to identify a new legislative vehicle to take this forward.

On claims management regulation more generally, the FCA has announced a market study into claims management services to assess how the market is operating and whether further regulatory intervention is needed. This study is in train. I know that the noble Lord, Lord Carlile, thinks that the Government should take the opportunity of this Bill to resolve the issue once and for all. However, the issue under consideration is primarily about litigation and access to justice, rather than the regulation of financial services and markets, so the Bill should not be used for that purpose. These judgments are made by Parliament, not the Government, just as the noble Lord said. We are working to identify a legislative vehicle to take forward the reforms I have mentioned.

I have a lot of sympathy with these amendments. The Government are seeking to legislate on the issue when they can, but we are not able to do so through this Bill. I therefore ask the noble Baroness to withdraw her amendment.

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Strong member democracy strengthens confidence in mutuality. Strong governance strengthens confidence in mutual institutions. I therefore hope that the Minister will give careful consideration to this amendment. If he is unable to accept it today, I hope he will explain how the Government intend to ensure that the democratic governance framework for building societies keeps pace with modern expectations. I beg to move.

[Baroness Neville-Rolfe (Con)]

My Lords, I will briefly speak to Amendment 142E. I can understand the intention behind the amendment, which has been very well described by the noble Baroness, Lady Bowles.

I am particularly sympathetic to the objections to the use of the quick vote, famously used by the National Trust to keep more challenging directors off its governing body. This is known as bundle voting instructions—as in proposed new subsection (2)(b) of the amendment—which not only is rightly prohibited in trade union elections but squeezes out minority views and arguably creates a democratic deficit. I also share the noble Baroness’s concerns about purely electronic AGMs.

However, our concern is whether this amendment is the right way forward to achieve reform. It would impose a new and quite detailed regulatory framework from the centre, requiring the Treasury to direct the FCA to make rules across a wide range of building society governance matters. That would inevitably increase the regulatory burden on building societies, which already operate in a heavily regulated environment. Many are not large, and they are certainly not listed banks with external shareholders and extensive governance departments. Many are regional, community-based institutions, and that is very good. They play an important role in mortgage lending, savings and financial services provision across the country.

There is also a question of proportionality. The amendment would apply a number of quite prescriptive requirements, including on AGM format, publication of questions and responses, voting procedures, remuneration approval and member-nominated directors for large societies. Some of these changes may be sensible in principle, but they could have practical consequences, which need to be carefully understood before being imposed across the sector. We would therefore be cautious before giving the Treasury and the FCA a wide power to regulate all this and things not listed in the amendment. We are, after all, seeking to limit such powers elsewhere in the Bill, in the interests of proper parliamentary oversight. I also have a question as to whether this would not be more appropriate for a corporate governance Bill.

Having said that, there are narrow proposals—for example, on the misuse of bundled voting—that could be put into the Bill without creating such problems or changing its deregulatory thrust. If so, we would be happy to discuss them. We should always ask whether the regulatory lever is the right lever to pull. In my view, central regulation should be a last resort, particularly where the desired outcomes might be achieved through existing government expectations, voluntary best practice, member engagement or a more targeted intervention where there is evidence of a problem.

For these reasons, although I very much understand the purpose behind the amendment and I am glad to have had this discussion, I remain cautious about whether this is the right regulatory mechanism.

[Lord Stockwood (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Bowles, for raising this important issue. Building societies are a key part of the UK’s financial services sector. The Government are committed to supporting the growth and long-term success of the mutual sector, including through our commitment to double the size of the mutual and co-operative economy.

Building societies are already subject to an extensive legislative and regulatory requirement. Building societies must comply with the Building Societies Act 1986, FCA and PRA rules, and the senior managers and certification regime. Of course, there is also wider company law and the financial services regulatory requirements where applicable. The FCA and PRA already have the powers to set and supervise governance standards where they consider it necessary.

However, I do not agree that we should make such detailed rules on things such as board composition, annual general meetings and reporting arrangements. The building society sector is diverse, ranging from small regional societies to large national institutions; this was mentioned by the noble Baroness, Lady Neville-Rolfe. The rules need adequately to reflect the different governance needs, operational models and challenges faced across the sector, and building societies need to focus their energies on serving members. Such governance matters are generally best determined by individual societies, taking into account their size, complexity and membership, while operating within the existing legislative and regulatory framework and ensuring that boards have the skills, experience and expertise needed to govern effectively.

The Government’s approach has been to modernise the framework for building societies while preserving flexibility. Consistent with feedback from the sector, we believe that governance arrangements should uphold high standards while allowing societies to adopt structures that reflect their individual circumstances, business models and memberships. The Government continue to engage closely with the mutuals sector and regulators to ensure that the framework remains proportionate and supports growth, including through the Mutual and Co-operative Sector Business Council and other stakeholder forums. We have welcomed the recent work undertaken by the FCA and the PRA on the mutuals landscape, which is helping inform future policy development as well.

Although the Government share the objective of strong governance and membership engagement, we do not believe that it should be delivered in this way. Building societies already operate within a robust framework, which we continue to keep under review and modernise where appropriate. I therefore ask the noble Baroness to withdraw her amendment.

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[Baroness Kramer (LD)]

My Lords, I cannot improve on the three speeches that have been made. I rise simply to make clear that on these Benches, we think that this amendment is really important.

We can see in Committee that it is purely random that we have the capacity to raise many of the issues. The noble Baroness, Lady Noakes, and my noble friend Lady Bowles have a deep understanding of the market, as does the noble Lord, Lord Vaux, but it is purely random that they happen to be in the Lords. If we did not have the noble Lord, Lord Holmes, we would struggle to deal with many of the issues around digital assets and the revolution that is taking place. We have no system of ensuring that, in any part of the parliamentary process, there is the capacity to get to the relevant pieces of information, understand the underlying issues and play the role that Parliament should be playing—whether at committee level, with a Special Standing Committee, or as associated with the passage of a piece of legislation. None of that can be done without genuine, adequate and well thought-through information.

Looking at other Parliaments around the globe, in the US, the Senate and Congress have vast numbers of staff available to make sure that those who represent the voice of the people are truly informed in great detail with proper understanding of the articles that are before them and the regulations that they seek to uphold or overturn. We lack this here. We are still an amateur body, which is not appropriate for a modern society. This is a very significant change, but it must be a change in the right direction. From these Benches, we very much support it.

[Baroness Neville-Rolfe (Con)]

My Lords, we support the principle behind this amendment. It follows the same broad logic as the amendment tabled by my noble friend Lord Bridges. If the financial regulators are to exercise very significant powers, there must be a proper mechanism through which they can be evaluated and held to account.

This amendment seeks to require the FCA, the Bank of England and the PRA to establish offices for regulatory evaluation. Those offices would review the regulators’ actions, including rule-making, supervision, monitoring and enforcement. Only the changes to rules are currently considered by the cost-benefit analysis panels. The offices would be led by directors with a degree of independence from the boards and executive structures of the regulators themselves. They would report regularly to the Treasury and to relevant parliamentary committees. My noble friend Lady Noakes quotes an interesting precedent of such arrangements at the World Bank, the IMF and the European Investment Bank—all long-standing pillars of the international economic community.

It is good to welcome the noble Lord, Lord Vaux of Harrowden, to the debate, but this amendment raises very much the same issues as those that we discussed last Wednesday—at col. 501GC in Hansard, for those who were not present—with regard to the amendments from my noble friend Lord Bridges and the noble Baroness, Lady Bowles. I was pleased to hear that the Minister has agreed to reflect further on the issues raised and to meet, with the Economic Secretary, the Financial Services Regulation Committee later this week. I look forward to the results but, in the interests of time, will not repeat what I have already said on the subject.

All these amendments raise a fundamental point. We are placing great trust in the regulators. That trust must be matched by transparency, evidence and accountability. Today’s cross-party amendment provides another route for the Minister to consider.

[Lord Stockwood (Lab)]

My Lords, I thank the noble Baroness, Lady Noakes, for notifying us during the debate last Wednesday that this amendment would be tabled. I reiterate that the Government share the view that accountability of the regulators is of great importance. This is why the Government have formalised biannual performance reviews for the regulators and other reporting mechanisms designed to support scrutiny and oversight. As the noble Baroness noted, the Bank of England already has an independent evaluation office which assists the Court of Directors in meeting its statutory responsibility to keep the performance of the bank under review.

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Moved by

[Baroness Neville-Rolfe]

146: After Clause 31, insert the following new Clause—
“Review of notification arrangements for previously approved senior managers(1) Within 12 months of the day on which this Act is passed, the Treasury must lay before Parliament a report on whether the new notification framework for senior manager appointments could be used in cases where an individual has already been approved for the same or a similar function, including within the same group.(2) In preparing a report under subsection (1), the Treasury must consult—(a) the Financial Conduct Authority,(b) the Prudential Regulation Authority, and(c) such other persons as the Treasury considers appropriate.(3) The Treasury must publish the report.”Member’s explanatory statement
This probing amendment would require a review of whether the new notification framework for senior manager appointments could be used in cases where an individual has already been approved for the same or a similar function, including within the same group.

[Baroness Neville-Rolfe (Con)]

My Lords, Amendment 146, in my name and that of my noble friend Lord Altrincham, is a modest and probing amendment. It follows the discussion we had last week on speeding up the senior management and certification regime. It does not seek to change the regime immediately. It would require the Treasury to carry out a review and publish a report within 12 months on whether the new notification framework for senior manager appointments could be used where an individual had already been approved for the same or a similar function, including within the same corporate group.

The amendment echoes my noble friend Lord Howard of Rising’s amendment on a fast-track authorisation process for applicants who have been authorised before, but it would look at how that was working in practice a year after the Act came into effect. The Minister gave a hint that he was sympathetic to my noble friend Lord Howard and would be talking to the FCA about this, so I am hoping we can make some progress on this amendment.

We have heard from the industry that there are several problems with the SMCR regime. One concern is that the regime was originally intended to apply to a relatively limited number of senior people within a firm. Over time, however, roles have become more complicated, responsibilities have overlapped and some organisations have ended up needing a much larger number of people to receive SMCR approval. Regulation should not make legitimate business harder to do and should not slow down sensible appointments where there is no obvious additional risk, yet that is too often the practical effect of the regime as it stands.

The specific issue is what has sometimes been described as SMCR passporting. Where an individual has already been approved, has a strong regulatory track record and is moving into a genuinely comparable role, it seems sensible to explore whether a streamlined notification process could be used. That would have several advantages: it would reduce duplication, it could speed up appointments, it could reduce costs to firms, it could make it easier for groups to move experienced people into appropriate roles and it could allow regulators to focus their resources on genuinely new, higher-risk or more complex appointments. That is the point of the amendment. It does not prescribe the answer. It asks the Treasury to review the position, consult the FCA and the PRA and other relevant parties and report back to Parliament.

If we want the UK to have a regulatory system that supports growth and competitiveness, we need an approval process that is rigorous but also efficient. We should not require firms to repeat the same process unnecessarily where the regulator has already assessed the individual and where the new role is substantially comparable. I would therefore be grateful if the Minister could give us some reassurance on this important matter and agree that an ex post review could be a helpful way of ensuring the direction of travel that I know we both want. I beg to move.

[Baroness Kramer (LD)]

My Lords, I am always in favour of trying to provide streamlining, and this amendment offers a common-sense approach to that. However, an issue that I want to take up with the noble Baroness, Lady Neville-Rolfe, is that the focus of the FCA should always be on new hires, not previous ones. The ongoing fit and proper process is crucial, particularly if we are going to have lighter-touch regulation as people move from one position to another, but that ongoing process is critical. Perhaps the Minister could expand on that because I am not quite clear about how all the various changes in FCA rules change what has been an annual review process but now gives more flexibility in what that means.

I shall give some examples. I am not sure that when Sir Fred Goodwin—he was not “Sir” then, obviously—was appointed as chief executive of RBS anyone recognised that he was going to get caught up in what I think most people would describe as an addiction to completely irrational acquisitions, which eventually led to the collapse of a major bank. I am not sure that when Jes Staley was hired to be CEO of Barclays people were aware of the significance of his extensive involvement with Epstein. I am not sure that when the Reverend Paul Flowers was approved as chairman of the Co-operative Bank people were conscious that he was potentially someone who would become seriously addicted to and affected by a number of drugs, notably crystal meth. In other words, there is an ongoing process that is critical; it should not be only a one-time process. I hope that will be absorbed into the thinking if this amendment moves forward. The ongoing process is vital. Fit and proper is not a one-time-only process.

[Lord Stockwood (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Neville-Rolfe, for tabling this amendment. The Government agree that the regime should operate more proportionately where that can be done without undermining accountability—in fact, that is what the Bill aims to do. The core objective of these reforms is to reduce unnecessary regulatory and administrative burdens for firms, while preserving the accountability standards that underpin the regime. The changes will help to deliver the Government’s and the regulators’ ambition to reduce burdens from this regime by 50%, while retaining its core benefits.

As set out in the impact assessment for the Bill, the reforms to this regime alone are expected to reduce administrative burdens on the sector almost £600 million over 10 years. The Bill is already speeding up the target for the regulators to make these decisions. As I said in the debate last Wednesday, in Q4 of 2025-26, 50% of senior manager cases were determined within 19 days and over 99% were determined within the new target of two months.

The Bill moves to a more flexible system, led by regulators. Rather than requiring pre-approval for all senior managers, it allows the FCA and PRA to decide which senior management functions require approval and which can simply be notified to the regulators. The regulators will not take this decision without direction. Schedule 3 sets out the factors the regulators may use when designing the notification approach. These include whether an individual has previously been approved for a different role. The detailed operation of the new framework will be taken forward by the regulators through their rules, which are already subject to the statutory consultation and parliamentary scrutiny mechanisms. The regulators already operate a proportionate application process for individuals applying for a similar senior manager function to the one they are already approved for, including when within the same group. This usually allows for a faster and more targeted assessment.

I note the question from the noble Baroness, Lady Kramer. I will pick that up with the FCA. The continued accreditation assessment of senior managers needs to be something that is reported back on; she makes an important point about that.

Finally, I assure the noble Baroness, Lady Neville-Rolfe, that the Government will continue to engage closely with the regulators as they implement these changes, to ensure that the regime operates as intended and delivers a more proportionate approach in practice. I therefore ask her to withdraw the amendment.

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to my noble friend Lord Massey for his support and to the Minister for his assurance that administrative burdens will be reduced by these changes. Of course, quite a lot of that is down to the dropping of the certification regime, which we have welcomed. Individual cases can make for bad rules. I think Fred Goodwin was approved—or not approved—before the SMCR regime came in. I am confident that our regulators learn from their mistakes in these matters of appointments; that is one of the features of having a proper, professional regulator. But I remain concerned that the system can still create delay and duplication. Delays affect hiring, promotion, succession planning, business continuity and the ability of firms to operate effectively in a sector where we are trying to support growth and competitiveness. I cannot emphasise that point often enough.

I hope that the Government will continue to look seriously at whether there is scope for some form of SMCR passporting or a more streamlined notification process in cases where a person has already been approved, has a good regulatory track record and is moving to a similar role. I and my noble friend Lord Howard of Rising would like to see progress before Report, ideally in a form that makes my proposal for a review redundant, but for now I beg leave to withdraw the amendment.

Amendment 146 withdrawn.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I will speak briefly. As the Committee will know, I have expressed before my concern about heading towards a lowest common denominator. The constraints on the engagement of the regulator and Parliament in a process of recognition of overseas regimes is crucial. It provides transparency and challenge, both of which are constantly necessary. So these are well-drafted amendments from the noble Baroness, Lady Noakes.

I want to go a little further. The noble Lord, Lord Holmes of Richmond, is not in his place, but he has tabled Amendment 164D, which would go further in seeking to instruct the Secretary of State to establish memoranda of understanding with a whole series of regulatory authorities. I have significant concerns about that, without the same set of constraints. We must be aware that, at the moment, there is fragmentation in the world in which we are living. International agreements are often treated as “pick and mix”. I object when we do that in the UK, but it is certainly a behaviour that we are watching in the United States at all times. We can see it with the development of AI and the various steps that the White House is taking. It is hard to work out whether or not it will go for AI licensing. A memorandum of understanding that passively accepted whatever the United States decided was the appropriate standard would trouble me hugely.

This is a very good set of amendments. Although the noble Baroness, Lady Noakes, and I often take very different positions on regulation and the primacy of financial stability, in this instance, she is absolutely right. There is nothing more troubling than reading all three objectives be put on a par. That has been my great fear. Anyone looking back on what happened in the 2008 crash will see that a focus on competition and growth without any focus on financial stability led to a crisis that I suspect nobody in this Room wishes to see again.

[Baroness Neville-Rolfe (Con)]

My Lords, as this is the last group, I too wish the Minister a very happy birthday. He will be glad to know that, on this side, we think this is an important part of the Bill. The overseas recognition regime, which would replace the arrangements put in place as we left the EU, could provide a valuable mechanism for recognising overseas regulatory regimes and allowing certain firms, services or market infrastructure from other jurisdictions to access the UK market without having to duplicate regulatory requirements unnecessarily.