Financial Services and Markets Bill [HL]

Lord Pitt-Watson Excerpts

Report stage
Wednesday 9th September 2026 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, we have a lot to cover today, so I will be brief.

We do not believe that imposing additional reporting duties, transition plan requirements and regulatory processes on financial services firms is the right way to address the concerns that have been addressed in these amendments this evening. One of the merits of the Bill is the way it cuts out needless and repetitive operational requirements on financial services firms and regulators and instead introduces a more effective approach based on five-year strategies. As we heard on Monday, stakeholders’ views will be sought in the course of establishing those strategies. Of course, climate change and environmental objectives already remain an important statutory regulatory principle, intended to contribute to the UK’s net-zero target under the Climate Change Act and to the environmental targets established under the Environment Act.

However, requiring banks, other financial institutions and the regulators themselves to fill in forms, tick boxes and produce more and more reports about climate change will not have a meaningful effect on global temperatures; it will simply add costs. We need a regulatory environment which supports growth, enterprise and investment. That means cutting down on the red tape and extra requirements that are putting our international competitiveness at risk. These amendments would add a further layer of process and obligation without a sufficiently clear demonstration that the burdens would advance the environmental objectives being pursued.

This is a time when we should be seeking to streamline regulations and be careful about new requirements, however well-intentioned, because of the need to get the economic growth that we lack. These amendments risk taking us a step backwards, so we cannot support them and will be voting against them if noble Lords press them to a vote.

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

My Lords, I am grateful to the noble Baronesses for these amendments and for the wider debate on sustainable finance and adapting to climate change. These amendments address a number of important issues: climate transition planning, tackling deforestation, how the regulators consider climate risk and the products commonly known as green mortgages. As several noble Lords have argued today, both climate-related and nature-related risks can have significant implications for the economy, for financial markets and their ability to deliver for customers, and for long-term prosperity.

As many noble Lords may know, it is a topic close to my heart, including through my past chairing of the United Nations Environment Programme’s Finance Initiative at the Paris climate talks. UNEPFI is a voluntary organisation of more than 500 financial organisations from the North and the South, with funds of more than £100 trillion under management. It has established some of the world’s foremost sustainability frameworks for finance, including involvement with the REDD+ project, reducing emissions from deforestation in degradation, which I believe is now preserving many millions of square miles of forest.

I share the underlying objectives behind these amendments. The question before us is, therefore, not whether action is needed but how best to deliver that action in a way that is effective, proportionate and aligned with the wider framework we are putting in place.

Let me come to Amendments 34 and 55, which raise important points regarding how the regulators consider and report on climate and environment-related issues. I have spoken to the noble Baroness, Lady Hayman, and members of Peers for the Planet throughout the week on this important issue. I also hosted a drop-in session for Peers with the FCA. During that session, I heard a number of concerns about the absence of climate and environmental targets have-regard operating at a day-to-day level, and I have, of course, heard the issues raised in this debate today.

While I still believe that there is significant value in streamlining the regulators’ have-regards, I appreciate that it is important that the regulators continue to focus on the vital issue of the sector’s contribution to climate change at a day-to-day level, and I appreciate the importance of regular reporting on this issue to aid parliamentary scrutiny. While I cannot do anything today, I am prepared to return to this issue at Third Reading and would be prepared and undertake to table amendments to Clause 17 that would require the PRA and FCA to continue to consider their existing climate change and environmental targets have-regard at a day-to-day level and to maintain appropriate notification and reporting requirements.

Amendments 34 and 55 introduce a new have-regard and reporting requirement on climate-related financial stability issues. I therefore ask the noble Baronesses, Lady Northover and Lady Hayman, not to press Amendments 34 and 55 on that basis, and I will return at Third Reading with the amendments I have described.

Amendment 65 concerns transition plan requirements. The Government remain committed to this area. We consulted in 2025 on options for implementing transition plan requirements and are considering responses alongside wider work on sustainability and corporate reporting reform. In February, we finalised the UK sustainability reporting standards for voluntary use. The FCA has also consulted on aligning listed company disclosure requirements with these standards. The FCA aims to publish final rules this autumn with requirements expected to take effect from January 2027. This amendment would place a statutory timetable on an area where policy development remains under active consideration across government. We believe in the importance of finalising this work before imposing an arbitrary road map.

On Amendments 90 and 97A, I recognise the strength of feeling on deforestation and agree that urgent action is needed. I am therefore pleased to report that this work is moving forward. As the noble Baroness, Lady Young, said, Defra has confirmed that they will consult later this year on Great Britain’s approach to tackling deforestation in domestic supply chains and the next steps for the forest risk commodities regime. My officials have spoken to Defra, which has confirmed that it plans to consult during the autumn and that legislation will be delivered in 2027. The responsibility for enforcing the regime will be determined by Defra when it designs the regulations.

We share the objective of progress being made as quickly as possible. However, a six-month statutory deadline risks prioritising speed over effectiveness. The Government believe the better approach is to ensure that any resulting regime is robust, proportionate and capable of decoupling supply chains from global deforestation. The Government have already committed, through the Financial Services and Markets Act 2023, to review the regulatory framework for tackling deforestation-linked finance within nine months of Defra’s legislation on domestic supply chains. Furthermore, the principle that I committed to reapply today to day-to-day activities also explicitly covers consideration of environmental targets in the Environment Act 2021, so this will remain part of the regulators’ day-to-day work.

On Amendment 91, the Government support high-quality green mortgage products that can help households to finance energy efficiency improvements and improve resilience to climate-related risks. However, the amendment risks duplicating efforts by regulators, departments and existing frameworks. FCA rules already require clear disclosure and the FCA is considering disclosure further through its mortgage rule review. The Green Home Finance Strategic Partnership also has a dedicated working group focused on consumer protection and standards. With over 90 green mortgage products now available compared with fewer than 10 in 2019, the Government consider that imposing a statutory timetable would be premature while policy and the market continue to develop. The current approach provides the flexibility to develop clear, proportionate standards while maintaining consumer protections.

In conclusion, the Government support the objectives that sit behind these amendments. We have listened to the House and will, at Third Reading, table amendments to Clause 17 requiring the PRA and FCA to continue to consider that their existing climate change and environmental targets have regard at a day-to-day level and to maintain appropriate notification and reporting requirements. More broadly, we support credible transition planning. We support action to address deforestation and forest risk commodities, and we support the development of high-quality green mortgages. The Government are already taking forward substantial work in these areas and will continue to do so in a co-ordinated and proportionate way. I therefore ask the noble Baroness to withdraw the amendment.

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[Baroness Neville-Rolfe (Con)]

My Lords, we welcome the Government’s decision to retain proportionality as an express statutory consideration for both the FCA and the PRA when they exercise their general functions. This responds to productive discussions in and outside Committee, for which I thank the Minister and indeed the noble Lord, Lord Stockwood, who I am delighted to welcome back to the discussion of the Bill, and I thank him for his efforts to improve it. I also thank my noble friend Lady Noakes, the noble Baroness, Lady Bowles, and the noble Lord, Lord Vaux, for their constructive and flexible approach to the substantial problems on these clauses.

Time and again, one of the concerns we hear from business is that regulation can be disproportionate to the risk it is intended to address. That is particularly true for the small and medium-sized firms that we rely on so heavily for competition, innovation and economic growth, right across this country. The proportionality changes help to address this and we will not therefore be pressing our Amendment 62 on SMEs to a vote—even though it is my favourite amendment and I have the support of the noble Lord, Lord Vaux. The noble Baroness, Lady Kramer, is right to focus on lending to small defence companies as well.

The requirement for the FCA and PRA to explain in their annual reports how they have taken these proportionality principles into account, alongside the requirements relating to consultation and parliamentary committees, creates an important mechanism through which Parliament can examine whether the principle is actually being applied in practice, with concrete examples, as the noble Baroness, Lady Bowles, suggested. This is important because the ultimate test of these amendments will not simply be whether “proportionality” appears in statute. It will be whether firms see a genuine difference in the way regulation is developed and applied, particularly by the regulators. We hope that the Government’s amendments will prove to be a meaningful mechanism through which regulation can become easier to comply with, less costly and ultimately more successful in achieving the objectives that Parliament has set for the regulators—of course, the proof will be in their implementation.

The Government have listened to concerns raised during the passage of the Bill and we support the amendments that the Minister has tabled in response. This is good House of Lords practice. Like my noble friend Lady Noakes, I do not intend to pursue the other amendments today.

[Lord Pitt-Watson (Lab)]

My Lords, I thank noble Lords for this debate. I hope it demonstrates that the Government have listened carefully to the arguments made by noble Lords during Committee and recognise the strength of feeling and the logic around addressing Clause 17. In Committee, noble Lords made it clear that they had concerns with that clause, which removes the requirement to consider regulatory principles each time they exercise a general function in favour of considering them just at a strategic level. These points were made particularly strongly with regard to proportionality; in response, we have tabled Amendments 37 and 43 in my name. These amendments will ensure that the two proportionality regulatory principles will continue to apply to the regulators’ day-to-day actions.

There was also a rich debate in Committee about the different facets of proportionality and the factors that regulators should consider. Here, again, the Government have listened. Amendment 44 makes changes to the existing principles to explicitly include that the regulators should recognise the differing abilities of firms to engage and comply with regulation owing to their size—a point raised by both the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Vaux. This means that regulators will need to consider the specific impact of their proposals on SMEs.

It was also clear that a number of noble Lords had concerns about the possible effects of Clause 17 on Parliament’s ability to effectively scrutinise the regulators. In response, Amendments 40 and 46 to 50 will ensure that existing reporting requirements on the proportionality regulatory principles will remain in place, including as part of the consultation on annual reports. The Government are therefore retaining the majority of existing transparency and reporting requirements, including through panel reports, consultation requirements and annual reports.

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Moved by

[Lord Pitt-Watson]

37: Clause 17, page 21, line 34, leave out “omit subsection (5)(a)” and insert “in subsection (5) for paragraph (a) substitute—
“(a) the proportionality regulatory principles (see section 3B(1A)), and””Member's explanatory statement
This amendment would require the FCA to have regard to the proportionality regulatory principles (as defined in the amendment in the name of Lord Pitt-Watson to clause 17 at page 22, line 3) when discharging its general functions.

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Moved by

[Lord Pitt-Watson]

40: Clause 17, page 21, line 35, leave out subsection (3)
Member's explanatory statement
This amendment would require the publication of draft FCA rules to be accompanied by an explanation of the FCA's reasons for believing that making the proposed rules would be compatible with its duty to have regard to the proportionality regulatory principles when discharging its general functions (which would be inserted by the amendment in the name of Lord Pitt-Watson to clause 17 at page 22, line 3).

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Moved by

[Lord Pitt-Watson]

43: Clause 17, page 21, line 40, leave out paragraphs (a) and (b) and insert—
“(a) in the heading, after “regard to” insert “proportionality”;(b) in subsection (2), for “the regulatory principles in section 3B” substitute “the proportionality regulatory principles (see section 3B(1A))”.”Member's explanatory statement
This amendment would require the PRA to have regard to the proportionality regulatory principles (as defined in the amendment in the name of Lord Pitt-Watson to clause 17 at page 22, line 3) when discharging its general functions.

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Moved by

[Lord Pitt-Watson]

46: Clause 17, page 22, line 6, leave out subsection (7)
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Pitt-Watson to clause 17 at page 21, line 35.

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Moved by

[Lord Pitt-Watson]

58: After Clause 22, insert the following new Clause—
“Bank of England functions: payment systems and service providers(1) In the Bank of England Act 1998, after Part 3B insert—“Part 3CPayment systems and service providers30J Exercise of functions relating to payment systems and service providers(1) In exercising its relevant payment systems functions in a way that advances the Financial Stability Objective the Bank must, so far as reasonably possible, act in a way which, as a secondary objective, facilitates innovation in—(a) the operation of recognised payment systems,(b) the provision of services by recognised DSA service providers, and(c) the provision of services by service providers in relation to such systems or such DSA service providers,with a view to improving the quality, functionality and economy of the systems and services. (2) For the purposes of this Part the Bank’s “relevant payment systems functions” are—(a) its function of publishing principles under section 188 of the Banking Act 2009,(b) its function of publishing codes of practice under section 189 of that Act, and(c) its function of determining the general policy and principles by reference to which it performs particular functions under Part 5 of that Act (payment systems and service providers).(3) In this Part—“operation” , in relation to a recognised payment system, is to be construed in accordance with Part 5 of the Banking Act 2009 (see section 183 of that Act);“recognised DSA service provider” is to be construed in accordance with Part 5 of that Act (see section 184A of that Act);“recognised payment system” is to be construed in accordance with Part 5 of that Act (see section 184 of that Act).(4) In subsection (1)(c)—(a) the reference to service providers in relation to recognised payment systems is to be construed in accordance with Part 5 of the Banking Act 2009 (see section 206A(2) of that Act);(b) the reference to service providers in relation to recognised DSA service providers is to be construed in accordance with Part 5 of that Act (see section 206A(2A) and (2B) of that Act);(c) the reference to the provision of services by service providers in relation to recognised payment systems or recognised DSA service providers includes a reference to the services and arrangements mentioned in section 183(k)(i) and (ii) of that Act (interpretation).30K Recommendations by Treasury(1) The Treasury may at any time by notice in writing to the Bank make recommendations about aspects of the economic policy of His Majesty’s Government to which the Bank should have regard when considering how to advance the Financial Stability Objective and the secondary objective under section 30J(1) (payment systems etc: innovation).(2) The Treasury must make recommendations under subsection (1) at least once in each Parliament.(3) The Treasury must—(a) publish in such manner as they think fit any notice given under subsection (1), and(b) lay a copy of it before Parliament.(4) The Bank must respond to each recommendation made under subsection (1) by notifying the Treasury in writing of—(a) action that the Bank has taken or intends to take in accordance with the recommendation, or(b) the reasons why the Bank has not acted or does not intend to act in accordance with the recommendation.(5) The notice under subsection (4) must be given before the end of 12 months beginning with the date the notice containing the recommendation was given under subsection (1).(6) Where the Bank has given notice under subsection (4) in relation to a recommendation, it must by notice in writing update the Treasury on the matters mentioned in subsection (4)(a) and (b) before the end of each subsequent period of 12 months.(7) Subsection (6) does not apply if the Treasury have notified the Bank in writing that no update (or further update) is required. (8) The Bank is not required under subsection (4) or (6) to provide any information whose publication would in the opinion of the Bank be against the public interest.”(2) In section 203B of the Banking Act 2009 (payment systems and service providers: annual report)—(a) in subsection (1)—(i) in paragraph (b), for “met” substitute “advanced”;(ii) omit the “and” after paragraph (b);(iii) after that paragraph insert—“(ba) the extent to which, in its opinion, in discharging its relevant payment systems functions, its innovation objective, in its application as a secondary objective, has been advanced,(bb) the efforts it has made to engage with persons, other than persons within subsection (4), appearing to the Bank to have an interest in the discharge of its functions under this Part,(bc) the results of that engagement, and”;(b) after subsection (3) insert—“(4) The following persons are within this subsection—(a) operators of recognised payment systems;(b) recognised DSA service providers;(c) service providers in relation to recognised payment systems or recognised DSA service providers.(5) In this section—“innovation objective” means the objective set out in section 30J(1) of the Bank of England Act 1998 (payment systems etc: innovation);“relevant payment systems functions” has the same meaning as in Part 3C of the Bank of England Act 1998 (see section 30J(2) of that Act).”(3) In section 204(1A) of the Banking Act 2009 (information)—(a) the words “its financial stability objective” become paragraph (a);(b) after that paragraph insert“, or(b) in its application as a secondary objective, its objective set out in section 30J(1) of the Bank of England Act 1998 (payment systems etc: innovation).””Member’s explanatory statement
This amendment would insert provisions relating to the exercise of the Bank’s payment systems functions under the Banking Act 2009; including a secondary objective to exercise functions in a way that facilitates innovation in payment systems and related services with a view to improving their quality, functionality and economy.

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[Lord Altrincham (Con)]

I thank the Minister for hosting this second day of Report with such grace. I will focus my remarks on Amendment 64, to which I added my name. I am very grateful to the noble Baroness, Lady Bowles of Berkhamsted, for bringing this important issue before the House again.

“Section 166 review” is the name given to FCA investigations. These investigations were originally quite rare, but dozens are now launched every year and they are paid for by the target firms. These investigations are expensive and time-consuming. They can have a rather arbitrary regulatory purpose and are somewhat unconstrained. This regulatory power can be exercised without a statutory threshold requiring the regulator first to demonstrate that the matter is sufficiently serious and that using this particular tool is proportionate.

We hear consistently from firms that Section 166 reviews are increasingly becoming the norm rather than the exception. Without a degree of restraint or oversight, these powers may create regulatory uncertainty. Our amendment would not prevent the regulators acting where there is a serious problem, nor would it remove Section 166 from their toolkit. It would simply mean that such a costly and burdensome power is used proportionately where it is genuinely warranted. I very much hope that the Minister will accept the amendment, but if the noble Baroness, Lady Bowles, decides to test the opinion of the House as she has indicated, we will support her.

[Lord Pitt-Watson (Lab)]

My Lords, this group raises two important but distinct questions: how the prudential framework should treat lending that supports employee ownership, co-operatives and mutuals; and when regulators should use skilled person reviews under Section 166 of FSMA. The Government have carefully considered the case made for each amendment, but do not believe that these changes should be made through legislation.

Amendments 63 and 66 seek to create a bespoke prudential framework for lending to co-operatives and mutuals, including through lower risk weights. The Government recognise the valuable contribution that co-operatives and mutuals make to the UK economy and are undertaking a multiyear programme of work to support the growth of the sector. This includes making amendments to the Building Societies Act 1986, which we debated last week, to align it with company law and give societies greater funding flexibility.

However, prudential capital requirements should reflect the underlying risk of a lending activity rather than the ownership structure of the lender. Prudential requirements are generally set by the Prudential Regulation Authority through its rules, rather than being prescribed in legislation. This allows the framework to respond to evolving risks and market developments, while operating within a statutory framework established by Parliament. The Prudential Regulation Authority has clear statutory objectives and is accountable to Parliament for the exercise of its functions. It is therefore the appropriate body to assess risk characteristics and determine the appropriate prudential treatment of different exposures. The Government therefore do not consider it appropriate to prescribe preferential prudential treatment for particular business models through legislation. Such decisions should remain matters for the independent Prudential Regulation Authority. For these reasons, I am unable to support these amendments.

Turning to Amendment 64 concerning Section 166 skilled person reviews, I agree that these reviews should be commissioned only where appropriate and proportionate. However, the Government are not persuaded that a further statutory threshold is necessary. As we discussed in Committee, regulators already consider the circumstances of the firm, the costs involved and the availability of alternative supervisory tools before commissioning a skilled person review. The FCA and the PRA have established supervisory processes for doing so. Requiring the regulators to satisfy an additional statutory test could delay supervisory action and make it harder to intervene before problems occur that could damage the interests of consumers or affect the functioning of markets.

I know that a concern has been raised about there being more and more Section 166 reviews. I reassure noble Lords that the FCA’s use of skilled person reviews has been broadly consistent over the past 10 years. In 2025-26, only 31 were commissioned, which is the second-lowest usage since 2016. I am happy to send the figures to Members if they are interested.

In their letters to me, which have been shared with interested Members and laid in the Library, both regulators set out details of their approach to delivering proportionality, with the FCA explaining how its approach to supervision is proportionate, risk based and targeted. They also commit to ongoing engagement with parliamentary committees on their approach. I hope that this reassures the noble Baroness about the process and proportionality of Section 166 reviews and therefore ask her not to press her amendments.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I thank the noble Lord, Lord Altrincham, for supporting my Section 166 amendment. With regard to my Amendments 63 and 66, the Government have interpreted this exactly as I said it was not: I said that it is not telling the PRA what to do, but to consider a prudential distinction. I did not tell it what to do with it. Of course, it has that power anyway, and the purpose of the amendment was to draw attention to a very important sector. I will take the measure up with the PRA directly. For now, I beg leave to withdraw my amendment.

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[Baroness Neville-Rolfe (Con)]

My Lords, this is an important and forward-looking group of amendments, covering open finance, digital market infrastructure and the future of digital assets. I am very grateful to my noble friend Lord Holmes of Richmond for his amendments, and for explaining the scale of the digital tide and the AI wave and the lack of specific signals in the Bill on these opportunities.

I will focus my remarks on Amendment 88, standing in my name and those of my noble friend Lord Altrincham and the noble Baroness, Lady Kramer, who I thank for her support. We debated these issues in Committee, but the central concern remains. Digital assets are becoming an accelerating part of our financial and economic landscape, yet policy is still developing too often issue by issue, product by product and regulator by regulator.

What is missing is a comprehensive strategy. This matters. Industry is telling us that the most basic building blocks of a comprehensive regulatory regime, such as legal definitions, do not exist. This uncertainty is translating into a lack of confidence, which is driving wealth creators away.

Amendment 88 asks the Treasury to step back and set out a coherent strategy for the regulation and development of digital assets and related financial market infrastructure in the UK. It asks the Treasury to establish its objectives, consult properly with industry and other interested parties, and explain how the different strands of policy fit together. This can build on the work of the Bank of England and of Chris Woolard, the new Wholesale Digital Markets Champion at the Treasury. We are most grateful for yesterday’s briefing, at which Chris set out his forthcoming plans for another report due to be published next year.

The opportunity for the UK is considerable. We have the legal system, deep capital markets and an extensive professional services ecosystem, but firms need to know which regulator is responsible for which part of the system, what rules will apply, how different regimes will interact, and how quickly decisions will be made. We are seeing the effects of current ambiguity in reports of firms wishing to offer digital asset products being debanked, a point to which my amendment refers.

Other financial centres are moving rapidly to establish their own frameworks for digital assets and tokenised markets, as my noble friend Lord Ranger explained from his position of great expertise. If businesses conclude that another jurisdiction offers greater regulatory certainty or a clearer strategic direction, they can quickly go elsewhere.

Amendment 88 therefore offers the Government an opportunity to bring those different strands together. The work of Chris Woolard is welcome, but our amendment encompasses a wider range of concerns raised with us. I hope the Government will engage with the amendment, but if I am not satisfied with the Minister’s response I will seek to test the opinion of the House.

[Lord Pitt-Watson (Lab)]

My Lords, I thank the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord Altrincham and Lord Holmes, for their amendments relating to the adoption of technology in the financial services sector and for their contributions to this debate. Technological change is already having a significant impact on the sector and there are huge opportunities for the UK alongside risks to be managed.

Amendment 71 seeks to require the FCA to create and maintain a framework for open finance. However, the Government already have powers to create a framework for open finance under the Data (Use and Access) Act 2025. Parliament has therefore already legislated here, and that legislation includes the power to require the FCA to regulate for open finance and includes appropriate safeguards and scrutiny. The Treasury also confirmed at Mansion House in July 2026 its commitment to open finance and said it will consult on open finance next year.

Amendments 88 and 89 are both focused on digitalisation. Amendment 88 seeks to support the UK’s approach to digital assets by requiring the Government to publish a digital assets strategy. It sets out a number of important issues that such a strategy should consider. Amendment 89 similarly seeks to support digitalisation by requiring the Government to make regulations establishing an issuer digitalisation council, composed of representatives from issuers, intermediaries, the FCA, the PRA, the Bank of England and the Treasury.

As noted in the debate in Committee, the Government strongly support digital assets and see them as a key strategic priority. As such, the Government have been very active on this agenda and have a comprehensive strategy to drive forward the digitalisation of wholesale markets through the wholesale financial markets digital strategy published in July 2025. The Government have been taking forward the actions of the strategy at speed. There has been progress even since this issue was debated in Committee.

Chris Woolard CBE published his first report as the Government’s Wholesale Digital Markets Champion in July, setting out a comprehensive cross-sector approach to digital assets. The Economic Secretary to the Treasury and I hosted a drop-in session with Mr Woolard here in Parliament just yesterday so that Members of your Lordships’ House could hear more about his agenda. I think those noble Lords who were there would agree that we should be impressed by the scope and comprehensiveness of the work he is doing.

Mr Woolard outlined not one workstream but nine taskforce action groups that are taking forward the industry road map, including an action group focused on the primary issuance of digital securities, and with an initial focus on delivering an end-to-end use case. These groups and the overarching orchestration group represent a huge amount of work, expertise and industry input that Chris is leading. They include the industry, a strategy and 50 companies, to be joined by the head of Europe from BlackRock and the London Stock Exchange. It is absolutely great work, as the noble Lord, Lord Holmes, said.

At that meeting, Chris Woolard was asked whether there was any need for further primary legislation. I think that the noble Lord, Lord Ranger, was at the meeting and can confirm that he said that right now, he did not think there was. He could also confirm that I said that, should there be that need, I and the Economic Secretary to the Treasury would be listening to that. There will be a real threat to UK competitiveness if we fail to act in this area, and a considerable opportunity if we get it right. I hope that the opportunity to engage Mr Woolard prior to this debate gave insight into the vast amount of constructive work that is already taking place to make sure that this happens.

There are many other actions being taken to support this work, such as the Bank of England and the Financial Conduct Authority’s call for input on tokenisation, which closed in July. They intend to publish a further road map in the autumn. In noble Lords’ speeches, I heard that they want momentum and a strategy involving industry. That is what is happening right now. The Government also highlighted progress on the digital securities sandbox, the digital gilt instrument, in Committee.

The Government strongly believe in the need to digitalise financial markets, and I hope that the measures the Government are taking forward and the further updates that noble Lords received from Chris Woolard, as wholesale digital markets champion, show that the Government are working with the sector and the regulators to deliver a strategic approach to digitalisation—

[Lord Ranger of Northwood (Con)]

My Lords, forgive me for interjecting, but the Minister is quite right. We had a very progressive session with Mr Woolard yesterday. The question I raised with him was about the future strategy and where we were heading, because his focus is clearly on tokenisation. We noticed that there was a further discussion on standard-setting internationally, agentic finance and various other elements that are in development and need strategic thought. I think that the champion took on board that there was a broader vision that needed to be identified, which is what we would be looking for in a strategy.

[Lord Pitt-Watson (Lab)]

He did indeed take that on board, and I thank the noble Lord, Lord Ranger, for making that point. He was also asked whether at this point further primary legislation was needed. He said that it was not but was invited, should that situation change, to talk to the Ministers in the Treasury. Therefore, I ask the noble Lord, Lord Holmes, to withdraw his amendment.

[Lord Holmes of Richmond (Con)]

My Lords, I thank everyone who has taken part in this debate. I thank the Minister for his answer, and I echo every word he said about the fantastic work that Chris Woolard and, indeed, Mark Austin have done in this area. For the time being, I will withdraw the amendment, but it remains to be seen whether we are building a faster horse or regulating existing products in a digital form. I suggest that there is still more thinking to be done on composability and the extraordinary opportunities that exist, but it is fantastic that we have such champions in Chris Woolard and others working in this area. I look forward to seeing how it develops. For the moment, I withdraw the amendment.

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Moved by

[Lord Pitt-Watson]

73: Clause 27, page 32, leave out lines 38 and 39
Member’s explanatory statement
This amendment, and the amendment in the name of Lord Pitt-Watson to clause 27 at page 33, line 1, would ensure that both clauses 27 and 36 can be commenced to amend one list in section 66A of the Financial Services and Markets Act 2000 while preserving the final “or”.

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Moved by

[Lord Pitt-Watson]

75: Clause 29, page 34, line 32, leave out “is in force” and insert “has effect”
Member’s explanatory statement
This amendment would make section 55AA(4) of the Financial Services and Markets Act 2000 consistent with section 55A(3) of that Act (as amended by clause 29).

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Moved by

[Lord Pitt-Watson]

76: Clause 33, page 38, line 28, at end insert—
“(2A) In section 61 (determination of applications), in subsection (3ZA)—(a) the words from “granting it” to the end become paragraph (a);(b) after that paragraph insert“, or(b) in the case of a permitted conditional application (as defined in section 60A(5)), granting it subject only to conditions, or for a limited period, requested in the application (or both).””Member’s explanatory statement
This amendment would keep section 61 of the Financial Services and Markets Act 2000 in step with other amendments to Part 5 of that Act, which treat a decision to grant an application on the terms requested like an approval of the application.

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Moved by

[Lord Pitt-Watson]

81: Clause 37, page 45, line 2, at end insert—
“(7) If the Treasury are satisfied that regulations under section 408A or 408B of the Financial Services and Markets Act 2000 (as inserted by subsection (3)) would, if made, have substantially the same effect as existing overseas recognition provision—(a) sections 408A to 408C of that Act (as inserted by subsection (3)) apply in relation to the regulations as if—(i) section 408A(2) were omitted,(ii) in section 408B(1), the words from “if the Treasury” to the end were omitted,(iii) section 408B(2), (4) and (5) were omitted, and(iv) section 408C(1) to (4) were omitted, and(b) section 429 of that Act applies in relation to the regulations as if, in subsection (2), “408A” (as inserted by subsection (5)) were omitted.(8) In considering whether regulations would have substantially the same effect as existing overseas recognition provision, the Treasury must—(a) treat the power in section 408B to designate a country or territory for the purposes of the regulations as forming part of the regulations, and(b) disregard any difference between that power and any power to make designations under the existing overseas recognition provision.(9) In subsections (7) and (8), “existing overseas recognition provision” means—(a) provision contained in an instrument containing provision listed in the Schedule to the Financial Services (Overseas Recognition Regime Designations) Regulations 2025 (as it has effect from time to time), or(b) a designation made under such an instrument.”Member’s explanatory statement
This amendment would allow the Treasury to consolidate existing provision relating to overseas recognition under the umbrella of the new overseas recognition regime, so long as their doing so would not substantially change the effect of the existing law.

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[Baroness Altmann (Non-Afl)]

My Lords, I support Amendment 87 in the name of the noble Baroness, Lady Bowles. I will speak to my Amendment 92, and I am grateful to her for adding her name to it. Amendment 92 would insert a provision in the Bill to allow life insurers to set up defined benefit pension superfunds outside of their solvency UK ring-fences, enabling them to participate in the superfund market and potentially even help the UK build its own version of Canada’s much-vaunted Maple Eight. UK insurers—with suitable ring-fencing, as set out in the amendment, to ensure separation from their insurance business—are ideally placed to run large pools of pension investments, with existing in-house expertise in areas such as investment, actuarial and legal. At present, insurance buyout is seen as the gold standard for defined benefit pension scheme endgame strategies.

Superfunds could provide a means to add billions of pounds-worth of productive capital into the UK economy and allow pension members to enjoy better benefits, rather than superfunds remaining niche players, if the current system is not changed. Insurers could bring large amounts of capital pooled into the pension scheme area and collect pension assets so that scheme members would have better upside opportunities and robust alternatives to the finality of annuity buyouts, which are generally considered 100% safe but could well not be. Buyout pushes assets into low-return, unproductive opportunities and denies members greater returns and better pensions, which could come from superfunds.

In particular, there are concerns about systemic risk with annuity buyouts. I wondered whether the Minister might agree to meet me and other interested parties to discuss the risks involved in the Government’s current perception that annuity buyout is the gold standard, 100% safe endgame strategy. I hope that he will recognise that the Financial Services Compensation Scheme may not be as secure as expected.

[Lord Pitt-Watson (Lab)]

My Lords, I thank the noble Baronesses, Lady Bowles and Lady Altmann, for their amendments. I will take each in turn, starting with Amendment 87.

As was noted by my predecessor, the Government recognise the role which the bespoke tax regime for transformer vehicles plays in ensuring that the UK is competitive. We also recognise, as does this amendment, the importance of robust anti-avoidance measures and clear guidance in ensuring that the regime functions effectively, provides certainty to business and safeguards the integrity of the tax system.

It is right that we preserve HMRC’s ability to effectively pursue instances where vehicles are established for the purposes of avoiding tax, and it is important that we preserve that ability and avoid creating risks for the Exchequer. However, I recognise the strength of feeling in industry over this issue. I therefore offer the Baroness a meeting with HMRC and Treasury officials to discuss it in more depth. I remain of the view that this legislation is not the appropriate place to make provision for the tax regime governing transformer vehicles—the Risk Transformation (Tax) Regulations 2017 being the specific legislation designed to govern this.

On Amendment 92, the Government recognise the important role that defined benefit pension scheme consolidation can play in improving outcomes for pension scheme members and providing additional options for schemes. The amendment seeks to place in legislation an explicit permission for PRA-authorised insurers to establish, own or operate DB superfunds and would introduce statutory requirements governing the separation of superfund and insurance activities. However, insurers are already able to establish and operate superfunds under the existing regulatory framework. The amendment therefore does not create a new route into the market. Rather, its primary effect is to place requirements relating to ring-fencing, capital treatment and the separation of activities into primary legislation. The Government’s view is that matters relating to prudential regulation, capital treatment and the supervision of regulated firms are more appropriately addressed by the relevant regulators rather than through detailed provisions in primary legislation. For those reasons, while I appreciate the intention behind the amendment, the Government do not consider it necessary.

I therefore ask the noble Baronesses to withdraw or not move their respective amendments.

[Baroness Altmann (Non-Afl)]

Would the noble Lord be willing to meet to go through some of these issues?

[Lord Pitt-Watson (Lab)]

If I would be the relevant person to talk to on this matter, I would be happy to meet. If not, perhaps I can direct the noble Baroness to appropriate officials.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I thank the Minister for his reply. There is nothing in my amendment that is intended to stop pursuit of things that are wrong, but the evidence is that the guidance is not understood. I welcome the opportunity to have a meeting with HMRC officials so that we can explain more clearly where the problems lie and see if a solution can be found. With that, I beg leave to withdraw my amendment.

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[Lord Vaux of Harrowden (CB)]

My Lords, I am not sure how to follow that. I have added my name to Amendment 98. Clause 50 is a very broad, catch-all Henry VIII power. Given that the Bill already has over 50 delegated powers in it, this seems entirely superfluous and it should be removed.

[Lord Pitt-Watson (Lab)]

My Lords, Amendment 98 would remove the consequential power contained in Clause 50. The Government understand the concern that delegated powers should be used appropriately and should not become a vehicle for making substantive policy changes without parliamentary scrutiny. Indeed, I think that, on Monday, in response to issues to do with Henry VIII powers, I gave some sympathy to that argument. However, the power in Clause 50 is not a power to introduce new policy, nor is it a power to revisit the policy that Parliament will have approved by passage of the Bill; it is a narrow, regulation-making power limited to dealing with matters that arise as a consequence of the provision that Parliament has already approved within the Bill.

It is common and often necessary for legislation of this scale and complexity to require consequential adjustments elsewhere on the statute book, so that provisions operate as intended. Without such a power, relatively minor or technical changes would require further primary legislation, creating unnecessary delay and complexity. For these reasons, the Government do not believe that removing this clause would improve the Bill. I would also note that this was not a point raised by the Delegated Powers Committee about the Bill.

Finally, I assure the noble Baroness that parliamentary committees will of course be able to call the Government to appear in front of them and account for the use of consequential power or, indeed, any other power in the Bill. I therefore ask the noble Baroness to withdraw this amendment.

[Baroness Neville-Rolfe (Con)]

My Lords, the fact is that Clause 50 gives Ministers a broad and potentially permanent power to amend or appeal primary legislation, including devolved legislation, without the full scrutiny afforded to a Bill. Unlike other Bills, this is a Bill with many new, unspecified powers, so I seek to test the opinion of the House.