Financial Services and Markets Bill [HL]

Baroness Noakes Excerpts

Committee stage
Monday 6th July 2026 Grand Committee

There may be different reasons for the absence of clarity, predictability and consistency—we have discussed some of them—but this raises the question of how knowledgeable the regulators are about the law, the legislative framework under which the system operates and what is in their hands. There is accountability to the Treasury internally but it is important that Parliament knows, through the Treasury, that it is adequately equipped to exercise the new powers under the Bill in what is still a rather unaccountable, quasi-legal system. For this reason, I support my noble friend Lady Neville-Rolfe’s amendments and have tabled my own small addition, so that the Treasury must report that the FCA is operationally ready for the task and that the Treasury is satisfied that it is.

[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.

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[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 Noakes (Con)]

The Minister referred to the four workstreams that the Chancellor set up last year. Can he say when firms might feel any difference?

[Lord Stockwood (Lab)]

I will come back on that after getting clarification on when those will come into effect.

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Moved by

[Baroness Noakes]

142F: After Clause 22, insert the following new Clause—
“Offices for regulatory evaluation(1) The Financial Services and Markets Act 2000 is amended as follows.(2) After section 1RB (requirements in connection with public consultations), insert—“FCA Office for Regulatory Evaluation
1RC FCA Office for Regulatory Evaluation(1) The FCA must establish and maintain an office for regulatory evaluation, to be known as the FCA Office for Regulatory Evaluation (“the Office”), to provide independent evaluation of the FCA’s regulatory actions.(2) The FCA must appoint a person as Director of the Office who will be responsible for the activities of the Office.(3) Treasury approval is required for the appointment or dismissal of the Director.(4) The FCA must provide the resources that are required by the Director to carry out the evaluation of the FCA’s regulatory actions.(5) The Director must draw up a statement of policy of how the evaluation of the FCA’s regulatory actions will be carried out. (6) The Director must report to the governing body of the FCA at least every six months on the work of the Office and the report must be—(a) published,(b) sent to the Treasury, and(c) sent to the Committees of Parliament referred to in paragraph 28(7) of Schedule 1ZA (the Financial Conduct Authority).(7) The Director must report to the chair of the FCA and be independent of the FCA’s board of directors and its executive management.(8) The chair of the FCA will be responsible for the remuneration of the Director and for settling any disputes about the resources allocated by the FCA to the work of the Office.(9) “Regulatory actions” means any actions carried out by the FCA in discharging its general functions under section 1B and supervision, monitoring and enforcement under section 1L.”(3) After section 2NB (requirements in connection with public consultations), insert—“Bank of England Office for Regulatory Evaluation
2NC Bank of England Office for Regulatory Evaluation(1) The Bank of England must establish and maintain an office for regulatory evaluation, to be known as the Bank of England Office for Regulatory Evaluation (“the Office”), to provide independent evaluation of the regulatory actions of the PRA and the Bank of England in respect of its financial market infrastructure (FMI) functions.(2) The Bank of England must appoint a person as Director of the Office who will be responsible for the activities of the Office.(3) Treasury approval is required for the appointment or dismissal of the Director.(4) The Bank of England must provide the resources that are required by the Director to carry out the evaluation of the regulatory actions of the PRA and the Bank of England in respect of its FMI functions.(5) The Director must draw up a statement of policy of how the evaluation of regulatory actions will be carried out.(6) The Director must report to the court of directors at least every six months on the work of the Office and the report must be—(a) published,(b) sent to the Treasury, and(c) sent to the Committees of Parliament referred to in paragraph 36(7) of Schedule 1ZB (the Prudential Regulation Authority).(7) The Director must report to the chair of the court of directors and be independent of the court of directors, the Prudential Regulation Committee, the Financial Markets Infrastructure Committee and the executive management associated with those Committees.(8) The chair of the court of directors will be responsible for the remuneration of the Director and for settling any disputes about the resources allocated by the Bank of England to the work of the Office.(9) “Regulatory actions” means any actions carried out by—(a) the PRA in discharging its functions under section 2AB and supervision of PRA-authorised persons under section 2K, and(b) the Bank of England in respect of its FMI functions under section 30D of the Bank of England Act 1998.””

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[Baroness Noakes (Con)]

My Lords, I am grateful to the noble Baroness, Lady Bowles of Berkhamsted, the noble Lord, Lord Vaux of Harrowden, and my noble friend Lord Bridges of Headley for adding their names to this amendment.

Last week, we debated the need for more extensive regulatory evaluation in order to hold the regulators to account effectively. The noble Baroness, Lady Bowles, suggested a Treasury-convened panel to undertake periodic independent reviews, and my noble friend Lord Bridges of Headley suggested an office of regulatory evaluation, which would assess the regulators’ performance in discharging their duties and meeting the regulatory principles. These would not replace the parliamentary committees in each House but would complement them by providing more in-depth and comprehensive analysis, which could then be built on within the framework of parliamentary accountability. My Amendment 142F would be another way of increasing the amount of the evaluation of the regulators.

I remind the Committee of the background. The volume of regulatory activity has grown significantly in recent years, as the matters that used to be dealt with in the EU have been added to the FSMA model. In addition, innovation is presenting major new challenges, which has the effect of increasing regulator activity.

The ability of Parliament to hold regulators to account was already under strain. For example, the Financial Services Regulation Committee of your Lordships’ House recently undertook a major piece of work on stablecoins, but it would not have been realistic to attempt to encompass all developments in digital assets. We cannot cover everything that we think should be covered.

The Bill is adding to that workload by adding the huge area of consumer credit to the FCA’s responsibilities, all of which will need to be implemented by way of new FCA rules. This will involve very significant issues: the balance between consumer protections; the supply of credit; and the efficiency of credit providers. I do not know how all that will be scrutinised effectively.

Instead of looking to solutions that are external to the regulators, which is what we discussed last week, Amendment 142F proposes that each of the regulators sets up an internal but independent office for regulatory evaluation. Apart from safeguarding the independence of the office and mandating regular reporting, the amendment is deliberately not prescriptive beyond that, leaving it to the new offices to work out how to carry out their work.

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The Government are fully supportive of enhancing the accountability of their regulators and always keep the current structures under review. However, I recognise that this is an area where there has been a lot of discussion. The Economic Secretary to the Treasury and I are meeting the Financial Services Regulation Committee later this week, as mentioned, and we are happy to continue these conversations. There is much more discussion to be had between now and Report, therefore I ask for the amendment to be withdrawn.

[Baroness Noakes (Con)]

My Lords, I thank all noble Lords who have taken part in this short debate. I know that it is, in part, a repeat of debates we have held already in Committee, but it is bringing together such an important issue, which is the strength of the accountability mechanisms for the regulators. The Minister outlined the things that exist at the moment. I think I explained that the Independent Evaluation Office in the Bank does not do very much, although what it does is actually very interesting: its report on the secondary competitiveness and growth objective was a good piece of work.

Within the FCA there is no visibility, so anybody involved in external accountability of the FCA would know none of it, with the possible exception of the National Audit Office reports. The National Audit Office, as noble Lords know, will do those value-for-money reviews only very infrequently, and I am not sure that the one the Minister referred to would have had any impact on the work of the Financial Services Regulation Committee had we taken it into account.

I will not labour the points now, because obviously we are going to have more substantial discussions this week in the Financial Services and Regulation Committee, and of course I am sure there will be discussions when we get to Report, and I look forward to any other discussions that we have before we get to Report in the autumn. With that, I beg leave to withdraw.

Amendment 142F withdrawn.

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[Lord Stockwood]

My Lords, I beg to move.

[Baroness Noakes (Con)]

Not content.

[Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)]

I put on the record that parliamentary counsel has advised that this amendment and all the other government amendments in this group are all technical amendments. If the noble Baroness’s objection is based on the fact that she believes that an all-Peers letter should have been sent for a handful of technical amendments, then that is not normally the case. However, if she wants to object, we will not move them.

[Baroness Noakes (Con)]

The Minister and I had a meeting on this last week, so I am surprised that he is raising the issue today. I notified on Friday that I would be continuing the line that I had taken on the first Committee day.

Amendments 143 and 144 not moved.

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[Lord Stockwood (Lab)]

I beg to move.

[Baroness Noakes (Con)]

Not content.

[Lord Wilson of Sedgefield (Lab)]

Can I just ask the noble Baroness, Lady Noakes, on that basis—parliamentary counsel has advised that these are technical amendments, and therefore that Peers’ letters do not need to be sent out—does she not agree with the parliamentary counsel?

[Baroness Noakes (Con)]

I am merely keeping to what I said on the first Committee day.

Amendment 145 not moved.

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Moved by

[Baroness Noakes]

152: Clause 37, page 43, line 10, leave out “section 408A” and insert “sections 408A or 408B”
Member’s explanatory statement
This amendment requires the Treasury to consult the regulators about regulations which designate countries or territories for recognition.

[Baroness Noakes (Con)]

My Lords, in moving this amendment, I will speak also to Amendment 153 and the Clause 37 stand part notice.

I am instinctively suspicious of Clause 37 because I think that the best people to judge whether overseas financial services firms should be able to operate in the UK, and to determine the terms on which they operate, are the regulators. The Bill hands major judgments to the Treasury, which means that they are likely, at least in part, to be political judgments. Although new Section 408A requires the Treasury to have regard to various things, that list is not exclusive, so there is nothing to stop the Treasury taking into account factors other than those listed in new subsection (2). Decisions could be made, for example, in pursuit of foreign policy aims against a wider background of international relations in relation to the EU reset. Financial services could also be traded away in the context of international trade agreements. Even if the Treasury sticks with the list of “have regards” in new subsection (2), that subsection has no hierarchy of criteria. Financial stability is on a par with international competitiveness and growth.

This is in stark contrast to the regulators, where international competitiveness, growth and competition are secondary objectives that cannot override their core objectives. I fully support the Government’s quest for economic growth and the pursuit of international trade agreements but, under new Section 408A, the Treasury could set aside any concerns about the integrity and stability of the UK’s financial system because it favours facilitating international competitiveness and growth. Is this really what the Government are trying to enable?

We know that some countries, such as China, seem to have technical compliance with many international financial services standards although, in practice, the degree of state control and the weakness of local regulators leave a lot of questions to be answered about the organisations in their financial services sectors. We know that the Treasury wants more trade with China. Will it let Chinese financial services firms freely into the UK in order to facilitate that? How will the Treasury ensure that it gets a good deal for British financial services firms? Some countries, such as India, give the appearance of allowing foreign firms to operate in them. However, in practice, India places many hurdles in their way, and many organisations give up the struggle after a while. Does the Treasury really have the granular understanding of what is happening in these countries?

My own view is that it would be dangerous to let the Treasury loose on this area, and that the independent financial services regulators are the best people to determine who can operate in the UK and on what terms. This is why I oppose Clause 37 standing part of the Bill. However, I have heard from some in the City that they welcome this new overseas recognition regime, because the regulators do not prioritise negotiations with their foreign counterparts and there is little faith that they ever will. That has a ring of truth to it. The FCA has far too many other things to do, and the Bank and the PRA are exceedingly cautious. For that reason, I have tabled Amendments 152 and 153 in order to emphasise the important role that the regulator should have in the process.

Amendment 152 would add a requirement for the Treasury to consult the regulators when it uses the power under Section 408B. As currently drafted, the Treasury has to consult the regulators only if it exercises the power to recognise overseas firms to operate in the UK under Section 408A. The Treasury does not have to consult the regulators if it uses the Section 408B power to recognise overseas territories. My amendment poses the question: why not? The regulators are likely to know more about financial services and regulation in the overseas countries than the Treasury.

Amendment 153 is aimed at improving the information given to Parliament when the Treasury brings forward regulations to use these new powers. It would require the Treasury to publish any information or advice received from the regulators in connection with the use of the powers. As I mentioned, the Bill requires the Treasury to consult the regulators on only one of the two powers, but then the Treasury could completely ignore the information or advice that it receives from the regulators and Parliament would be none the wiser. This should be more transparent. The Treasury must be prepared to say why it has ignored or overridden the advice that is received, if that is indeed the case. It must therefore be prepared to share any relevant information with Parliament.

We all know that secondary legislation processes give Parliament no effective power over the Executive. That does not mean, however, that Parliament can be ignored. I believe it is necessary to force a bit of daylight into the process and not tolerate the suppression of relevant information from Parliament. Consistent with the stance I have taken throughout this Committee, if the Minister wishes to move his Amendment 154, I shall call, “Not content”. I think even the noble Lord, Lord Wilson, will accept that this amendment is not a small technical amendment.

I had hoped that the Treasury would have organised an all-Peers letter by now. It has had two weeks to do so since I first raised the issue. I was informed on Friday that the Government think it is okay just to write to the Front Benches on some government amendments. Since I was the only Peer who had tabled amendments in relation to Clause 37, I believe it was, at a minimum, discourteous not to have written to me at the same time.

I do, however, stick to my broader point that the whole House should be informed. The scrutiny of Bills is not something that belongs in a cosy club of Front-Benchers. Someone needs to stand up for Back-Benchers and that is what I am doing in this Bill. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I will be very brief. I am sympathetic to ensuring that the overseas recognition regulations are as pragmatic and seamless as they can be to enable easier international competition. But I have quite a lot of sympathy with the comments of the noble Baroness, Lady Noakes, about giving these powers exclusively to the Treasury.

I want to ask one question of the Minister. New Section 408A(2) sets out a list of areas that

“the Treasury must have regard to the importance of”

when making regulations. As an aside, that is quite odd wording; normally it is “have regard to”. I am still not sure I understand what difference

“must have regard to the importance of”

makes to the meaning. Maybe the Minister might explain that. New Section 408(1) does something similar but in a slightly different way. It seems that one area is missing from the lists of “have regards”: the question of economic crime, particularly anti-money laundering and the transparency of ownership in the relevant jurisdictions. Can the Minister say whether he agrees that those are important and explain why they might be missing from the list?

I will just finish with something I should have said earlier today, given that I think we are finishing early and the Minister is going to get some of his evening back: I wish him a happy birthday.

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[Lord Stockwood (Lab)]

I will write to the noble Lord.

[Baroness Noakes (Con)]

Before I decide what to do with my amendment, I ask the Minister—because I may not have been paying attention—whether he explained why there is a requirement to consult the regulators for powers under new Section 408A but not under new Section 408B.

[Lord Stockwood (Lab)]

Again, I will write to the noble Baroness to clarify that.

[Baroness Noakes (Con)]

The Minister is stacking up rather a lot of letters that need to be written.

I thank all noble Lords who have spoken in this debate. It raises important issues. The Minister said, in relation to consultation, that the Treasury would summarise the evidence. That is not the same as being transparent about the advice from regulators. Although I am quite happy for the Treasury to summarise most other evidence on any consultation it undertakes, I think the regulators are a special case here. However, I will read Hansard and consider what, if anything, I will do with this topic before Report. Before sitting down, I too add my birthday wishes to the Minister. I beg leave to withdraw the amendment.

Amendment 152 withdrawn.