Financial Services and Markets Bill [HL]

Baroness Kramer Excerpts

2nd reading
Monday 8th June 2026 Lords Chamber

[Baroness Kramer (LD)]

My Lords, as the first of the winding speakers, I thank the Minister for his willingness to meet. I suspect that after listening to what has been an extraordinary, exceptional debate with everything a powerful contribution, he now knows that this is not a small, technical Bill that will slide easily through this House.

We have agreed generally that the financial services sector contributes something like 10% of the UK’s economic output, and, consequently, that innovation and growth in this sector matters. However, I want to pick up the point, which others have made, that it is important that we do not repeat the mistakes of the past. This sector brought the UK economy to its knees. My noble friend Lady Northover, the noble Lord, Lord Davies of Brixton, and to some extent the noble Lord, Lord Tunnicliffe, gave us a feel of how damaging it was at the time. To say the world teetered was probably the right phrase, but the consequences have dragged on way beyond that and still have deep impacts today on ordinary people dealing with their cost of living.

Following that crisis, the revised regulation put into the books was based on precautionary principles. I never have objections to streamlining, efficiency and limiting duplication, and I agree that some measures went too far or were too broad, but this Bill fundamentally changes that precautionary approach and replaces the principle with assurances of enforcement action in relation to poor or corrupt behaviour, and with bank failures, as the noble Lord, Lord Tunnicliffe, described, resolution schemes come to the rescue. I question whether the Bill adequately structures the capacity to make the shift.

In the case of enforcement, I have asked the Minister directly to demonstrate to me that enforcement has teeth. I talked to the City again this morning and, frankly, it laughed. It is one of the reasons why, if we cannot have certification and precautionary principles around “fit and proper”, enforcement is critical. I want to hear much more from the Government on that issue, and that is just one example.

Picking up on the point made by the noble Lord, Lord Tunnicliffe—I disagree with him completely—that in the case of resolution, we do not need ring-fencing because we have a resolution regime in place or we can weaken the one because the other exists. Will the Minister be able to look me in the eye and say that he would activate a bail-in bond scheme if a big bank failed? The consequence would be huge financial instability among those who held those bail-in bonds—I am talking about the insurance companies and pension funds. Many would be on the verge of collapse if we ever exercised bailing in those bonds. That is one of the reasons why, in the financial crises that have happened, no Government have ever taken that step.

That is a minor issue around ring-fencing, though. There are lots of issues there. I will want to pick up the one on intrabank group services—I am just giving notice to the Government—because the removal of the ring-fence there allows services to be brought in from overseas bodies that are not regulated by any UK authority. We heard from the noble Lord, Lord Eatwell, who I know is very concerned about MREL and whether bail-in bonds could ever be used, the noble Lord, Lord Davies of Brixton, and others on these issues.

I join my noble friend Lord Sharkey in his utter frustration at the undermining of the FOS, the Financial Ombudsman Service, and the narrowing of protection, the narrowing of free and fair redress. We are going to take that on in this Bill. I also join the noble Baroness, Lady Noakes, in her brilliant speech. My noble friends Lady Bowles and Lady Northover spoke on the same issue, as did the noble and learned Lord, Lord Thomas, in some ways. The noble Baroness, Lady Noakes, used the word “shock” in relation to the regulatory principles applied by both regulators, which currently sit in primary legislation—proportionality, fairness, responsibility, transparency and, yes, regard to climate change—being removed from primary legislation by this Bill and reduced to elements in a five-year strategy document. Those regulatory principles are Parliament’s instructions to the regulators, but will now have no legal standing. If the regulator does not pursue them, there can be no action in court and no charge of judicial review. It is entirely up to the regulator whether those principles are observed.

I note that it is very clear in the Bill that the strategy document on which we will now depend can be revised at any time with no consultation; the regulators are merely required to note in their annual reports whether they have bothered to have any regard to the principles. The main purpose of this change—we have seen this pressure before from the regulator—is to cut Parliament out of any control over the principles of the regulator and make sure that there is no additional recourse when they are abandoned. This change has to go, and I suspect that will be the verdict of most of this House.

That brings me not just to the commissions in this Bill but to its omissions. I am really grateful to the noble Lord, Lord Holmes, who raised AI and cyber issues about which I am, frankly, not sufficiently informed, but I am sure he is right that they need to be addressed in this Bill. The omission that exercises my party most is around access to financial services for both small businesses and disadvantaged individuals who are very poorly served at present. These issues were eloquently addressed by the noble Baronesses, Lady MacLeod and Lady Hyde, the right reverend Prelate the Bishop of Manchester, and the noble Lords, Lord Kamall and Lord Sahota, in really powerful discussions.

This Bill takes some necessary steps on credit unions, credit data sharing, and permits action on the anticipated Lloyd review of in-person banking, but it could go so much further and bolster—I am so glad that the noble Lord, Lord Kamall, and others have mentioned this—community development financial institutions, including credit unions. With thanks to the fair banking movement, I will propose a rating system to show where there are shortfalls in lending and other financial services. I will then go beyond that to propose remedies, including mechanisms to provide investment into CDFIs for those banks that do not wish to change their lending practices. A revival of local banking, which has largely been discarded in the business models of the big banks, would drive up growth, jobs and living standards in all our communities.

The US tech sector is brilliant at not paying its way at the expense of British competitors. Online platforms facilitating fraud should have reimbursement liability; it should not just be for banks. We hope we can find a way to bring in that change. We also insist that across all recognised payment systems, including big-tech, participants—not just the banks—must be subject to the levy to support financial inclusion. Again, I hope we can bring in language for that.

We should also use this Bill to face up to the expected risks in financial stability. A key concern is the burgeoning private asset market—now $18 trillion strong—and the private credit market discussed by the noble Baroness, Lady Bi. It is interconnected throughout lending, investing and derivatives throughout the regulated financial sector. That private market is opaque; it is an intermingling of excellent credit and complete garbage, and it easily becomes illiquid. I want it to be a clear responsibility of the Bank of England and the PRA to assess the risks of a broad-based credit crunch in private markets. I am also concerned that the regulatory perimeter that excludes small businesses from most FCA protections, may become a serious issue in a private credit crunch. So I will seek to add to the regulators’ principles consideration of the risk arising from these issues.

Digital payments and finance are coming at us fast—we cannot be King Canute but, frankly, we have had enough of scams and money laundering. The noble Baroness, Lady Bi, and, very extensively, the noble Baroness, Lady Hodge, talked about the importance of taking action to deal with enablers, but I think this Bill should also be an opportunity to get the right guardrails in place for crypto. I am very much behind putting requirements on the tech sector, and requiring the stablecoin exchanges to act against fraud, sanctions busting and money laundering. But I am not sure this should be done through Henry VIII powers, and I will give you a reason. I am concerned, for example, that in exchange for putting these requirements on stablecoin exchanges, the Bank of England is proposing to step in as a backstop if they have liquidity problems—they have made that statement publicly. Even in the US and the EU, no Government will touch that offer of a liquidity backstop with a barge pole. It is such a big issue that this is an area where Parliament should be making the decision and not the regulator.

History tells us that those who cannot remember the past are condemned to repeat it. If we repeat 2007, we lose all our chances to seize the opportunities for the future. So, my colleagues and I will try to make sure that Parliament’s voice remains, the guardrails are in place for the financial sector and even for crypto, and with the tech companies paying their share, and we will see game-changing improvements that achieve access to finance for all communities, individuals and small businesses. Fair and sustainable growth is more than possible and it is what the public expects of us.