Mini-tender Offers: Protection for Shareholders
Baroness Neville-Rolfe Excerpts(2 weeks ago)
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Lord Stockwood (Lab)
Part of the FCA’s consumer duty is to ensure that consumers are well informed and protected. The Home Office has issued another policy on protection from particular scams. I am happy to write to the noble Baroness with the specific duties. The FCA has a consumer duty overall and that would fall within that somewhat.
Baroness Neville-Rolfe (Con)
My Lords, I agree with the Minister on the importance of financial literacy, as he knows, but we must ensure that the UK remains a global hub for private investment and capital. Can he confirm that the new Prime Minister will create a climate that helps and keeps businesses in Britain, encourages people to invest and list on the UK stock market, and reverses the damaging brain drain of entrepreneurs and skilled professionals moving overseas?
Lord Stockwood (Lab)
I have become well aware of the noble Baroness’s interest in this issue. I am certainly not going to speak for a Prime Minister before he is appointed next week, but this really matters to this Government. My belief is that there will be a continuation of the strategy to ensure that we protect entrepreneurs’ interests, make the economy grow and make the UK increasingly attractive, particularly relative to our global competitors for investment. That is the job I do day to day, and I hope to continue to be doing it next Monday.
Financial Services and Markets Bill [HL]
Baroness Neville-Rolfe ExcerptsMonday 6th July 2026
(3 weeks, 2 days ago)
Grand CommitteeRead Full debate Financial Services and Markets Bill [HL] 2026-27 View all Financial Services and Markets Bill [HL] 2026-27 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 5-V(b) Amendments for Grand Committee (Supplementary to the Fifth Marshalled List) - (6 Jul 2026)
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.
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.
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.
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.
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.
“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.
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.
Financial Services and Markets Bill [HL]
Baroness Neville-Rolfe ExcerptsWednesday 1st July 2026
(4 weeks ago)
Grand CommitteeRead Full debate Financial Services and Markets Bill [HL] 2026-27 View all Financial Services and Markets Bill [HL] 2026-27 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 5-IV(b) Amendment for Grand Committee (Supplementary to the Fourth Marshalled List) - (1 Jul 2026)
Baroness Kramer (LD)
My Lords, I am sure everyone has reread the Hansard transcript and is fully on top of the debate that took place on Monday, so I will attempt to keep my remarks brief.
I am tempted to engage with the challenge from the noble Lord, Lord Bridges, on this group of amendments, to discuss in depth the issue of international rules on the one hand versus growth and competition objectives on the other. However, I say to the noble Lord, Lord Wilson, as the Whip, that I recognise that we are in Grand Committee and so will limit the comments that I make.
Looking at this group of amendments, it is important to say that my party believes in “better together” rather than “beggar thy neighbour”. International rules provide trust, confidence and certainty, which are key to long-term and sustainable growth. This country plays a key role in shaping international rules in sectors that we care about, including finance. The Bank of England is incredibly highly respected, as are our other regulators. There is extensive participation in key bodies, such as the Financial Stability Board, the Basel Committee on Banking Supervision and others. Indeed, the noble Baroness, Lady Noakes, gave a long list of the various committees in which regulators are engaged. I think she thought it might make them go native, but I consider that it is an important opportunity and area of their influence. We remain a player in making those rules, despite Brexit.
International rules need to provide flexibility, but they mean absolutely nothing if we pick only what suits us in the moment. The world is not thriving in the beggar-thy-neighbour world of Trump in the United States, of Russia and of China. The Committee will not be surprised that I am not sympathetic to Amendment 99, which would reduce international standards to a “have regard”.
As for the other amendments on this sector, I have no problem with the reporting amendments, but I am cautious of Amendments 102 and 104A, because they could easily be read as an instruction to waver on the Bank of England’s primary objective of financial stability. We must be careful not to abandon that focus on financial stability. Some people find volatility attractive—it is certainly a way in which the financial sector has frequently made much of its money. But the cost to ordinary people of both boom and bust and continuous volatility has been exceedingly high. The cost to businesses that need a significant measure of certainty is extremely high. Therefore, we will not be supporting these amendments, though, as I say, the reporting amendments make some sense to me.
Baroness Neville-Rolfe (Con)
My Lords, for me, the group speaks to the essential balance which underpins the purpose and function of effective financial regulation. Of course regulation must promote safety, stability and confidence in the system, but regulation must also support growth, competitiveness and innovation. It must help ensure that the United Kingdom remains one of the world’s leading financial centres.
We have often spoken about the contribution that financial institutions and financial services firms make to the UK economy; they provide employment, tax revenue, investment, lending, infrastructure and global influence. This group is about making sure that we put our money where our mouth is. If we say that competitiveness and growth matter then those principles must be reflected in the way regulators act, report and make their decisions.
That is why Amendment 99, to which I have added my name, is important. It would shift the requirement from “aligning with” international standards to considering international standards. That is an important distinction. International standards matter, and in many cases the UK will rightly wish to follow them, but we should not place ourselves in a position where we become passive rule-takers when it is not in our national interest to do so. We can see some rules, such as the unbundling of research in MiFID II, having totally the wrong effect—in this instance, regulating research so heavily that less research is produced, particularly for smaller firms. I know this from relatives who work in analysis; I do not think that is an interest to declare, but it is evidence. Another example is the EU’s sustainable finance disclosure regulation, which is now under review because it is too complex and burdensome.
The whole point of having an independent post-Brexit regulatory framework is that the UK should be able to design rules that work for our markets, our firms and our economy. The UK’s position in financial services is not secured by right. Other jurisdictions are moving quickly. We know the compliance costs are generally higher in the UK, so unless we offer a regulatory environment that is clearer, more cohesive, more predictable and more conducive to growth, it is likely that firms, capital and innovation will go overseas, the opposite of what we and the Government want. We are already seeing this risk in areas such as digital finance. Firms in digital assets, payments and new financial infrastructure need clarity and confidence. Where they do not find it in the UK, they look elsewhere. The Employment Rights Act is also having a chilling effect.
Amendments 100 and 101 are important because they would strengthen accountability around the competitiveness and growth objective. It is not enough for regulators simply to say that they have considered competitiveness. Parliament needs to see how that objective has been applied, what evidence has been used, what impacts have been assessed—for example, on SMEs, which are a key feature of my noble friend Lord Hunt of Wirral’s amendment—and how regulatory decisions have affected firms and markets over time.
Amendment 102, which I have also supported, would extend the secondary competitiveness and growth objective to the Bank of England’s financial market infrastructure functions. The same should apply to Amendment 104A on payment systems. If we want a dynamic payments ecosystem, competitiveness must be considered across the whole regulatory architecture.
Member’s explanatory statement
These amendments ensure that the Treasury has the power to reduce various time limits for regulatory approvals, but not to increase them.
Baroness Neville-Rolfe
My Lords, I rise enthusiastically —we have to get going for the football—to move Amendment 105, in my name and the name of my noble friend Lord Altrincham. I will also speak to the other amendments in the group.
I am grateful to my noble friend Lord Holmes for his amendments, which seek to achieve broadly the same objective as ours. I am also grateful to my noble friend Lord Howard of Rising for Amendment 151, which raises an important question about whether experienced and well-regarded individuals with a strong regulatory track record should be able to benefit from a more streamlined authorisation process.
Fundamentally, the amendments in the group all seek to make regulatory approvals faster, clearer and less prone to delay. We have heard throughout our consideration of the Bill that delays in authorisations, approvals and permissions are a brake on growth. They affect firms’ ability to enter the market, to expand, to appoint senior people and to innovate and compete. The Government recognise the problem: Clause 21 reduces a number of statutory determination periods, including for Part 4A permission applications, senior manager approvals and other regulatory decisions. That is welcome. However, the question is whether the Bill goes far enough and whether the powers that it creates are sufficiently disciplined.
One concern raised with us by firms is that the authorisations process can feel driven by deadline, rather than workflow. The issue is not only whether the FCA or PRA technically meets the statutory deadline; it is whether substantive work begins early enough in the process. If a case is not allocated promptly, if an initial review takes place only late in the period, or if information requests are made close to the deadline, the firm bears unnecessary costs and uncertainty, even if the regulator ultimately meets the formal target.
My first set of amendments today—Amendments 105, 110, 113 and 114—would ensure that the Treasury’s power to alter these time limits could be used only to reduce them. If the purpose of the Bill—and, indeed, the Government’s wider financial services strategy—is to make the regulatory system more streamlined and fit for purpose, success must be measured in part by reductions in the time taken to make decisions. I hope that the Minister will be sympathetic to that principle. The Treasury should be able to shorten regulatory approval periods where experience shows that this can be done safely, and it should not be able to lengthen them without returning to Parliament with a clear and specific justification.
The amendments tabled by my noble friend Lord Holmes take a similar approach but go further by proposing an automatic ratcheting-down mechanism. Where regulators had met the applicable time period for a defined period, the Treasury would be required to reduce the time limit further. That is a sensible principle of continuous improvement. If regulators consistently demonstrate that they can meet a deadline, we should be willing to ask whether that deadline can become more ambitious.
Amendment 109 concerns the FCA’s ability to stop the clock during the senior managers approvals process. We have heard from industry that the power to stop the clock can be used repeatedly during an approvals process. That is extremely frustrating for firms. It makes workforce planning more difficult and can leave firms waiting for months without any real sense of when a decision will be made.
Stop the clock powers can render the headline statutory deadline almost meaningless. Amendment 109 would, therefore, allow the FCA to use the formal stop the clock mechanism only once in relation to a senior manager approval application. When it does so, the FCA would be required, as far as is reasonably practicable, to specify all the information that it requires at that point. The FCA could still ask for further information later, but that later request would not stop the statutory clock.
As I have said, delays in approvals can affect business decisions, market entry, expansion, restructuring and succession planning. They can discourage talented individuals from taking up roles in the UK if they fear that the process will be slow, uncertain or opaque, and they could even put at risk our reputation as a leading financial centre.
I welcome Amendment 151 in the name of my noble friend Lord Howard of Rising. It asks whether there should be a more streamlined or expedited Part 4A authorisation process where the applicant is managed or directed by individuals with an established FCA-approved—or PRA-approved, I assume—track record and good regulatory standing. A review could help to identify where duplication exists and where good regulatory history can be taken into account in a practical way.
I would be grateful if the Minister could address three questions. First, what do the Government see as a reasonable timeframe for the approval of new products, new services and senior managers? Those of us who are used to more dynamic sectors think that the new targets are insufficiently challenging, but let us hear what they are. Secondly, do the Government accept the principle that the Treasury’s power to change approval time limits should be used only to reduce them, not increase them? If the Government do not accept that, in what circumstances do they envisage the Treasury using this power to lengthen regulatory approval periods? Thirdly, what safeguards exist to ensure that the FCA’s stop the clock powers are used proportionately and not in a way that undermines the statutory deadline?
We cannot talk about growth, competitiveness and innovation while tolerating unnecessary delays in the basic processes that allow firms to operate and people to take up senior roles. We know from history that we need strong management, as well as strong and challenging non-executive directors for our banks, but we also need an efficient approvals system that supports that. I beg to move.
Lord Stockwood (Lab)
I think this requires some further detail. It is an affirmative power that the Treasury has to regulate, but I will write to the noble Lord in full to make sure that he understands that we are taking this issue seriously.
I turn to Amendment 151 and thank the noble Lord, Lord Howard, for raising this. I know that it reflects a long-standing frustration that credible firms, particularly those led by individuals already known to the regulator, may still face lengthy authorisation processes that can delay market entry and inhibit innovation and growth. However, while the previous approval and track record of senior individuals is clearly relevant to the regulator’s assessment, authorising a firm is not simply a matter of approving the people who run it. The regulators must assess the firm as a whole, including its business model, governance, systems and controls, and whether it is capable of operating safely and in the interests of its customers.
The Government recognise the importance of timely and effective authorisation processes, especially for new firms. This is why the Government are shortening the deadlines for new firm authorisation applications through this Bill. It is also why the Government are taking steps to establish a provisional licences regime, to reduce the barriers that firms face when seeking FCA authorisation and to help them get up and running faster. The challenges that firms face when seeking authorisation are real, and I am happy to discuss that further with the FCA, but imposing a statutory requirement on the Treasury to undertake such a review is disproportionate and not the right way to address them. As I committed to the noble Lord in our meeting prior to today, I will talk to the FCA about this and how it will ensure that this process is sped up.
I fully recognise the concerns that noble Lords have raised about delays, responsiveness and the need for an approvals regime that supports growth and competitiveness. The Government are actively addressing these through the shortening of a range of statutory deadlines in the Bill, in a way that is targeted, proportionate and will ensure competitiveness without compromising the rightly high regulatory standards that firms must meet to operate in the UK. I therefore ask the noble Baroness to withdraw Amendment 105.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to all noble Lords who have contributed to this debate and to the Minister for his response. I welcome that the Government recognise the problem of delay in authorisations and approvals. Clause 21 is clearly intended to make progress in that respect, but the existing approval figures suggest to me that the deadlines are insufficiently ambitious. Leaving it to the FCA and PRA feeds risk aversion, and it is disappointing to hear the Minister endorsing that.
Unless the powers in the Bill on the Treasury and the regulators are better disciplined, we may not achieve the cultural and operational shift that firms need and we all want. There will not be an incentive for continuous improvement, of the kind that my noble friend Lord Ashcombe described in the insurance industry, that is so badly needed. I am also not sure what the unexpected circumstances are, not on stop the clock but on the basic system. What is the detail of that? Is it Covid? Is it a war? I do not know. I am grateful for the Minister’s comments on stop the clock. It was interesting to hear that nearly half the cases involved stopping the clock—and that we have no idea how long the bad cases take. A statutory deadline is of limited value if it can be paused repeatedly or if firms feel that pauses are being used in a way that creates uncertainty. The FCA should, wherever possible, identify missing information early and comprehensively. I do not think I heard a satisfactory answer on that.
I welcome the points raised by my noble friend Lord Holmes on all granular performance data. My noble friend Lord Howard of Rising has also raised the idea of a fast track for established senior managers, and I very much look forward to hearing the results of the Minister’s conversations with the FCA, and perhaps the PRA, on that. I am not that hopeful, and I encourage the Minister to press these issues. They matter a lot to the industry. I know, from planning and other areas that I have been involved in during my long career, that speeding things up can lead to very positive feedback. I hope the Minister will reflect further, but for now I beg leave to withdraw my amendment.
“Review of bank capital requirements(1) Within 12 months of the day on which this Act is passed, the Treasury must lay before Parliament a report reviewing the effect of prudential capital requirements applicable to PRA-authorised banks and building societies, with particular reference to on lending capacity, borrowing costs, competition and economic growth, while also considering financial stability. (2) In preparing a report under subsection (1), the Treasury must consult—(a) the Bank of England,(b) the Prudential Regulation Authority,(c) the Financial Conduct Authority, and(d) such other persons as the Treasury considers appropriate.(3) The Treasury must published the report.”Member’s explanatory statement
This probing amendment would require a review of the effect of prudential capital requirements on lending capacity, borrowing costs, competition and economic growth, while also considering financial stability.
Baroness Neville-Rolfe (Con)
My Lords, my amendment concerns the impact of prudential capital requirements on lending capacity, borrowing costs, competition and growth. Since my amendment was tabled, His Majesty’s Opposition have announced a new policy position in this area, which I shall speak to now.
Our new policy is straightforward. The statutory basis for post-financial crisis bank capital requirements should be amended so that UK regulators are required to take proper account of equivalent capital regimes in competitor jurisdictions, and to identify, justify and, where not justified, remove any UK-specific overcapitalisation relative to equivalent international regimes. We want to consider the position in competitor jurisdictions, to benchmark equivalent regimes, to publish detailed analysis and to explain clearly where the UK is imposing requirements above international standards or above those imposed by comparable financial centres. That seems a basic requirement of a serious competitiveness agenda, on which the UK is particularly reliant. The UK is the world’s largest net exporter of financial services, whereas comparable jurisdictions, such as the US, rely much more on their domestic markets. It is therefore imperative that we remain competitive on the world stage.
Capital requirements matter, but there is a cost. Capital held solely for statutory compliance is capital that cannot otherwise be used to support lending, investment, home ownership, business expansion or economic activity. The central question is therefore not whether banks should hold capital but whether the UK requires materially more capital than comparable jurisdictions without a clear and evidenced stability justification. If we do, we are placing the UK at a competitive disadvantage: we are constraining lending, increasing borrowing costs, making it harder for firms to access finance and weakening growth, and doing so in a way that may not be required by international standards or by the actual risk profile of the system.
The analysis behind our policy suggests that the UK capital framework may materially exceed international Basel III requirements and competitor regimes. It has been suggested that the resulting constraint on UK banks’ lending and financing capacity could amount to £250 billion across overlapping capital requirements and £200 billion across leverage ratio constraints. Of course, not every pound of capital released would automatically translate into new lending—we understand that. Some may be used for business investment, dividends, buybacks or balance-sheet strengthening. The key point remains that capital deployed productively in the economy is preferable to capital trapped by a regulatory framework that is more restrictive than it needs to be.
We appreciate that the Government recognise this issue and have moved a little on it already. They have made the bank resolution regime more flexible, allowing the Bank of England to reduce or remove MREL for some firms where the new FSCS recapitalisation mechanism can substitute for pre-positioned loss-absorbing resources. Our proposal is a step to unlocking a lot more capital. We already require the PRA, in some contexts, to have regard to the UK’s relative standing against competitor jurisdictions, but that duty is incomplete. It does not apply across the whole capital framework and, in particular, it does not fully capture Pillar 2A, the PRA buffer or systemic buffers. The FPC has produced useful comparative analysis, but there is not yet a binding requirement for regular, systematic benchmarking against competitor jurisdictions.
Our proposed review is also about transparency. If regulators believe that the UK should impose higher requirements than comparable regimes then Parliament, industry and the public should be able to see the analysis behind that decision. That is how we preserve independence while improving accountability.
The amendment is part of a wider argument. Prudential regulation must be understood not only through the lens of stability but through the lens of growth, lending, and competitiveness. A capital framework that is more demanding than necessary does not make the economy stronger. It may make it less dynamic, less competitive and less able to support households and businesses, especially SMEs and scale-ups. I speak from experience as a director at a responsible and careful challenger bank, where the UK capital rules were a significant constraint on what we could do. They also consumed a great deal of management and board time.
I would like the Government to accept that the UK should not impose capital requirements above equivalent international competitor regimes, especially if there is no financial stability justification for doing so. The first step is to undertake the necessary analysis. Ours is a serious and responsible policy. It preserves regulatory independence and protects financial stability but recognises that excessive or unjustified capital requirements carry real economic costs. If we want growth, competitiveness and banks to support businesses and homebuyers, then we need a capital framework that is robust but not overrestrictive. That is the balance that our policy seeks to strike. I look forward to the Minister’s response.
Lord Pitt-Watson (Lab)
My Lords, both the amendment and the speech by the noble Baroness, Lady Neville-Rolfe, were sensible in terms of making us think about bank capital requirements and whether we have got them right. As she says, the first step is undertaking proper analysis to be able to work out whether that happens. I noticed she caveated everything that they may not be right. They may be right, but they may not.
My worry is that that is a sensible position to take but it did not sound like the position being taken by the Leader of the Opposition when she made her speech last week saying that she was going to reduce bank capital requirements to release £450 billion in capital. Where did the calculation that hundreds of billions are sitting idly on bank balance sheets come from? Where do those hundreds of billions come from? If we are going to release £450 billion, what is the calculation in the reduction of bank capital requirements that sits behind that calculation? While I feel quite supportive of the issues that the noble Baroness was raising, we need to be sure—I hope she will agree—that we do not jump the gun on this.
Lord Stockwood (Lab)
No.
The FPC has been tasked by Parliament with responsibility for the stability of the financial system overall. It is the right body to carry out this review, which needs to balance the economic impacts of capital requirements against the protections that they may offer. Getting the balance right in the prudential framework and bank capital requirements has been a key priority for the Chancellor and an issue she discusses frequently with the industry.
The noble Baroness, Lady Neville-Rolfe, raised the issue of international comparisons. The FPC set out its assessment of international comparisons when it reviewed this in December 2025. It found that the requirements are broadly in line with international comparators. In some areas, such as leverage requirements on domestic firms, the FPC noted that the requirements may be higher. However, I assure the noble Baroness that it noted leverage as an area for further reform that it plans to cover in next week’s update.
As noble Lords may be aware, the Chancellor sets out the annual remit and recommendations for the FPC. The most recent remit letter was sent last November and sets out clearly that the UK must regulate for both risk and growth, and remain competitive in a changing world. As part of that, the Chancellor recommended that the FPC’s review should ensure the UK’s capital framework strikes the optimal balance to deliver resilience, growth and competitiveness. I assure the noble Baroness that the FPC understands this balance. In December 2025, the Financial Policy Committee reassessed the optimal level of system-wide bank capital, reducing its benchmark from 14% to 13% of risk-weighted assets.
For these reasons, while I understand the objective, this amendment is unnecessary and risks undermining the clarity and credibility of the current regime. We will come back to this discussion over the coming weeks. I therefore ask the noble Baroness to withdraw her amendment.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to noble Lords who have contributed to this debate and to the Minister for his response. I thank the noble Lord, Lord Pitt-Watson, for being generally supportive and for explaining that this is a matter of judgment. We now have the resolution regime, so things have changed. As I noted in my introduction, some changes in this direction have already been made. Indeed, I note the Minister’s summary of what is being done by the PRA and the FPC, and I want to look at that before Report. I am sure that we will come back to this issue at a later point, as he said.
Contrary to the suspicions of the noble Baroness, Lady Kramer, we recognise the importance of financial stability and why capital requirements exist. That is why I mentioned financial stability in my amendment—it was meant to be a positive. Perhaps she is overinfluenced by past failures, but they of course took place before we had the resolution regime.
My concern is that the current requirements go further than is necessary or further than the equivalent regimes in competitor jurisdictions, without proper justification. As my noble friend Lord Bridges said, there seems to be a gap. We have a different regulatory culture, and that may be having an effect. He quoted someone saying that low growth is also bad for financial stability—and I feel that strongly.
The cost is felt in lending capacity, in borrowing costs, in competition, in investment and, ultimately, in growth. It is also felt in the UK’s ability to remain one of the world’s leading financial centres. I want to make it clear that I and my party support the UK financial services sector. We want the UK to be the place where firms choose to invest, lend, innovate and grow. That is especially true for SMEs, which have been referenced in discussion.
I repeat that ours is a serious and responsible approach: it protects independence while strengthening accountability and preserving resilience. It recognises that unnecessary overcapitalisation can constrain productive activity in the wider UK economy. Given the objective of growth, which I think is shared across the political divide, we hope that there will be further consideration on what is the right way forward. For now, I beg leave to withdraw the amendment.
Baroness Kramer (LD)
My Lords, I shall be extremely brief on this. I and my colleagues take the position that from this collection of amendments in the name of the noble Baroness, Lady Bowles, and the noble Lord, Lord Bridges, the Government could craft something really effective and create the information base and the capacity for Parliament to have very appropriate oversight of the regulator. The point I particularly want to add is that this is not hostility to the regulator. Part of the regulator’s problem is that it is trying to communicate to so many different parts of the political framework, with very different levels of understanding.
We have all seen that five-year strategy from the FCA. Let us admit that it is a completely vacuous document, but I can understand that those who crafted it thought that they were dealing with people who had almost no grasp at all of how the finance sector works, operates and is directed or regulated. We have given it the absolutely impossible task of not knowing whom they talk to, in what level of detail, and what information to provide. I would say that, from a regulator’s perspective, having an educated oversight body would remove a huge burden and create a proper and constructive conversation, in the end benefiting both sides. I hope the Minister will take away that this is not some hostility to the regulator; this is a process that will make sure that Parliament can do its job but also that the regulator is far better positioned to be able to do its job and communicate and understand.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to noble Lords who have brought our attention to past debates on these knotty issues from a position of great expertise. All the amendments raise fundamental questions about how we hold our financial regulators to account. We fully support the principle that sits behind these amendments: that Parliament must have proper oversight over the way in which the regulators work. That includes their internal operations, their rule-making and their engagement with firms and consumers, the quality of their impact assessments, their effect on competition and competitiveness, and the burden they pose on the wider economy.
This point has been underscored by many noble Lords throughout our debates on the Bill. If the FCA and the PRA are to be given greater powers and a wider remit, as proposed, that must be matched by greater transparency and stronger accountability. Greater delegated power cannot simply mean more decisions being taken further away from Parliament, with fewer mechanisms for scrutiny. The Minister has written to noble Lords setting out existing mechanisms. That letter refers, among other things, to the ability of noble Lords to ask Parliamentary Questions and to the work of our excellent Financial Services Regulation Committee. Parliamentary Questions have their place, but they are not a systematic mechanism for reviewing the performance, effectiveness or proportionality of regulators. Committees do valuable work, but they cannot be expected to provide continuous expert institutional scrutiny of the FCA’s and PRA’s operations. What is needed is a mechanism through which the regulators can be reviewed, tested and held to account.
The problem is that we have an accountability gap. My noble friend Lady Noakes, from her unique position as chair of the committee, has highlighted the scale of the task that it now faces, so we need an independent source of analysis and expertise. The amendments in this group provide a number of serious and compelling proposals for how that might be done.
The amendment in the name of the noble Baroness, Lady Bowles, would provide for periodic independent reviews of the regulators. A recurring independent health check of the FCA, the PRA and the relevant Bank of England functions could help Parliament understand whether the regulatory system is working as intended, whether burdens are proportionate, whether the regulators are engaging properly, and whether firms and consumers are being treated fairly. I thought we had a good example of the problem in the earlier discussion on Sections 165 and 166.
The amendments in the name of my noble friend Lord Bridges propose a more permanent structure: an office for financial regulatory accountability. This is a valuable suggestion. As I understand it, the office would assess the FCA’s and PRA’s overall performance against their statutory objectives and regulatory principles. It would also analyse impact assessments for specific pieces of financial regulation in order to determine how those regulations contribute to the regulators’ objectives. As my noble friend Lady Lawlor suggested, their reports could include individual precedents and examples to bring problems to light. That is the sort of scrutiny we need.
The two parliamentary committees would have an important locus in scrutinising the reports from the office, improving overall parliamentary accountability while not getting in the regulators’ hair in a way that they are not set up to do. The proposed arrangements would also allow Parliament to see not only what concerns have been identified, but how the regulators intend to respond to them. Significantly, the office would be required to prioritise the analysis of regulations which restrict domestic competition, reduce the United Kingdom’s international competitiveness in financial services, create new compliance costs or have a significant impact on business and individuals in the UK economy —an excellent objective. As we heard from my noble friend Lord Bridges, it would not interfere with operational independence.
The regulators have become powerful institutions. They make rules, issue guidance, set expectations, supervise firms, authorise market entry, influence conduct and shape the competitiveness of one of the most important parts of the UK economy. As we heard from my noble friend Lady Noakes’s committee, they suffer from a culture of risk aversion, fuelled by the current system. It is no longer enough simply to say that the existing accountability mechanisms are adequate. There is clearly a deficit in oversight and that deficit becomes more serious as more power is transferred from Parliament and primary legislation to regulators and rulebooks.
If the Government are asking Parliament to accept that shift, they must accept the need for stronger accountability. Essential parliamentary scrutiny has to trump deregulation. The challenge is set for the Minister and I hope he will provide the clarity that we really need—a request that was echoed by the noble Baroness, Lady Donaghy, who, in another bit of history, I served under very happily on the EU Services Sub-Committee.
Lord Stockwood (Lab)
My Lords, we turn to the important topic of the accountability of the financial services regulators. I am grateful to the noble Baroness, Lady Bowles of Berkhamsted, and the noble Lord, Lord Bridges of Headley, for tabling these amendments and for the thoughtful contributions made by noble Lords during this debate. I hear what the Committee has said on regulatory accountability and am glad to be meeting the Lords Financial Services Regulation Committee, chaired by the noble Baroness, Lady Noakes, next week. I have also written to noble Lords, as has been mentioned, about the existing framework that governs the accountability of regulators and a copy of the letter is available in the Library.
Amendment 121 proposes establishing an independent panel for periodic independent review of the FCA, the PRA and the Bank of England. The Government agree that it is important that regulators are held to account for their performance. This is why they have formalised biannual performance reviews, which the Economic Secretary to the Treasury holds with the CEOs of the FCA and PRA. The minutes of these are published on GOV.UK to support transparency.
A prescriptive, legislative requirement would duplicate this and would not be a good use of taxpayers’ money, as the purpose of such a review could be only to understand the regulators’ performance. But through FSMA, Parliament and the Government already have a large number of levers to understand and assess the performance of the regulators. There is of course nothing to stop the Financial Services Regulation Committee from calling up the CEOs of the FCA and the PRA, or the Governor of the Bank, to discuss their performance as frequently as that committee desires. It is also difficult to see where the panel would get its legitimacy from, when the Government and Parliament are responsible for democratic oversight and accountability for the regulators—the regulators that Parliament has vested with the responsibility for regulation of our financial services sector.
It is the Government’s view that the existing avenues for accountability are appropriate and sufficient, and that Parliament has the authority to do this in a way that no other body could. If Parliament wants to enhance the scrutiny of the regulators, it must consider how best to do that.
Amendments 133 to 139—including Amendment 135A —would, taken together, create a new statutory body, the office for financial regulatory accountability, charged with examining and reporting on the performance of the FCA and the PRA, supported by a charter setting out the Treasury’s regulatory objectives, with full information access rights and funding drawn from the regulators themselves. Such a body would complicate the accountability framework in a way that could dilute individual responsibility and accountability, and create significant additional costs. As such, the Government cannot support the amendments.
Since this proposal was last made, during the debates on the Financial Services and Markets Bill in 2023, the landscape has changed materially. The Financial Services Regulation Committee of this House was established precisely to provide sustained, expert parliamentary scrutiny of the regulators, and it has done so with considerable rigour. In the other place, the Treasury Select Committee continues to hold the FCA and the PRA to regular account. These are active, resourced bodies with the standing and powers to interrogate regulatory performance in depth. More importantly, as parliamentary committees, they have the constitutional authority to scrutinise and opine on the effectiveness of our independent regulators.
Creating a new statutory office alongside these structures would fragment accountability, rather than strengthen it. There is a risk that the existence of a parallel body would blur the lines of responsibility and create confusion about where the authoritative scrutiny sits.
Baroness Bowles of Berkhamsted (LD)
My Lords, the Committee will be pleased to know that this will be very short. I will speak briefly to my Amendment 122, which is quite simple. It is intended to encourage the sharing of analysis, findings, information and judgments between the FCA and the PRA, particularly in relation to senior appointments, regulatory and supervisory activity and enforcement. The amendment would not make this binding in any way; it would apply only in so far as it is reasonable to do so and the regulators want to do so. The objective is to remove duplication and give encouragement to the regulators to rely on one another’s work where that is sensible.
I have not looked recently at their memorandum of understanding; they probably have enabled themselves to do some of this, but I am not sure that that enablement has extended to actually doing it. This meshes with some of the other amendments we have had around not duplicating things. If a person has already been approved as fit and proper by one regulator, why would they not be approved by another regulator to do the same thing?
However, I would not expect this to be done blindly or without review. It goes to what I said: everything should be tried to avoid unnecessary duplication, because duplications are leading to delays. This could help to shorten approval times under the SMCR for tried and tested individuals and to align rules or processes where the underlying purpose is the same. It is a modest, practical amendment aimed at reducing friction and delay in areas where both regulators are already engaged. I look forward to hearing from the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, on Amendment 166, which tilts in the same direction, to some extent. I beg to move.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to the noble Baroness, Lady Bowles, for bringing forward Amendment 122. I will speak to Amendment 166 in my name and that of my noble friend Lord Altrincham. I know that we are all very excited by the result in the football but, as the Minister knows, this is an area of great concern to me, so I will make the case.
In our discussions with firms, we have repeatedly heard that regulation has accumulated over many years in a way that is often overlapping and unnecessarily complex. Firms are required to repeat similar information to different bodies, in slightly different formats, at different times and through different systems. They are expected to absorb new rules and expectations while older requirements remain in place. The result is a regulatory environment that becomes heavier and more expensive over time. This affects not just large institutions but smaller firms, new entrants and challengers, which do not have the same compliance teams, legal budgets or administrative capacity as the largest incumbents.
Amendment 122 raises an important point in this regard. Where both the FCA and the PRA are dealing with the same firm, it is sensible that they should be able to rely on one another’s analysis, findings, information and judgments where it is reasonable to do so. Our Amendment 166 follows the same principle but would apply it more broadly. It would require the Treasury, the FCA and the PRA, when exercising powers under the Bill, to have regard to minimising the overall regulatory burden on regulated persons. That burden is not only the direct cost of complying with a new rule; it includes administrative burdens, reporting requirements, the costs of delay and the disproportionate impact that regulation can have on smaller firms and new entrants. If the Treasury, the FCA or the PRA considered that an increase in burden were necessary, our amendment would require them to publish reasons and an assessment of the expected effects on growth, competition, innovation and market entry.
Regulation should be judged by its practical economic effects. Does it make it harder for firms to grow? Does it reduce competition? Does it deter new entrants? Does it slow innovation? Does it make the UK a less attractive place to do business? Those questions matter because financial services are an internationally competitive sector, as we keep emphasising. If we allow our regulatory environment to become too complex, too expensive and too slow, firms and capital will go elsewhere.
The Bill is presented as part of a wider effort to make our regulatory framework more competitive and more supportive of growth, which we support. Amendment 166 would help make that ambition real. It would require the Government and regulators to keep the burden of regulation in view and to justify increases where they consider them necessary. This sort of provision does not exist in this regulatory area, although we have had amendments of this kind in other areas, in my experience. I hope that the Minister will engage constructively with the amendments in this group.
Lord Stockwood (Lab)
My Lords, I thank the noble Baronesses and the noble Lord for the proposed amendments. These are both important topics. I continue to listen and will definitely try to continue to engage in constructive debate and discussion as the weeks develop.
Amendment 122 seeks to reduce duplication between the work of the FCA and the PRA. I thank the noble Baroness, Lady Bowles, for raising this important issue. The Government agree that it is important to identify and remove duplication between the FCA and the PRA. They have distinct objectives and functions, and each must remain clearly responsible and accountable for the exercise of its own statutory functions and the advancement of its own objectives. Co-ordination is important, but we must be careful about blurring accountability between the FCA and the PRA.
To support co-ordination, the FCA and the PRA have, as noted, a memorandum of understanding, which sets out the framework for how they will co-ordinate and co-operate while carrying out their respective responsibilities. The MoU covers their approach to rule-making, supervision and enforcement investigations under FSMA, as well as how and when they will consult and share information with each other. It is designed to ensure that they do not introduce incompatible requirements; that they share information from supervisory activity that is materially relevant to each other’s objectives; and that they avoid duplication in regulatory data collection. In particular, it makes a commitment that information available to one regulator, including regularly provided regulatory data that is relevant to the responsibility of the other regulator, will be shared where requested. If either regulator considers that the information gathered will be of material interest to the other, it will actively offer it.
Baroness Neville-Rolfe (Con)
I think that, in my amendment, I was trying to talk about when powers are exercised under the Act. Obviously, I appreciate the work that is being done to get the thicket out of the existing regulator. However, we are trying to introduce a system that, when regulations are being made—there will be many as a result of the Bill, because we are extending financial regulation into lots of new areas—that will be done in a way that really looks at the burdens. I am not sure that the cost-benefit panels and their work, which we discussed earlier, quite do that, so I ask the Minister to look at this constructively.
Baroness Bowles of Berkhamsted (LD)
My Lords, I thank the Minister for his reply, and everybody else who has spoken in the debate—I do not need to go over any of it again. It was interesting that the Minister elaborated on some of the co-operation that already goes on. I think that it could be interesting for the Committee to ask the regulators to further explain to us how they do that. We hear from industry that if feels there is duplication going on, so maybe we can try to join up that loop. For now, I beg leave to withdraw the amendment.
Financial Services and Markets Bill [HL]
Baroness Neville-Rolfe ExcerptsMonday 29th June 2026
(1 month ago)
Grand CommitteeRead Full debate Financial Services and Markets Bill [HL] 2026-27 View all Financial Services and Markets Bill [HL] 2026-27 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 5-III(a) Amendments for Grand Committee (Supplementary to the Third Marshalled List) - (29 Jun 2026)
Baroness Kramer (LD)
I very much support the two amendments of my noble friend Lady Bowles. There is often an assumption that those of us who feel that regulation plays an important role have no instinct or desire to see proportionality in place, which could not be more untrue. My history is as a commercial banker, back in the days when we used to participate intensively in writing the loan documents and creating the covenants associated with our lending, whether to small companies or to some of the largest on the globe. Frankly, covenants that were off the shelf were completely inappropriate for providing the protection we needed in many cases. They were just useless exercises in paperwork for the companies involved. We used to reshape the loan agreements on that basis and, frankly, it worked exceedingly well.
When I look at the amendments, I am glad that proportionality is being recovered from the scrapheap that would result from Clause 17. That is important, and the way that my noble friend Lady Bowles, framed it is particularly significant. Both for the PRA and the SRA, the focus is proportionate to the benefits expected to result from the imposition of the burden or restriction, recognising the difference in size, nature and objectives. I agree with her that this really needs to be considered through the lens of genuinely sustainable—as in durable as well as environmental—growth. That is a very important addition to the discussion.
I am disturbed by Amendment 81. I am not disturbed by most of it, but when I read
“proportionate to that level of risk and whether the burden or restriction enhances UK international competitiveness”,
I begin to get somewhat queasy, because the lowest common denominator is not where we should be headed. We need to genuinely assess risk—the cost of dealing with and understanding it—in a very direct way. I have always thought that a distortion was introduced by the competitiveness objective, and I am afraid that it is reflected in Amendment 81, in my reading at least.
I hope that the Minister understands that proportionality is not something for five-year strategies. It is central to the work, culture and behaviour of a regulator; as such, it clearly belongs in principles that sit on the face of the Bill.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to my noble friend Lord Holmes and other noble Lords for bringing forward their amendments in this group.
I was glad to hear that the Minister will meet the Financial Services Regulation Committee to discuss this part of the Bill. I am sure he will be as disturbed as I was to hear about the widespread fear of regulated businesses in expressing any criticism of the regulators—the most important regulators in the land, to quote my noble friend Lady Noakes. We certainly rely on financial services and good regulators for growth in this country.
The central theme of this group is the proportionality of regulation. That is an absolutely fundamental requirement for all regulation; it is particularly so when we are talking about small and medium-sized enterprises, which are less able to afford the costs of regulation—in terms of diversion of time, regulatory fees and legal fees—and are the most held back by excess regulation.
There were 5.6 million small businesses in the UK at the start of 2025. They account for three-fifths of employment and around half of turnover in the UK private sector. Total employment in SMEs was 16.9 million—60% of the total—with turnover estimated at £2.8 trillion, or 51% of the total. Having financial services that operate with proportionality and common sense is important to them; indeed, almost every single one of these firms will access and use financial services through the course of their operations. It is even more important to the thousands of SMEs that operate in financial services, whose remit is of course being extended by the Bill, and the thousands more SMEs in the legal and professional firms that advise on financial services.
In practice, regulation often falls most heavily on precisely those smaller firms least able to absorb it. The reasons are obvious: SMEs do not have large compliance departments or in-house legal teams; and they do not have armies of advisers whose job is to interpret regulatory requirements. In many smaller firms, people wear many hats, as I know well. This means that a regulatory requirement that may be manageable for a large institution can be a serious burden for a smaller firm. Above all, regulation should be designed in such a way that it protects consumers and supports market integrity without imposing unnecessary burdens.
Amendments 83 and 84 in the name of my noble friend Lady Noakes, to which I have added my name, go to this underlying point by seeking to elevate proportionality in the FCA and PRA frameworks; it is pleasing to have the support of my noble friend Lord Ashcombe and the Liberal Democrat Front Bench in this. Proportionality should not be a box that regulators tick after the main decisions have already been made; it should be central to how they think about regulation from the outset.
The amendments in the name of the noble Baroness, Lady Bowles, raise an important point about tailoring regulation to the size, nature and objectives of different firms. The regulatory framework should recognise that a mutual does not have the same objectives as a major bank, and that different business models can present very different risks; the noble Baroness explained all that eloquently.
I would also like to comment on Amendment 86 in the name of my noble friend Lady Noakes. As she said, the Legislative and Regulatory Reform Act 2006 requires regulators to act in a way that is transparent, accountable, proportionate, consistent and targeted, ensuring that regulation is effective without being unnecessarily burdensome. Those are fundamental points and likewise need to be protected as guiding principles.
In closing, I would be grateful if the Minister could assure us: first, that proportionality will be genuinely embedded in regulatory decision-making, ideally by amending the Bill on the lines of Amendment 83. We hope he will look at this issue very seriously. Secondly, can he assure us that the FCA and PRA will in future be expected to take account of the particular position of SMEs, mutuals and smaller firms when designing and applying rules? A proportionality duty would go a long way to fixing the problem and would seem to fit in well with government policy to support small business promoted by his other department, the DBT.
Lord Stockwood (Lab)
My Lords, this will be the first of many groups where we discuss the frameworks that the regulators operate under, so I will say a few words about that framework before turning to the amendments.
Many of these amendments, and those in other groups we will take today, focus on the regulators and their accountability to Parliament. Parliament has enshrined the principle of regulatory independence into primary legislation through the Financial Services and Markets Act 2000, which obviously everyone in the Room knows as FSMA. The Government continue to believe that this model best serves the UK’s long-term interests by delivering effective regulation, informed by evidence and free of political interference. It is absolutely right that financial services markets, firms and activities are overseen by operationally independent, expert regulators. The FSMA model sets out clear roles and responsibilities for Parliament, the Government and the regulators. Parliament sets the objectives for the regulators and holds them to account for how they further those objectives when discharging the statutory functions that Parliament has given them.
The Government and Parliament must be able to scrutinise the work of the regulators to evaluate how effective they are and the impact that their rules are having. It is important that the regulators remain independent and accountable for their actions. The regulators are directly accountability to Parliament, and there are a range of mechanisms within FSMA to support that accountability and allow Parliament to effectively scrutinise the regulators.
A critical part of regulatory independence is the idea that the regulators listen to legitimate criticism and scrutiny—and the regulators do listen. For example, the FCA decided not to progress some changes to its proposed enforcement policy following scrutiny from the House of Lords Financial Services Regulation Committee. However, it is clear from the debate today and from outside the Room that there is room for improvement.
On the recent publication by the Financial Services Regulation Committee, chaired by the noble Baroness, Lady Noakes, I recognise the important work of that committee in its Growing Pains report and share its ambition to see a regulatory culture that is more proportionate, more responsive and more supportive of growth. The committee’s recommendations were directed principally at how regulators exercise their functions rather than at the statutory framework itself. The Bill provides greater legal clarity and certainty but it remains for regulators, through their leadership, judgment and accountability to Parliament, to deliver the cultural change that the committee rightly called for.
On the amendments in this group, Amendments 81, 83, 83A, 84, 84A and 85 each seek to address various aspects related to the principle of proportionality. I recognise the concerns and strength of feeling that I have heard today and I agree that the principle of proportionality is extremely important and must remain central within the regulatory framework.
The Bill’s approach is not to remove proportionality from meaningful consideration. Instead, the reforms will require the regulators to have regard to proportionality in the development of their long-term strategies, ensuring that they are applied in a more coherent and visible way at the strategic level. This would mean that, for example, rather than considering if an individual proposal is proportionate, the regulators will be required to set out clearly how they have considered whether their strategy and workplan as a whole results in burdens on firms that are proportionate to the outcomes they achieve. This change will support more meaningful scrutiny of how the regulators are considering and responding to the regulatory principles, and will support greater overall scrutiny of the regulators’ work.
Amending the framework to prescribe in detail how the regulators must recognise differences in the size, nature and objectives of the firms it regulates goes far beyond the current framework and risks adding unnecessary complexity to the framework. It is for these reasons that the Government cannot accept these amendments.
Lord Stockwood (Lab)
Let me get back to the noble Baroness on that. I believe the amendments were trying to change and streamline the regulation, but I want to make sure I give a precise answer rather than a quick judgment on that.
Let me turn to Amendment 86, which seeks to bring the regulatory principles of the Legislative and Regulatory Reform Act 2006 into FSMA. The Government recognise the importance of certainty in the regulators’ framework. FSMA already contains its own carefully developed set of duties, objectives and principles, designed specifically for financial services regulation. The Legislative and Regulatory Reform Act is very broad in scope, and the principles it contains are important ones. But there is significant overlap between these principles and those already in FSMA, so adding them here would bring duplication and legal complexity, rather than clarity. These will now be considered at a strategic level as a result of Clause 16.
In some way, the Government agree that proportionality matters, that unnecessary burdens should be avoided, and that the regulators must be held properly to account for how they exercise the significant powers Parliament gives them, but they should not be overly constrained in how they approach their work. We should have confidence in their expertise and regulatory judgment, and confidence in the mechanisms in place that allow us to ensure that they are performing as they should do so. Ultimately, an overly prescriptive approach that ties the regulators would not be in the interests of those they regulate, or those protected by their regulation.
This is not a question of whether Parliament should hold regulators to account. We all clearly agree that it should. The matter before us is where we think the right balance lies between democratic oversight and allowing regulators to carry out statutory responsibilities effectively. I recognise that not everyone will agree that the Bill strikes that balance in the right place, and I respect the arguments that have been made this afternoon and the continuing debate that we will have. I hope noble Lords will also accept that I have listened carefully to those arguments that have been made. I will respond either in writing or in meetings outside the Room to any points that I have not answered fully today. I therefore ask the noble Lord to withdraw his amendment.
Baroness Neville-Rolfe (Con)
Perhaps I might press the Minister on the subject of smaller businesses and the Bowles amendment to the proportionality proposal, which takes account of differences in the size, nature and objectives of businesses when the regulators are plying their trade. I am not quite clear what the Minister feels about these smaller businesses and whether he agrees that it is necessary to deal with them in a slightly different way.
Lord Stockwood (Lab)
My business insured a million small businesses, so I think they are vital to the UK economy. Let me come back to the noble Baroness with a full answer on that. It is critical that we make sure that they are protected.
Baroness Neville-Rolfe (Con)
My Lords, we understand the reasoning behind these amendments. Financial inclusion is, of course, an important objective, as the noble Baroness, Lady Tyler, explained so clearly. Indeed, that is precisely why we have tabled amendments on financial education, to be discussed at a later stage. We believe that one of the most effective ways to improve financial inclusion is to ensure that from a young age, people have the knowledge, confidence and capability to understand how to manage their money to avoid harmful financial decisions and to access the products and services that are right for them—and, I should add, to understand new technology, data and digital inclusion, as my noble friend Lord Holmes explained.
However, we are not persuaded that the mechanism proposed in these amendments is the right one. In particular, when it comes to proposals such as expanding the scope of Section 3B of FSMA and adding further regulatory principles, we encounter the same problem that I raised in previous groups: every time Parliament adds another principal duty, reporting requirement or objective to the regulator’s framework, it may sound reasonable in isolation but, cumulatively, these duties feed through into more process, more internal assessment, more reporting and more consultation paragraphs. That is more compliance requirements, more boxes to tick and less overall efficiency for financial services.
We should be careful not to assume that every social or economic objective is best delivered by placing a new statutory duty on the FCA or PRA. Regulators already have extensive responsibilities, so we have to make the choices with care because, at some point, the accumulation of such duties becomes counterproductive. It makes the regulatory priorities less clear and it can slow decision-making and create uncertainty for firms. In short, it is unwise.
As I have explained, we would improve inclusion via improved education, and we are about to introduce an amendment on debanking, which may be relevant. There is a lot of partnership and voluntary activity, as the noble Lord, Lord Pitt-Watson, hinted at—and as I remember from my time with Tesco Bank, which was centred in Scotland and did some terrific work.
The problem of child trust funds was mentioned by the noble Baroness, Lady Kramer, and it seems like a popular cause for deregulation by the Treasury and the regulators. I am sure the Minister will want to comment on that.
Lord Stockwood (Lab)
My Lords, I am grateful to the noble Lord, Lord Holmes of Richmond, the noble Baronesses, Lady Tyler of Enfield and Lady Kramer, of Richmond Park, and other Peers for drawing attention to the important issue of financial inclusion. As someone who grew up in poverty, it is not an abstract concept to me and the community I come from.
The noble Baroness, Lady Tyler of Enfield, asked if I would meet her to discuss this agenda further. I would of course be happy to meet her and any other noble Lords who would like to discuss the topic. I will write to her ahead of that meeting on the FCA’s consumer duty and what it means for financial inclusion, but I assure noble Lords that the Government are not relying on the FCA’s consumer duty as a catch-all solution. The Government agree that people should be able to access the financial services they need—that is an important objective—but we think that these amendments are not necessary to achieve that.
Amendments 124, 128 and 104 would give the Financial Conduct Authority a new statutory financial inclusion objective and require it to establish an independent financial inclusion unit. These amendments focus on action and measurement. Financial inclusion requires all parts of the system to work together. That is why it is important for the Government to lead this agenda, not the FCA. To secure action, we have published a Financial Inclusion Strategy, setting out an ambitious package of measures to improve access to financial services.
The FCA is closely involved in delivering this work. Sarah Pritchard, the deputy chief executive, also sits on the Financial Inclusion Committee, which monitors the strategy and supports its implementation. The Government have taken formal steps to reinforce the FCA’s role in this area. In her most recent remit letter, the Chancellor asked the FCA to have regard to reinforcing financial inclusion, and the FCA is responding to that ask.
The FCA’s 2025-2030 strategy identifies helping consumers to navigate their financial lives as one of its four strategic priorities. As part of this, it highlights an increase in the consumers who hold key products as a success metric for its work, and it is acting on this. For example, to advance the Financial Inclusion Strategy’s aim of boosting savings, the FCA developed a regulatory statement to support the uptake of workplace saving schemes. On measurement, the FCA already plays an important role in tracking progress on financial inclusion through its flagship financial lives survey, which provides a strong evidence base for monitoring outcomes over time.
I recognise Amendment 128’s emphasis on independent scrutiny and prioritisation of financial inclusion in the FCA’s work. As part of the FCA’s statutory framework, the consumer panel is in place to represent the interests of consumers and provide independent advice and challenge to the FCA. As already covered, the FCA’s strategy and membership of the Financial Inclusion Committee means that financial inclusion is embedded in its work. This is more effective than an operationally independent unit.
On oversight and transparency, I understand the intention behind Amendment 104, which seeks to require the FCA and PRA to report annually on financial inclusion, and Amendment 95, which would require the FCA to report on financial inclusion metrics and how it has acted to improve financial inclusion. However, these amendments are not necessary or appropriately targeted. The regulators already report publicly and are accountable to Parliament. Moreover, the FCA’s financial lives survey provides a biannual update on a wide range of financial inclusion metrics in the UK, including the numbers of unbanked people, those who have been declined for a product and the experiences of vulnerable customers. The FCA is also closely involved in the delivery of the Government’s Financial Inclusion Strategy, which is a public document and subject to public review next year. Amendment 104 would place reporting duties on the PRA, whose statutory role is prudential regulation, creating uncertainty about the PRA’s remit and what it would be expected to report against.
Amendment 82 would add financial inclusion to the regulatory principles that the FCA and the PRA must have regard to when discharging their general functions. The Government do not agree that this is the right mechanism to ensure that financial inclusion is prioritised. The amendment would require unclear action from the PRA. Parliament regularly holds the regulators to account for their work on financial inclusion. The Commons Treasury Select Committee recently held a session with the FCA’s deputy CEO for its Financial Inclusion Strategy inquiry. Amendment 97’s requirement that the FCA be prepared to demonstrate to relevant parliamentary committees how it has had regard to financial inclusion is therefore unnecessary. Any relevant Select Committee can call the FCA and hold it to account for its work on financial inclusion.
Amendment 141 seeks to require the FCA to establish a new legal route for third- party access to control another person’s assets, which goes well beyond its regulatory remit. The law requires parents or guardians to have legal authority to make decisions about the financial assets or property of their adult children. This includes accessing funds held in a mature child trust fund. Decisions about who may act on behalf of a person lacking capacity are governed by the Mental Capacity Act 2005 and are determined by the courts, reflecting the need for safeguards to protect vulnerable people. It is not appropriate for FCA rules to seek to substitute or override existing rules and processes. The Ministry of Justice recognises that the process of obtaining access can be challenging for the parents and carers of young people who lack capacity. It is exploring how the Government can best facilitate access for parents and carers to child trust funds on behalf of their children. I would be happy to raise this with the MoJ rather than berate it, as the noble Baroness suggests.
Turning to Amendment 161, I recognise how a broader set of data might support a more accurate assessment of underserved SMEs’ creditworthiness. However, it should be noted that the Treasury already has the ability in Section 4(5) of the Small Business, Enterprise and Employment Act 2015 to specify the SME information that must be shared. We are actively considering updates to the scope of data in the next phase of the CCDS reforms. However, it will not be expanded in line with this amendment, given that it would require redesigning the scheme entirely, expanding it beyond financial services participants, some of whom see little return for their participation, which already imposes a degree of burden. I do not think it appropriate for financial services legislation to impose regulatory obligations on non-financial market actors in this way, not least without consultation. That is not to say the ambition is misplaced. Indeed, these issues are potentially better addressed through the future development of open finance and smart data initiatives.
Amendment 169 seeks to require a review of know-your-customer requirements. I understand the concern that the current framework may not always operate as it should in supporting access to financial services. As the noble Lord, Lord Holmes, rightly stated, technology is already playing a part but can do better. Indeed, businesses such as Quantexa and Onfido are leading the way in this space. The Government do not believe that anti-money laundering requirements and financial inclusion are mutually exclusive. The money laundering regulations already provide firms with the flexibility to take a proportionate and risk-based approach to customer due diligence. As part of the financial inclusion strategy, major high-street banks have launched pilots on improving access to bank accounts, demonstrating how financial inclusion initiatives can operate within the existing framework.
Reforms to make customer due diligence requirements more proportionate and effective have already been made, including through amendments to the money laundering regulations made via statutory instrument earlier this month. The Government are also taking steps to support the effective use of new technologies, such as through the publication in February of guidance on the use of digital identities to support customer verification. Finally, the money laundering regulations also mandate a review of their regulatory provisions every five years to assess whether they are effective, appropriate and proportionate. The next such review will be published in 2027.
The noble Lord, Lord Holmes, asked how financial inclusion has changed under the current Government. In November, we published the Financial Inclusion Strategy, which supports access to banking for those with no fixed abode and small-sum lending to help people access credit and makes it easier for people to save. The noble Baroness, Lady Tyler of Enfield, noted that when a House of Lords Select Committee looked at this topic, it found that 1.7 million people were unbanked. Although it is still too high, I can report that the latest survey data shows that the number of unbanked people has fallen to under one million. As I already set out, with many of the actions we are taking, the Government hope to reduce this further. Financial inclusion is not a gap in the framework. It is an agenda already being delivered by the Government, with the FCA closely engaged in its implementation. I therefore ask the noble Baroness to withdraw her amendment.
Baroness Noakes (Con)
I shall make a brief comment on why Parliament has not offered any guidance on risk metric. The committee was well aware that the FCA sought to get clarity about the risk appetite that it was taking. The PRA had not made that request; it regards it as its responsibility to judge the balance of risk. There is no unanimity in the regulator community on this, but we reported the issues as we found them in one of our reports.
The noble Baroness asks why Parliament has not given its answer. The straightforward answer is that the Government have not brought forward anything. Parliament gives an answer only when it approves something that the Government bring forward. When we asked the Financial Secretary to the Treasury whether she intended to operationalise the giving of a more specific risk appetite to the FCA, she said pretty clearly that she thought that the Government would not do that.
If the Government do not bring forward something for Parliament to approve, it is not going to happen. Parliament does not act in the way that the noble Baroness seemed to think that we would act, which is that a committee would somehow produce an answer on risk appetite. The committee can comment on the issue of risk appetite and has done so, but it is fundamentally for the Government to take any action that is to change the way in which the risk appetite is specified for any regulator.
Baroness Neville-Rolfe (Con)
My Lords, this is an important clause, and I understand why noble Lords wish to probe the Government’s approach to Clause 17. It is always right that we scrutinise carefully any change to the statutory framework governing our financial regulators, and the sponsors have set out their case well. I note that they were introduced into the 2023 Act for good reason: to try to ensure that financial regulation in the UK is proportionate, accountable, flexible and aligned with economic and market objectives.
As I said earlier, I am glad that a meeting with the Financial Services Regulation Committee will take place next week. Certainly, I would like to get to the bottom of whether the change neuters the committee, as has been suggested by the noble Lord, Lord Eatwell, and my noble friend Lady Noakes; indeed, I think that committee was unanimous that there was a problem. I thought it was interesting that my noble friend Lord Bridges echoed concerns that key, case-by-case analysis by the committee would disappear, and that the noble Baroness, Lady Donaghy, expressed concern about the way that her questions about cost-benefit analysis had been answered, presumably under the existing system.
These are all very legitimate questions, but there are other considerations—the noble Baroness, Lady Bi, touched on some of them. Our position is that we do not want to perpetuate overburdensome regulation. In discussions with industry, we have heard repeatedly that the regulatory principles in Section 3B of the 2000 Act can themselves lead to tick-box exercises. That is particularly true where the principles require regulators to consider wider public policy objectives, which may have only a very indirect connection with the firms being regulated or the activities in question. For example, Section 3B(1)(c) includes
“the need to contribute towards achieving compliance by the Secretary of State with section 1 of the Climate Change Act”—
the net-zero target—
“and … the Environment Act 2021 (environmental targets) where each regulator considers the exercise of its functions to be relevant to the making of such a contribution”.
My own experience of serving on a challenger bank’s board is that there is already a lot of climate-related activity required by the regulators that creeps into many aspects of governance. It is generally costly and sometimes of little worth. That was before the regulatory principles were added. That reflects, harking back to our earlier conversation, the extensive net-zero regulations that exist, the remit letters and the sustainability reporting network, all of which were cited earlier. Therefore, the real question is whether financial regulation is the right vehicle through which to pursue such goals and whether embedding such considerations produces better regulation or simply more process, as we suspect.
The Bill is meant to be deregulatory, and it is meant to simplify the regulatory environment and to support growth and competitiveness. I think the Government may be genuinely reducing a burden that has been identified by industry. We should be careful before assuming that every principle must remain in place. For me, the real tests are about what improvements are coming about here. I am interested in the detail. Does it make the FCA or the PRA more effective? Does it protect consumers? Does it support financial stability? Does it help growth? Alternatively, does it simply create another layer of process, the cost of which falls on firms?
I would be grateful if the Minister could explain more clearly the Government’s rationale for Clause 17. What burdens have been identified and what will the impact be of the changes proposed here? What evidence have the Government received from industry and regulators about the operation of the current Section 3B principles? How will the Government ensure that removing or amending such principles reduces unnecessary burdens, without weakening the core protections that consumers and markets expect?
As the Official Opposition, we are, in essence, in listening mode on this quite radical proposal. We would like to understand whether the “whereases” that are being partially abolished are a burden on only the regulators or whether that feeds through to industry and consumer protection—and, if so, how. I believe that, sometimes, a clearer, simpler and more focused framework is more effective. If Clause 17 helps move us in that direction, it may be needed in the Bill, as the noble Baroness, Lady Bi, suggested. However, it also seems very important to work out how the two parliamentary committees will exercise proper oversight going forward in a post-Brexit regulatory environment, and to ensure that any regulatory resistance, which we have been hearing about this evening, is minimised.
Lord Stockwood (Lab)
My Lords, it is clear that the Committee places a strong emphasis on getting the regulatory principles right. The Government also take this matter very seriously and genuinely value the contributions made in this debate.
Before I start, it is important to remember that the regulators have both principles and objectives. The regulators need to advance these objectives—regulatory principles are something that they consider only when doing so—and the Bill does not change that. The noble Lord, Lord Vaux, asked me whether the regulators will be required to report on the long-term strategy. Clause 16(6) amends Schedule 1ZA to FSMA so that the FCA must explain, in its annual report, the extent to which it has implemented its long-term strategy. Clause 16(7) does the same for the PRA.
The Government agree that the regulatory principles are an important part of the statutory framework. They are also aware that each of these principles has strong support, so, while there may be a view that some could be removed, there is no consensus on which ones it would be suitable to remove. This is why, when the Government reviewed the principles, they concluded that none of the individual principles should be removed from legislation. Instead, the Government concluded that the regulatory principles must continue to play a significant part and a central role in the work of the regulators through new long-term strategies. The regulators will be required to have regard to those principles when preparing or revising their strategies, ensuring that they are applied in a more coherent and visible way at the strategic level and in a manner that supports an overall assessment of the regulators’ performance and actions.
In our debates on other clauses, there has been a widely shared view that, in some areas, regulatory requirements on firms have become overly prescriptive and, in some cases, duplicative. The Government consider that, in some areas, this is also true of the regulators, and that, over time, various requirements have been added to and extended. This places the resourcing burden on the regulators, which is ultimately paid for by firms and can reduce their capacity to act quickly and effectively.
That is why the Government consider it appropriate to change the way in which the regulatory principles in FSMA are applied to the regulators. The Government consider that this new approach will support more meaningful scrutiny of the regulators’ strategy, as opposed to repetitive and fragmented processes across the individual exercising of their functions. As I explained earlier, it would mean that, for example, rather than considering whether an individual proposal is proportionate, the regulators will be required to set out clearly how they have considered whether their strategies and work plans as a whole will result in a proportionate burden on firms.
Let me be clear: the regulatory principles will remain central to the regulators’ work under the new framework. Parliament will continue to have the full range of statutory and constitutional levers through which it can hold the regulators to account, including scrutiny by parliamentary committees and review of the regulators’ publications, such as their annual reports, on how they have advanced their statutory objectives and their annual responses to the Treasury’s letters of recommendation on economic policy—both of which the Treasury is required to lay before Parliament. The requirements for the regulators to consult on proposed rules and demonstrate how they have advanced their objectives will remain. If the rules on which the regulators are consulting will impose costs, their cost-benefit analysis must also be published. The regulators must also notify the chairs of parliamentary committees when they issue consultations. This requirement is also unchanged. If a parliamentary committee writes to a regulator concerning a publication, the regulator must respond to that committee in writing. The Government consider that these are the most effective ways of holding the regulators to account.
The accountability of financial services regulators is a significant matter for this Committee—I have heard that loud and clear. The regulatory principles are important for shaping the work of the regulators, and I recognise the strength of feeling on how they operate. However, the way in which they currently operate can reduce the regulators’ agility while doing little to support effective overall scrutiny or to materially benefit firms. Reforming how the regulatory principles work will ensure that these principles continue to be central to the work of the regulators and will support enhanced scrutiny of their overall performance. I therefore move that Clause 17 should stand part of the Bill.
Baroness Noakes (Con)
My Lords, I will speak briefly in support of Amendment 88 in the name of the noble Baroness, Lady Bowles. It would be a useful addition to FSMA to have a specific power for the Treasury to issue a statement of concern; I particularly like the fact that it could be used without the full parliamentary process of regulations. As the noble Baroness may recall, when we debated the then Bill in 2023, the Treasury took a power to tell regulators to make rules. However, that power has to be exercised via regulation, so it needs to go through the whole statutory instrument procedure. It has not yet been used, as far as I am aware, but it is a useful backstop that the Treasury has if it wants to direct the work of the regulators, which is a perfectly reasonable thing for it to do in certain important areas.
The existence of the Treasury’s ability to issue a statement of concern would be particularly useful when interested parties were trying to get a point about things that were not working heard by the regulators. The ability to engage the Treasury in that would be very helpful, although I am sure that it would be used more as a background factor in the relationship than as an active part of the Treasury’s relationship with the regulators. I applaud the noble Baroness on her ingenuity in bringing this amendment forward.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to the noble Baroness, Lady Bowles, for bringing forward these amendments. They raise two very salient points about the accountability of the financial regulators and the mechanisms by which Parliament, the Treasury and the public can scrutinise how those regulators use their powers.
One of the core functions of the Bill is to increase the power and scope of the remit of the regulators, in particular the FCA. Across the Bill, more responsibility is being transferred, more detail is being left to rules and more of the practical operation of the regime will depend on regulatory judgment, rather than primary legislation. My concern is that although the Bill increases the power of the regulators, it does not always provide a corresponding increase in oversight or scrutiny of them; as an ex-Treasury Minister, I am slightly surprised that the Treasury is entirely happy with that.
To me, Amendment 88 seems a sensible and proportionate form of challenge. It would create a formal and transparent way for the Treasury to say that, in effect, a regulator may have gone beyond what Parliament intended or may have acted in a way that is not consistent with its statutory remit. This matters because the Treasury is directly accountable to Parliament in a way that independent regulators are not. If regulators are to exercise substantial powers delegated by Parliament, there must be some meaningful mechanism by which Ministers can challenge, explain and account for how these powers are being used. We will come back to this point again at a later stage in Committee; my noble friend Lord Bridges has tabled an amendment that speaks to this same broad issue.
The underlying point is simple: if regulators are powerful, they must also be accountable. How best to achieve this should be a key objective of our scrutiny in Committee and on Report. I would be grateful, therefore, if the Minister could set out the Government’s position on this wider issue. He wrote to us shortly before Committee—a little too shortly before Committee; I say that politely—but I am not sure whether what he sent us, including the Treasury memorandum, answers our outstanding questions. So do the Government accept that the Bill increases the powers and responsibilities of the FCA and PRA? If so, do they accept that stronger oversight mechanisms are called for? What formal routes currently exist for the Treasury to raise concerns about regulator rules or guidance that may not reflect Parliament’s intention?
Also, what is the Government’s objection, if any, to periodic independent reviews of regulator performance and burden? As a former Minister, I found that, although such requirements were unpopular with the department at the time they were put into law, they proved useful in helping me keep on top of the responsible regulators and their policies.
I very much hope that the Minister will engage constructively with the problem, answer my questions, on both the previous group and this group, and appraise in a constructive spirit the amendment tabled by the noble Baroness, Lady Bowles. Above all, we need reassurance that the Government recognise the importance of scrutiny, transparency and trust in the regulatory system.
Lord Stockwood (Lab)
My Lords, the accountability of our financial regulators is a serious matter, and Parliament rightly takes a close interest in how the FCA and PRA exercise their powers. We have extensively discussed the FSMA model of regulation today. It is the foundation of a system of regulation under which Parliament sets the regulators’ objectives, invests them with the powers that they need to further those objectives and sets out a clear system of governance and accountability under which the regulators are required to account for their actions and effectiveness in furthering the objectives that Parliament has set for them. As I said before, the Government remain of the view that this is the most appropriate and effective model of regulation available. It has served us well and is internationally respected.
The difficulty with this amendment, therefore, is that it would cut across the foundational principle of our regulatory architecture. The FCA and PRA are operationally independent bodies. That independence is not incidental; it is the source of their authority and credibility and, ultimately, their value to the consumers and markets they serve. Under the FSMA model, it is the responsibility of the regulators to interpret their statutory objectives. It is not the role of HM Treasury to do so. This amendment would, over time, erode precisely the independence that makes those regulators effective. Markets, firms and consumers need to know that regulatory decisions are made on the merits, free from political pressure. This amendment, however well-intentioned, risks compromising that assurance.
Of course, Parliament can and does challenge the regulators where it thinks they have done something wrong. Given that their authority ultimately flows from Parliament, the regulators take that incredibly seriously. Parliament can and does make its views known to the regulators on key issues. For example, after a highly critical report from the House of Lords’ Financial Services Regulation Committee, and in recognising the lack of consensus among the stakeholders, in 2024 the FCA dropped plans to change the way that it publicised ongoing enforcement cases.
The noble Baroness, Lady Neville-Rolfe, asked whether the Government are satisfied with the current framework. There is an appropriate requirement already set out in FSMA that is designed to support scrutiny and oversight and, in certain circumstances, to allow the Government to give the regulators some level of direction. For example, the Government can require a regulator to review one of its rules or to appoint an independent person to review those rules where they consider this would be in the public interest. The Government can also require the regulators to make rules but cannot direct their content or purpose.
The regulators have a statutory duty to keep their existing rules under active review. This is contained in Section 3RA of FSMA. Furthermore, the Treasury has an ability to direct regulators to launch an independent review of specified rules, with the outcome laid before Parliament. The regulators are also subject to robust wider parliamentary accountability, including through the information they are required to provide to relevant committees and the vital role those committees play in questioning the regulators and critiquing their work. Those are the appropriate channels for testing the consistency of regulators’ actions with legislation or statutory objectives, not a ministerial statement of concern, which starts to undermine the principles of independent regulation. I therefore ask the noble Baroness to withdraw her amendment.
Baroness Neville-Rolfe (Con)
My Lords, we are sympathetic to the concerns raised by noble Lords across this group. I was glad to add my name to several amendments tabled by my noble friend Lady Noakes. I entirely agree with her and with the noble Lord, Lord Vaux, that the role of the relatively new and very effective Lords Financial Services Regulation Committee should be added to the 2023 Act. We are lucky to have such an assembly of experts and effective questioners, as well as Lords clerks, to help with the enormous task of scrutiny in the financial services sector.
We have just been discussing the accountability of the regulators, the importance of scrutiny and the need to ensure that the FCA and PRA exercise their considerable powers in a way that is transparent, proportionate and properly justified. This group raises those same issues in the more specific context of guidance, consultation, cost-benefit analysis and the way regulators explain the impact of what they do. I look forward to the Minister’s response to the noble Baroness, Lady Bowles.
Our Amendment 90 asks a serious question about cost determination. The cost-benefit analysis panels within the regulators are an existing mechanism of accountability. They are designed to provide scrutiny of the costs and benefits of regulatory proposals and to help ensure that regulators properly consider the burden that their rules impose.
But there is a significant limitation. As I understand it, the cost-benefit analysis panels are engaged only where the regulator makes a rule change that the regulator itself considers to be materially significant. Should there not be a more independent mechanism for testing whether a regulator’s view that a proposal has no or minimal cost impact is actually correct? If the regulator decides that a proposal has no or only minimal cost impact, then the process may not trigger a cost-benefit analysis—but that judgment may itself be contestable, especially if it is a net threshold, hiding both the costs and the benefits. Firms may take a very different view about the practical cost of implementation, the operational burden, the systems changes required and the cumulative impact when viewed alongside other requirements. Indeed, cumulative effect is a concern rightly enshrined in my noble friend Lady Noakes’s Amendment 119, which we will discuss on a later group.
There is also a wider issue. The cost-benefit analysis panels are not generally able to assess changes in guidance or enforcement activity. Guidance can be hugely significant in practice. Enforcement activity can create powerful incentives and costs across the sector, even beyond the firm that is directly affected. So the question is not simply whether a formal rule change has costs; it is whether the regulators’ activity as a whole is proportionate, whether it is evidence-based and whether the burden it places on firms is properly understood. That is why we want to press the Minister on whether the Government will give thought to expanding the remit of the cost-benefit analysis panels. For example, how will they operate in relation to the FCA’s new powers on credit, on in-person banking and on payment regulation?
Equally importantly, should they not be able to consider whether guidance, supervisory expectations and certain enforcement-related approaches carry material cost implications? Cost-benefit analysis forces a discipline on regulators. It requires them to summarise what they are doing succinctly and clearly, and to ask whether the benefit justifies the burden, whether the same objective could be achieved in a less costly way and whether the cumulative effect of regulations is proportionate. I always turn to the impact assessment of a rule if it is available, as it allows one to get to the heart of what is happening.
The broader point is that transparency, consultation and cost scrutiny are not bureaucratic obstacles to good regulation; they actually help to prevent unintended consequences and excess red tape, and they sometimes draw attention to harm to SMEs. They give Parliament and industry confidence that regulatory powers are being exercised responsibly.
So I would be grateful if the Minister could address the specific issues raised by Amendment 90. I have five questions, to which the Minister may want to respond by letter if necessary. First, who in practice decides whether a proposed regulatory change has no or minimal cost impact? Secondly, what is the threshold, in millions of pounds, and is it gross or net of benefits? What safeguards exist to test that judgment? Fourthly, are the Government satisfied that the cost-benefit analysis panels have a sufficiently wide remit? Fifthly, will the Minister consider whether that remit should be expanded to include guidance, supervisory expectations and other regulatory activity that may impose material costs on our important financial services sector?
As we have said throughout Committee, accountability must keep pace with regulatory power. If regulators are to be given more responsibility, the scrutiny of their decisions, their processes and their costs must be strengthened. I will listen carefully to all the Minister’s responses on cost-benefit and, unless these are satisfactory, the Opposition will want to bring forward an amendment on Report.
Lord Stockwood (Lab)
My Lords, I begin by explaining the Government’s purpose behind Clause 18 and why it should stand part of the Bill. Over time many reporting and procedural requirements have been placed on the FCA and the PRA, increasing burdens, introducing duplication and in some cases complicating oversight, scrutiny and accountability. There is broad agreement that this dynamic is true for firms subject to regulation. I ask noble Lords to reflect on whether it might also be true for the regulators and on whether that is slowing them down and ultimately having a negative impact on firms and consumers.
These burdens are not without consequences. The regulators must follow the letter of these requirements, diverting time and resources away from other work. Ultimately the cost of that work is passed on to firms through the levy they pay and through their engagement with the asks of the regulator. The Government’s view is that there is scope to rationalise parts of this approach to enhance the effect of scrutiny and to help regulators become more agile and ultimately better support innovation and growth.
The Government sought feedback on which regulator publications stakeholders found most useful and then worked closely with the regulators to consider this feedback and further assess the range of requirements placed on them. Feedback to the regulatory environment consultation indicated very low engagement with certain types of regulator publications, and the regulators’ data confirms this. In recent years, the FCA and the PRA consulted on several proposals to which they received zero responses, although I accept that not all publications are created equal.
I have listened carefully to the concerns raised, particularly the argument that these provisions remove practical tools that help Parliament and stakeholders understand what the regulators are doing and why. I recognise that concern, and that is why the Government have approached this area carefully. Clause 18 is carefully targeted and relatively modest. The Government are retaining the vast majority of the existing transparency and reporting framework. Clause 18 is focused on removing a small number of requirements where the burden of complying is disproportionate to their value. These changes do not prevent the regulators undertaking any of these activities where they judge it useful to do so. Instead, they give the regulators greater flexibility to focus on delivering their strategic priorities.
This clause must also be read in the context of the wider framework. The Bill introduces new long-term strategies, maintains the requirement for regulators to respond annually to Treasury recommendation letters and provides for an additional annual report on how the FCA and the PRA have complied with their competitiveness and growth objectives. Taken together with the existing framework in FSMA, these measures are intended to strengthen overall transparency, not weaken it.
I turn to the amendments, starting with Amendment 89—
Financial Services and Markets Bill [HL]
Baroness Neville-Rolfe ExcerptsWednesday 24th June 2026
(1 month ago)
Grand CommitteeRead Full debate Financial Services and Markets Bill [HL] 2026-27 View all Financial Services and Markets Bill [HL] 2026-27 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 5-II(Rev)(a) Amendment for Grand Committee (Supplementary to the Revised Second Marshalled List) - (24 Jun 2026)
Baroness Kramer (LD)
My Lords, I will make a few comments on amendments in this group and speak particularly to my Amendments 54 and 57. I say very gently that I agree with the other amendments in this group. My noble friend Lady Bowles is looking for consistency in the consultation period. Unless someone has been on the other side of a consultation period—not setting it but trying to respond to it—they may not know that the real-life difficulties of the inconsistency, frankly, are often a barrier, not just an annoyance. Amendment 47A is in the name of the noble Lord, Lord Holmes, and yes, it makes sense to have a payment systems panel on an issue such as this: we need to make sure that a full range of views and experience is taking a look at such a crucial piece of the financial plumbing.
On Amendment 55, I could not understand why ease of use should have been removed from the competition objective. That made no sense if we are thinking about people and consumers. I do not know whether the Government could explain that. I very much support the noble Lord, Lord Vaux. It had struck me but I did not do anything about it and I should have. His Amendment 49 deals with this capacity to exclude digital payment assets from definitions in payment systems, which just seems fundamentally wrong. We are moving in the direction of digital, these are coherent parts of the payment system and it is going to be relevant to the two amendments that I am about to discuss.
My Amendment 54 recognises that we are 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. New schemes, platforms, exchanges and all kinds of services are coming on stream; these are key and many are digital. Amendment 54 emphasises that the FCA must, in its service-user objective, focus on “consumers”, a much clearer term than “users”. We have seen in the past that consumers get lost in this overall definition of users. It would require 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. As we move forward, many consumers will simply be bemused.
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. The firm is very confident that this will be in place shortly after the regulations are approved by the FCA. 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 who will pay for the necessary software and hardware changes.
Amendment 57 carries on with this theme and picks up an earlier group, addressing the need for all participants in the payment system, including tech companies, to pay their fair share. That is why the definition of “payment system” really matters and should not exclude digital assets. As the payments world changes so significantly, financial inclusion will be a far more complex issue, and it is untenable for the costs of this to fall just on the banks. 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 we look at it from the perspective of the consumer. It is an obstacle course and, frankly, general confusion and fragmentation let overseas entities take advantage of us. I am very troubled that the National Payments Vision of the Bank of England does not have digital assets in scope. The Bank issued its policy announcement on systemic stablecoin on Monday, and it says that its work will be in parallel with the National Payments Vision, but I am still trying to work out why the two are not properly linked together and coherent. There are new players in this field, and some are asserting that we need a single sovereign payments system to respond to core consumer needs and to join up the dots with consumers at its heart. I met the Canadian company Interac, and that is exactly what happens in Canada, so there are international examples, which do not seem to be under consideration in any of the material that I have been looking at.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to noble Lords for bringing forward this group of amendments, which raises several important questions around the future shape of payments regulation once the Payment Systems Regulator is brought within the FCA. I am particularly grateful to my noble friend Lord Holmes for introducing Amendments 47A and 101A with simplicity and clarity; I note the support from the noble Lord, Lord Vaux, and the noble Baroness, Lady Kramer.
Despite the arguments of the noble Baroness, Lady Kramer, I do not favour extending the FCA’s service user objective to include consumer redress or access to cash; indeed, I am against a levy for such purposes. In any event, payment system operators do not deal with customers. That is done by financial services firms.
I am more receptive to the amendment from the noble Lord, Lord Vaux, on applying the secondary growth and competitiveness objective to the regulation of payment systems. Does the Minister intend to do this? If so, can it be done by the proposed regulations or does it need to go into the Bill? I should add that, as with so much in the Bill, the framework is broad while the substance is left to later regulations. That is a real concern, as it leaves a lacuna in parliamentary accountability.
We have been through the arguments on consumer credit and in-person banking, but I log them again for good order. I want also to address two central themes running through this group: first, the need for proper industry engagement and accountability in regulation-making; and, secondly, the question of whether the new regime is sufficiently clear and future-proofed.
On the first point, we welcome the amendments that seek to strengthen the consultation requirements and ensure adequate time for meaningful industry engagement, as the noble Baroness, Lady Bowles, set out in her Amendment 48. That would have a dual effect. First, it would increase transparency and accountability for regulators. If regulators are required to consult properly, explain their reasoning, engage with those affected and publish clear strategies, we have a better chance of understanding not only what they are doing but why they are doing it. One point that is clearly of concern to other noble Lords is the extent of the discretion afforded to the Treasury in designating and de-designating payment systems.
The second effect is that this would ensure that those affected by regulation have a meaningful opportunity to have some input in our deliberations on the Bill and our discussions with industry. It has become clear that the regulatory environment seems to be planned and developed at some distance from the firms that are expected to comply. New regulations, handbooks and guidance may make sense to the people sitting in the FCA or the PRA, but they do not always make sense to those at the coalface: firms, compliance teams, payment providers and market participants. They have to interpret them to implement them and live with the operational consequences.
In this case, those with an interest go way beyond the regulators’ normal clients. For example, concerns have been expressed by retailers, which are usually quick to spot practical problems. I remember well that, when I was at Tesco, we were introducing the euro into our businesses in Ireland and elsewhere. Because of inadequate consultation, the timing was wrong, with training and IT changes needed during the busy Christmas period—a recipe for cost and chaos.
This is a real problem. If regulation is developed in a silo, away from the experience of market participants, even well-intentioned regulation can become impractical, disproportionate or poorly targeted. We end up with the regulator and the regulated working from different understandings of how the market actually functions. That is why I hope that the Minister will look constructively at the amendments that seek to strengthen consultation, transparency and meaningful engagement both with professional bodies and with market participants. Without proper planning, there will be a risk to growth—and, indeed, to the UK’s reputation on payment systems, which has generally been good.
The second major issue is the question of what exactly is covered by the regime. Is the Bill regulating the market as it exists today or preparing the UK for the market as it will exist in a few years? We will speak about digital finance and digital assets in later groups, but the point is highly relevant here, as the noble Baroness, Lady Kramer, mentioned. If the Bill is to modernise and improve regulation, why does it feel in places as though it is being designed for a market that may already be out of date? We have the legal system, the financial services expertise, the markets, the professional services ecosystem and the technology capability to be a world leader, but leadership requires clarity and confidence from the Government and I do not think we are yet seeing enough of either in this Bill.
That brings me to the wider point about accountability and scope, which was raised on Monday. If the PSR’s functions are to be absorbed into the FCA, how will this new regime be properly held to account? How will the Government ensure that payments regulation does not become simply one more area lost within the wider FCA structure? I would be grateful if, in addition to my initial questions about growth, competitiveness and the level of delegation, the Minister could address three points.
First, how will the Government ensure that industry and professional bodies are brought into the regulation-making process early enough for their input to make a meaningful difference? Secondly, how will the Government ensure that the new regime is sufficiently clear and future-proofed to capture new forms of payments and digital finance, rather than regulating for the market of the past? Thirdly, how will the new payments regime be held to account once it sits within the FCA and what mechanisms will exist to ensure that Parliament, industry and consumers can properly scrutinise its operations? A lot of clarity is needed on this part of the Bill, which we of course support in principle. I very much look forward to the Minister’s reply.
The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)
My Lords, I am grateful to the noble Lords, Lord Holmes and Lord Vaux, and the noble Baronesses, Lady Kramer and Lady Bowles, for tabling these amendments, and to the noble Lords who have spoken in this debate. I will speak first to the amendments concerning the regulation of payment systems and then turn to Amendment 48 tabled by the noble Baroness, Lady Bowles, which raises a separate issue concerning the consultation processes of the FCA and PRA.
There is no doubt that payment systems are critical economic infrastructure. They must be secure and resilient, but also support competition, innovation and good outcomes for the households and businesses that rely on them. That is the purpose of the Bill. It consolidates the Payment Systems Regulator’s functions within the FCA to create a more coherent framework. This is an institutional reform and should not be seen as weakening consumer protection, competition regulation or regulatory standards. The PSR has been effective in driving competition and innovation among payments firms, but the current framework is too fragmented. The Bill will reduce the number of regulators with which firms need to engage.
It is worth stating that the Government have not rushed into this. We consulted on this proposal almost a year ago, in September 2025, and have been working on the details ever since. We published a detailed response in April this year. Throughout this process, the Government have been clear: the intention is not to fundamentally change how this part of the sector is regulated; it is about changing who regulates it to produce a more streamlined system. When I respond to each amendment, I hope that noble Lords will keep this in mind. I hope to reassure noble Lords that the Bill already provides the right framework.
I understand that the desire of Amendment 47A is to ensure payments-specific expertise and that the interests of users and the industry are heard in the FCA. However, the Government do not consider a new statutory payments system panel to be necessary, because the Bill ensures that the FCA’s general duty to consult in relation to its general policies and practices includes participants in regulated payment systems, including those who use or are likely to use services provided by participants in payment systems. We believe that this will ensure that their views will be considered without needing to recreate separate structures within the newly simplified regulatory framework.
I understand the concern in Amendment 49 about whether systems that involve digital settlement assets fall within the definition of a payment system. The Bill attempts to be clear that they can and are capable of designation, even where enabling the transfer of funds is not their primary purpose, reflecting how they may support payment activity within wider platforms.
Amendments 50 to 53 seek to make designation mandatory once the relevant payment systems definition and designation threshold is met, and to restrict the Treasury’s discretion to revise or withdraw designation notices. The Government do not consider that appropriate. As I have already stated, payment systems are technologically dynamic. The Treasury must retain discretion to assess the circumstances and to regulate proportionately, taking into account the relevant factors. Making designation automatic, or withdrawal too restrictive, could introduce rigidity and unintended consequences. Therefore, the Bill preserves the existing position whereby the Treasury may designate a system where it meets the definition of a payment system, and only where the relevant threshold is met. The Government have determined that it is appropriate to maintain a designation regime for payment systems because it facilitates more targeted and proportionate regulation.
Lord Stockwood (Lab)
It does indeed. Returning to Amendments 55A, 55B and 55C, I agree that the FCA must be able to consider user access and market entry by infrastructure and payment service providers. The Bill already achieves that. The FCA’s payment systems objectives are intended to be equivalent in substance and scope to the PSR’s existing objectives.
The noble Lords, Lord Holmes and Lord Vaux, asked about drafting differences between the FCA and the PSR objectives. Changes in drafting of the FCA’s payment systems objectives are for simplification only. The FCA’s payment systems objectives retain the substance of the PSR’s objectives.
Turning to Amendment 57, the Government are committed to improving financial inclusion, but a new levy on payment system participants is not the right mechanism. The better course is targeted and proportionate action, including through the Government’s financial inclusion strategy and the recent allocation of £132.5 million in dormant assets funding to Fair4All Finance.
On Amendment 101A, the Bill already provides for the secondary competitiveness and growth objective to apply to the payment systems’ general functions. Any reporting on that secondary objective would include its application to payment systems’ regulation, as appropriate. Therefore, the Government consider the amendment unnecessary and are satisfied that the Bill already gives the FCA the right objectives to support innovation, competition and growth.
Finally, Amendment 48 seeks to introduce maximum and minimum lengths for the consultations undertaken by the FCA and PRA. I understand the desire to ensure that, where regulators consult on proposed rule changes, stakeholders have a fair opportunity to consider the proposals and respond properly. However, this amendment would impose a rigid statutory timetable on consultations, which will cover a very wide range of issues that vary considerably in complexity, urgency and market impact. The Government’s view is that it is appropriate to allow the regulators to determine the appropriate consultation period, rather than being bound to timings set in primary legislation.
The noble Lord, Lord Vaux, is right on how we describe the interpretation of the drafting; I commend him for his skill in reading a very technical provision that I have had difficulty reading. He asked why payment systems that involve digital settlement assets are treated differently. This reflects the particular characteristics of digital settlement assets and the way the market is developing. It also reflects the existing arrangements under the PSR framework.
The Bill preserves flexibility to bring relevant systems within the scope of payment systems regulation, where they support payment activity. That does not mean automatic regulation. The system must still be designated by HMT before the FCA’s main powers apply. This approach ensures that the new framework is both future-proofed and proportionate. The noble Baroness, Lady Neville-Rolfe, raised the issue of consultations with industry. The FCA works closely with industry, and the Bill sets out clear consultation requirements on the FCA to support this as it takes on this new role.
As I said at the start, I cannot accept these amendments, but I appreciate the spirit of where they come from. The Bill is aimed at ensuring that we have the right institutional framework for this part of the sector, while ensuring that we do not weaken those consumer protections. I therefore ask the noble Lord to withdraw his amendment.
Baroness Neville-Rolfe (Con)
Before the Minister sits down, may I come back to the question of consultation? We are being asked to have a high degree of delegation with this change of governance for the Payment Systems Regulator. The Minister seems sure that the regulator will meaningfully consult the right people at the right time. It seems extraordinary to leave so much discretion with the regulators, particularly, as I explained, when they are moving into very new areas. He has rejected the idea of a panel, which would be one way of getting expertise into the system, and I wonder if he will think further about this.
Lord Stockwood (Lab)
To come back on that, we have heard the criticism of the FCA loud and clear. The intention is for further debates to come back to what we believe is the current state of oversight and governance, and we are open to the conversations that the debates will lead to.
Baroness Kramer (LD)
My Lords, I will make some comments on the amendments that have been discussed and then speak to the amendments in my name. I have some sympathy with the issues raised by the noble and learned Lord, Lord Hope, and I very much hope that the Minister can clear up this issue of professional privilege and client confidentiality, because it seems to me that it is not in any way interpretable from the legislation or the Explanatory Notes, and it is key.
I also see that the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, have tabled Amendment 69A to require a report on the transfer process, which seems very sensible. The noble and learned Lord, Lord Hope, has an amendment calling for a review of anti-money laundering and counter- terrorism financing supervision within three years. All those make some sense to me.
I will look particularly at Amendment 64A from the noble Lord, Lord Holmes of Richmond, because it hits part of the problem on the head. It seeks to require more effective intelligence sharing between supervisory authorities. It is that failure of intelligence sharing that many people consider to be the fundamental underlying cause of many of the problems we have today. It is not very clear that the proposals the Government are bringing forward are the easiest way to remedy that. I will say more on that later.
For my amendments in this group, I thank the Chartered Institute of Taxation and the Association of Taxation Technicians for both clarifying issues and proposing legal language. Despite all the steps we have taken over recent years, London remains the global centre of choice for laundering dirty money, whether from crime, sanctions busting or political corruption. Estimates suggest that 40% of all laundered money globally goes through the City of London or the Crown dependencies—up to £325 billion a year. The primacy of the London money laundromat is not an accolade we wish to retain.
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, property agents and service companies. In 2018, the Government set up within the FCA what they hoped would be the answer: the Office for Professional Body Anti-Money Laundering Supervision, which the noble Lord, Lord Mackinlay, described as the OPBAS—I thought it was an acronym, not an initialism. It was put in place to oversee the 22 professional body supervisors, not the public ones. We need to acknowledge that it has had some real successes, but it has not been as effective as we had hoped. That goes back to the issue raised by the noble Lord, Lord Holmes, who is no longer in his place: the primary reason for this, in most people’s opinion, seems to be relatively poor communication and co-operation between OPBAS and the law enforcement agencies. Frankly, I cannot find anything in this Bill that begins to deal with that.
One approach to remedying this situation would have been to have given OPBAS proper resources and more teeth. Instead, the Government have decided that the FCA should take on directly all supervisory responsibility for anti-money laundering and counter- terrorism financing. Many in the professional bodies are very correctly worried that the FCA lacks the expertise and capacity to carry out the role it is 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. The FCA has no significant history of supervising small and tiny firms, and no understanding of the different operations and pressures of these entities or their specialist activities. The firms—this has been one of the strengths of the professional bodies—need compliance support, education, expert helplines, hand-holding and guidance from a supervisor that knows their business model.
My Amendments 65 to 69 should be seen as part of a whole. They are collectively intended to try to tackle that problem, and to clarify and ensure a workable transition process. Amendment 65 addresses education guidance and compliance support. Amendment 66 requires a proper transition timetable. Amendment 67 requires the FCA to have the necessary expertise and experience in tax, accounting, legal services, trust and company service provision—it does not have that at the moment. Amendment 68 requires transparency on supervisory costs and the fees that the FCA will levy. Amendment 69 requires a report in six months on how effective the new anti-money laundering system is.
Frankly, all of that should have been in the Bill, and none of it should be controversial. Once again, we have a situation where the Government seek to pass primary legislation that gives Ministers and regulators a blank sheet of paper to fill in as they wish with secondary legislation. At this point, as far as I can understand— I looked but could not find it—we do not even have a promise to publish the regulations for consultation.
Baroness Neville-Rolfe (Con)
My Lords, I will speak to the stand part notice on Clause 14 and Amendment 69A in my name and that of my noble friend Lord Altrincham. I am also grateful to my noble friend Lord Holmes, to the noble and learned Lord, Lord Hope of Craighead—whom it is a particular pleasure to welcome to the Committee on this Bill—and to the noble Baroness, Lady Kramer, for bringing forward a number of useful amendments in this group. My noble friend Lord Mackinlay of Richborough is right to summarise the concerns about and nonsenses of the money laundering regulations in general, which we should try to address as part of reform. We certainly support that.
The question we have to ask is whether the Government’s chosen mechanism is sufficiently clear, proportionate and workable. At present, I am concerned that it is not. Clause 14 represents a major structural change, moving front-line AML supervision for professional services from the existing professional body supervisors to the FCA. The Bill will allow FCA supervision of money laundering to be extended to several new areas—to 22 bodies in all, as we have heard, including solicitors, law firms, accountants, trust and company service providers and, in practice, estate agents. Yet, as with so much in this Bill, the framework is broad while the substance is left to later regulations. That is a real concern.
My Amendment 69A seeks to address that in part by requiring the Treasury to report to Parliament on the process for transferring responsibilities under Clause 14. That report would force the Government to set out how the transfer will work in practice, what steps will be taken to manage the transition, how costs will be assessed, how duplication will be avoided and how the FCA will acquire and maintain the necessary sector expertise—all points that have been raised in the debate.
We have heard serious concerns from industry and professional bodies about spiralling costs, duplication and regulatory uncertainty. The Law Society described the proposal as
“a seismic shakeup to how law firms and their AML … obligations are regulated”.
It warned that the change risks diverting
“attention, resources and time from supporting clients and growing their businesses”
towards adapting to a new and uncertain compliance regime. That concern should be taken seriously. The Government and the FCA should be seeking to simplify requirements, reduce duplication and minimise the compliance burden, while maintaining strong safeguards against economic crime.
The risk of duplication is particularly important. Solicitors are already subject to a distinct regulatory framework. They have professional obligations, ethical duties, responsibilities to the court, duties under the rule of law and obligations around client confidentiality and legal professional privilege. If the FCA is now to be added to that landscape as a supervisor, the Government must explain precisely how the new system will avoid overlapping or conflicting expectations.
Like the noble Baroness, Lady Kramer, I am particularly concerned about sector expertise: if the FCA is to take on these responsibilities, it must have people within it who understand the professions and bodies that they will be supervising. It must understand how law firms operate, how client accounts work, how professional privilege functions and how smaller or high street firms differ from large practices.
Costs are another major concern. I emphasise that small and high street firms are worried that a move to FCA supervision may result in higher fees and new compliance costs. Many of these firms are already under pressure. They serve individuals, families and small businesses in communities across the country. If the effect of this reform is to impose disproportionate new costs on them, it could have real consequences for access to legal services. The FCA does not understand how to deal with thousands and thousands of such firms.
We also need to understand how regional capacity will be maintained. Professional services are not confined to London; it is one of their charms. AML risks and compliance responsibilities exist across the whole country. The existing professional body model has the advantage of sector-specific and, in many cases, locally embedded knowledge.
There is also a specific territorial issue here, as we heard from the noble and learned Lord, Lord Hope. The Law Society of Scotland has opposed the change and raised concerns about the compatibility of FCA supervision with the regulation of legal services in Scotland. The Government need to explain how these reforms will interact with devolved and existing statutory frameworks, as well as how they will avoid creating a two-track or conflicting regulatory regime. The noble and learned Lord also emphasised the SME issue, which seems to be a particular difficulty in Scotland.
Baroness Neville-Rolfe (Con)
Since it is Committee, I have a couple of points to raise with the Minister before we finish this important section. First, I think the industry needs some idea of the timeframe for these reviews and for the implementation of these changes. That may already exist in ministerial statements, but it would be extremely helpful if the Minister could look into that and let us know. We have had the experience of the defence investment plan, and the uncertainty that can be created when you do not know when major changes are being made is bad for the sector.
Secondly, on parliamentary privilege, a very niche point, do the plans to protect it apply to in-house counsel as well as external legal counsel? Small companies, such as estate agents, would not want to have to employ expensive solicitors and lawyers if they do not need to.
Lord Stockwood (Lab)
I will have to write to the noble Baroness on those points, to make sure that my answers are correct.
Baroness Kramer (LD)
My Lords, I am going to be exceedingly brief. I support the amendments in this group.
My noble friend Lady Bowles has hit on the fundamental reason for my strong opposition, which is the constitutional issue. By chance, I happened to speak to a senior regulator in the financial services sector—I am not going to use their name because it would not be fair to do so—shortly after the Bill came out. 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”. To me, that absolutely summed up the issue as a whole. There was no concept at all that there would be parliamentary insight, parliamentary oversight or engagement; it was simply going to be a much better vehicle to explain to people why certain things that had been identified as necessary were necessary and were going to happen. There was no sense of challenge anywhere at all. That is a really dangerous way for us to move our legislation.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to all who have taken part in this short debate. We are sympathetic to the broad purpose of requiring regulators to think strategically, but, if the regulatory strategies are to be meaningful, they must not simply become static documents published every few years then left on the shelf. As my noble friend Lady Noakes said, that is not the way we do it in business. Common practice is for five-year strategies, reviewed annually, and annual plans.
The amendment tabled by my noble friend Lord Ashcombe would reduce the strategy period from five years to three years. He is right that markets can change very quickly, as we keep hearing. A five-year strategy risks being set in stone for too long, unless the Minister is able to clarify that the plans will be updated regularly. If not, a shorter period, such as three years, would have real benefits. Perhaps the Minister can explain why the period of five years has been chosen and how he believes the strategies will remain agile and flexible.
I am delighted that the Minister said that he was prepared to accept Amendment 70 on competitiveness and growth. As I have said several times, the growth of the UK financial services sector is key to growth more generally. Regulation should say how the Government—or the regulator—understand that objective, how they are giving effect to it and how their regulatory approach is supporting growth in the market, because the UK has a large and dynamic financial services sector. My noble friend Lady Lawlor emphasised that point, which we should not forget, and we cannot assume that its international position is guaranteed. Regulation has a direct effect on investment, innovation, listings, lending and market depth, as well as on the attractiveness of the UK as a place to do business, so, if regulators are not required to think explicitly about this, the growth objective risks being honoured in theory but neglected in practice.
Amendments 71 and 74 on consultation are very welcome. As we have said in our debates on previous groups, bringing experts into the room in a timely way is a vital part of the regulatory process.
In my view, the boards of regulators have a part to play in the strategic plans, but my recollection is that those engaged in regulated companies were excluded from the non-executive roles on the PRA and the FCA. Is this still the case? My own board experience is that conflicts of interest can be managed. I believe that regulators will benefit from current knowledge from the industry, particularly given these new statutory strategies, the digital changes to which we keep referring and the expansion of the scope of the FCA. I would like to hear from the Minister what the current rules are—perhaps in a letter, as I have not raised this point with him before.
I also support the principle behind Amendments 72 and 75 in the name of the noble Baroness, Lady Bowles. They would require the FCA and the PRA to review their rulebooks and explain how they will simplify or remove rules that are outdated, unnecessary or duplicative. Regulation, as has been said, tends to accumulate. New rules and duties are added, but old rules are not always removed. Guidance, expectations and supervisory practice develop over time. A long-term strategy is not only about what new initiative the regulators want to pursue; it should also be about what the regulator can simplify. If a regular rulebook review is done with a view to making regulation less burdensome, cheaper to operate and supportive of growth, that will be a very positive step.
The amendments on Treasury recommendations also raise a serious question around accountability and regulator independence. There is, of course, a balance to be struck. We do not want day-to-day political interference in regulatory decisions but nor should independent regulators operate without clear strategic accountability to Parliament and the Government of the day, as my noble friend Lord Massey and the noble Baroness, Lady Kramer, explained better than I can. The Government should explain why the Treasury’s recommendation-making power is framed as it is, why it is limited in the way proposed and how Ministers expect it to operate in practice.
Finally, on the Clause 16 stand part notice, I understand the concerns raised in the debate. The value of that clause will depend entirely on whether the strategies produced are meaningful, responsive and capable of being scrutinised. If they become generic documents with broad statements of aspiration, they will add little. If they provide clear commitments, measurable priorities, proper engagement with growth and competitiveness, and a disciplined approach to reviewing the rulebook, they will be useful.
I very much look forward to a full response from the Minister to the points that have been made.
Lord Stockwood (Lab)
My Lords, I begin by explaining the Government’s purpose behind Clause 16 and why it should stand part of the Bill.
The Government have often heard feedback calling for the regulatory system to have an overall long-term strategy with clear goals, where the regulators consider the cumulative impacts of their policies and the interaction between supervision and rule-making. The reforms introduced by Clause 16 are intended to address this feedback and will improve transparency around the regulators’ long-term direction and focus, which the Government consider will support effective oversight and scrutiny of the regulators.
Clause 16 requires the FCA and the PRA each to prepare and publish long-term strategies so that stake- holders, including regulated firms, can better understand the regulators’ approach to the sector, and so that the Government and Parliament fully understand the regulators’ priorities and can more effectively hold them to account on how they are translating their objectives into actions and results. When the Government consulted on this proposal, it received strong support: 83% of respondents supported it and agreed that the regulators taking a more strategic and cohesive approach would benefit the sector by helping firms know what to expect.
I have listened carefully to the concerns raised by noble Lords. However, the Government remain firmly of the view that Clause 16 will support scrutiny. By requiring a clear long-term strategic overview, Clause 16 will help the sector understand and plan more effectively for regulatory initiatives and will help interested parties engage with the regulators at a strategic level. Without Clause 16, there would be no requirement for the regulators to set out, in one place, their long-term priorities and approach in advancing their objectives. The aim of the strategies is to make it easier, not harder, for Parliament and stakeholders to scrutinise whether the regulators’ actions are coherent and aligned with the framework that Parliament has set.
On Amendment 70, the Government agree with the noble Baroness, Lady Noakes, that the FCA’s secondary international competitiveness and growth objective should be central to the formulation of its long-term strategy. Growth is the number one priority for this Government and the financial services sector, as many have noted, is key to delivering this. The Government always intended the FCA’s long-term strategy to set out its priorities for advancing our international competitiveness and growth objective. We are looking into this point to determine if this is fully clear within the drafting of the clause, and we are open to tabling an amendment on Report should we determine that it is needed. I thank the noble Baroness for bringing this to my attention and commit to keeping her and other noble Lords informed as this consideration progresses.
I turn to Amendments 69B and 73A. The noble Lord, Lord Ashcombe, and the noble Baroness, Lady Neville-Rolfe, asked me to explain the Government’s thinking behind the time periods here. The Government have set the length of this strategy as five years because, as has been noted, it is the standard time period for organisational strategies and is very common in the business world, as many noble Lords will appreciate. It also aligns with standard parliamentary terms and therefore the requirement for the Treasury to issue recommendations to the regulators at least once per Parliament. However, the Government recognise that financial services markets can evolve quickly and it is important that the regulators’ strategic documents remain current and useful.
The noble Baroness, Lady Noakes, asked me how the strategies would be kept under review. The Bill provides flexibility for the regulators to revise or publish a new strategy within the five-year period if circumstances require it, or to publish a strategy for a shorter period of time than five years. If they do the latter, it will need to be with an explanation about why this is appropriate. Five years is therefore a maximum interval, not a requirement to wait five years before making a change. For example, the Bill requires the regulators to consider whether they need to update their strategy or issue a new one whenever new Treasury recommendations are issued. The Government’s view is that this strikes the right balance between providing a long-term, stable framework and allowing regulators to respond when market, economic or regulatory conditions change.
On Amendments 73 and 76, the Government’s approach here is deliberate. The need for the regulators to take account of Treasury recommendations at a strategic level, rather than at the level of general functions, has been carefully considered. Under the new framework, the Treasury’s recommendations to the regulators regarding its economic priorities will inform the development of their strategic priorities. This is aligned with the change to the way that the regulatory principles will be applied, and I hope it demonstrates the Government’s confidence that influencing the regulators’ strategies is an effective mechanism for ensuring that they have an appropriate focus and are performing well.
Further to this, the framework has been carefully designed to ensure that Treasury recommendations are taken fully into account. As I mentioned earlier, regulators must consider updating or producing a new strategy whenever the Treasury sends a new recommendation letter. The regulators will continue to be obliged to respond annually to the Treasury on their actions in response to the recommendations separately from the strategy document. This will support continued transparency and accountability regarding how the regulators are taking government recommendations into account.
Baroness Noakes (Con)
My Lords, the Financial Services Regulation Committee has also been looking at stablecoin, so I have a few words to say on the topic.
I go back to my earlier point: this is not a regulatory principle that can be applied by the FCA and the PRA. It has very little to do with them, as it is the financial stability part of the Bank of England that has issued the policy. The backstop is just one part of the arrangements, as the noble Baroness, Lady Kramer, will be aware. A very significant part of the assets of stablecoin issuers also need to be held in unremunerated form at the Bank of England—30%, which is a significant amount of money. If the noble Baroness is worried about the cost to the taxpayer, she might also reflect on the gain to the taxpayer for all the time that there is not a crisis because the Bank of England has access to free money, which is part of the whole deal.
The stablecoin package needs to be looked at as a whole, rather than one small part of it being picked out. The noble Baroness may still disagree with it, but it is a calibrated package which balances the risks, including keeping one-to-one asset backing, which will also go a long way to allaying her concerns.
Baroness Neville-Rolfe (Con)
I agree with the noble Baroness, Lady Kramer, that digital assets are a serious issue and that they deserve proper scrutiny. We come at it from a slightly different perspective. I note the point made by my noble friend Lady Noakes that this is not a matter for regulatory principles.
This week, as we have heard, the Bank of England published its final policy statement and draft code of practice for sterling-denominated systemic stablecoins. This may go some way to supporting institutional scale-up, but we are concerned by the general reaction, which has been that the fundamentals have not changed and that the prevailing regime we are left with could still leave UK issuers less attractive internationally.
We are very grateful for the work of the Financial Services Regulation Committee, under my noble friend Lady Noakes, with the help of her very distinguished committee. Yet again, it features in almost every part of this Bill. Its report, Stablecoins: Waiting for Regulation, makes it clear that the UK, in its view, is lagging behind the US and EU on stablecoin regulation. Stablecoins and other forms of digital money are no longer simply niche products or theoretical innovations; they have the potential to become part of the wider payments and financial infrastructure.
The danger now is that we risk creating, or at least allowing to persist, a regulatory grey zone. Firms need clarity on the duties, expectations and requirements that they will have to meet. That is why we are calling for a much clearer digital asset strategy from the Government. We need Ministers to take a position of leadership in this area. It is not enough to simply respond to developments as they arise in different parts of the digital stratosphere. We have tabled amendments alongside the noble Lord, Lord Ranger, who is somewhat expert in this area and is not here today, to probe the Government on the wider question of digital assets and digital finance strategy. We will come to those amendments in a later group. I do not want to pre-empt that debate now—not at this late hour, with so few people in Committee on such a hot day.
This amendment touches on the same underlying point: that the Government need to provide clarity and certainty. They need to provide leadership, whatever that is. I would be grateful if the Minister can briefly explain the Government’s position on stablecoins, and— in response to the point that the noble Baroness, Lady Kramer, has rightly raised—explain how stablecoins will help growth and competitiveness.
Lord Stockwood (Lab)
Amendment 79 would require the FCA and PRA to assess the impact on the taxpayer of any provision of backstop arrangements by the Bank of England to private stablecoin when exercising their general functions. I support the noble Baroness’s goal of ensuring that all government and Bank of England activity provides good value for the taxpayer. The Bank of England already has a duty, established in the joint memorandum of understanding with HMT, to
“ensure value for money by minimising financial costs and risks to its capital”.
Financial Services and Markets Bill [HL]
Baroness Neville-Rolfe ExcerptsMonday 22nd June 2026
(1 month, 1 week ago)
Grand CommitteeRead Full debate Financial Services and Markets Bill [HL] 2026-27 View all Financial Services and Markets Bill [HL] 2026-27 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 5-I(b) Amendments for Grand Committee (Supplementary to the Marshalled List) - (22 Jun 2026)
Member’s explanatory statement
This probing amendment, along with another in the name of Baroness Neville-Rolfe, seeks to allow for a debate on the Government’s intentions around a new regime to be laid down in the regulatory rule book in place of that established by the Consumer Credit Act and associated legislation.
Baroness Neville-Rolfe (Con)
My Lords, it is a pleasure to open our deliberations on the Financial Services and Markets Bill. I thank the Minister for his constructive engagement so far and I thank noble Lords across the House who have shared their initial views with us. These conversations have been very helpful and have underscored a shared objective: to improve financial services regulation in a way that promotes growth, attracts investment and supports innovation. Although there are differences between us, we all agree on the importance of the financial services industry across the United Kingdom: the contribution it makes to GDP, the 2.5 million jobs it supports and the £110 billion in tax it pays.
However, I think this first group of amendments will challenge the Minister on a very important issue that we will want to address at several points throughout Committee: oversight and parliamentary scrutiny. We have approached this with slightly different amendments, but I believe that the noble Baroness, Lady Bowles, shares the concern, which also applies to her amendments in group 2.
Clause 1 is short, but it is the gateway provision that introduces Schedule 1. It provides for the repeal and recasting of significant parts of the remaining Consumer Credit Act framework into FCA rules. The reasoning behind this desire for reform, as we said at Second Reading, is broadly understandable. The Treasury’s policy statement on CCA reform says that the current framework is increasingly out of date because it was designed for a paper-based credit market and now sits awkwardly alongside modern regulation. The Government say that the aim is to create a more “agile and proportionate” regime, and we do not disagree with that assessment. Certainly, that is the feedback we have been getting in our discussions with stakeholders.
However, identifying the right problem does not necessarily mean that the Government have chosen the right solution. Their approach has two serious consequences. First, Parliament will lose control and oversight of the core consumer protections currently contained in the CCA. Secondly, we are being asked to approve the repeal of these protections without being able to scrutinise the regime that will replace them. This sets a deeply concerning precedent. The purpose of your Lordships’ House is to scrutinise legislation, challenge the Government, ask questions and ensure that the law is workable, proportionate and effective. Yet there is nothing for us to scrutinise. The Government are dismantling the existing regime without showing Parliament what will take its place.
Both Houses contain a wealth of expertise—much of it is here today—including Members with extensive industry experience, who can identify unintended consequences and suggest more effective solutions. As we have frequently made clear, we want to work constructively with the Government on this Bill, but asking Parliament to surrender its powers to a regulator before it can examine the replacement regime is not meaningful scrutiny and it is not an approach that we can support.
Consumer credit in particular matters because it is woven into the everyday financial lives of millions of people. It allows households to spread the cost of major purchases, manage short-term cash-flow pressures and access funds when they are needed, all of which supports wider economic participation but needs to be done carefully and responsibly. This is a very important area and, as with the other parts of the Bill that delegate power, the Minister must take this opportunity to answer some key questions.
First, which core consumer rights and remedies do the Government intend to keep in primary legislation? By what principle have they decided which protections may safely be moved into the FCA rules? Secondly, when will Parliament be able to see the FCA’s replacement rules in draft? Will these rules be finalised before any repeal of the existing statutory protections is commenced? What transitional arrangements have the Government found? Thirdly, how do the Government intend Parliament to scrutinise future changes once the substance of consumer credit protection sits in the FCA rule book, rather than in statute? Finally, what assessment have the Government made of the effect of these reforms on smaller lenders, brokers and intermediaries, as well as on the availability of credit and related services more broadly? What effect is uncertainty on this point around the future regulatory regime having on economic activity and how much is that costing?
My amendment seeks to re-establish a basic constitutional principle that is being threatened by the Government’s approach in this part of the Bill. Parliament should not be asked to repeal important statutory protections before it knows what will replace them, how the new regime will operate and how it will be held to account. Modernisation and agility are worthwhile objectives, but they cannot justify Parliament legislating in the dark. Before Parliament agrees to transfer such significant powers, the Minister must show us not only that the destination is right but that the safeguards, accountability and route for getting there are right as well. I look forward to the Minister’s response and I beg to move.
Baroness Noakes (Con)
My Lords, as this is my first contribution in Committee, I declare my interests as recorded in the register, in particular that I hold listed shares in financial services companies and technology companies that may be affected by the Bill or amendments tabled to it.
I am going to use the opportunity of this first group of amendments to raise the issue of the accountability of the financial services regulators, which, as we have heard, are being given significant regulatory powers. This theme certainly applies to Clause 1 and Schedule 1, because of the vast new powers in relation to consumer credit being given to the FCA, but the theme is pervasive and we will debate it several times in Committee.
I should start by saying that I agree that consumer credit legislation needs a massive overhaul. The current legislation focuses on paperwork and processes. It was written in a pre-digital age and does not have a sophisticated approach to consumers—for example, it does not have the concept of a vulnerable customer. It is crying out for change. Indeed, when we scrutinised the Financial Services and Markets Bill in 2023, I tabled an amendment to give the Treasury significant powers to rewrite the legislation, including the ability to delegate to the FCA. My noble friend Lady Penn, who was the Treasury Minister at the time, convinced me that this was a step too far because of the many significant consultations that were needed. In withdrawing my amendment, I suggested that the extensive consultations sounded to me like an excuse for not making any progress. I am, therefore, supportive of the Government using this Bill as a vehicle to make some progress, although I regret that they still have not completed the task.
That support is qualified by issues that have become apparent since the 2023 Act was passed. At that time, I was a supporter of the FSMA model, which allowed Parliament to determine the overall principles of financial services regulation and left the detail to the regulators. Instead of challenging the huge burden being put on the FSMA model by the 2023 Act, which made provision for the repeal and replacement of retained EU law, a number of us focused on the accountability of the regulators. This was an error. I now believe that we failed to understand fully what that meant for democratic oversight of what the regulators do with the powers that they acquire. We also failed to appreciate the scale of the task of holding the regulators to account.
The FSMA model was set up by FSMA 2000 in an era when the most significant financial services regulation was set by the EU and either applied directly or incorporated by our own legislation. In either event, there was significant oversight through the processes of the European Parliament, particularly ECON, which was chaired by the noble Baroness, Lady Bowles of Berkhamsted. In addition, both Houses of Parliament had committees dedicated to oversight of the regulatory outpourings of the EU, and, in the case of your Lordships’ House, we had a Sub-Committee of the EU Select Committee dedicated to financial services.
The FSMA model was not designed to do the heavy lifting that it is now being asked to do, first via the 2023 Act and now via this Bill for consumer credit legislation. I do not advocate scrapping that model but I believe the time is right for re-examining Parliament’s oversight and the accountability of the regulators. The 2023 Bill initially provided for some additional oversight by the Treasury Select Committee in the other place but was amended during its passage to add what is now the Financial Services Regulation Committee of your Lordships’ House. I am a member of that committee, along with several other noble Lords present today, and I currently chair it.
These arrangements were designed to increase the accountability of the regulator, but I have to tell the Committee there remains a significant accountability deficit. Of more importance, committees of Parliament cannot and should not replace democratic oversight of the judgments made by the regulators. That is particularly important when we come to consumer credit law. The arrangement envisaged in the Bill passes to the FSA almost total responsibility for judging the complex balance between consumer protection and the need for innovation and competition in the market. Quite simply, that is not the right answer and Parliament needs more involvement.
The noble Baroness, Lady Bowles, has some amendments to Schedule 1 that we will be debating in the next group, and I believe they are designed to alter the balance between Parliament and the regulators. I look forward to that debate, but that measure alone would not be enough because any reasonable approach to modernising consumer credit legislation will still involve significant delegations to the regulators. That is why we need to use the Bill to revisit the mechanisms for the accountability of the regulators.
At a later stage in our Committee, we will be reaching some important amendments designed to tackle that: the noble Baroness, Lady Bowles, has a provision requiring a periodic independent review of the regulators, and my noble friend Lord Bridges of Headley has some amendments dealing with an office of financial regulatory accountability.
These issues of democratic oversight and regulatory accountability are unfinished business, and we must use the opportunity of the Bill to strengthen both and not sleepwalk into a situation where the regulators govern us rather than the other way around. We will be debating the accountability of the regulators again when we get to Clauses 16 and 17, when we reach the accountability amendments that I have just referenced.
The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)
I thank noble Lords for the opportunity to set out the Government’s position on this important set of issues and for the constructive nature of the debate so far. Before we start, my interests are set out in the ministerial register. I invest in a number of funds that are regulated by the FCA.
I start by addressing why Clause 1 and Schedule 1 should stand part of the Bill. The case for reform is straightforward. The Consumer Credit Act—the CCA—is more than 50 years old and was enacted long before the creation of the FCA. It no longer delivers as it should for today’s consumers, who engage with modern products in an increasingly digital world. It too often results in people being sent lengthy, complex documents that they do not read, do not understand and cannot use with confidence. It is important to say that one in seven adults has literacy skills at or below those expected of a 9 to 11 year-old and 34% of adults have poor or low levels of numeracy involving financial concepts, yet the CCA regime means that some of the information provided on credit cards requires a far higher reading age.
Debt advice charities have criticised the way in which the CCA requirements often result in borrowers being sent arrears notices even when they have agreed a repayment plan, causing confusion and alarm. To address the point raised by the noble Baroness in her amendments, this demonstrates that it is not just the content of the arrears notices that is the problem but the inflexible legislative triggers that mean they must be sent even when there is no clear purpose and they cause more harm than good. There are many more examples of where the CCA results in poor outcomes for consumers and anachronistic procedures for lenders.
That is why this Bill continues the work that began in 2012 of repealing this outdated legislation so that it can be replaced with updated rules that better meet the needs of consumers and are fit for the digital age. The Government strongly believe that those replacement rules should, in the main, reside in the FCA rulebook, not in primary legislation. The FCA has extensive experience in developing firm-facing rules for retail markets, including mortgages, insurance and investments. Its rule-making approach is underpinned by consultation and consumer testing so that protections remain robust, proportionate and relevant. The FCA’s new rules for buy now, pay later, which come into force next month, demonstrate what a modern, FCA rules-based regime can deliver for consumers.
I have heard the concerns of some noble Lords that the Bill does not set out how the repealed provisions of the CCA should be replaced and that this has been left to the FCA to determine at a future time. While I appreciate that concern, this is entirely consistent with the model of regulation established in the Financial Services and Markets Act 2000. These provisions sit in the CCA only because this model of regulation did not exist in 1974. Parliament has already vested the FCA with significant responsibilities in this space, objectives that include a primary consumer protection objective, powers to allow it to fulfil its role and a comprehensive system of transparency, governance and oversight.
Parliament will have a key role in scrutinising the FCA as it makes these replacement rules. The FCA is required to advance its objectives through its rules, including its consumer protection objective. The FCA is required to consult, to conduct a cost-benefit analysis on rule changes and to submit copies of those consultations to the relevant parliamentary committees. They include the Financial Services Regulation Committee, ably chaired by the noble Baroness, Lady Noakes.
The FCA has a comprehensive set of enforcement powers that will help it to ensure compliance with its rules and to act decisively where firms are failing to comply. As well as ensuring that an expert body with the right objectives, powers and resources can fulfil this function, this approach ensures that the rules can adapt as needed in the future to stay current and respond to future trends.
The noble Baroness, Lady Neville-Rolfe, asked when Parliament will see the replacement rules and how the transition period might work. The FCA will set out the detail of the new rules through its normal rule-making process. Repeal of legislation will be commenced only once the relevant FCA rules are in place. The Bill contains a power for HMT to allow for an orderly transition. In practice, Parliament, consumer groups and stakeholders will see the FCA rules at consultation stage before the new regime takes effect. I am aware that some noble Lords have tabled amendments to strengthen parliamentary scrutiny further. The Government believe that the current arrangements work effectively, but I look forward to debating them in more detail later. CCA reform is an important opportunity to create a clearer, more flexible and more accessible framework that better reflects today’s consumer credit landscape.
The noble Baroness asked what rights and protections will remain in legislation. Where rights and protections require legislation to work, they will remain in legislation. Criminal offences will remain, so canvassing to minors and doorstep selling will remain in legislation, along with other key protections such as Section 75.
The noble Baroness, Lady Neville-Rolfe, also asked about the impact on smaller firms, as the FCA replaces parts of the Consumer Credit Act. I can assure her that the aim of the reform is to create a more proportionate set of regulations for all firms, including smaller lenders. Everyone will benefit from this modernised regime.
I hope I have provided the Committee with some assurances that the CCA reforms are vital. I ask the noble Baroness, Lady Neville-Rolfe, to withdraw her amendment.
Baroness Neville-Rolfe (Con)
My Lords, I thank all noble Lords who have contributed to this debate and the Minister for his response. I particularly thank my noble friend Lady Noakes, the noble Baroness, Lady Kramer, and my noble friends Lord Goodman and Lord Ranger of Northwood, all of whom, I think, echoed the Opposition’s concern about overdelegation. In fact, I appreciated and enjoyed their interesting historical and contemporary perspectives, which brought the matter to light.
The discussion has demonstrated that the concern at the heart of these amendments extends well beyond the technical details of consumer credit regulation. It concerns a fundamental question about how Parliament performs its constitutional role, particularly when substantial powers are transferred from statute to regulators. I will not repeat all the points made by my noble friend Lady Noakes, but we need to look at Parliament’s oversight. There is a democratic deficit. We will no doubt debate her letter when we come to Clause 17. I noted the support of the noble Lord, Lord Davies of Brixton, for bottoming out the role of the committee and the points that he made.
We support the objective of modernising the consumer credit framework—I would like to emphasise that—but reform cannot mean that Parliament approves the removal of existing protections without seeing what will replace them. Nor should moving provisions into a regulator’s rulebook place it beyond meaningful parliamentary scrutiny. We will continue to apply these principles throughout our deliberations in this Committee. Wherever the Bill delegates new powers or expands the remit of the Treasury or the regulators, we will be asking the same essential questions. What safeguards will govern the exercise of these powers? Who will be accountable for the decisions taken? How will Parliament examine what is being proposed, assess whether it is working—because follow-up is important too—and intervene where it is not?
There must be a direct relationship between power and accountability, and when the authority, discretion or remit of a regulator is increased, the capacity for effective oversight must increase alongside it. It is constitutionally perverse for an expansion of regulatory power to be accompanied by a weakening of parliamentary scrutiny. The Government repeatedly invoke the need for agility, which I understand, and we recognise the value of a framework that can respond to changing markets and emerging technologies. My noble friend Lord Blackwell warned against the confusing dual responsibility that sometimes exists between the CCA and the courts and regulators, but the noble Baroness, Lady Bowles, pointed out that it is not as simple as delegating everything to the FCA, which is not a legislator. She was right to warn against automated substitution.
Agility cannot become a proxy for opaqueness and flexibility cannot become an excuse for removing important decisions from democratic oversight. The Government must demonstrate that each transfer of power is not merely convenient but necessary, proportionate and matched by effective accountability. If the Minister is willing to engage with us on this basis, we will do so constructively, but we will continue to challenge any provision that asks Parliament to surrender oversight without first showing how that oversight will be replaced. We will return to this issue on Report, unless we can find a better way of ensuring proper scrutiny, but for now I beg leave to withdraw my amendment.
“38A In section 140A (unfair relationships between creditors and debtors), after subsection (4) insert—“(4A) An application under section 140B(2)(a) shall not be made, and no action for an order under section 140B shall be brought, after the expiration of six years from the date on which the relationship between the creditor and the debtor ends.””Member's explanatory statement
This amendment would retain the six-year limitation period, running from the end of the creditor-debtor relationship, for applications or actions seeking relief under sections 140A and 140B of the Consumer Credit Act 1974 in respect of an unfair relationship.
Baroness Neville-Rolfe (Con)
My Lords, before I turn to the detail of these amendments, I should briefly set the scene. Noble Lords will be aware that last week the Conservative Party announced a new policy in relation to the Financial Ombudsman Service. An amendment on our proposal for an alternative approach, a financial adjudication service, is currently being discussed with the Table Office, and I do not intend to pre-empt that discussion. We will have the opportunity to debate that proposal at a later stage of the Bill.
The clauses before us, by contrast, change the landscape of dispute resolution in financial services in the immediate term. Our policy announcement does not prevent us engaging properly with the provisions before us now. Indeed, it makes it more important that we do so. We want whatever system Parliament agrees on now to work as well as it can. The amendments in this group are concerned with certainty, timeliness and fairness. They are intended to ensure that the framework being created by the Bill does not introduce unnecessary uncertainty for firms, does not allow yet further delay to become embedded in the system and does not create open-ended liabilities or an undesirable degree of retrospection.
I turn first to Amendment 17A, which relates to unfair relationships under Sections 140A and 140B of the Consumer Credit Act 1974. Its purpose is to retain the six-year limitation period running from the end—I emphasise “end”—of the creditor-debtor relationship for applications or actions seeking relief in respect of an unfair relationship. These can of course go back many years. This reflects a concern that has been raised with us following the Supreme Court ruling in THG plc v Zedra Trust Company (Jersey) Ltd, which found that unfair prejudice petitions under Section 994 of the Companies Act 2006 are not subject to statutory limitation periods. I appreciate that that judgment arose in a different statutory context, but it has prompted a serious and practical question. Does that reasoning have any implications for applications or actions seeking relief under Sections 140A and 140B of the Consumer Credit Act?
If there is any doubt about the applicable limitation period, the consequences could be significant. Credit agreements, and the relationships arising from them, may have ended many years earlier. Banks and other lenders do not keep records indefinitely. They cannot reasonably be expected to defend claims on the basis of files, communications, systems and decision-making processes from an indefinite period in the past. That is why limitation periods matter. They reflect a basic principle of fairness: that after a certain period evidence may be lost, as memories fade and documents are no longer available. Without a clear time limit, firms could be exposed to open-ended liability and a significant increase in vexatious or speculative claims, often fired up by claims management companies.
Amendment 17A therefore seeks to preserve the existing position that, where relief is sought under Sections 140A and 140B in respect of an unfair relationship, the relevant limitation period should be six years from the date on which the relationship between the creditor and the debtor ends. I would be grateful if the Minister could give some clear answers here. As my noble friend Lady Lawlor said in the previous group, it is important to have predictability. Does the Government’s understanding remain that the six-year period applies? Has the position been affected in any way by the Supreme Court’s reasoning in THG v Zedra? If the Government consider the position is already clear, will the Minister set that out on the record? If there is any doubt, will he commit to preserving the current six-year period?
I turn next to Amendment 36, which concerns referrals from the Financial Ombudsman to the FCA. The Bill creates a new mechanism by which the Financial Ombudsman may refer matters to the FCA where there is an issue of wider significance or where FCA rules may be ambiguous. In principle, that is sensible and an important mechanism, but one of the recurring criticisms of the current system is that firms can find themselves judged against interpretations or expectations that were not clear at the time.
A route for the FCA to provide clarity is therefore welcome. However, that mechanism will work only if it operates at pace. If a complaint is referred to the FCA and then sits there for months, the result will be uncertainty for everyone. The consumer is left waiting, the firm is left with a live and unresolved complaint and the ombudsman cannot proceed. The wider market may be left in doubt about the meaning or application of the rules.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to all noble Lords who have contributed to this brief debate and to the Minister for his response and clarification of THG v Zedra, which I will certainly consider.
My central point is that a redress and complaints system must be fair in operation. It must be capable of delivering justice for consumers, but it must also give firms a reasonable degree of certainty about the liabilities they face, the standards against which they are judged and the timeframes within which matters will be resolved. If we create a system in which liabilities are open-ended, where regulatory redress powers can go beyond ordinary limitation principles, and where referrals can remain unresolved for an indefinite period, I do not think it will produce a better system for consumers.
I agree that we must look after consumers—this is obviously a very important part of consumer law—but I worry that we will produce a slower, more uncertain and more contested system for everyone if we do not get these judgments right. I do not accept a bias towards business, as the noble Baroness, Lady Bowles, suggested. Actually, we are seeing a shift the other way in some of these areas, which is why I have had the representations I have had on these points and why I think is it is very important to find clarity.
I note what my noble friend Lady Altmann said about pensions. The Minister has answered and explained that he sees pensions in a slightly different way. I am not sure what the limitation rules are there.
I hope that the Minister will reflect further on the thrust of these amendments. In particular, I hope that he will consider whether the Government can provide a clearer statutory safeguard on limitation—clarity is certainly important—as well as a firmer timetable for FCA opinions. I worry that just delegating it to the FCA will mean it being in charge of its own timetable. If there were an enormous problem in the financial services industry that required the diversion of staff elsewhere, for example, things could slip, and redress for the consumer could then slip as well.
All of these amendments go in the same direction: towards fair, timely and certain decision-making, with predictability for both consumers and the businesses involved. For now, I beg leave to withdraw my amendment.
Baroness Kramer (LD)
My Lords, there seem to have been two themes in today’s discussion; I will address both because I agree with them both.
The first is on whether we value banking hubs. There have been so many voices that say that we value them, but they are calling for a much-improved framework, including the noble Baronesses, Lady Tyler and Lady Bennett, the noble Lord, Lord Davies, and the right reverend Prelate the Bishop of Manchester. I suspect that there is a universal consensus that we need to think through this issue, which is exactly why the Richard Lloyd review is now anticipated. I think that most people who see the value of banking hubs in their community—most MPs have been asking for banking hubs in their constituencies—very much appreciate the direction of the Lloyd review. On the background and evidence for the need for banking hubs, I will address some of those issues much more when I discuss community development financial institutions in a later group, so I will not repeat all that.
That does not take away from the fact that we have a constitutional issue here. According to its report, the Delegated Powers and Regulatory Reform Committee is very concerned that the problem has not been clearly identified and that a power as extensive as the one provided for here in the Bill severely compromises effective parliamentary scrutiny. The Select Committee asks for the power to be removed from the Bill. I say to the Government that it is important that there will be some real clarity before this hits the Commons—otherwise, this clause will be very much in trouble.
I support banking hubs. I suspect that I will be very pleased when I read the Lloyd review. What is sauce for the goose is sauce for the gander. I cannot just say to Parliament that, if it is something that I like, we do not need oversight, scrutiny and a proper process and that we do not need to consider the role of the regulator versus the democratic decision-making that should be happening in Parliament. This is a very good instance where I suspect that I would be very much in favour of the Lloyd review, but I would be very sad if that is not brought before Parliament for discussion, scrutiny and proper oversight. It is unfortunate that the Bill follows a procedure and process that seems to be completely unnecessary and that does not allow for that oversight. Oversight is valid, whether or not you think you will like what the regulator will do.
Baroness Neville-Rolfe (Con)
My Lords, Amendment 21, in my name and that of my noble friend Lady Noakes, would ensure that any government intervention in the provision of in-person banking services is evidence-based, proportionate and properly balanced. It would require Ministers to consider not only the needs of consumers but the legitimate commercial reasons why firms may reduce their physical banking provision.
More widely, Clause 3 raises two distinct but closely related concerns. Our amendment speaks to the first: banks do not close branches simply on a whim. Consumer behaviour has changed profoundly, more banking is conducted digitally, and maintaining a physical network carries substantial costs. The Government may decide that wider social considerations justify intervention, but they cannot responsibly make that decision while ignoring the commercial realities facing the firms they intend to regulate.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to noble Lords across the Committee. I have noted the variety of concerns expressed on this part of the Bill. As noble Lords have heard, my party has announced proposals to remove the Financial Ombudsman Service and replace it with a new financial adjudication service. That proposal is not before the Committee in this group, but we have an agreed amendment; we will have the opportunity to debate it properly at a future stage.
I start by speaking to Amendment 32 in my name and that of my noble friend Lord Altrincham. The amendment would retain the existing six-year longstop rather than extending it to 10 years, as Clause 6 would do. As I have already said, I am concerned about this move, albeit for different reasons to some other Peers who have spoken. I accept that there is a balance to be struck here: consumers must have access to proper, effective and fair redress mechanisms. Where a consumer has suffered detriment because of misconduct, poor practice or a failure by a firm, there should be a clear route through which a complaint can be considered and, where appropriate, redress can be provided. However, this does not mean that time limits are unimportant. On the contrary, time limits are an essential part of a fair system. Claims can be heard fairly only when sufficient information is available to both sides to allow them to mount a proper case. That means records, correspondence, product documents, internal decision-making, staff recollections and the wider factual context in which the relevant decision was made.
The further back in time a complaint goes, the more difficult this becomes. Evidence may be incomplete and documents may no longer exist. The people involved may have left the organisation, systems may have changed, products may no longer be offered and the regulatory context may have moved on. A complaint may still be sincerely brought, but the ability of the firm to respond fairly and fully may be materially impaired. That is why limitation periods exist: they reflect the basic principle of justice that, after a certain period, it becomes harder to determine matters fairly and reliably. That principle applies in the courts, and I believe that it should continue to be properly reflected in the ombudsman’s framework. I am concerned that extending the longstop from six years to 10 years risks pushing the system beyond that fair balance.
I have noted the comments made by the noble Lord, Lord Davies of Brixton, in particular his references to pensions and endowment mortgages. I will be interested in the Minister’s response on how those products are dealt with and whether the exemptions are intended to cover that area.
On this occasion, I do not agree with the noble Lord, Lord Sharkey—although we often agree on other matters—because there is a genuine concern in the industry about vexatious or speculative claims. We should not be naive about this. There is a whole claims management industry dedicated to identifying and pursuing potential claims. Some of those claims may be legitimate, and consumers should not be denied redress where redress is due, but others may be weak, opportunistic or based on limited evidence. If the period is extended significantly, the volume of such claims may increase, so firms will have to devote more resource to investigating and defending matters from many years ago.
All this has a cost and makes all concerned more risk-averse, so it becomes more difficult for providers to accept customers at the margin. This matters for not only firms but the wider economy. We cannot stimulate growth, support lending, encourage investment and improve productivity if banks and financial services firms are pouring ever more resources into fighting historic claims, rather than serving customers, lending to businesses, supporting economic activity and innovating. There is a real opportunity cost here.
My noble friend Lord Roborough is unable to be here today, but I understand that his Amendments 38 to 41 are intended to probe whether the reforms in the Bill provide sufficient certainty for regulated firms that, where they have complied with the relevant rules and requirements, the Financial Ombudsman Service will not be able to go substantially beyond that framework in finding fault or imposing redress. This is not to question the proper role of the ombudsman in cases such as car finance commissions, where the courts have confirmed the relevance of undisclosed conflicts of interest; rather, it is to test whether the current “fair and reasonable” jurisdiction risks giving the FOS a quasi-regulatory role, including through inconsistent interpretation, the retrospective application of standards or decisions that go beyond the rules in force at the time. This is the core issue that has been raised time and again: the FOS needs to be reined in, but does the Bill do it?
At the same time, I recognise the number of views on this question. It is for the Minister to show that the proposed changes do not weaken the ability of consumers, including vulnerable consumers—particularly those in serious circumstances, such as terminal illness—to obtain fair redress. I have been told, for example, that there is a variance between companies over acceptance rates in such cases. The Minister might want to look into that.
Serious concerns have been raised. I look forward to hearing the Minister’s response to this group. My own concern remains that, as drafted, the Bill shifts the balance too far. It extends exposure to firms in a way that may appear consumer-friendly at first sight but risks generating delay, uncertainty and large volumes of contested claims. The six-year longstop strikes the right balance, so why 10 years? What evidence has led the Government to conclude that six years is insufficient? Can the Minister break that down by product or financial services type? What assessment has been made of the impact on firms, on complaint volumes, on the claims management sector and on the resources of the ombudsman itself? How will the Government ensure that extending the longstop does not simply create a larger backlog of older and more difficult cases?
I would be grateful if the Minister could also address the practical point about record-keeping. Do the Government now expect banks and other firms to retain detailed customer records for 10 years in anticipation of potential FOS complaints? If so, what assessment has been made of the cost and operational burden of doing so? I speak as a former company secretary in a large company; I know about the problems in keeping data. Indeed, what about doing it retrospectively?
I hope that the Minister will reflect carefully on the points I have made on the possibility of retaining the six-year longstop. I very much look forward to his response.
Lord Stockwood (Lab)
My Lords, as we have heard today, the Financial Ombudsman Service—the FOS—plays a vital role in providing quick, informal and impartial dispute resolution between customers and their financial services providers. It offers an accessible route for dealing with complaints that is designed to act as an alternative to resolving cases through the courts, which can be costly, lengthy and a process that often does not work for firms and consumers. The Government are clear that an effective ombudsman provides consumers with confidence in our financial services sector and is a key element of an effective system.
The Government’s review of the FOS found that, although the FOS fulfils its role in the majority of cases, in a small but impactful minority of cases, it has acted as a quasi-regulator. That conclusion was supported by the Financial Services Regulation Committee, chaired by the noble Baroness, Lady Noakes, in its report, Growing Pains: Clarity and Culture Change Required, which was published in June 2025. It recognised that the FOS’s
“actions have regulatory impacts by creating precedents that the FCA requires firms to follow”,
and that this
“generates an unacceptable level of uncertainty for firms, stakeholders, and investors”.
I want to be clear that the review was not suggesting that the FOS was acting improperly; rather, it concluded that the way in which the legislative framework operates made such issues unavoidable by creating a disconnect between the FCA’s rules and the FOS’s decisions, giving rise to unpredictability and a lack of certainty across the regulatory environment. That unpredictability is damaging for everyone and harms consumers’ confidence in the financial services products and services they rely on, as well as firms’ confidence to invest and innovate in the UK.
There is a large number of amendments before us. I will start with Amendment 31. This proposal would substantially extend the timeframe for bringing complaints to the FOS and would require the FOS to spend even more of its time and resources investigating, considering and attempting to resolve historic cases than it does today. We know from current experience that this would substantially increase costs while delivering comparatively limited increases in redress awarded. Further extending the timeframe beyond 10 years in an open-ended way to accommodate a complainant’s reasonable awareness of an issue would increase uncertainty for firms around historic liabilities, reducing appetite to invest in the UK’s financial services businesses.
The Treasury’s analysis of data from the FOS on historic cases is clear: they are more likely to be withdrawn or abandoned and have lower success rates than the average, often due to limited evidence and information being available. The Government’s analysis concluded that complaints to the FOS that are over 10 years old cost firms, on average, more than £18 million per year in case fees but deliver only £600,000 per year in redress for consumers. This is not a proportionate or balanced approach, nor is it consistent with the FOS’s quick and simple purpose. Extending the timeframes would slow down the FOS’s resolution of cases that are more recent and have a higher chance of being upheld, delaying consumers access to the redress they are owed.
Turning to Amendment 32, the Government considered carefully the options for different time limits to be set in legislation, including a six-year limit, and published their analysis in the impact assessment. Although this is a matter of judgment, the Government concluded that a 10-year time limit would strike the appropriate balance between consumer protection and providing certainty to firms, with a six-year limit resulting in too many people losing access to redress. However, I assure the noble Baroness and the noble Lord that the new limit introduced by the Bill is designed to act as a backstop to the existing limits set in rules made by the FCA. In most cases, the time limit will remain at the existing six years, with the 10-year backstop kicking in for cases where the customer could only reasonably have become aware of the problem at a later date.
On Amendments 33 and 35, the Government agree that, where the cause for complaint may take longer to come to light, such as with pensions, it is important that complaints can continue to be brought to the FOS. This is why the Bill gives the FCA discretion to make exceptions to the time limit in specified circumstances, where it is appropriate to do so. The Government carefully considered their approach to defining these exceptions and determined that the FCA is best equipped to develop proportionate and fair exceptions and to define these in its rules, given the FCA’s supervisory role and oversight of the sector and the level of technical detail that is required for the definitions.
The noble Lord is right to recognise the careful balance needed between ensuring that we do not undermine the certainty that this reform is intended to deliver while maintaining consumers’ trust and confidence that they will have access to redress when things go wrong. The Government are working closely with the FCA as it develops these exceptions and the FCA will set out its proposals in due course.
Amendment 34 relates to cases where there is an ongoing relationship between the consumer and a firm. Some complaints may be about acts or omissions that continue to occur or have effect in the context of an ongoing relationship between a consumer and a firm. The Financial Services and Markets Act 2000 does not place a restrictive definition on “acts” or “omissions”, so there is no reason why such an ongoing act or omission could not be the basis for a complaint within the time limit. The Government’s reforms in the Bill will not change the FOS’s discretion to identify the act or omission to which a complaint relates for the purposes of applying relevant time limits. It will continue to be for the FOS to make those judgments, based on the circumstances of the case and in line with the rules set by the FCA.
I will now explain the Government’s purpose behind Clause 8 and why it should stand part of the Bill. The noble Lords, Lord Davies of Brixton and Lord Sharkey, asked about the evidence base behind the Government’s policy. The Government’s review found that, in a small but significant minority of cases, the FOS has acted as a quasi-regulator. This means that, in some cases, the FOS has held firms to a standard that is different from those set by the FCA. The majority of responses to the Government’s consultation on the proposals to reform the legislative framework in which the FOS operates were broadly supportive of aligning the FOS’s fair and reasonable test with the FCA rules.
Lord Vaux of Harrowden (CB)
My Lords, I have a number of amendments in this group on the subject of fraud and scams. I have also added my support to the lead amendment, which was tabled by the noble Baroness, Lady Kramer, and to which she has just spoken. Most of my amendments arise, at least in part, from the abolition of the PSR and the absorption of its activities into the FCA; I will quickly run through each of them.
The noble Baroness, Lady Kramer, has already explained the need for her Amendment 46, which would require the FCA to make rules to ensure that the tech or communications company on whose platform or service the fraud arises is responsible for a proportion of the cost of reimbursing the victims. Whether or not the mechanism in her amendment is the right one, the principle here is obvious. At the moment, it is the banks that must compulsorily fully refund victims of fraud. There is some sense in the banks having to reimburse victims, because almost every fraud goes through some sort of bank account to allow the fraudsters to cash out. It is clear that the mandatory reimbursement requirement has incentivised banks to do more to protect customers. However, we also know that fraud does not originate from banks’ services. According to UK Finance’s latest report, some 66% of scams arise on online services and a further 17% originate via telecoms. Let us be clear: the highest proportion of that arises on Meta platforms.
Despite voluntary charters, this is not improving at all. Your Lordships’ Fraud Act 2006 and Digital Fraud Committee, of which I was a member, recognised this in its report nearly four years ago; if the Minister has not read it, I recommend it as some bedtime reading. It said:
“Until all fraud-enabling industries fear significant financial, legal and reputational risk for their failure to prevent fraud, they will not act”.
We were right. Nothing has changed since then to change that conclusion. If anything, matters continue to worsen as technology such as AI starts being used by criminals. It is time that the platforms were at last forced to step up and take financial responsibility for the losses that arise from their platforms, not just leaving it to the banks to pick up the full liability. I say this to the Minister: in your answer, please do not tell us that the Online Safety Act will solve this. It is too limited; it covers only directly paid-for advertising and is unlikely to make much difference.
The Government’s fraud strategy recognises all this. It says that,
“if industry partnership and market incentives alone remain insufficient to drive improvements, the Government will take legislative action within this Parliament”.
This has been going on for years. The voluntary online fraud charter was signed three years ago. Nothing material has improved. Fraud is still around 45% of all crime, and the percentage arising on tech platforms has not fallen; if anything, it has risen. The Bill is the perfect opportunity finally to take action on this and not leave it until thousands more people have fallen victim. We know that tech companies will not take action unless they have to—they continue to prove that—which is why the Government are at last taking action in respect of child protection. This is no different. It is now time to act without further delay.
My Amendment 47 would introduce a requirement for the mandatory reimbursement rules for APP fraud, which came into force in October 2024, to be reviewed after three years of operation. It is unlikely that we got everything right at the first attempt, so a review of how effective they have been in meeting their objectives of protecting consumers and incentivising the banks to improve protections—as well as, importantly, whether there have been any unintended consequences—must make sense.
I have tried to set out in the amendment—I will not go through all the detail—the key matters that were discussed when the requirement was introduced in 2022-23 as the matters that ought to be reviewed. I would have also included the tech platforms, but I did not want to duplicate the amendment that we have just discussed.
I completely agree with the noble Lord, Lord Holmes, who sadly is not with us at the moment, on his Amendment 58, which would add specific fraud prevention duties on payment service providers. I also have a lot of sympathy with the principle behind his Amendment 125, which would introduce a financial fraud prevention secondary objective to the FCA, although I caveat that by saying that I am not sure that adding yet more objectives to the regulators is necessarily the right way to go.
My Amendment 59 is designed to ensure that the FCA continues to collate and to publish the fraud data that the PSR has been collating and publishing for the past few years. This has been extremely valuable. It has identified several PSPs that were clearly not taking their fraud prevention duties seriously and led to action being taken against them. The pressure of shining a light on some of the bigger players has clearly incentivised them to step up and improve their systems. The information identifies very clearly which PSPs are protecting their customers best and which are doing it worst, which is important information for consumers when choosing a bank or payment provider.
To give just one example to show the value of this reporting, the last report by the PSR identified that, for every 1 million transactions received by Guavapay, 109,744 were APP scam payments—that is more than 10%. As a result of that information, the company has been forced to close by the FCA. In the meantime, consumers would have been able to see that this was an unsafe operator if the report had been issued in a timely manner—an issue that I will come to in a second.
This reporting was started as a result of efforts by Members of the House during the passage of FSMA 2023, and it followed undertakings by the then Minister. But there are already signs that, since moving the PSR’s activities into the FCA, this has started to slip. As I said, the last report of this nature was for the period up to 7 October 2024, when the mandatory reimbursement requirement was introduced. That was not published until February 2026, some 16 months later. My amendment would add a time limit of three months for the publication of these reports. No further report has been published since, so I hope that the Minister will recognise the value of this reporting, and that he will confirm that it should continue and that this amendment—which does not create any new burdens at all but just continues the status quo—should be accepted.
Amendment 64 would reverse the deletion of Clause 72 from FSMA 2023—it was the clause that introduced the requirement to introduce a mandatory reimbursement requirement. In the Explanatory Memorandum, the Government explain that this is being removed because it has already happened. But Clause 72 does not only introduce the requirement; subsection (9) also includes the ability
“to vary or revoke a relevant requirement”
or
“to impose further relevant requirements”.
So I am not sure that deleting it in full works—that is something to look at. Most importantly, can the Minister confirm that the mandatory reimbursement requirement is intended to continue, even if reviewed and amended in the future—particularly in relation to tech companies, which we have talked about—and that this Bill is not intended to change anything in that respect?
Baroness Neville-Rolfe (Con)
My Lords, for reasons that will become apparent, I start by referring to my register of interests, including my shareholding in Meta.
I am grateful to the noble Baroness, Lady Kramer, the noble Lord, Lord Vaux, and my noble friend noble Lord Holmes, who is absent, for bringing forward this important group of amendments. I am sorry that this debate is so late and that the Grand Committee is so thin under the new five-hour arrangements—of which I am not a fan—because, collectively, these amendments raise an important and timely point. As online retail platforms and digital marketplaces become more popular and AI makes fraud easier, there has been a concurrent increase in the risk that people face from online fraud, as we have heard from the noble Lord, Lord Vaux.
We have seen concerning figures suggesting that Facebook Marketplace is now the single most scammed UK consumer platform. Very large sums are stolen through it every day in the UK, and a very high proportion of UK purchase fraud begins there. We have also seen banks such as Santander taking active steps to block suspected Marketplace transfers to protect customers. Those examples raise very important questions: how easy is it for consumers to obtain redress when they are defrauded in this way? Who holds ultimate responsibility when a fraud is facilitated through an online platform, and how can the regulatory framework ensure that the firms best placed to prevent the fraud have a real incentive to do so? It is also important to consider how changes can be made without introducing new rafts of regulation that put up costs and prices.
Banks and payment service providers have significant responsibilities, and rightly so. They process the payment, have duties to their customers, and have tools available to detect and prevent suspicious transactions. Yet they are often not the place where the fraud originated, and may see only the final payment instruction, by which point much of the harm has already been set in motion. By contrast, technology companies and online marketplaces may be much closer to the source of the problem. They host the listings, provide the communications infrastructure, enable the interaction between buyer and seller, and in many cases have access to data which could help identify suspicious behaviour before money ever leaves a consumer’s account.
Amendment 46 is based on the principle that fraud should be paid for by those best placed to prevent it, not simply those who happen to process the payment at the end of the chain. If platforms know that they may share liability where fraud is facilitated through their systems, they will have a much stronger incentive to identify fraudulent listings, remove scam accounts, improve verification, share data and co-operate with banks and regulators, and indeed help consumers to avoid fraud, as we can do a lot ourselves as consumers. This is not about saying that technology firms should always be liable in every case, nor is it about absolving banks of responsibility. Yet it recognises that the current model may place too much of the burden on one part of the system, while allowing other actors, including very large and profitable tech companies, to avoid the financial consequences of fraud which often begins on their platforms.
The goal should be to stop fraud before it happens, which means better consumer warnings, transaction monitoring, real-time data sharing, and use of technology by all relevant firms. It also means transparency. If particular platforms, channels or types of transaction are consistently associated with fraud, that information should be visible. Sunlight is an important tool of accountability, which is why Amendment 59 is valuable in principle. As the experienced noble Lord, Lord Vaux, has explained, regular publication of data on APP fraud performance, including where fraud originates, would help Parliament, regulators, firms and consumers to understand the real shape of the problem. It would put pressure on firms whose systems are repeatedly linked to fraud to improve their performance.
Before we take a definitive view on these amendments, I would be grateful if the Minister could address several questions. First, what is the Government’s view on the principle of shared liability for APP fraud across the wider ecosystem, including technology companies and online marketplaces? Secondly, is there a place for greater transparency on APP fraud performance? Thirdly, what discussions have the Government had with tech platforms about fraud originating on their services, and what more does the Minister believe those firms should be required to do? Fourthly, does the Minister accept that online platforms should have stronger incentives to prevent fraud where they host the marketplace, the listing or the communication through which the scam takes place? Finally, how do the Government envisage tackling this problem? Do they have plans to introduce legislation on this issue, or do they believe that changes within the existing framework will be sufficient?
APP fraud causes real harm to individuals, families and businesses. It can undermine confidence in digital payments and online commerce, which is increasingly the direction of travel. It also imposes costs on the wider financial system. I recognise that this may go even wider than our Bill, but this is an important group and I look forward to the Minister’s responses, and to seeing how we can improve this important area.
Lord Stockwood (Lab)
My Lords, I am grateful to the noble Baroness, Lady Kramer, and to noble Lords for tabling these amendments and to all noble Lords who have contributed to this important debate. The scale of fraud and the devastating impact of that crime on victims remains a concern for this Government. The Government take the issue of fraud very seriously and are dedicated to protecting the public and businesses from this appalling crime.
Financial Services and Markets Bill [HL]
Baroness Neville-Rolfe ExcerptsMonday 8th June 2026
(1 month, 3 weeks ago)
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Baroness Neville-Rolfe (Con)
My Lords, it is a pleasure to follow the Minister as we begin our deliberations on the Financial Services and Markets Bill. Like him, we believe that the financial services sector is one of Britain’s great success stories. It accounts for around 12% of GDP, supports 2.5 million jobs and contributes roughly £110 billion in tax each year. It is not simply a sector to be regulated; it is a national asset to be championed. We need the sector to grow because that will benefit us all.
Turning to the economy overall, we have unfortunately had a lengthy period of low growth following the financial crisis of 2007-08, and there is no sign of imminent recovery. Expectations are now for low UK growth in 2026. This continuing trend must be reversed. The Government’s rhetoric on the importance of growth must now be matched by serious action. Too often, warm words have been followed by policies that pull in the opposite direction. The Bill comes after a tidal wave of anti-growth measures, of which the Employment Rights Act is only the latest example.
It is our view that a major factor in our low rate of growth is overregulation, and that this is especially true of the financial services sector. Our Financial Services Regulation Committee agrees, and it is good to see the chair, my noble friend Lady Noakes, here today. Its excellent report, Growing pains: clarity and culture change required, which the Minister has already referenced, warned that
“the regulatory pendulum has swung too far towards elimination of all risk”.
That matters because an economy that seeks to eliminate all risk will, in the end, eliminate growth as well.
The consequences are already being felt. International firms are looking elsewhere. Businesses already operating here face costs that make the UK less attractive and less competitive. The CEO of Marsh McLennan told the committee that, from a regulatory perspective, the UK is at least six times more expensive than our next most expensive country. That is an extraordinary warning, and one the Government should take seriously. The question is whether this Bill measures up to what is required to meet the concerns of the committee and the wider needs of growth. I fear that, once implemented, the Bill will not lead to the step change required. As we take it through the House, a major perspective from which we will be judging it is its likely effect on growth.
However, in several respects the Bill is moving in the right direction. There is a broad consensus that reform is needed. The Treasury itself has acknowledged that the United Kingdom has been left with an overly complex system, and the National Audit Office has pointed to delays between problems being identified and regulatory action being taken. Industry has been saying the same thing. UK Finance has made it clear that the Consumer Credit Act 2006 is outdated and no longer reflects the protections needed in a modern digital market, and TheCityUK has called for a more coherent, streamlined post-Brexit framework.
We therefore welcome in principle the proposed changes to credit unions and the proposed transfer of the Payment Systems Regulator into the FCA. The changes outlined to the Financial Ombudsman Service are also positive, and we expect that this will bring some further clarity to its role and the regulatory landscape more widely. We also welcome measures designed to reduce approval timelines and to reform the senior managers and certification regimes.
Accordingly, the greatest problem with this Bill is not what is in it but what is missing from it. For example, it contains nothing on financial education—so key to improving our savings and investment culture and performance. More importantly, while this legislation removes significant amounts of old regulations, it hands extensive powers to the Treasury and to the regulators to design what comes next. Yet Parliament is being asked to approve that transfer of power without seeing in sufficient detail the regulatory framework that will replace what is being repealed. The incredibly broad powers in Clause 3, on in-person banking, are a good example. The repeal of a large volume of consumer credit architecture, with the expectation that much of what is removed from statute will later be recast into FCA rules, transfers responsibility for policy-making from Parliament to the FCA—that is another example, We believe that this is unwise.
Moreover, the obscure provisions in Clause 14 on anti-money laundering appear to give the FCA and PRA new powers to extend regulations and impose burdens on a number of professions not currently so regulated.
We are told by some that this is a deregulatory Bill, which is welcome, but deregulation ought not to mean removing rules from primary legislation and recreating them elsewhere, beyond proper parliamentary scrutiny. The test is not just whether the statute book looks thinner but whether the burden facing firms is actually reduced.
I am sure the Minister will point to the regulators’ growth and competitiveness objective, but the Financial Services Regulation Committee was clear that this objective has not yet translated sufficiently into policy or practice. Recent history does not give us confidence that a culture of risk aversion, delay and excessive caution will correct itself without stronger statutory direction, clearer accountability and more effective parliamentary oversight.
There is also a wider question about whether the regulatory framework being created will be fit for the future—the Minister touched on this. Financial services are changing at extraordinary speed, led by remodelling overseas, especially in the US. Digital assets are becoming more sophisticated and more integrated into mainstream finance. We are now discussing sovereign bonds on blockchains, digital settlement systems, tokenised assets and new payment technologies capable of transforming everyday transactions.
Yet industry is warning that the Government still lack a clear strategy for digital assets. As a result, firms face uncertainty, innovation is delayed and businesses connected to digital asset activity risk being debanked. I fear that other countries are moving faster in this area. The United Kingdom should be leading in this space; we have the legal system, the financial expertise, the history, the capital markets and the international reputation to do so.
We also need to have regard to the competitive interest of our UK firms. One very senior banker has warned me that the last-minute proposals on ring-fencing would be welcomed by his overseas competitors, since it would reduce his competitiveness. There is also concern from our huge insurance industry, where the UK is a true world leader, with 69% of income coming from overseas. It fears that downgrading the proportionality duty and confining its application to long-term strategies rather than regulatory decisions will make the UK a less attractive place to do business.
Before I close, I will ask some questions of the Minister. First, are present Ministers determined that the regulations made under this Bill will prove less onerous in practice than the architecture they replace? Secondly, what assessment have the Government made of the FCA’s operational readiness to take on the additional responsibilities conferred by the Bill? Thirdly, is the Minister confident that the measures in the Bill will materially reduce delays in authorisations and approvals, particularly for smaller firms, challengers and new entrants? The ability to stop the clock without an independent arbitrator undermines the targets. Fourthly, is the Minister confident that, following the adoption of the Bill, regulator behaviour will become more growth-focused?
There is a missed opportunity at the heart of the Bill. It contains measures that we welcome, as I have said. It moves in the right direction. It recognises, at least in part, that the current system is too complex, too slow and too burdensome. For that reason, we will approach the Bill constructively, and I look forward to working with the Minister on many of the details, not least given his background in the sector that we are discussing. I hope and believe that there are medium-scale issues on which we can reach agreement in this House, but there are two broad problems, as I see it.
The first is that this is a Bill that begins the process of reform but does not, on its own, meet the scale of the challenge. The test for the Bill is not simply whether it makes technical changes to the financial services framework, but whether it helps make the United Kingdom once again the most dynamic, competitive, innovative and attractive financial centre in the world. The second is that we are being asked to take a lot on trust, because of the remarkable degree of delegation in the Bill. We are required to trust that the regulators will deliver in a timely and effective way, that the Treasury will deliver the necessary framework and that Treasury Ministers will oversee the step change that we need. Looking to the past and to the volatility of current politics, can we really put so much trust in the proposals before us?
Employee Car Ownership Schemes
Baroness Neville-Rolfe Excerpts(7 months, 3 weeks ago)
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Lord Stockwood (Lab)
I thank the noble and right reverend Lord for declaring his interest. I believe that hybrid vehicles are going to be taxed at half the rate, which is 1.5p a mile, as opposed to 3p a mile.
Baroness Neville-Rolfe (Con)
I welcome the Minister to his first Question. He will be glad to know, returning to the original Question, that we agree that benefits in kind should be taxed at the appropriate level to avoid distortions. We also welcome the pragmatic delay in this new measure, to give individuals time to adjust. However, there are claims from the motor industry that there could be a substantial loss to the Exchequer, when job losses, lost VAT and excise duty are taken into account. With his new perspective, is the Minister confident that the Treasury has got its sums right on this?
Lord Stockwood (Lab)
Some three months into a new role, I am as confident as I can be about anything. The current projections are that it should not have a negative impact.
Built Environment Sector
Baroness Neville-Rolfe Excerpts(9 months ago)
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Baroness Lloyd of Effra (Lab)
My noble friend is right to draw our attention to this area. Ensuring that we have the workers to support a clean energy transition is essential and she will know that, last week, the department put out a very detailed plan—I commend it to all noble Lords—to address the skills gaps we have in 31 priority occupations. The plan will create well-paid, secure jobs with good workplace rights. Noble Lords will also be aware that, in the last few weeks, the Department for Education, the Department for Work and Pensions and the Department for Science, Innovation and Technology has also published a skills White Paper, which shows just how joined up these projects to create skills will be. It includes details of the technical excellence colleges, which will specialise in these areas.
Baroness Neville-Rolfe (Con)
My Lords, I too very much welcome the Minister to her seat. Much of the historic success of the built environment has depended on small and medium-sized businesses: developers, architects, housebuilders, plumbers, planners and so on. What will the Minister do to bring down the regulatory and other barriers to their continued and, I hope, growing success?
Baroness Lloyd of Effra (Lab)
The noble Baroness makes another very important point. Over the past years, the nature of the construction market has changed and it is absolutely right to focus on small builders. There is a whole programme of support for SME builders, some of which is in the Planning and Infrastructure Bill. It includes streamlined planning rules for small sites to reduce bureaucracy around those kinds of approvals and new reforms to ease biodiversity net gain requirements, again for small sites. We are also making efforts on late payments, which can be particularly difficult for small businesses in the construction industry. The consultation proposes a package of measures, including specific measures to address the use of retentions in the industry.
Employment Rights Bill
Baroness Neville-Rolfe ExcerptsWednesday 23rd July 2025
(1 year ago)
Lords ChamberRead Full debate Employment Rights Act 2025 View all Employment Rights Act 2025 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 113-IV(b) Manuscript Amendment for Report (Supplementary to the Fourth Marshalled List) - (23 Jul 2025)
Lord Carter of Haslemere (CB)
Amendment 154 in my name seeks to remove Clause 113 from the Bill. Clause 113 was tabled at the 11th hour at Commons Report and gives the Secretary of State the power to bring legal proceedings in the employment tribunal, and to do so not because the Secretary of State is directly affected by what the employer is doing, but rather in place of a worker as if the proceedings had been brought by the worker. This is whether or not the worker consents and even if they strongly object. This is legally bizarre, unworkable and totally unnecessary. It could well destroy the relationship between employer and worker—indeed, any future employment relationship since, remarkably, the clause also applies to individuals who are seeking work.
I will focus on three things: the legal implications, the clause’s workability and its policy flaws. I will start with the legal ramifications. It is unprecedented, as far as I can see, for a Secretary of State to be able to institute employment tribunal proceedings or any legal proceedings in place of someone who does not want those proceedings to take place. The Secretary of State says that the provision is modelled on the Equality and Human Rights Commission but, apart from the very different public law context of judicial review, the commission has never instituted a private law action in place of another individual as Clause 113 now envisages for the Secretary of State.
The case of Wilson, to which the Secretary of State referred in her letter of 7 July to noble Lords, was not such a case, since the commission did not act in place of another person. It is inconceivable that the Equality and Human Rights Commission would initiate proceedings in place of a worker in the employment tribunal, let alone where that person did not consent. For the Secretary of State to be able to do so goes against the long-standing principle that, in order to instigate litigation, a claimant should have a sufficient interest—that is to say, be directly affected by whatever issue is being litigated. Exceptions to this general principle have occasionally been made for pressure groups acting in the public interest but, as the High Court reaffirmed in 2022, not where there is a more appropriate potential applicant who has chosen not to bring proceedings, which is the type of case we envisage.
Moving on to the workability of Clause 113, the debate in Committee showed that one reason why there is no precedent for what is proposed is precisely because any litigation lawyer will tell you it cannot work. If the worker does not consent then how will the Secretary of State acquire the evidence to bring a claim? In Committee, the Minister rejected an eminently sensible amendment tabled by the noble Lords, Lord Sharpe and Lord Hunt, which would have required the consent of the worker before proceedings could be brought. This would have made a major difference, but the Government rejected it, which shows that they envisage the power being used even without the consent of the worker. Without that consent, one can see the possibility of a worker, disgruntled with the claim, trying to invoke Rule 25 of the Employment Tribunal Rules to withdraw the claim and the Secretary of State resisting that attempt—hardly a great use of taxpayers’ money.
Even if the proceedings continue, should the worker, who did not consent to the claim, really be liable for the costs if the claim fails, which could amount to thousands of pounds? Extraordinary as it is, this is the effect of Clause 113(6). It provides that:
“The Secretary of State is not liable to any worker for anything done (or omitted to be done) in, or in connection with, the discharge … of the Secretary of State’s functions”
under the clause. This immunity from liability for the Secretary of State applies irrespective of how incompetently the claim may have been handled.
Furthermore, as the noble Lord, Lord Murray, so graphically articulated in Committee, since it is a power for the Secretary of State to bring proceedings, the unions could judicially review the Secretary of State for not exercising the power. This means there could be, in the noble Lord’s words, litigation to require the Secretary of State to litigate
“on behalf of somebody who does not want to litigate”.—[Official Report, 18/6/25; col. 2048.]
As he suggested, we are in Alice in Wonderland here, but it is where Clause 113 takes us—and all at taxpayers’ expense of course.
Finally, on the policy flaws, Clause 113 is completely unnecessary. The Committee stage of this Bill in the Lords brought out the extraordinarily wide scope of the powers the Secretary of State will acquire via the so-called fair work agency. This is, of course, just the Secretary of State under a different name. These include the powers to summon people to give information, to enter any premises to inspect and seize documents and examine computers, and even police powers to search, arrest and interview suspects in relation to labour market offences. Most people would assume that these sweeping enforcement powers will be more than enough to crack down on labour market abuse without a power to bring legal proceedings in the name of a worker who may not want those proceedings to be brought.
This is especially so given that Clause 114 provides that the Secretary of State can give legal assistance to a worker who wants to bring legal proceedings against their employer. This is surely the way this should be handled, rather than the Secretary of State unilaterally launching such proceedings in the belief that this is in the best interests of the worker. Perhaps it is in the best interests of the Secretary of State.
What happened to personal autonomy, especially the basic right to decide whether or not to bring legal proceedings in one’s own name? It could come as a bit of a shock for a worker, who might know nothing about the proceedings, to receive in the morning post a summons to court, especially when they realise they are treated as having brought the proceedings themselves and against their own employer to boot. Talk about choking on cornflakes.
It takes some mental agility to imagine how all this will also apply to a person who is not yet a worker but is seeking to be employed. It is hardly likely to endear them to their prospective employer, is it? If and when the worker does not get the job, they will have no remedy against the Secretary of State for ruining their chances.
This is a bad clause which fails on grounds of legal incoherence, practical unworkability and policy flaws. It needs to come out. I beg to move.
Baroness Neville-Rolfe (Con)
My Lords, I will speak to the amendment in the name of the noble Lord, Lord Carter of Haslemere. He has spoken with great eloquence and killer arguments. I agree with him, so none of us needs to speak for very long.
As he has said, this clause was added late in the day in the other place and there is one aspect which particularly appals me. The clause provides that the Secretary of State, or rather, in practice, their Civil Service agents in the new enforcement body, or any other enforcement officer as in Clause 113(7)(b), will be able to take a case to an employment tribunal where an employee is unwilling to pursue their own complaint—that is, without consent. Consent is such an important principle. Subsection (6) makes it clear that the Secretary of State or enforcement officer
“is not liable to any worker for anything done (or omitted to be done)”,
such as an error or reputational or personal damage. The clause also risks putting further pressure on the hard-pressed tribunal system.
The Government’s recent implementation plan seeks expert help in getting the detail of the provisions right. I have worked for small companies, I have worked for a company with 500,000 people, I have worked with USDAW, I have been a member of two Civil Service unions and I have been head of HR in a government department. I believe that this lack of consent will cause untold trouble. The clause must be dropped, and I hope colleagues across the House will vote for the amendment of the noble Lord, Lord Carter.
Lord Murray of Blidworth (Con)
My Lords, first, I declare an interest as a barrister who occasionally practices in employment law. Secondly, in Committee on 18 June, Hansard recalls that I described the Bill as
“a complete Horlicks … truly bizarre”
and
“absolutely beyond belief”.—[Official Report, 18/6/25; col. 2048.]
I am amazed at my moderation. Nothing I have heard since addresses my concerns. As ably outlined by the noble Lord, Lord Carter of Haslemere, whose amendment I entirely agree with, this clause allows the Secretary of State to bring a complaint to an employment tribunal without the consent of the complainant. Have these people ever been to an employment tribunal? This is absurd.
Is it proposed, in the event that the claimant has the temerity to disagree with the Secretary of State’s assessment that they have a valid claim, to witness summons the claimant, on pain of arrest, if they do not come and give evidence in support of their claim? If, when there, they have the temerity to give evidence against the claim brought by the Secretary of State on their unwilling behalf, will the Secretary of State apply to the judge to treat their witness as hostile, thus permitting the former to cross-examine the latter on the basis that they really were badly treated by their employer? This is palpable nonsense. This clause cannot stand part of the Bill.
I also draw the House’s attention to the fact that, as raised by the noble Lord, Lord Carter of Haslemere, the wording of the clause is an exercise in discretion and is therefore subject to judicial review. There can therefore be a judicial review of both the decision to bring proceedings on the part of the unwilling claimant and of the decision not to bring proceedings. This is going to be marvellous for those of us who are both at the employment Bar and the public law Bar. There will be endless litigation, all at public expense on every side. This is absurd. I invite the House to remove this clause from the Bill as swiftly as possible.