Financial Services and Markets Bill [HL]

Baroness Kramer Excerpts

Report stage
Monday 7th September 2026 Lords Chamber

[Baroness Altmann (Non-Afl)]

My Lords, I support the amendments in this group, and I feel that this Bill has an opportunity to improve—or at least not diminish—the protections that are offered to consumers of financial services. We have long known that from a consumer perspective, the asymmetry of information and the asymmetry of understanding leaves ordinary consumers open to being taken advantage of by financial services companies. The law is supposed to protect them and currently we have legal protections in place—albeit they are out of date and need updating, as we have already discussed. However, I certainly hope that the Minister—who I warmly welcome to his place—would understand that the aims of these amendments are to ensure that the financial consumer is protected both at the retail level and against practices that have arisen in the past and will arise in the future.

I particularly feel that the amendments about non-diminution when it comes to consumer credit and student loans, in the name of the noble Baroness, Lady Bowles, are extremely important to the ordinary person in the street. I commend the noble Lord, Lord Sharkey, and the noble Baroness, Lady Bowles, on continuing the attempts to ensure that mortgage prisoners are treated much more fairly. We have another opportunity now to remove this stain on our financial services landscape, and I really hope that the Government will be able to agree and accept that capping, at the very least, the costs and interest rates that mortgage prisoners have had to pay—at such great cost and pain—will be a possibility within this Bill.

[Baroness Kramer (LD)]

My Lords, I will be extremely brief because my Bench has just spoken very clearly on this issue. I share with the Conservative Front Bench concerns about accountability with a further removal of powers directly into the hands of the regulator, and had they pressed their Amendment 1, we would have supported it.

Very briefly, I will address the other amendments. I am still in a state of genuine concern that the Government will not accept an amendment that would confirm that the changes they are proposing to the Consumer Credit Act, which will be absorbed now into the role of the FCA, will not involve a diminution of consumer credit protection; this is the non-diminution of rights that the noble Baroness, Lady Bowles, described. Of course, the FCA could keep those rights in place, but there is nothing that compels it to do so. I find it extraordinary that we cannot be given this reassurance.

However, I am more exercised than anything else about the position of mortgage prisoners. The people who have been impacted, and many are now elderly, have dealt with a shocking situation over the past years. We could now give them relief for the remaining years in which they will be tangled with paying extraordinary levels of interest on mortgages that were taken out in good faith, for which they properly qualified and which were, at the time, market-standard mortgages. It has happened because, in essence, an arm of government has made mistakes when it has sold on those loans to vulture funds. It is shocking that we have not corrected this. The amendment before us today is new thinking. It is incredibly effective at making sure that, going forward, this incredible injustice is ended, and I hope very much that, even in these last few minutes, the Government will think again and provide support.

[The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)]

My Lords, it is a privilege to be here today to debate the Financial Services and Markets Bill. I put on record my thanks to my noble friend Lord Stockwood for leading the earlier stages of this debate and thank all noble Lords who have contributed to this debate in Committee and beyond.

If noble Lords would allow me, I would like to say a few things about the Bill itself before moving on to address the amendments that have been put forward. The Bill has a purpose on which I think we are all agreed: to construct rules that help the financial services industry to serve its customers better and to prosper as a result of doing so. Noble Lords will therefore see that, in responding to the debate in Committee, the Government have been persuaded of some significant points made then and are proposing some significant amendments which I hope will be welcomed by the House. There are also amendments that will be suggested on Report where the Government disagree with the specific measure proposed but, in many cases, have great sympathy with the ultimate goals of the particular amendment.

However, there are many amendments which we do not believe belong as part of the Bill, in part because they are complex and require consultation, and/or go beyond the scope of the Bill, and in part also because the aims of the amendment are not best served by changing primary legislation but where the Government often would want to help promote the goals of the amendment—indeed sometimes, they already are—and can perhaps seek to encourage better practice. Central to all this is accountability, which I will come to at beginning and end of this group and then again later today.

To turn to these specific amendments, Amendments 1 and 6 would remove Clause 1 and Schedule 1 from the Bill and prevent the Government’s programme of Consumer Credit Act reform. Amendments 2 and 3 would ensure that the reforms do not diminish consumer protections, and Amendments 4 and 5 relate to the assignment of student loans and of mortgages. Similar amendments were debated in Committee, and the Government have carefully considered the concerns raised. However, we have concluded that we wish to press ahead with these much-needed reforms.

I think that we all in this House agree that the FCA is the right body to take on the role of consumer protection, and Parliament has already given it the right powers and objectives to do so, including a consumer protection objective. Since the 2014 transfer of consumer credit to the FCA, important protections, including creditworthiness and affordability assessments, have successfully operated through the FCA framework. I recognise the concern, raised both in Committee and again today, that Parliament is being asked to approve reform before replacement FCA rules have been finalised. However, I emphasise that the FCA must consult on proposed rules and engage with parliamentary committees as part of an established statutory framework. This includes the Financial Services Regulation Committee, ably chaired by the noble Baroness, Lady Noakes.

Both the FCA and the PRA are clearly aware of scrutiny. Last week, they sent me a letter, which I think has been circulated to all noble Lords, making a number of commitments further to enhance parliamentary scrutiny, and I have placed those letters in the Library. I expect to cover this information, including that in the letter, in detail in a later grouping today.

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Moved by

[Baroness Kramer]

7: Clause 3, page 2, line 4, at end insert—
“(2A) Regulations may only make provision arising directly from the review carried out under subsection (2).”Member’s explanatory statement
This amendment would restrict the scope of the regulations so that they may only implement matters that have been reviewed and consulted upon. It seeks to prevent the power from being used more broadly than Parliament intended.

[Baroness Kramer (LD)]

My Lords, it was exceedingly remiss of me, when I spoke earlier, not to welcome the noble Lord, Lord Pitt-Watson, to his role. We have had so many conversations that I have begun to think of him as the established Minister, yet sitting just a few Benches away is the noble Lord, Lord Stockwood; we are so glad for his presence and that he will stay engaged with this Bill. The noble Lord, Lord Livermore, was also with us earlier: he was a relentless proponent of the Government’s position and I will miss my engagements with him.

Clause 3 deals with access to banking services. The Government have told us that the powers in this clause are intended to allow them to incorporate into law and regulation recommendations from the independent public review of access to banking services, chaired by Richard Lloyd and due in October. The review will evaluate the impact of ongoing bank branch closures and access to face-to-face banking across the UK.

We on these Benches strongly support this review. Banks have closed a third of their branches in the last five years and, since 2015, nearly 7,000 bank and building society branches have shut down. We have been strong advocates of the banking hub scheme to create at least minimal access to services; 235 have opened, but the commitment is to a total of only 350 hubs. Much stronger action is needed, and soon.

But—and it is beyond my comprehension why—Clause 3 has not been drafted for the narrow purpose stated by the Government of implementing the recommendations of the Lloyd review. It allows the Treasury to amend any Act of Parliament and to give any powers it wishes on access to banking to the FCA. Nothing is confined to the Lloyd review; it is Henry VIII on steroids.

I put down Amendment 7, which would limit powers to allow the Treasury to implement only those provisions arising directly from the Lloyd review. That at least has been consulted on and had some broad engagement. The Government have not accepted that amendment. We therefore cannot accept the huge constitutional breach that Clause 3 represents.

If the Conservative Benches move ahead with their Amendment 10, which would knock Clause 3 out of the Bill, I have strong hopes that the Government will come back with proper wording in the Commons, by which time the Lloyd review will have been published. As I say, we expect to support every aspect of the recommendations from the Lloyd review, although we have not yet seen them, but we cannot set the precedent of allowing sweeping powers that go way beyond the stated objective to be incorporated in a Bill of this significance.

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[Lord Pitt-Watson (Lab)]

My Lords, I am hearing two arguments here: a strong consensus across the House for the need for access to banking and for the appropriate actions to be taken to make sure that that takes place; and a concern, also raised in Committee, about the breadth of the power, particularly its constitutional implications and the degree of scrutiny that Parliament would be able to exercise over any regulations made under it. These are serious points and the Government have considered them seriously, but they have concluded that Clause 3 is needed at this stage. Because the independent Lloyd review of access to banking has not yet concluded, we do not know whether it will recommend intervention, which consumers may be most affected, the nature of any detriment, and what form any intervention should take. Removing Clause 3 altogether, as Amendment 10 would do, would risk leaving the Government without a mechanism in the Bill to respond promptly if the review identifies a focused and time-sensitive need for intervention.

Amendment 9 would remove the ability to amend primary legislation through regulations made under Clause 3. If acting on the review’s findings required changes to an Act of Parliament, removing this ability would risk removing the mechanism to respond promptly to the review and could delay implementation. Amendment 7 would take a different approach by limiting the powers to matters arising directly from the review. I understand the intention behind that amendment and the review should clearly play the central role in shaping any future intervention. That is why the Bill already requires the Treasury to have regard to the review’s recommendations, but it would not be right to prevent Ministers from considering other relevant evidence alongside the review when deciding whether and how to act. The Government need to preserve the ability to respond proportionately to the full evidence that is available.

Amendment 8 is probably one on which we all agree. The noble Lord, Lord Holmes, and the noble Baroness, Lady Hoey, talked about the central part that post offices can play in making sure that banking access is available. I can confirm that the chair of the review into access to banking services has received representations from and has engaged with the Post Office and the National Federation of SubPostmasters and that officials will continue to engage as part of the development. As noble Lords know, the target is more than 350 full banking hubs, plus 10,500 post offices, involved in this, and I thoroughly commend the points that they have made.

I absolutely understand the concerns about the Henry VIII powers, which seem very broad. Clause 3 does not itself impose new obligations on firms, or any specific model of banking provision. Any regulations under the power would also be subject to the affirmative procedure. However, I assure noble Lords that the Government do not expect Clause 3 to remain in its current form. I forget how the noble Baroness, Lady Kramer, said her hopes would be fulfilled, but I think they would be fulfilled by amendments that were focused on the thing that we all agree on, which is the need for proper access to banking for older people, for younger people—for everyone.

The Government remain committed to keeping the scope of the power under review as the independent review completes its work. We expect to narrow this power after the review reports in October, when I expect the Bill will be in the Commons. Once the Lloyd review has concluded, the Government will be in a better position to consider the correct scope of this power. It would therefore be premature to narrow the power at this stage. For those reasons, I ask the noble Baroness to withdraw her amendment, though perhaps more in hope than expectation.

[Baroness Kramer (LD)]

My Lords, given that the Conservative Front Bench have expressed their interest in moving Amendment 10, I will withdraw Amendment 7.

Amendment 7 withdrawn.

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Moved by

[Baroness Kramer]

11: After Clause 3, insert the following new Clause—
“Access to affordable credit(1) The Financial Conduct Authority must—(a) within 12 months of the day on which this Act is passed, establish and publish a framework for assessing and rating the performance of relevant deposit takers in providing access to affordable credit,(b) annually publish updated ratings and scores produced by the FCA under the framework, and(c) keep the framework established under paragraph (a) under review and publish an updated framework as it deems necessary.(2) The framework must—(a) assess the extent to which relevant deposit takers serve the credit needs of individuals, households and small businesses, including those who are underserved by mainstream financial services, and (b) enable comparisons to be made between relevant deposit takers.(3) In developing the framework, the FCA must have regard to—(a) the distribution of lending across income groups, geographic areas and customer characteristics,(b) the availability of affordable credit to consumers who may otherwise be at risk of financial exclusion,(c) the provision of affordable credit to small and medium-sized enterprises, and social enterprises,(d) the extent to which a bank supports access to affordable credit through partnerships, referral arrangements and funding agreements, with credit unions, community development finance institutions or other community-based lenders, and(e) such other matters as the FCA considers relevant to the objective of promoting access to affordable credit.(4) For the purposes of subsection (2), the FCA may—(a) make use of regulatory data already collected by it, including product sales data,(b) require relevant deposit takers to provide such information as it reasonably considers necessary for the purposes of the framework, and(c) make different and proportionate provision for different sizes of business.(5) Where a relevant deposit taker receives a score or rating below a minimum threshold prescribed by rules made under this section, the FCA must require the deposit taker to take proportionate remedial action to improve its rating.(6) For the purpose specified in subsection (5), the FCA may—(a) make such rules or issue such guidance applying to designated persons as appear to the FCA to be necessary or expedient, and(b) give a direction under this section to a designated person if it considers that it is desirable to give the direction.(7) For the purposes of this section, “relevant deposit takers” are—(a) banks, within the meaning given in section 2 of the Banking Act 2009;(b) building societies, within the meaning of section 119 of the Building Societies Act 1986;which meet an FCA-set threshold for the total volume of personal and small and medium business lending.”Member’s explanatory statement
This amendment requires the FCA to establish a framework assessing banks’ and building societies’ provision of affordable credit, including via partnerships with credit unions and community development finance institutions. It uses existing regulatory data where possible, with proportionate requirements for firms of different sizes.

[Baroness Kramer (LD)]

My Lords, this group of amendments concerns itself with financial inclusion. I have two important but very different amendments in this group. The first is Amendment 11, to which the right reverend Prelate the Bishop of Manchester has added his name, and I thank him for that. The House will know that I have long been an advocate for CDFIs—community development financial institutions, which are usually banks or credit unions—which are dedicated to serving the banking and finance needs of local communities and small businesses, as our high street banks once did. They do what I suppose in modern terms we would call “place-based lending”; they know the community, its businesses and its people, and they are structured, staffed and skilled to provide those services. By contrast, SMEs struggle to get mainstream bank credit.

The Government have taken steps to grow CDFIs, providing £150 million to the British Business Bank to develop a community ENABLE fund, and increasing the growth guarantee scheme by a significant £6.5 billion over four years. They have set up a UK community finance partnership taskforce, with an impressive membership, to build partnerships between CDFIs and mainstream banks. But the key piece of the puzzle is missing; we do not have the driver to create many more CDFIs or community banks, if you prefer that term, and credit unions across the country, especially in our most disadvantaged areas.

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We have also been approached—I hope I can say this—at least for an introductory call by the Financial Times, which does lots of work in this area. I would be happy to recruit any other Members of this House who were particularly interested in this topic and to continue my engagement with the noble Baroness on it. However, I do not think that a legislative solution is needed and I ask the noble Baroness not to press her amendment.

[Baroness Kramer (LD)]

My Lords, I will not reargue the points, and I thank everybody who has participated in this debate. I will just say to the Minister on Amendment 11 that, having cited a number of American banks, I suggest that he goes to talk to them and tell them that this amendment both works and is vital. Because of that, and because of the significance of growth for the future of the UK economy and growth in every postcode, I intend to press Amendment 11.

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[Lord Pitt-Watson (Lab)]

My Lords, I start with an apology to the noble Lord, Lord Sharkey, if I have failed to respond to him appropriately, but perhaps I can do so in the remarks that I will now make. In response to my noble friend Lord Davies, I am clear that treating customers fairly is one of the business principles of the FCA and is therefore one of the criteria by which a complaint will be able to be made to the FOS.

The FOS plays a vital role in the redress framework for financial services, ensuring that consumers have confidence that, if there is a complaint about a financial services provider, there is an independent, impartial service that can resolve that complaint and has the ability to put things right. That role will not be changing as a result of these reforms. However, the framework within which the FOS operates is not as consistent as it needs to be, and that is not good for consumers or financial services firms. That inconsistency is not surprising because the FOS’s fair and reasonable test was determined before the consumer duty came to the FCA.

The Government’s review of the FOS found that there is a small but possible minority of cases where that inconsistency in the framework could cause false determinations to have the effect of quasi-regulations by setting standards that may not be in line with FCA regulations. To be clear, these are all the FCA regulations. If noble Lords had been with me three months ago, they would have seen me writing letters to my predecessor confirming that that was indeed the case.

As far as the House of Lords is concerned, the Financial Services Regulation Committee stated in its report Growing Pains, that the FOS’s actions can,

“have regulatory impacts by creating precedents that the FCA requires firms to follow”—

again, a quasi-regulator. That is the background to why we are doing this.

[Baroness Kramer (LD)]

The key issue that I think the Minister has rather glossed over is the evidence base for making these changes. We have been told it would be coming; it has not come. Consistently, we have been told that letters are being developed, but letters have not arrived. I asked for a specific letter and was told that of course it could be provided. It is about the car finance scandal, which was basically exposed through the FOS while the FCA stood to the side, and what would be different now in the consequences of the complaints. What would happen to the complaints that would be different? This seems to be the issue that lies at the heart of this. The FOS exposed a major scandal. As the Minister will know, car finance is the second largest financial market in the UK. Nine out of 10 people who buy a car finance that car. The redress scheme that the FCA has been forced to put into place is currently £7 billion. If I understand correctly from listening to the Minister and his various advisers, in future the FCA approach to the problem would reign, this scandal would never be exposed and there would never be redress. I am waiting for the letter that is supposed to tell me whether that is exactly correct.

[Lord Pitt-Watson (Lab)]

Let me try to address that question. The FCA and the FOS are independent. It is not for the Government to decide what was a correct or a false decision. All that the Government are saying is that the criteria by which the FOS adjudicates should be similar to the rules that practitioners are trying to exercise in the way in which they are working. I think that is just good common sense. I believe there will be a publication coming out shortly from the industry with examples of where the industry may think that the FOS treated it in a way that was inconsistent with the FCA. It is not for me to judge whether that took place. It is for the FOS to judge whether that took place. That may be the reason that I am proving so frustrating in being able to write back properly to the noble Baroness.

Amendment 14 would remove Clause 8 from the Bill and add a list of factors that the FOS must take into account when determining what is fair and reasonable in all the circumstances. In Committee, the noble Lord and others raised concerns that Clause 8 might remove the ability of the FOS to consider fairness in the round. That is not the case. The FOS will still make its determination based on all the circumstances of the case.

The amendments made to FSMA by Clause 8 do not abolish the fair and reasonable test. That is the final adjudication that will be made by the FOS and, because of the principles of business, treating customers fairly is one of the criteria by which a complaint could be made.

Where the relevant FCA rules apply, the Government consider that FOS determinations should be consistent with those rules. Consumers and firms should be able to understand and rely on the FCA rules as providing the standards against which conduct is going to be assessed. I want to be clear: that extends to all the FCA’s rules—I think that addresses my noble friend Lord Davies’s question. That includes the principles for business, the consumer duty and the code of conduct. These are designed to secure high standards of conduct and consumer protection. If a firm fails to meet its obligations under these broad principles-based rules, the FOS may conclude that it should pay redress to the complainant, taking into account this failure and any other relevant information, such as the impact the failure had on the complainant. There is no requirement for a firm to have breached one of the more specific, detailed rules in the FCA’s rulebook.

The consumer duty was introduced by the FCA to improve consumer protection across all financial services, and the Government are confident that it sets a high standard of care that firms should provide to their customers. It includes a requirement to act to deliver good outcomes and an expectation that firms will act in good faith, avoid causing foreseeable harm and enable and support retail customers to pursue their financial objectives. The consumer duty, as I pointed out, did not exist when the FOS was established and the fair and reasonable test was introduced. It is right that the framework governing the FOS should be updated to reflect this landmark piece of consumer protection regulation. Without clarification, we are left with a situation where two different bodies are independently making assessments of what standards firms need to meet, and that does not seem like a sensible approach. The reforms to the fair and reasonable test strengthen consistency across the framework. They do not weaken consumer protection.

Amendment 13 would remove Clause 7. In Committee, the noble Lord suggested that the referral mechanism would in effect subordinate the FOS to the FCA. That is not the case. The FOS will remain completely independent and responsible for resolving complaints between consumers and financial services firms. The FCA will not determine individual complaints, it will not investigate disputes and it will not direct the outcome of cases. Those functions will remain entirely with the FOS.

The amendments to FSMA made by Clause 7 ensure that, where the FOS considers there to be an ambiguity within the FCA rules, the FCA must provide an opinion requested by the FOS. That is entirely consistent with its statutory role as a rule-maker. The FOS will then use that opinion, applying it to the individual circumstances of the case to make a determination.

Lastly, some noble Lords expressed concerns about the potential for referrals to lead to delays, including with reference to the FCA’s comment about the potential operational load. The Government recognise the importance of maintaining the FOS’s quick and informal model, but the Government anticipate that only a very small number of cases are going to be referred to the FCA. The vast majority will be resolved without the need for referral. To avoid delays, the timeline for the FCA to respond will be set out in secondary legislation.

The FCA and the FOS are already gaining practical experience of operating such a mechanism by trialling arrangements through their memorandum of understanding. The experience gained through this trial has provided valuable lessons for the implementation of the legislative mechanisms. The Government will continue to work closely with the FOS and the FCA ahead of those changes taking effect, preparing them to ensure that the new system works effectively. The memorandum of understanding, by the way, is creating a very small number of referrals from the FOS to the FCA.