Financial Services and Markets Bill [HL]

Lord Altrincham Excerpts

2nd reading
Monday 8th June 2026 Lords Chamber

[Lord Altrincham (Con)]

I thank the Minister for hosting this debate with such courtesy and speaking so well at the start. I declare my interest as a director of South Molton Street Capital and also as former director of the Co-operative Bank. I follow the words of my noble friend Lady Neville-Rolfe in saying that we welcome this Bill. It addresses a widespread sense that financial regulation has become a little too complex. We have heard that this evening in debate, but that sense also seems to be held by the Treasury, the National Audit Office and, clearly, by the Government. The Government have generated multiple reviews and inquiries that underpin the clauses in the Bill.

To look at just a few of them, Clause 26 follows the committee on banking standards. This is the clause that looks at the senior management regime, where there is a huge need for reform and a reduction in bureaucracy. The Government have asked for a 50% reduction in bureaucracy, which we would welcome. The senior management regime itself is really quite a complex thing, and it probably does not quite do what Members of your Lordships’ House would expect—partly because some of the people who participate in it do not fully understand the regime themselves or what their obligations are.

Clauses 16 and 17 are the two quite controversial clauses that were spoken about today. One is on the five-year plan—the unsupervised five-year plan at the FCA—and the other is on weakening the link to the regulatory principles. Noble Lords have spoken today about the importance of oversight and of keeping an eye on what the FCA is up to. But going right back to the beginning of how the regulator was set up—the noble Lord, Lord Eatwell, reminded us of his participation in that, along with the noble Lord, Lord Burns—when the Financial Services and Markets Act 2000 set it up, it established that there would be a cost-benefit analysis that would essentially hold the regulators to account to be honest in how they develop regulation.

The FCA is running a review at the moment of cost-benefit analysis with Dr Felix Martin. We might, at the very least, hold the regulators to that part of their own obligation: proper cost-benefit analysis, and proper supervision of that analysis. That is even before we get to proper supervision in Parliament, which we have only just managed to put into the last Bill, as your Lordships know.

Clause 39 is on the ring-fence. It was interesting to hear the noble Lord, Lord Tunnicliffe, on that. The ring-fence clause also sits on a variety of reviews, in particular the Keith Skeoch review of 2022. It is worth remembering that his review in 2022 said that it supported the ring-fence but was very explicit on a few other points, one of which was that it is very expensive. There is an economic burden to running this ring-fence regime, in the order of £1.5 billion a year. But Skeoch also said that the benefits of the ring-fence regime would be diminishing, for the reasons we have just heard: because of the strength of the regulatory regime elsewhere, in particular the resolution regime. Then he added that the ring-fence might lead to ossification—quite a strong word—in retail bank services.

We might hope that that has not quite happened, but we know that there have been closures of hundreds of bank branches, so we might expect that all those closures would suggest at least a moderate reduction in retail bank services. That is before we even get to the provisions in Clause 3, which themselves are underpinned by a review into what is happening in retail banking at the moment. We might take quite a hard look at that, because it touches on the issues raised by my noble friend Lord Kamall—access to banking services for more vulnerable people—and by the noble Baroness, Lady Morgan: financial abuse and what is happening in the retail bank market. It just underpins the fact that so many of these clauses sit on quite careful inquiry.

This pattern, whereby there is a review and a recommendation, and it winds up in consequential legislation, means that the FCA acquires more powers every single time. Then we come back to why the FCA has all these powers, what it is doing with them and what we can do in Parliament about it, which is why in debating the last financial services Bill we spent so much time on oversight and accountability, so I will start there.

Oversight in Parliament for financial regulation has been improved with the previous Financial Services and Markets Act and, to the credit of Parliament and the Government, there have been quite important changes with the increase in the MREL threshold in September and the deposit threshold for the leverage ratio in November, and a reduction—for the first time since the financial crisis—in the Tier 1 capital ratio by the Bank of England in December. Oversight in Parliament was at least part of the reason for the change but, as a number of noble Lords have said, this Bill removes significant parts of the existing regulatory architecture. That was specifically of concern to my noble friend Lord Howard and mentioned by the noble Baroness, Lady Bowles.

In doing so, the Bill transfers considerable power to the Treasury, the FCA and the PRA to design and implement the new regime. Clause 3 adds Henry VIII powers that might create quite unintended consequences. Clauses 16 to 18 specifically tend to weaken supervision. We understand the argument the Minister is likely to make, which is that placing more of the framework outside primary legislation can allow for greater flexibility, speed and responsiveness. But flexibility must not come at the expense of accountability, and simplification must not become a means of transferring major policy choices away from Parliament and into the hands of regulators without proper oversight.

The FCA and the PRA rightly enjoy statutory independence from the Chancellor, but that independence makes parliamentary accountability even more important. Their principal democratic accountability is not to Ministers but to Parliament, and in practice that accountability is exercised largely through committees in both Houses.

I turn to regulatory proportionality. The second key concern I have is proportionality, which was discussed extremely clearly by my noble friend Lady Noakes and also by my noble friend Lady Lawlor. My noble friend Lady Noakes is right to say that proportionality needs to be uppermost in the minds of the regulators. It is the detail of rules, guidance and decisions that matter, not the broad-base strategies. Of course, lack of proportionality can arise for lots of reasons, perhaps starting with legislation itself, but it suggests a lack of regulatory judgment, which is rather unlucky.

Anti-money laundering rules have reached the furthest corners of English life. Alas, as we guard against wickedness in very small financial transactions in this country, there is a degree of quite significant capital flight out of the country going on. The timing of the Bill suggests that it may be the last chance for Parliament to set clear guidelines on proportionality before the next Government. Only Parliament can do this, because financial regulation will default to maximum caution in most instances, with consequences very clearly identified by noble Lords in the debate.

Clause 14 on AML, Clause 39 on ring-fencing, Clauses 16 and 17 on the five-year plans, and Clause 26 on changes to the senior management regime are all about proportionality. The Government’s own 2025 action plan recognises:

“Regulation can be too complex and duplicative”,


and that the cumulative effects of individually rational rules can impose significant burdens on business, smaller banks, challenger firms, wholesale firms and those caught by overlapping conduct and redress frameworks.

Your Lordships’ Financial Services Regulation Committee has also raised important concerns about whether aspects of the PRA’s capital approach may limit

“the commercial incentives and capital available to provide finance for growth”.

Overcalibration can reduce lending, particularly for SMEs, and productive investment, especially where requirements bear down on smaller, growth-oriented lenders.

The Bill touches on some of these issues of proportionality: reform of the Financial Ombudsman Service; simplification of the senior managers regime; faster application deadlines; and the consolidation of the Payment Systems Regulator into the FCA. Those are welcome steps.

We welcome the Bill. We hope that, through our deliberations in this House, we can help shape a Bill that restores confidence, competitiveness and momentum in our financial services industry for the wider benefit of our economy and our country.

Financial Services and Markets Bill [HL]

Lord Altrincham Excerpts

Committee stage
Monday 22nd June 2026 Grand Committee

[Baroness Lawlor (Con)]

My Lords, I hesitate to follow the noble Lord, Lord Carlile, who, although he is not a specialist in this area, is a lawyer. I will speak in support of this group of amendments; I would have done the same for the first group, had I been here. It is important that businesses and consumers alike have the protection of a law that is predictable and transparent and where no doubt arises about its interpretation. Many doubts have arisen around the judgments and rulings of the FCA and its lack of consistency. Therefore, I am sympathetic to the wish of the noble Baroness, Lady Bowles, to have something done on paper, so that we can see something before putting it through.

Both businesses and consumers are used to having a legal surround for such transactions. They go back to the 1850s in the Bills of Sale Act 1854, which was modernised throughout the end of the 19th century and then followed by the Money-lenders Act 1900, obliging the registration of moneylending and allowing the courts to be involved. It is important that we have judicial oversight, not just by updating the process—although I agree with noble Lords on that—but with a legal framework that is transparent and consistent and that allows people to see what is expected.

I am also concerned about the impact of rushing through legislation to empower an as yet uncertain regime of rule-making, about which nothing of substance is known. The FCA appears to be as unprepared for this as others. In its response last month to the Treasury’s announcement of the reform of the Consumer Credit Act, the FCA said that such reform

“is an important step towards a more flexible regime that supports effective competition and innovation, while maintaining appropriate consumer protection both now and in the future”.

It acknowledged that it would put

“greater emphasis on FCA rules and guidance rather than prescriptive requirements set out in legislation”.

It states that it intends

“to consult on the key elements of the … framework … set out in legislation”.

One problem with being flexible—or moving to what the FCA calls

“a more flexible regime that supports effective competition and innovation, while maintaining appropriate consumer protection both now and in the future”—

is that flexibility can be inconsistent and lack transparency. What is appropriate for one firm may not be so for another. It brings doubts into the minds of businesses. We have heard of businesses being concerned about the arrangements run by the FCA. For example, given that many of the requirements to disclose information in the CCA and associated regulations are to be repealed, how transparent will the rules be? How consistently will they operate? Will the FCA’s rulings be published? If they are to be less prescriptive and more in line with the FCA’s consumer duty principle, how certain can businesses be about what counts as being in scope?

Before closing, I would like to mention another concern: the considerable compliance costs. Most of the disclosure of information obligations on the CCA, and in the linked regulations being repealed and replaced by FCA rules, will bring costs. I am grateful to Addleshaw Goddard LLP for its analysis, published on its website, which suggests:

“Reforms in relation to arrears, default notices & in-life information are likely to create major operational impact for collections and arrears handling. Given the high litigation risks attached to these requirements firms should carefully consider these changes and monitor how these requirements will be re-designed in FCA rules”.


Here, we should think of the start-up costs for this new system, along with the continuing compliance costs, which will be considerable. Take, for instance, the information requirements. How will they affect the estimated 30,000 firms that will have to amend documentation that does not align with the consumer duty?

With those thoughts, I support the thinking behind the stand part notice in the name of the noble Baroness, Lady Bowles, with its question mark around the wholesale transfer of such powers without any information on how they will be operated or regulated—or, indeed, what they will be now.

[Lord Altrincham (Con)]

My Lords, I declare my interest in South Molton Street Capital, which is regulated by the FCA.

The amendments in this group reflect concerns similar to those raised in our previous debate. As the noble Baroness, Lady Bowles, and my noble friend Lady Neville-Rolfe have argued, it is for the Government now to set out a compelling case for moving Consumer Credit Act provisions into the FCA rulebook. This is a serious new precedent and they must meet it with an equally serious explanation. Regulatory flexibility, or, as we have heard from my noble friends, the living instrument arguments, may be appropriate for matters of form, process and technical detail. However, that flexibility comes with risks. Consumers, firms and the courts all benefit when substantive rights and remedies are stated clearly in law. Notwithstanding the comments made by the Minister, moving them into regulatory rules may reduce their visibility, create uncertainty about their permanence and make their enforceability less clear. I hope that the Minister will be able to assure us further on how the proposal before us will avoid that issue.

There is an important constitutional principle at stake. If rights established by Parliament can, in effect, be rewritten through regulator-made rules, Parliament’s role in determining the proper balance between consumer protection and regulatory proportionality is diminished. More broadly, public confidence depends on protections being visible, accessible and readily understood. This is particularly important in consumer credit, where people may be making difficult or significant financial decisions while facing difficult or vulnerable circumstances. Rights are of limited value if consumers cannot identify or understand them and cannot be confident about how they will be enforced.

Fundamentally, we need a lot more clarity on this process and on what the Minister described as the orderly transition. We shall listen carefully to his response on this group, in addition to his previous reply.

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[Lord Altrincham (Con)]

My Lords, I am grateful to the noble Baronesses, Lady Kramer and Lady Bowles, for bringing these amendments—and to the right reverend Prelate for his reference to scripture. They raise important questions and will facilitate a useful debate about access to finance, the responsibilities of financial institutions and the right way to support small businesses and underserved communities.

I will begin with Amendments 28 and 29 in the name of the noble Baroness, Lady Kramer, and in the case of Amendment 28 also in the name of the right reverend Prelate the Bishop of Manchester. These amendments seek to require the FCA to establish and maintain a framework for assessing and rating banks’ and building societies’ performance in providing access to affordable credit, including for underserved groups. Amendment 29 would go further and require firms falling below a minimum performance threshold to take proportionate remedial action.

Access to financial services and appropriate credit is of course extremely important. That is particularly true for small and medium-sized businesses, micro-businesses and those parts of the country where access to finance can be more difficult. If we can improve the flow of capital to productive businesses, we can simulate growth, increase employment, allow firms to develop and generally improve the health of our economy. Many of the most successful businesses in this country began as small enterprises. They require confidence, access to working capital and a banking system willing to support their growth. When credit is unavailable or available only on unreasonable terms, good businesses can be held back, investment delayed and opportunities for employment and innovation lost.

However, my concern is with the mechanism proposed. I am not convinced that this can or should be done from a centrally mandated position. Banks and building societies have to make lending decisions on the basis of risk, affordability, regulatory capital, commercial judgment and the circumstances of the borrower. They are complex assessments, not straightforward public policy levers that can simply be pulled from the centre. If banks are going to make these decisions on the basis of their commercial interests, in many cases they will already have done so. Where lending is not happening to the extent that the noble Baroness would like, there is a reason for that. It may relate to risk appetite, capital requirements, information gaps, the lack of security, regulatory burdens, compliance costs or wider economic uncertainty, but the answer, it seems to me, is to work out why that is the case and then address those underlying barriers.

The answer should not be to move towards a system in which the Government through statute begin to direct the lending priorities of banks from the centre. Once we go down that road, we risk blurring the line between commercial banking and public policy allocation of credit. That is not a small step. It could have unintended consequences for financial stability, risk management, and ultimately for consumers and taxpayers. This would also send a worrying signal that the UK is a jurisdiction in which private interests are essentially subordinate to political objectives.

I support efforts to promote investment into SMEs, micro-businesses and underserved communities, but I do not think the right mechanism is one enforced by the Government in statute through ratings, thresholds and mandatory remedial action. I would therefore be grateful if the Minister could explain what work the Government are doing with banks and financial service providers to improve access to affordable credit, particularly for SMEs and underserved groups. I hope he can reassure the Committee that this work is being done with those organisations rather than over them.

I turn briefly to Amendment 30, in the name of the noble Baroness, Lady Bowles, and follow the words of my noble friend Lady Noakes. This amendment would introduce a fiduciary duty requiring firms to act in the best interests of retail customers, including small businesses. It would include duties around avoiding exploitative practices, ensuring suitability and fairness and taking reasonable steps to prevent foreseeable harm.

I understand the concern that sits behind this amendment. We all want financial services to treat customers fairly, we all want to prevent exploitative practices and we all want suitable products, clear terms and proper regard to foreseeable harm. Those are important principles. However, I am against imposing a broad fiduciary duty of this kind across regulated financial services. The concept of fiduciary duty carries with it a particular legal character and a potentially very wide set of implications. If applied broadly to all retail customer relationships, including small business relationships, it could create significant uncertainty about the legal obligations of firms, the interaction with existing FCA rules and the extent to which ordinary commercial relationships are being recast as fiduciary ones.

We are also concerned that this step could lead to a serious increase in the regulatory and compliance burden, which would fall on firms that are already struggling. Indeed, there is already a substantial framework governing conduct, consumer protection, fairness, suitability and foreseeable harm. The question for the Government and the FCA should be whether that existing framework is operating properly and proportionately, not necessarily whether a new overarching fiduciary duty should be imposed on top of it.

My concern is that such a duty could invite litigation, uncertainty and defensive behaviour. It might also make firms more reluctant to serve marginal or higher-risk customers if they fear that any adverse outcome could later be characterised as a breach of fiduciary duty. That would be the opposite of what many of us want to achieve in this group, which is broader and better access to financial services. Indeed, it would make providers and regulators more risk-averse.

These amendments raise an important debate about access to credit, the treatment of customers and the role of financial institutions in supporting growth. I support the objective of improving access to finance for SMEs, micro-businesses and underserved communities and hope to hear support for this from the Minister, but we should not seek to achieve that by central direction of lending decisions or imposing broad new legal duties whose consequences would be uncertain and work against the Government’s broad objective of simplifying regulation and reducing burdens.

[Lord Stockwood (Lab)]

My Lords, Amendments 28, 29 and 30 are aimed at increasing access to finance and ensuring that the customers of financial services firms are protected. I recognise the intention behind these amendments. However, I do not believe that either solution is workable.

On Amendments 28 and 29, I agree that data on access to finance and holding the sector to account are important. However, these proposals would introduce a new, prescriptive and burdensome framework on the FCA and firms that I am not persuaded would deliver the desired output.

Amendment 28 would require the FCA to establish a framework to monitor, assess and publicly report on certain banks’ and building societies’ performance in providing access to affordable credit. Amendment 29 would require the FCA to take action against firms that do not meet a minimum standard. As the noble Baroness, Lady Kramer, said, this approach resembles the United States’ Community Reinvestment Act 1977, but we should not assume that it would have the same effect here. Our starting point is different: we are working nearly 50 years later, in a digital age, with a far more diversified credit market. In any case, lenders already publish significant data. Chapter 7 of the FCA’s Conduct of Business Sourcebook requires extensive disclosure on personal and business current accounts. We also have the FCA’s Financial Lives Survey, the SME Finance Monitor and the British Business Bank’s annual SME finance publications, among others.

Amendment 29 would require the FCA to act against firms that do not meet a minimum lending standard. Striking the right balance on access to credit has long been a challenge. We want consumers to be able to access credit where it supports financial resilience and businesses to secure the finance needed to grow, but inappropriate credit can lead to overindebtedness, with serious consequences. The amendment could, in effect, compel lending to more vulnerable groups or SMEs. Even a well-designed regime could be a blunt instrument, with a risk of unintended outcomes. It would also represent a significant intrusion into firms’ commercial decisions.

More fundamentally, it is difficult to see how firms could increase lending and take on greater risk without raising prices to reflect that greater risk. If firms do not price risk appropriately, it opens us up to financial stability risks. The FCA would be placed in the invidious position of having to mandate affordable credit, while the mechanism required to expand provision could increase costs and potentially increase risk for the borrower and the firm. That runs directly counter to the intended objective for vulnerable customers and SMEs.

Although I cannot accept these amendments, I stress to noble Lords that the Government are not complacent about financial inclusion or the availability of SME finance. The noble Lord, Lord Altrincham, asked me to set out what the Government are doing, and I am happy that noble Baroness, Lady Kramer, mentioned several of these interventions already. The Government published their Financial Inclusion Strategy last autumn, and we are supporting practical interventions for consumers, including a small sum credit pilot enabling mainstream lenders to test lending to customers outside their usual risk appetite. Monzo was announced as the first participant in the scheme earlier this month.

We have launched a transformation fund for credit unions, alongside common bond reforms in this Bill, to strengthen their lending capacity. We are also advancing targeted SME finance measures to improve competition and supply, including enhancing the consumer credit data sharing scheme through Clauses 41 and 43 of this Bill. We are supporting up to £150 million of lending through the Community ENABLE funding programme over the next two years. We are establishing a CDFI taskforce and working with industry to improve bank referrals. Indeed, tomorrow I am meeting several large asset managers as chair of the place-based impact investment scheme. We will set out next steps on open finance later this summer. This has significant potential to support SME lending across a wide range of providers, alongside broader work with the Bank of England on capital and ring-fencing.

I highlight community development finance institutions, which I know are a priority for the noble Baroness, Lady Kramer. In addition to the CDFI taskforce and the Community ENABLE funding programme that this Government have funded, the sector benefits from Fair4All Finance’s affordable credit scale-up programme, which has committed more than £40 million in social investment in England to date. The financial inclusion strategy further includes measures to strengthen community finance, including promoting partnerships with mainstream lenders. Taken together, these measures support access to finance in the UK in an appropriate and responsible way.

Amendment 30 would introduce a new fiduciary duty on firms when carrying out FCA-regulated activities. It would place specific legally binding requirements on firms. I agree with the noble Baroness that it is vital for firms to act in a way that delivers good outcomes for consumers. However, I believe that FCA regulation is able to achieve this, and I am concerned that this new duty would risk creating overlapping requirements, causing confusion and reducing consumers’ access to finance.

The FCA’s consumer duty is designed to set a high standard of protection for retail customers by requiring firms to act to deliver good outcomes in line with the outcome sought by this amendment. It requires firms to put consumers’ needs at the heart of their business, including by acting in good faith, avoiding foreseeable harm and supporting consumers to pursue their financial objectives. In practice, this means that firms must design products and services that meet consumers’ needs, provide fair value, communicate clearly and offer effective support.

I am concerned that the requirements set out in this amendment would risk making more vulnerable customers more expensive and risky to serve, which would reduce their access to products such as credit and insurance. Introducing a novel statutory fiduciary duty, the precise scope of which would fall to be settled through litigation over a number of years, would create significant legal uncertainty. That uncertainty would carry a cost, which firms would be likely to manage by withdrawing from, or repricing, services for higher-risk customers. I recognise that there is some precedent for a fiduciary duty in trust-based pension schemes. However, the dynamics of the market are very different from wider consumer financial services. Typically, employer pension schemes do not choose which individual customers to serve, and the fiduciary duty applies at the membership level.

I genuinely understand the importance of lending for all parts of the economy, and I understand the need for borrowers to be protected, but I am convinced that the Government are taking the right set of actions, and I am afraid that Amendments 28, 29 and 30 would bring significant unintended consequences. I therefore ask the noble Baroness to withdraw her amendment.

Financial Services and Markets Bill [HL]

Lord Altrincham Excerpts

Committee stage
Wednesday 24th June 2026 Grand Committee

[Lord Altrincham (Con)]

My Lords, I will speak briefly to the government amendments in this group and declare my interest as a director of South Molton Street Capital, which is regulated by the FCA. I thank the Minister for explaining so clearly these amendments. He has described them as minor technical amendments and as descriptions around making language consistent with FSMA. Notwithstanding that, at the outset, we welcome these amendments in so far as they are intended to make the Bill clearer, correct cross-references, remove duplications and ensure that the legislation works as intended. The amendments before us are technical in character and, where they improve the coherence and operability of the Bill, we do not object to them.

However, following the words of my noble friend Lady Noakes, I want to raise a broader procedural point, because I think it matters for how this Committee is able to scrutinise the Bill properly. We understand that not all noble Lords who have taken a close interest in the Bill were engaged by the department on these government amendments. That is a concern. I would be grateful if the Minister could give us a clear commitment that, ahead of future stages, the Government will make every effort to engage with not only the Opposition Front Bench but noble Lords across the Committee who have raised substantive concerns, and to provide timely, written explanations of any further government amendments.

I understand that my noble friend Lady Noakes will be writing to the Minister about the way in which the Government have handled engagement and oversight around these amendments. Given the reservations of my noble friend and of her committee, it is right that we do not agree to these amendments today but rather see them reintroduced on Report, as a matter of principle.

[Lord Stockwood (Lab)]

My Lords, I am happy to apologise to the noble Baroness for any mix-up. It was my understanding that it was not necessary to do an all-Peers letter for only a handful of technical amendments. With that in mind, we believe that the amendments we have proposed are minor and technical in nature and were tabled in good time before the Committee’s first debate. They are on drafting errors and remove duplicate and obsolete provisions, ensuring that the relevant provisions in the Bill and FSMA operate clearly and consistently. I trust that my explanation has given the noble Baroness the information she needs, but I will withdraw the amendment for now and bring it back on Report.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I very much suspect that the noble Baroness, Lady Noakes, and I would find significant differences in our ideal list of the regulatory principles in Section 3B(1) of FSMA. I will argue in the next group for a “have regard” to the risks of the private credit market to financial stability. In group 8, my colleagues will argue for a “have regard” on sustainability and in group 10 for a “have regard” on financial inclusion.

These are all probing amendments, but they reflect the need for principles to be reviewed, debated and potentially changed by Parliament, so that a review would have input from the regulators and from the Government, but the final decision would rest with Parliament, as it has always done in primary legislation.

To pick up one of the issues that the noble Baroness, Lady Noakes, made about durability, constant churn is unacceptable and would leave the regulators and the financial sector in confusion, and none of us wishes for that. But I think that on the whole, we can look back and say that Parliament has behaved responsibly. Not everybody likes all the principles, but the financial system and the regulators have not had difficulty in delivering, or considering and making sure it is having regard to, those particular principles, particularly when financial stability is at stake.

To me, what underlies all this is the democratic process. I do not believe that principles can be abdicated to a regulator, which is what happens with the Bill—they go off into the long-term strategy. I believe this is for Parliament, and I would very much always support a review. Parliament has that right and that responsibility.

Some of us rather suspect that the removal of the principles to the five-year strategy has been to provide a covert way to diminish the climate change principles. The noble Baroness, Lady Noakes, whom I respect, would move them through the front door, but for many of us there is a strong suspicion that this is removing them through the back door so that the Government do not get the opprobrium that would follow from groups that are concerned about net zero and climate change. Some in the financial services sector are actually very dedicated to achieving climate change targets, but there are also plenty of voices that regard every climate change target and every net zero as a cost and a regulatory burden, and it seems to me that those voices have had very strong sway with the Government.

I suspect, frankly, that we would never have had climate change in among the principles had it not been for Mark Carney, and I very much doubt they will survive in any substance as part of the long-term strategy unless there is something of a volte- face in attitudes as we keep going through very extreme weather conditions and it becomes apparent that there is a huge financial cost and a huge risk to financial stability from the extreme weather conditions and the consequence damage to our overall economic circumstances.

As I say, if the Government wish to change the principles, they should do it through the front door in the way that the noble Baroness, Lady Noakes, proposes: raise the issues, tell Parliament that they wish to make changes and argue in favour of those changes. But that is a fundamentally different approach from taking principles, which I suspect they dislike, and moving them to a long-term strategy so that they will, over time, dwindle but without visibility or any parliamentary input.

[Lord Altrincham (Con)]

My Lords, this is a welcome amendment because it raises important questions about the structure of our regulatory framework and in particular about whether the regulatory principle set out in Section 3B of FSMA—the eight principles—remain coherent, useful and properly calibrated to the circumstances in which we now find ourselves.

Over time, FSMA has accumulated objectives, secondary objectives, regulatory principles, “have regard” duties, reporting requirements and consultation obligations. Some of those are individually sensible and many were introduced for good reasons, but taken together, there is a real risk of regulatory layering. Duties and principles are added and new obligations are placed on regulators, but very little is ever taken away. The result is a framework that is increasingly complex and it is not always clear which duties genuinely drive regulatory behaviour and which simply sit on the statute book without translating into meaningful change.

The amendment asks the Treasury to review whether those principles are duplicative or remain necessary, and whether the framework could be simplified or improved. There is also a wider question, which was raised by the Financial Services Regulation Committee in its report last year, about whether these sorts of duties actually translate into anything meaningful in practice. It is one thing for Parliament to place a duty on a regulator to have regard to a particular principle or consideration—as my noble friend Lady Noakes mentioned, that is exactly what the Leeds reforms are trying to streamline—but quite another for that duty to shape decisions in a clear, measurable and accountable way.

Needless complexity matters for firms as well as for regulators. A complicated regulatory framework does not stay confined to the regulator; it filters down into consultations, supervisory expectations, compliance systems, legal advice and business decisions. If the statutory framework is unclear or duplicative, the burden ultimately falls on the firms that have to comply with it. At a time when we are asking financial services to support growth, investment and competitiveness, we should be especially alert to unnecessary regulatory complexity. The UK’s high regulatory standards are not in question, but there is a question as to whether the framework through which those standards are delivered is as clear, efficient and proportionate as it can be.

I therefore hope that the Minister will engage constructively with the amendment. I would be grateful if he could explain how far the principles have already been reviewed in preparation for this Bill, in the light of the comments from the Financial Services Regulation Committee. Do the Government accept that the accumulation of regulatory principles and duties can create complexity, and do they believe that the existing Section 3B principles remain fit for purpose? This amendment raises a valuable point; I look forward to hearing the Minister’s response.

[Lord Stockwood (Lab)]

My Lords, I am grateful to noble Lords for their thoughtful contributions to this debate. This clearly animates a lot of discussion. I particularly acknowledge the noble Baroness, Lady Noakes, and the work of the Financial Services Regulation Committee in effectively scrutinising the work of the regulators. It is important work, and we intend through this process to support that and not diminish it in any way. As was clear from those contributions at Second Reading, noble Lords place a strong emphasis on getting the regulatory principles right. The Government also take this matter very seriously.

Amendment 77 would require the Treasury to carry out and lay before Parliament a review of the regulatory principles in Section 3B(1) of FSMA. I am sympathetic to efforts to streamline the process of making regulation and to giving regulators a clear and manageable set of issues on which to focus. However, the Government have already considered this question and have carried out a review of the regulatory principles, as well as the other “have regard” provisions mentioned by the noble Baroness, Lady Noakes. The Government committed to this review in the Regulation Action Plan published in March 2025, and carried out the review with a view to identifying opportunities to rationalise those principles.

As a result of that review, the Government concluded that each of the regulatory principles in the Financial Services and Markets Act 2000 is individually important; that they do not materially overlap with each other or with other requirements set out in legislation; and that they play an important role in providing transparency and supporting the Government and Parliament’s oversight of the regulators. However, the Government also found that the “have regard” provisions can reduce regulators’ ability to act strategically and with a clear focus.

Currently, the way that the principles operate results in the production of large volumes of information that do little to support effective overall scrutiny of a regulator’s performance. The Government have drafted the measures in this Bill with a view to rationalising how the regulators take these regulatory principles into account, without amending the principles themselves. We recognise that this is an area where there is significant interest; issues related to this amendment will continue to be debated during the passage of the Bill, when there will be an opportunity to discuss this area in greater detail. A further statutory review, beginning after Royal Assent, would duplicate the work that the Government have already undertaken.

I will come back to noble Lords’ specific questions in writing if I do not cover them later in the debate. I ask the noble Baroness to withdraw her amendment.

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[Lord Altrincham (Con)]

My Lords, this amendment raises an important question around private credit and how our regulatory framework should respond to emerging risks in modern financial markets. I look forward to the Minister’s tactful comments on this amendment, given that the noble Baroness, Lady Kramer, spoke so well in favour of private credit in our debate on the fifth group on our first day in Committee. Here we are with the problems of private credit on our second day in Committee. The Minister will be extraordinarily tactful in handling that.

We will have a wider debate on Clause 17 and the regulatory principles in future groups, but this amendment touches on some of those broader questions. The specific issue raised here—private credit—is an important and timely one. Private credit has grown considerably as a feature of modern financial markets; it has, in fact, grown partly as a consequence of regulation. We are dealing now with regulation of a consequence of regulation as the markets have evolved. It can provide an important source of finance outside traditional banking channels, supporting businesses that need capital to invest, develop and grow. For that reason, we should be careful not to respond to its expansion in a way that unnecessarily restricts access to safe and productive credit; indeed, the Financial Services Regulation Committee concluded in its report earlier this year that private credit has developed rapidly and plays a useful economic role.

That is particularly important at a time when we want firms to invest, expand and access the finance they need. We should not create a regulatory environment in which the answer to every emerging market development is simply more regulation without proper regard to the consequences. Indeed, the Government have been keen to support private equity through greater investment from assets such as pension funds in the UK. If they want this sector to continue developing, they must ensure that regulation supports, rather than restricts, access to credit for consumers who choose to use these products.

At the same time, it is right to recognise that financial markets do not stand still. The system changes over time, and the regulatory framework must remain alert to those changes. Areas such as private credit, non-bank finance, digital finance and other fast-moving parts of the system demonstrate the need for regulation that reflects the market as it is developing, not simply the market as it looked when earlier legislation was drafted.

The key point, therefore, is one of balance. We need a market that is dynamic, innovative and capable of providing finance to the businesses on which growth depends, but we also need a regulatory framework that is sufficiently up to date to understand and monitor emerging risks. We should keep in mind, though, that risk can never be eliminated entirely. The role of regulation should be not to remove all risk from the system but to ensure that risks are properly understood, proportionately managed and developed with an eye to supporting economic development and growth.

For those reasons, we will listen carefully to the Minister’s response.

[Lord Stockwood (Lab)]

My Lords, I welcome the focus of the noble Baroness, Lady Kramer, on the vulnerabilities in the private credit system.

Although the Government are clear that the growth of private credit has brought benefits to the real economy, we and the financial regulators are very conscious of the potential vulnerabilities in this sector. Just last month, the Chancellor and the Governor of the Bank of England joined their fellow G7 Finance Ministers and European Central Bank governors in agreeing that potential risks in the private credit ecosystem call for continued monitoring, including that of the interconnections with banks and insurers.

The amendment from the noble Baroness, Lady Kramer, would require the PRA and the FCA to consider private credit’s interactions with the wider financial system in all cases where the regulatory principles are engaged, or else their decision-making could be unlawful. I assure her that the regulators are already working to understand these vulnerabilities deeply and to address them where necessary. This work does not require placing additional duties on the regulators.

I will highlight the existing work of those regulators. First, the Bank of England’s Financial Policy Committee has been focused on the risks of private markets for many years, and the Chancellor’s most recent remit letter to the FPC asks that that work continues. I specifically note the Bank’s system-wide exploratory scenario on private markets, the SWES—as if we needed another acronym. It is examining how a stress scenario could affect the UK’s private markets ecosystem and interconnected banks, insurers and pension funds, with significant participation across the industry. The UK’s system-wide regulator, the Bank of England’s Financial Policy Committee, is the right authority to carry out this work, and its findings will be laid before Parliament when it is complete.

For its part, the FCA also maintains a close focus on these risks, including in its firm-level supervision. Where specific issues are identified, targeted interventions follow. We also welcome the FCA’s work to improve the visibility of risks and data availability through its reviews of the alternative investment fund managers directive framework, and its efforts to raise standards on conflicts of interest, valuation practices and risk management.

I note the noble Baroness’s concerns about the FCA’s regulatory perimeter, but I emphasise that the marketing of funds in the UK is indeed subject to UK regulatory requirements, protecting UK investors. Further, the PRA continues to assess and mitigate risks from private markets to the banks and insurers it regulates. This includes its 2024 thematic review of private equity-related financing activities with banks.

Finally, given the cross-border nature of the private credit ecosystem, the Bank and the FCA are actively engaged in international work, including at the Financial Stability Board, which is chaired by the Governor of the Bank of England. The Government believe that, under our regulatory framework, vulnerabilities in private credit are being understood and addressed where needed, but there is of course much room to improve. I therefore ask the noble Baroness to withdraw her amendment.

Financial Services and Markets Bill [HL]

Lord Altrincham Excerpts

Committee stage
Wednesday 1st July 2026 Grand Committee

[Baroness Noakes (Con)]

My Lords, I have Amendment 118 in this group. As the noble Baroness, Lady Bowles, noted, it is aimed at the same target as her Amendment 117. Both of us are focusing on the regulators needing to have some specific and serious concerns about regulatory breaches before triggering a Section 166 review. I have had some experience of being on the receiving end of Section 166 notices from my time on the board of a major bank. They are genuinely very burdensome: they cost a lot of money, and they divert a huge amount of staff resources and, more importantly, senior management time. They are not something to be undertaken lightly.

The consulting firms absolutely love them. The fees are set by the regulator, so they do not have to do anything awful, such as negotiating with a client around the fees. They often have some perverse incentives, and quite often are structured as phase 1 and phase 2. Phase 1 is where you see whether there is a bit of a problem, then you move on to phase 2. Phase 2 is where the real money usually is, so the consultants leave no stone unturned in their efforts to trigger phase 2, and they can end up creating more work than might perhaps have been needed. Like the noble Baroness, Lady Bowles, I am not saying that Section 166 reviews should not exist, but the use of them should probably revert to the use that existed before. That is why it is important to put a higher hurdle than is currently in the statute for the use of Section 166, so that the burdens are imposed only when there is genuine cause.

[Lord Altrincham (Con)]

My Lords, I am grateful to the noble Baroness, Lady Bowles, and my noble friend Lady Noakes for bringing forward these amendments. I declare my interest as a director of South Molton Street Capital, which is regulated by the FCA.

The amendments in this group focus principally on Sections 165 and 166 of FSMA. It is worth recalling that the very expression “Section 166” has become part of the language of financial regulation. When the history of financial regulation is written, it will be the most famous item of regulation for this period. It is part of the common language, because there are dozens and dozens of these regulatory interventions.

Section 166 gives the regulators the power to require a firm to appoint or to pay for a skilled person—often a very expensive law firm—to produce a report on specified matters. These reviews can be burdensome, expensive and disruptive for the firms concerned. The concern we have heard from industry is that Section 166 notices have become more and more common in recent years. They were, as the noble Baroness, Lady Bowles, pointed out, initially quite scarce and quite important—and quite quiet, incidentally. Now, they are talked about all the time, because they are as common as anything. The serious issue is that they can, in effect, be used by the regulator as a demonstration of the exercise of its supervisory function.

These notices are supposedly for an inquiry, but they look quite threatening: they can be written in bold and in caps and in different sized fonts. They arrive at the firm with a variety of different names—often the firm has not actually heard of the regulator—and the tone of the notices can be unintentionally discourteous. This, of course, touches on other amendments which reference the right profile for the UK in regulating international firms that may operate in this country.

A Section 166 review is not cost-free regulation; it can require substantial external expenditure, internal management time, legal advice, data gathering, citizens’ work and follow-on remediation. The direct cost of the skilled person report may be only one part of the total burden. This means that there is inevitably a presumption of guilt in these inquiries, without a balanced challenge to which the firm can fully respond. We must bear in mind that firms often do not even know what the inquiry is looking for, so the ability to seek legal protection or a balance in the inquiry is made impossible by this approach to regulation.

In the general insurance and protection sector, an FOI-based report suggested that firms paid around £2.7 million for FCA-mandated Section 166 reviews in the year to 31 March 2024. It noted that internal costs and remediation costs can exceed the external review cost itself. That illustrates the point clearly that the financial and operational impact on firms can be significant. There is also the problem that some firms are not clear on why they are being subject to Section 166 in the first place. The regulator may go on a “fishing trip”, as described by the noble Baroness, Lady Bowles, which really is a good expression for how these inquiries proceed—to find fault without disclosing precisely what they are looking for.

That is why these powers need guardrails. As my noble Friend Lady Noakes has argued, Section 166 notices should be reserved for serious circumstances. They should not become a routine supervisory practice; they should not be used where the same information could reasonably be obtained through less burdensome means; and they should not be imposed without proper consideration of proportionality.

Amendment 117, in the name of the noble Baroness, Lady Bowles, would require the regulator to be satisfied that there is a material risk of serious detriment to regulatory outcomes, and that using a skilled person report is a proportionate response. It would require the regulator to consider the scale and nature of the suspected issue, the burden on the firm and whether the matter could reasonably be addressed through existing supervisory tools.

That seems to be a sensible framework, as does that set out in Amendment 118, in the name of my noble friend Lady Noakes. It would restrict Section 166 reports to circumstances where the regulator considers that there is likely to have been a significant contravention of a relevant requirement, and where the information or documents could not reasonably be obtained without the report. These amendments speak to the same underlying principle: Section 166 should be an exceptional tool for serious cases, not a default mechanism.

I welcome Amendment 123, in the names of the noble Baronesses, Lady Bowles and Lady Altmann, which deals with Section 165 information-gathering powers and seeks to set sensible thresholds on access to information. If a regulator asks a firm for information or documents, it should be able to explain why that material is reasonably necessary, why the request is proportionate and why the information cannot be obtained from another source. Requests should not be duplicative and they should not be broader than necessary. Firms should not be left trying to satisfy vague or excessive demands without a clear understanding of the purpose behind them. That is a basic principle of good regulation, and it particularly matters for smaller firms.

The broader issue here is one we have returned to throughout the Committee: regulatory power must be matched by accountability and proportionality. The FCA and the PRA have significant supervisory tools at their disposal. Where those tools impose real costs on firms, there must be proper discipline in their use. These amendments raise important questions about the balance between effective supervision and regulatory burden. We will listen carefully to what the Minister has to say in response.

[Lord Stockwood (Lab)]

My Lords, I am grateful to the noble Baronesses for these amendments, and I have listened carefully to the points made today. The principle of ensuring that the regulators take a proportionate approach to their work—in the case of these amendments, to skilled person reviews and regulatory information collecting—is one that the Government strongly agree with. We have previously debated that principle and how it applies more broadly to the work of the financial services regulators.

Amendments 117 and 118 relate to skilled person reviews under Section 166 of FSMA. It is an important supervisory tool, and the Government agree that it should be deployed proportionately. However, the Government are not persuaded that there is an issue here that requires us to further constrain the regulators’ ability to require these reviews when they consider it appropriate to effectively safeguard the markets and consumers. The regulators have existing procedures to ensure proportionality when considering whether to initiate a skilled person review. The FCA handbook sets out that it will first consider the circumstances of the firm, the costs involved and the availability of other supervisory tools to tackle the issue. The PRA has similar processes in place.

Layering additional statutory requirements on top of this risks creating burdensome delays over supervisory decisions. Skilled person reviews are often used precisely in circumstances where the regulator needs independent expert analysis. For example, requiring the regulator to satisfy a threshold test before commissioning a review could limit the regulator’s ability to direct a skilled person to investigate a potential consumer harm and implement a mitigation strategy.

The data does not suggest that the use of skilled person reviews has grown over time. I reassure noble Lords that the FCA’s use of them has been broadly consistent over the past 10 years, with an average of 48.5 commissioned a year. However, in 2025-26, only 31 were commissioned, down from a high of 83 in 2023-24. This increase reflected the FCA’s strengthened oversight in key areas, including financial crime and appointed representatives and, despite the increase in volume, overall costs to firms remained flat.

Amendment 117 would create statutory disclosure requirements relating to Section 166 skilled person reviews. The FCA and the PRA already provide transparency by publishing data on the reviews they have commissioned in their annual reports.

Amendment 123 seeks to raise the bar for regulators requesting information for the firms they oversee. The Government recognise the impact that regulation and supervision can have on firms, and agree that regulators’ supervisory activities, including information requests, must not create disproportionate burdens on firms. That is why the Government have committed to cutting the administrative burden of regulation by 25% by the end of this Parliament. The financial services regulators are activity contributing to this agenda. For example, the PRA is deleting redundant and duplicative data collections—its future banking data programme has reduced costs to firms by around £26 million annually so far—and the FCA has stripped out data requests for 36,000 firms. All this has been done without detracting from consumer protections or systemwide resilience.

Through the Bill, the Government are taking action to reduce the burden of regulation on businesses. This includes reforms to the senior managers and certification regime, which will enable the regulators to reduce the regulatory burden of the regime by 50% while maintaining its strong and effective framework for individual accountability. Imposing prescriptive statutory requirements on how the regulators gather information risks undermining effective supervision, which might bring serious risks. Regulators must be able to respond quickly to emerging risks, and sometimes that means requesting information in ways that cannot be neatly anticipated by legislation.

The Government agree that proportionality is hugely important, that unnecessary burdens should be avoided and that the regulators must be held properly to account for how they exercise the significant powers given to them by Parliament. But there is no evidence that these amendments are needed to ensure proportionality. They would risk constraining the regulators’ ability to do their jobs effectively, which would introduce risks into our financial system. I therefore ask the noble Baroness to withdraw her amendment.

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[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow my noble friend Lady Noakes. I congratulate her on her purposive, rather than literal, interpretation of her amendment. I support her amendment and everything she said, as well as the other amendments in this group. I will speak to my Amendment 129.

Many noble Lords here today were in the Grand Committee debates for the then FSM Bill 2023. As my noble friend Lady Noakes rightly identified, the CBA panels have done very good work in their first couple of years of existence. My Amendment 129 seeks to give them further clarity to assist them in doing that good work, to ensure that they have the materials they need to do it, and to bring an additional element around public awareness of the panels’ work. That speaks to greater transparency, awareness and engagement, which can help not only the work of the CBA panels but the wider work of the regulators themselves. I look forward to the Minister’s response.

[Lord Altrincham (Con)]

My Lords, I am grateful to noble Lords who have tabled amendments in this group, which all take broadly the same approach to the cost benefit analysis panels. The underlying point addressed here is simple: if we are serious about accountability, proportionality and reducing regulatory burden, the panels that already exist to scrutinise the costs and benefits of regulation should be able to look at the full practical impact of what regulators do.

Amendment 119, in the names of my noble friend Lady Noakes and the noble Lord, Lord Vaux, raises the important issue of cumulative regulatory burden. Amendment 129, in the name of my noble friend Lord Holmes, would give the panels a broader and more visible role, including through regular impact assessments, stronger access to information and greater transparency. Amendment 132, in my name and that of my noble friend Lady Neville-Rolfe, addresses a specific gap: the use of guidance and supervisory practices, which may have significant practical effects on firms, but which do not currently receive the same level of cost-benefit scrutiny as formal rule changes.

I start with the cumulative burden point, because it is extremely important. Regulation is not experienced by firms as a series of isolated events. New rules come on top of existing ones, including guidance, reporting requirements, supervisory expectations, data requests, “Dear CEO” letters and enforcement signals. Individually, each new intervention may appear manageable, but collectively they can become very burdensome. The effect is not only on cost but on management time, operational complexity, legal advice, compliance headcount, systems changes and a reduced capacity to focus on customers, innovation and growth.

Therefore, it seems ineffective that the cost-benefit process so often considers individual regulatory interventions, without proper reference to the wider impact of the regulatory environment as a whole. If the regulator is required only to ask whether one new proposal is proportionate in isolation, there is no real incentive to look back at legacy regulation and ask whether the total burden has become excessive. That is why there is real merit in allowing the cost-benefit analysis panels to look more strategically at the total regulatory load. If we want regulators to support growth and competitiveness, they must not only justify new burdens but have incentives to remove or reduce old ones.

Amendment 132 would extend the existing cost-benefit analysis and consultation framework so that it applies not only to formal rules but to materially significant general guidance and general supervisory practices or policies. That is important because, in practice, guidance and supervisory expectations can have effects that are very close to rules. If such a measure has a material effect on regulated firms, it should not be able to escape scrutiny simply because it is not formally described as a rule.

Our amendment would create a sensible check: it would require the regulator to notify the relevant cost-benefit analysis panel early where guidance or supervisory practice may be materially significant. The panel could then give an opinion on whether the proposal is likely to have a material effect and, where appropriate, request that a cost-benefit analysis be carried out. If the regulator disagreed, it would still be able to proceed, but it would have to publish a statement explaining why it did not accept the panel’s view alongside the panel’s opinion.

The purpose of this is to recognise that materially significant guidance and supervisory practices can impose real costs and that those costs should be scrutinised. This sort of reporting would provide valuable information to inform the work of our important committees, both in this House and in the other place. I do not see why the Government would resist this as a sensible expansion of the remit of the cost-benefit analysis panels, particularly where the regulators they are overseeing have had, and continue to have, a substantial increase in their remits. Indeed, the more power we give regulators, the more important these mechanisms become. If more of the regulatory framework is to be made through rules, guidance and supervisory judgment, rather than primary legislation, Parliament must be confident that there is proper scrutiny of the costs and proportionality of the cumulative burden. The cost-benefit analysis panels are already part of that architecture; these amendments do not create an entirely new body. They strengthen the role of an existing mechanism and make it better able to do the job for which it was created.

Could the Minister explain why, if firms experience regulation cumulatively and guidance or supervisory practices can have material effects, even where they are not formally binding, the cost-benefit analysis panels should not have a broader remit to examine those wider burdens? I hope the Minister will engage constructively with these amendments and particularly with the principle behind Amendment 132.

[Lord Stockwood (Lab)]

My Lords, the Government agree that cost-benefit analysis sits at the heart of good regulation, and are committed to ensuring that the FCA and PRA are transparent and rigorous when they assess the impact of their rules on firms and consumers.

FSMA 2023 introduced requirements on the regulators to publish a statement of policy for their approach to cost-benefit analysis—or CBA—and to establish CBA panels, as your Lordships know. CBA panels play an important role in the regulators’ work, acting as a critical friend to provide advice to the regulators on their CBAs, with the aim of improving their methodology and approach to CBA. They are required to include experts working at authorised firms to ensure that the regulators benefit from the insights of firms as they develop CBAs, and particularly to improve awareness of the impacts of regulatory proposals on firms.

Amendments 119, 129 and 132 seek to build on these existing statutory requirements to prescribe, in primary legislation, the precise functions, working methods and outputs of the panels. The CBA panels are still relatively new institutions. Their value lies partly in their ability to independently develop their own optimal working practices, to identify where their scrutiny has the highest value and to evolve as the regulatory landscape changes. Locking in their mandate in such detailed statutory provisions removes the very flexibility and ability to evolve that makes them effective.

Many of the detailed requirements set out here are already achieved as a result of normal principles of public law. For example, for the FCA to comply with its statutory requirement to establish and maintain a CBA panel with specified functions, it must ensure that its panel has the appropriate information and data to perform those functions. A further explicit provision is unnecessary.

Amendments 119 and 129 also seek to require the CBA panels to keep the cumulative impact of rules under review. The Government understand the motivation behind this: no single CBA tells the whole story of the regulatory burden facing firms. The PRA’s CBA panel has itself noted that measuring cumulative costs is inherently challenging and would require substantial industry input and resource; it would be subject to constant revision, given the pace of policy development. This could, perversely, add to burdens on firms, by requiring an extensive data-gathering exercise to understand the cumulative impact. Further, focusing exclusively on the cumulative costs could lead to discounting the benefits associated with certain regulations, whether they accrue to consumers, wider society or firms themselves.

The FCA is already making progress by reporting its cumulative regulatory impact through its secondary international competitiveness and growth objective metrics. These include the total value of the equivalent annual net direct cost to business across all CBAs for policy statements published each year and the aggregate benefits of its policy work. The PRA’s CBA panel is already helping the PRA identify where costs may be disproportionate and could be reduced, which is targeted and effective. The Government’s view is that the right response is for the FCA and the PRA to build on these early steps by working with their expert CBA panels to further understand and assess the cumulative impact of regulation, not to mandate the work of the panels through legislation.

--- Later in debate ---

[Lord Altrincham (Con)]

My Lords, I am grateful to my noble friend Lord Holmes—and for his rather delicate comments on “pale and male”—for bringing forward these amendments. They raise an important set of questions about open finance, innovation, emerging technology and the extent to which the regulatory framework is preparing for the financial services market of the future.

We welcome the spirit of this group. My noble friend Lord Ranger of Northwood has tabled amendments in later groups which address digital assets specifically, so I will not pre-empt that debate now, but the broader question raised by this amendment is vital: how are we preparing for financial technologies which are on their way and, in many cases, already here? Regulation cannot be developed only for the market we have today. It must be developed with the market of tomorrow in mind. We need a forward-facing regulatory framework, not one that is constantly trying to catch up after innovation has already moved elsewhere. That means anticipating new technologies, understanding how firms are using them and creating a clear and proportionate regime before uncertainty drives businesses out of the United Kingdom.

It is worth reflecting, as we close this day in Committee, that this amendment touches on a very fundamental change that might be coming to financial regulation. All the earlier amendments really concern how credit is distributed within the UK in our current structure, which, let us remember, rests on fractional reserve banking and large customer deposits—Lloyds Bank currently holds £600 billion of customer deposits. This mixture of innovations, in open banking, open finance and digital currency, would completely upend the regulatory environment in which finance operates at the moment. While it might feel rather edgy to talk about an innovation unit, it is completely and fundamentally at the heart of where financial regulation is going. Many of the things we have been talking about might find themselves out of time quite quickly if some of these technologies were to advance.

If firms developing digital assets, tokenisation, AI-enabled financial services, open finance tools or new payment systems cannot get clarity in the UK, they will go to jurisdictions where the rules are clearer, faster and more supportive of innovation. We have already seen concerns that the UK risks falling behind in some of these areas. We want the United Kingdom to be a place where financial innovation can thrive, but that requires clarity, leadership and a regulatory framework that is designed for the future. I hope the Minister can provide a reassurance that this is the direction in which the Government are moving and the nature of drivers for innovation, as he sees it.

[Lord Stockwood (Lab)]

My Lords, I am grateful to the noble Lord, Lord Holmes of Richmond, for Amendments 126 and 127, and for raising the important issues of innovation, inclusion and the future shape of financial services. I spent 10 years building a business in this space for the insurance sector, so it is something that is dear to my heart. The Government recognise the importance of these themes and, as I said at Second Reading, the Bill is intended to modernise the way the sector is regulated, to help it grow and lend more to businesses, and to make consumer protections fit for the digital age.

On Amendment 126, the Government fully recognise the potential of smart data schemes, including open banking and open finance. The wide range of benefits from smart data was set out in the Government’s smart data strategy, published in March this year by the Department for Business and Trade. The FCA’s Open Finance road map, published in April this year, sets out steps for collaborating across industry and the wider ecosystem to explore extending the principles of open banking to a much broader range of products.

We have already made it clear that the long-term regulatory framework for open banking will help to secure the foundations for open finance, and that our ambition is for the UK to remain a world leader in this area. The Government will be consulting on the long-term regulatory framework for open banking in the coming weeks and intend to lay a statutory instrument by the end of this year. The FCA’s road map is an important step in exploring what is needed to support the development of open finance.

The noble Lord, Lord Holmes, has noted that the Government already have powers under the Data (Use and Access) Act 2025. This enables the Government to create a framework for open finance, including a wide range of financial data, not just current account data. It includes the power to require the FCA to regulate for open finance and make rules about the sharing of customer data with financial services providers through interoperable interfaces. The Government have already committed to set out further detail on their approach to open finance during the summer.

On Amendment 127, the Government agree that regulators must have access to the right expertise as financial services evolve, and that innovation and financial inclusion should be embedded in the approach that regulators take. The FCA’s innovation hub, which includes both the regulatory and digital sandbox, is designed to support firms to launch innovative products and services.

On payment systems, the Bill provides the FCA with objectives and powers that are generally equivalent to those of the Payment Systems Regulator, including innovation and competition objectives, alongside a broad service user objective. This will allow the FCA to respond to the interests of service users as markets and technologies evolve. The FCA is already well versed in considerations of competition, innovation and the interests of consumers and businesses due to its wider role as a regulator for financial services.

As the Committee discussed on Monday, financial inclusion is a key priority for the Government, and we continue to work closely with the FCA to ensure that individuals get the right support with their financial products and services. This includes working with the FCA on the delivery of the financial inclusion strategy.

The FCA already uses its innovation services to further innovation which supports financial inclusion. For example, the FCA ran a tech sprint which supported firms to develop innovative services, such as brand new apps to support people when they are declined for credit and AI tools to spot scams and to simplify terms and conditions.

The Government consider that the FCA must have the flexibility to determine how best to reflect expert input across its functions to deliver on its objectives in a fast-moving landscape. The Government are supportive of the broad objectives the noble Lord is pursuing—innovation, inclusion and a regulatory framework that keeps pace with change—but we do not consider these amendments to be the right mechanisms for achieving those aims. For the reasons I have set out, I therefore respectfully ask the noble Lord to withdraw his amendment.

Financial Services and Markets Bill [HL]

Lord Altrincham Excerpts

Committee stage
Monday 6th July 2026 Grand Committee

[Baroness Kramer (LD)]

My Lords, I was delighted when I saw that the noble Lord, Lord Holmes, had put down these amendments, because it is so apparent, as he has clearly stated, that the whole issue of digital and AI is missing from this Bill. Because of the pace of change and the impact—and strength of the impact—across all our financial services, this is an issue that has to be dealt with and grasped with some sense of urgency.

Like the noble Lord, I have been very interested in the Mills review, although, as it was published today, I have only had time to skim its summaries and some of the newspaper references to it. It is clear that, certainly from Sheldon Mills’ perspective—I think that most of us have, one way or another, dealt with Sheldon Mills over the years and very much respect his judgment—the FCA may well be short of relevant powers in dealing with AI. He noted particularly a lack of powers under the critical third-parties regime, which made sense to me. In his recommendations, he also raised issues around the regulatory perimeter, another area that we have raised on more than one occasion.

In recent years, it has not been uncommon—though I dread it—for the Government to present on Report amendments that deal with an area that has been missed from the body of a Bill in Committee. On this Bill, that would allow a period of thought and the opportunity to absorb and consider what is presented in the Mills review. Since financial services Bills do not come around that often, I very much hope that the Minister will seriously consider taking advantage of the Bill to get those kinds of protections in place. If he fails to do that, we might collectively have to come forward with something on Report. Frankly, given the intricacy, detail and complexity, this is an area where the Government coming forward with an answer would, I think, be welcomed across the House and very much, I hope, within the spirit and theme of the amendments presented by the noble Lord, Lord Holmes.

[Lord Altrincham (Con)]

My Lords, I thank my noble friend for his comments today on AI and digital resilience and for his comments on previous days. I declare my interest as the director of South Molton Street Capital, which is regulated by the FCA.

These amendments raise an interesting point about emerging technologies, digital resilience and the use of artificial intelligence in financial services, to be covered, as we have discussed, by the Mills review and the FCA itself. We will return to this subject in a later group, when my noble friend Lord Ranger of Northwood and the Opposition Front Bench will speak to our own amendments, particularly in relation to digital assets. We will also comment on supervision in a later group.

Both digital resilience and the proper use of AI are important. However, I am not convinced that this is the right way or the right place to tackle these issues. Our concern is that this could add another layer of regulation on firms that are already subject to a substantial body of obligations in this area. Financial services firms already operate under a wide range of frameworks relevant to AI governance, digital resilience and technology risk. The consumer duty, which we have touched on already, requires firms to deliver good outcomes for retail customers. The senior managers and certification regime provides a framework for accountability and governance. The FCA senior management arrangements and controls already require firms to maintain appropriate systems, controls, governance and risk management. Firms are subject to data protection law, including rules around automated decision-making and profiling. They are subject to equality law where discriminatory outcomes arise. They are subject to operational resilience requirements, outsourcing and third-party risk expectations, and, in some contexts, more specific requirements around algorithmic trading and market conduct.

We should therefore be cautious before adding new statutory requirements on top. That is particularly important because technology develops quickly and a prescriptive regulatory framework can rapidly become out of date. It can also lead to duplication, uncertainty and compliance activity that is focused more on satisfying the form of the requirement than managing the underlying risk.

I would be grateful for reassurance from the Minister about how Amendment 130 would interact with existing operational resilience and outsourcing requirements, and whether the Government believe that further statutory provision is needed.

On Amendment 131, the issues of transparency, bias, human oversight, and redress are all important, but they also overlap with existing duties on fair treatment, governance, data protection, discrimination and consumer outcomes. I would be reluctant to support an approach which simply adds a new AI-specific regime without first demonstrating that the existing framework is inadequate.

On Amendment 168, I understand the attraction of having a named individual responsible for AI governance. Accountability matters, but in financial services we have the SMCR regime to address supervision, and that regime is already quite complex, as we will address in a later group. A mandatory AI officer would probably cut across existing accountability structures in conduct, compliance, operations, risk, data and product governance. It could, in fact, cut across all existing supervisory positions.

This group raises important questions about the future of financial regulation. We must be alert to new risks, but we must also be careful not to respond to every emerging technology by simply adding another layer of regulation. The better approach is to ensure that regulation is proportionate, technology-neutral where possible and focused on real outcomes. I look forward to the Minister’s response.

[The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)]

My Lords, the Government recognise that the pace and significance of the current wave of technological change is already having an effect on the whole of society. For the purposes of this discussion, I will state that it is clearly having a notable impact on the financial services sector, as mentioned, and that it is set only to continue to grow. The Chancellor set out in her Mais Lecture just a few months ago the importance of the UK grasping the opportunities presented by AI to ensure that we are at the forefront of safe adoption and innovation, so we are entirely in agreement on how important this topic is.

On Amendment 130, the Government are committed to ensuring the operational resilience of the UK’s financial sector. Operational disruptions harm consumers and markets and have the potential to affect financial stability. That is why the FCA and the PRA have powers to ensure that firms have robust plans in place to deliver important business services, no matter the disruption.

Financial Services and Markets Bill [HL]

Lord Altrincham Excerpts

Committee stage
Wednesday 8th July 2026 Grand Committee

My various amendments would, in effect, require the PRA to take non-UK ownership and control into account when considering the rules that it sets up on these shared services, so that it can, in a crisis, ensure the effective provision of intragroup services to a ring-fenced bank—in other words, so that the retail bank can continue to function without severe disruption. It is relatively minor and quite technical, but it is potentially rather important. I hope the Government will take it away and look at it.

[Lord Altrincham (Con)]

My Lords, I speak briefly to Amendments 155 to 158 and 160 in the name of the noble Baroness, Lady Kramer, and hope that she will forgive me as a former banker with cultural contamination, perhaps. I notice a lot of quite warm language about banking in this debate, with references to the casino and the rest of it.

The concern behind these amendments is that a ring-fenced bank may depend on services, systems or facilities provided by other entities within its wider group. Those entities may be based outside the United Kingdom or supervised primarily by an overseas regulator. I very much hear what the noble Baroness says, but the PRA does look at intragroup services in protecting UK domestic businesses.

We of course have our own amendments on ring-fencing, which we have just discussed. However, as we have said before, our approach to this Bill is that it will regulate in the immediate term and, therefore, our wider policy ambitions can sit alongside proper scrutiny of the provisions before us. Even where we take a different long-term view of the future of ring-fencing, it is still right to test whether the regime, while it remains in place, operates properly and consistently. That said, I have some concerns about the effect of these amendments, even if they were to impose additional safeguards or burdens specifically on foreign-owned banks, as they could place those banks at a competitive disadvantage. That matters because foreign-owned banks contribute to competition in the UK market. If additional requirements make it harder or less attractive for them to operate here, the results could be less competition for deposits here and, ultimately, worse outcomes for consumers.

International supervisory co-operation has also been significantly strengthened since the financial crisis. Crisis management groups, co-operation agreements and regulator-to-regulator engagement are now central parts of the framework. Recent experience has shown that this co-operation can work in practice, including during the failures of Silicon Valley Bank, as referenced by the Minister, and perhaps also in the case of Credit Suisse, where co-ordination between overseas regulators and UK authorities helped to maintain continuity and manage risk. I just note that Credit Suisse was the fifth-largest bank by balance sheet in the UK at the time. I would therefore be grateful if the Minister could explain how the PRA currently assesses overseas group structures and whether he believes that any gap exists in its present powers. In particular, does the PRA already satisfy itself that critical services provided from outside the United Kingdom will remain available in stress or resolution?

We may differ from the noble Baroness on the broader future of ring-fencing, but the questions that she raises are important. My concern is that the proposed solution may be unnecessary and may risk reducing competition by placing foreign-owned banks at a disadvantage. I look forward to the Minister’s response.

[Lord Stockwood (Lab)]

My Lords, Amendments 155 to 158 and 160 all relate to Clause 40. As I set out in the previous debate, Clause 40 makes the ring-fencing regime more flexible and proportionate by allowing the PRA to take account of protections already delivered elsewhere in the prudential and resolution framework, when considering whether ring-fencing rules are required. The clause is intended to reduce unnecessary duplication, while maintaining the core protections and purposes of the ring-fencing regime. We have already debated this, and it was clear that there were a wide range of views.

The noble Baroness’s amendments focus principally on shared services arrangements, operational continuity and cross-border group structures. The Government recognise the importance of these issues and we have spoken to a couple of outside parties on this topic. Ensuring the continuity of critical services and managing operational dependencies are important objectives of the ring-fencing regime.

However, I am not persuaded that these amendments are the right route forward. They would introduce detailed statutory tests governing when the PRA may rely on protections delivered elsewhere in the prudential and resolution framework, particularly for shared services arrangements involving cross-border or non-consolidated groups. Their practical effect would be to make it harder for the PRA to rely on equivalent protections elsewhere in the framework, increasing the likelihood of additional ring-fencing rules, greater complexity and additional compliance burdens, even where the PRA considered that the relevant outcomes were already being achieved.

In contrast, Clause 40 is intended to make the regime more flexible, streamlined and proportionate by reducing unnecessary duplication while maintaining core protections. It does not allow the PRA simply to assume that protections provided elsewhere in the framework are sufficient. The PRA may rely on those protections only where it considers that there is sufficient provision to achieve the relevant ring-fencing purposes and ensure the effective provision of services and facilities to ring-fenced banks.

For example, the noble Baroness, Lady Kramer, asked whether the OCIR framework can be replaced by the PRA’s rule 9.1. This is a matter for the PRA, but it has indicated that it intends to consider these issues through consultation. Where the PRA does not consider that sufficient provision exists, including in relation to shared services arrangements or cross-border groups, it must act, including through making ring-fencing rules where necessary. The clause therefore preserves key protections.

If further details are required, I am more than happy to follow up before Report, but, for those reasons, I ask the noble Baroness to withdraw her amendment.

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[Lord Ashcombe (Con)]

My Lords, I remind the House of my interest as an employee of Marsh, an FCA-regulated firm. I wish to speak in support of this amendment in the name of the noble Baroness, Lady Bowles, but before doing so, I would like to pick up briefly on something I said earlier this week about regulatory clarity. I talked about how firms need clear definitions so that they can plan investment with confidence. That principle matters across the Bill, for not just client definitions, but for how we approach emerging markets and new structures.

Amendment 162 is a good example of that. The amendment addresses tax clarity on insurance-linked securities. These are important instruments. They attract capital into insurance, help firms manage catastrophic risk and have become a serious part of global risk management practice. Since being created in the 1990s, the global market has grown to about £136 billion, making up close to 20% of the insurance/reinsurance industry. According to Swiss Re, one of the world’s leading providers of reinsurance, insurance and other forms of insurance-based risk transfer, 2025 was the busiest year in its history of this market.

The London insurance market is phenomenally well placed to lead here. We are larger than our five closest competitors combined. However, we need to be honest: our ILS regime has been somewhat underwhelming at best. That is not because we lack expertise or capital—we do not—but because the regulatory approach has been disproportionate and the legislation inflexible. Firms simply cannot transact deals here as efficiently as they can in Bermuda or other jurisdictions.

To the Government and the PRA’s credit, they have listened. This Bill moves us in the right direction: it gives the PRA flexibility on fully funded definitions, allows multiple contracts in protected cell companies and there is a consultation pipeline on further simplification. That is good. However, there is one thing that the Bill has not addressed, and, as mentioned by the noble Baroness, Lady Bowles, that is tax clarity. When the ILS regime was created in 2017, there was a broad anti-avoidance clause. That is fair enough, but a decade on, I think that HMRC and the Treasury should be comfortable that these are not tax avoidance structures, but are risk transfer vehicles.

Right now, firms have guidance from HMRC, but it is not legally binding. Therefore, every transaction requires a tax lawyer’s opinion every single time, as the noble Baroness mentioned. That cost, that time, that friction is the difference between doing a deal and doing it somewhere else. This amendment asks for something straightforward: a clear and legally underpinned directive that HMRC will presume that ILS vehicles are not being used to secure a tax advantage. That is not asking for exemption from anti-avoidance rules; it is asking for clarity so that legitimate risk transfer does not get caught up in unnecessary caution. That clarity matters because it removes the last barrier to this market. We have the regulation sorted and we have the expertise; what we really need is tax certainty.

This is about positioning London correctly in a competitive global market. It is about letting the PRA’s sensible reforms work, and it is about giving firms the clarity they need to invest with confidence in the United Kingdom.

[Lord Altrincham (Con)]

My Lords, I will speak to Amendment 162 in the name of the noble Baroness, Lady Bowles—perhaps from the Liberal Democrat risk-transfer derivative desk. This amendment raises what seems to be a sensible and practical point about certainty in the treatment of insurance-linked securities and related risk-transformation arrangements. Insurance-linked securities can play an important role in allowing insurance risk to be transferred into capital markets. Catastrophe bonds and similar structures can help insurers and reinsurers manage exposure to major risks, including natural catastrophes, while providing investors with a different form of capital markets instrument.

The United Kingdom has quite rightly sought to develop itself as a competitive centre for these structures, but for that to happen, firms and investors need clarity, as my noble friend just explained. As I understand it, the amendment would require the Treasury, after consulting HMRC, to publish guidance clarifying the tax treatment of these arrangements. It would also provide that where an arrangement falls within that guidance and complies with the relevant regulatory authorisation and supervision requirements, it should be treated as a bona fide commercial insurance and capital markets transaction, rather than as one entered into for tax avoidance purposes. It does not appear to be an attempt to protect fraud, misrepresentation or non-disclosure. HMRC would still be able to challenge arrangements where the conditions are not met or where there has been improper conduct, but it would give legitimate market participants greater certainty where they are using properly regulated structures for genuine commercial purposes. That certainty matters: if the UK wants to attract insurance-linked securities business, investors and firms need to understand the tax position in advance. Uncertainty can deter activity, reduce confidence and make other jurisdictions more attractive.

I would therefore welcome clarity from the Minister on this point. Do the Government accept that greater tax certainty would help to support the development of the UK insurance-linked securities market? Are they aware of the concerns that uncertainty about HMRC treatment may be limiting the attractiveness of the UK regime? Will they consider whether further Treasury or HMRC guidance is needed to ensure that properly regulated ILS vehicles are treated consistently as genuine commercial arrangements. This seems to me to be a practical amendment aimed at supporting competitiveness and certainty in a specialist but important part of the financial services market. I look forward to the Minister’s response.

[Lord Stockwood (Lab)]

My Lords, risk transformation is a key element of the UK’s insurance market, and the growth of this market is critical to the Government’s objective of making the UK the location of choice for specialist and complex insurance. The Government’s reforms in Clause 44 aim to support this market by increasing the attractiveness of the UK for establishing the legal vehicles used to undertake risk transformation. I am glad to hear the noble Baroness, Lady Bowles, and the noble Lord, Lord Ashcombe, broadly welcome these reforms.

The Government recognise the role that the bespoke tax regime for transformer vehicles plays in ensuring that the UK is competitive in this area. We also recognise, as does this amendment, the role that robust anti-avoidance measures and clear guidance have in ensuring a well-functioning regime for transformer vehicles. These anti-avoidance requirements are set out in the bespoke tax regulations for transformer vehicles, the Risk Transformation (Tax) Regulations 2017. HMRC has worked extensively with industry to produce guidance on how anti-avoidance measures apply to transformer vehicles.

I appreciate that some people consider that this guidance could be clearer, but it is important that any guidance does not constrain the Government’s ability to apply anti-avoidance rules. It must be aligned with the broader approach taken by HMRC to anti-avoidance. The current guidance allows HMRC the flexibility effectively to pursue instances where vehicles are established for the purposes of avoiding tax. It is important that we preserve that ability. I therefore ask the noble Baroness to withdraw her amendment.

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[Baroness Kramer (LD)]

That was very good too. I meant Amendment 164E, which is headed,

“Shared digital identity and compliance utilities”.

I come from a party that is always very concerned about identity cards, whether they are digital or traditional, old-fashioned cards, and what they do to privacy and independence, so I have those caveats constantly in the back of my mind. It seems to me, however, that a series of fundamental questions are raised by the noble Lord, Lord Holmes, in subsection (2), where he talks about the various specifications, the governance arrangements, the very straightforward things such as whether utilities are to be publicly or privately owned, under public specifications or operated as industry utilities. There are issues of data, access to digital ledgers, privacy, data protection and how to cope with the transition period, which will be very complex and very different for different individuals. Some people will transition completely almost in the blink of an eye, and others will be very late adopters. That creates a whole set of issues around financial inclusion and exclusion. I hope very much that we will get the discussion that we need, particularly around subsection (2), which then sits as a foundation to all the other issues that are raised. These are issues that engage the regulator, of course, but many of them are above the regulatory pay grade, and we need to be engaged on those issues here in this Committee.

[Lord Altrincham (Con)]

My Lords, this group is a snapshot, in a sense, of where we are now in digital regulation for financial services in the UK, as discussed by my noble friend Lord Holmes. This group somewhat dovetails with the amendments that we discussed in the previous group, which sought to probe the Government’s strategy for digital assets, tokenisation, access to banking and payment services and consumer redress. However, I am concerned that this package rather jumps the gun. The issue is more profound than the absence of individual regulatory provisions.

As my noble friends Lady Neville-Rolfe and Lord Ranger of Northwood, and the noble Baroness, Lady Kramer, said, we do not yet have the basic architecture in place, and we do not yet have a clear digital assets strategy. We do not yet have a settled framework of engagement with the industry, and we do not have a proper industry forum through which the Government, regulators and market participants can work through these questions in a structured way. That matters because this is a fast-moving area: if we legislate too quickly, or in too much detail, without proper consultation and industry engagement, we risk creating a framework that is either obsolete before it is implemented, or misaligned with how the market is actually developing.

The point that we have been making throughout these debates is that the Government need to move from ambition, the Digital Markets Taskforce and their initiatives to strategy. It is not enough to say that the UK should be a global centre for digital assets or tokenisation: we need to know what that means in practice, who is responsible for delivering it, how the regulators are working together, what definitions will be used, and what sort of regime firms can expect. At present, the problem is not only a lack of regulation: in some respects, the problem is the way the regulatory system is operating, those overlaps between the Treasury, the FCA, the PRA, the Bank of England and other bodies. There are sometimes different emphases, different attitudes and different levels of appetite toward digital assets and tokenised finance. That creates uncertainty for firms.

Industry does not need more rules; it needs clarity, a coherent regulatory perimeter, regulators that are aligned with one another and confidence that the UK is developing a framework that supports responsible innovation, rather than simply adding new layers of process and permission. This is why we need to be careful before layering further statutory requirements on top of a system which has not yet been properly clarified. That said, the principle raised by my noble friend about looking to world leaders for inspiration is a good one. This is something we should be paying attention to if we wish to remain internationally competitive.

In addition, the principle for higher regulatory neutrality between traditional and tokenised assets is a sensible one. If two instruments have the same economic substance and risk profile, there is a strong case for treating them consistently. But before that principle can operate effectively, the Government and the regulators need to define clearly what counts as an additional asset—a tokenised security, a crypto asset, a stablecoin or a form of digital market infrastructure. That is why the industry forum proposed in the previous group seems so important. We need a better mechanism for engagement before we decide the detailed architecture, and we need to hear from banks, payment firms, digital asset businesses, market infrastructure providers, asset managers, lawyers, technologists and consumer representatives. Without that, we risk legislating for a market as we imagine it, rather than for a market as it is developing.

In summary, my noble friend Lord Holmes raises important issues and many of the ideas in this group may well form part of the future architecture for digital finance. The first task is to sort out the foundations. We need strategy, clarity, co-ordination and proper industry engagement before we start building further layers of regulations. For those reasons, I welcome the debate and the questions raised by these amendments. The Government must first address the more fundamental uncertainty at the heart of the UK’s approach to digital assets and tokenised finance.

[Lord Stockwood (Lab)]

My Lords, I am grateful to the noble Lord, Lord Holmes of Richmond, for tabling these amendments and for his contributions to this and the previous debate. I will not rehash the arguments I made previously. We believe that we have a strategy, and we believe that that has been executed. These amendments cover a wide range of issues. The noble Lord asked me to respond to all of them; I will try to do so but, if I miss any, we can follow up afterwards.

The amendments include proposals on shared digital identity, AML utilities, prudential treatment for tokenised assets, an additional digital financial markets sandbox, education and use-case libraries, issuer governance, common token and data standards, model contractual clauses, custody and bridge infrastructure, issuer pathways and payment rail neutrality. The Government agree that the development of tokenised markets depends on proportionate regulation, legal certainty and effective payment and settlement infrastructure. These are all important issues, and the Government are already taking extensive action to drive forward this agenda, which I set out in the last debate.

On Amendments 164E to 164H, the Government recognise the importance of trusted digital identity, effective AML processes, proportionate prudential treatment, testing environments and education. I am happy to assure noble Lords that these matters are already being progressed through existing frameworks, including the UK digital identity and attributes trust framework, guidance on the use of digital verification services under the money laundering regulations, the digital securities sandbox and wider government and regulator work on tokenisation and market digitalisation.

The Government also recognise the importance of market understanding. However, I have concerns about requiring in legislation for the FCA to maintain a detailed use-case library or to prescribe particular commercial models for the development of digital financial markets. The role of the Government and the regulators is to establish clear and proportionate frameworks that support innovation while protecting consumers, market integrity and financial stability. The development of specific use cases and business models is a matter for industry, operating within those frameworks. The wholesale digital markets champion, whom I mentioned previously, can look at these issues if this is raised with him.

Across all these areas, the Government’s approach has been to support innovation through enabling frameworks rather than prescribing particular models in legislation. The Government believe that it is preferable to continue building on these flexible frameworks rather than putting in place detailed statutory requirements.

Amendments 164J, 164K, 164L, 164N and 164P focus on the infrastructure needed to support tokenised markets. The Government recognise the importance of legal certainty, interoperability, custody arrangements and clear issuer pathways for tokenised financial instruments. These are precisely the issues currently being considered by the Government and regulators, including through a joint call for input published by the FCA and the Bank of England earlier this year on the future of tokenisation in UK wholesale financial markets. The regulators have made clear that this work will inform a joint road map of reforms developed in partnership with industry.

The digital securities sandbox was also specifically designed to provide that flexibility, allowing government, regulators and industry to test how legislative and regulatory frameworks may need to evolve before making more permanent changes.

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[Baroness Dacres of Lewisham (Lab)]

My Lords, I fear that Amendment 172C strays beyond the purpose of the Bill, which is concerned with improving the regulation of financial services and markets. It is not, in my view, the appropriate vehicle for reopening broader questions about the role and governance of the City of London Corporation. This amendment takes us into a rather different debate—it asks us to examine the role and function of the City of London Corporation—whereas the purpose of the Bill is to strengthen the UK’s financial regulatory framework, ensuring that it is effective, proportionate and capable of supporting growth, investment and innovation, while maintaining high standards. Our focus should remain on achieving those objectives.

It is important to be clear about the respective roles of the organisations involved. The City of London Corporation is not a financial regulator. It does not authorise firms, supervise markets or enforce regulatory rules. Those responsibilities rest with the Financial Conduct Authority, the Prudential Regulation Authority and the Bank of England, all of which are independently accountable to Parliament.

The City corporation performs a different, but none the less valuable, function. It acts as a convenor of expertise, an advocate for one of the United Kingdom’s most important industries and a champion of the UK as a global financial centre. Through its international engagement, it promotes inward investment, supports exports of financial and professional services, and works with industry to help maintain the UK’s reputation for high standards and innovation.

I question whether the amendment has demonstrated that there is a genuine accountability gap requiring statutory review. Before Parliament creates a new review mechanism, we should be satisfied that there is evidence of a problem that the existing arrangements have failed to address. I have not yet heard that case made. The City corporation is already subject to established governance and oversight arrangements, while the regulators are independently accountable to Parliament.

At a time when the Government are rightly seeking to promote economic growth and strengthen the United Kingdom’s competitiveness as a leading international financial centre, I am concerned that this amendment risks creating uncertainty without identifying a clear public benefit. Our efforts should be directed towards ensuring that regulators can carry out their duties effectively, while organisations such as the City of London Corporation continue to play their distinct role in supporting the wider success of the UK’s financial and professional services. For those reasons, I believe our attention should remain firmly on the purpose of the Bill: strengthening the United Kingdom’s financial regulatory framework. I cannot support Amendment 172C.

[Lord Altrincham (Con)]

My Lords, I shall speak briefly to Amendment 172C in the name of the noble Baroness, Lady Bennett of Manor Castle, on the promotional role of the corporation and the survey views of local residents. Let me also say how interesting the speeches of the noble Baronesses, Lady Bi and Lady Dacres of Lewisham, and the noble Lord, Lord Pitt-Watson, were on this.

I have some concerns about whether this amendment is necessary, proportionate or properly directed at the issues before us in this Bill. If the concern is about the regulation of financial services and markets, Parliament should scrutinise the regulators and the Government. Indeed, much of our debate on this Bill has been precisely about that: how we ensure that the regulators are accountable, transparent, proportionate and properly focused on growth and competitiveness.

The City of London Corporation, however, is not a financial services regulator and does not set prudential rules. I am therefore not persuaded that a statutory review of the City of London Corporation’s role is the right mechanism in this Bill. At a time when we are trying to strengthen the competitiveness of the United Kingdom, attract global capital, support innovation and ensure that financial services remain one of our national strengths, we should be cautious before creating unnecessary uncertainty around one of the institutions that help to promote that sector internationally. I think the noble Baroness would recognise that as one of its roles.

There is also a question of evidence. Has there been a regulatory failure caused by the City corporation? Has there been a financial stability concern arising from its role? Has there been evidence that its activities have distorted the regulatory process in a way that existing scrutiny mechanisms cannot address? Without that evidence, I am cautious about launching a statutory review through the Bill.

Nor do I think that the Bill is the right vehicle for a wider constitutional debate about the governance of the City of London Corporation. This Bill is about financial services regulation, market infrastructure, consumer protection, competitiveness and the regulatory framework. The governance of the corporation is a broader issue, and one that would need to be considered separately if Parliament wished to do so. That is not to say that scrutiny is unimportant, but we should focus scrutiny where regulatory power actually sits. In this Bill, that means the FCA, the PRA, the Bank of England and the Treasury. Those are the bodies whose powers are being expanded or adjusted, and those are the bodies that Parliament should be most concerned to hold to account. For those reasons, I do not support this amendment.