Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025

Lord Wilson of Sedgefield Excerpts

Wednesday 3rd September 2025 Grand Committee

Moved by

[Lord Wilson of Sedgefield]

That the Grand Committee do consider the Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025.

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

In moving these regulations, I shall speak also to the Markets in Financial Instruments (Miscellaneous Amendments) Regulations 2025.

These two technical instruments make practical changes that allow the Government to complete reforms to banking and wholesale markets regulation. Collectively, they ensure that our legislation for financial services remains effective and brings these areas of regulation in line with the model of regulation set by the Financial Services and Markets Act 2000—the FSMA model. The instruments do not introduce new burdens or policy for firms, and the changes have been widely supported by industry.

The Financial Services and Markets Act 2023 repealed assimilated law relating to financial services, subject to commencement by the Treasury. This approach allows our expert and independent regulators to replace detailed rules currently set in legislation with flexible, UK-tailored standards.

I will first address the Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025. Noble Lords will be aware that banks are required to hold capital buffers, in addition to minimum capital requirements, to ensure that they have sufficient capacity to absorb losses while continuing to lend to the economy, even in times of stress. This short, technical instrument updates references to the capital buffer regulations in other legislation now that the underlying regulations have been restated through the powers in the Financial Services and Markets Act 2023.

The process to bring the capital buffer regulations in line with the FSMA model does three things. First, it revokes the 2014 capital buffers regulations—a piece of assimilated law that, under our FSMA model of regulation, is better situated in regulator rules. The Government are therefore replacing some of the revoked provisions with rules designed and maintained by the Prudential Regulation Authority and have restated a limited number of regulations that need to remain in legislation, with some operational improvements.

Secondly, it gives the Prudential Regulation Authority additional flexibility in setting two capital buffers that are derived from rules set internationally by the Basel committee: the capital conservation buffer and the global systemically important institutions, or GSII, buffer. Those buffers will now be set through PRA rule making rather than through legislation, upholding international standards while increasing the flexibility of regulation.

Thirdly, it preserves in legislation the policy frameworks of the two capital buffers that are set by the Bank of England’s Financial Policy Committee—the counter- cyclical capital buffer and the other systemically important institutions buffer—which will ensure that the FPC has a clear statutory basis on which to deploy these tools. It also makes operational modifications to improve the effectiveness of the framework by, for example, allowing the FPC to set the countercyclical capital buffer off-cycle, rather than being restricted to its quarterly setting, in case of a financial system emergency.

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While we do not oppose the passage of these instruments, we are very glad of the opportunity to take part in this serious scrutiny in the interests of financial stability, innovation and growth. As a closing question, will the Minister say how far through the statement of EU law in financial services His Majesty’s Treasury has now got? It is a process that His Majesty’s Opposition support, and it would be good to know how much longer it will take to get to the end, much though I enjoy the opportunity to debate these statutory instruments.

[Lord Wilson of Sedgefield (Lab)]

I thank the noble Baronesses for their questions and remarks on what are really technical issues. There is no real policy change, but the issues are none the less important. As the noble Baronesses said, one of the key issues is that we want to ensure that the economy grows. As far as our financial regulation infrastructure is concerned, it is always welcome to have heard from the IMF that the architecture that we have now is some of the best of its kind in the world. The IMF also endorsed the Government’s fiscal plans as striking

“a good balance between supporting growth and safeguarding fiscal sustainability”.

In answer to the noble Baroness, Lady Bennett, the Government are committed to upholding financial stability, which is a prerequisite of our position as a leading global financial centre. This is about rebalancing our approach to risk and pushing back on some of the mission creep that we have seen over the past decade. There is scope to do this while continuing to protect financial stability, and obviously we will always keep this under review, which was one of the noble Baroness’s questions.

The noble Baroness, Lady Kramer, asked about parliamentary scrutiny and how Parliament will continue to scrutinise what the FCA and the PRA are going to do. They are independent non-governmental organisations and their independence is vital to their role. However, they are fully accountable to the Government and Parliament for how they exercise their functions, and this accountability is critical to ensure that they are advancing the objectives given to them by Parliament and performing at the optimum.

There were other questions about whether we are giving regulators too much power. We do not believe we are. We have a flexible system. Some of it is still going to be in legislation; some of it is going to be in regulation. The flexibility is there to ensure that the one thing that we create is growth in the economy. To the noble Baroness, Lady Neville-Rolfe, I say it helps to deliver growth because growth is our ultimate ambition. To achieve this, the Government have announced the most extensive package of financial service reforms in over a decade. Reform will unlock growth by increasing the global competitiveness of the sector, reducing unnecessary regulatory burden, spurring the sector’s confidence and boosting innovation and opportunities, which is one of the issues that the noble Baroness raised. Obviously, it is about flexibility, and we need to ensure that we remain flexible in our approach to these regulations and continue to keep them under review.

We believe that these technical statutory instruments do that. It will be for the FCA and the PRA to decide how to streamline and improve their rulebooks. The FCA has already published a discussion paper seeking views on organisational and conduct rules that could be removed or simplified. It has also announced work to review who can be treated as a professional investor, another key plank of the current framework.

I hope this answers many of the questions that were asked. If there are any that I have left out, I am sure that we can write to noble Lords.

[Baroness Neville-Rolfe (Con)]

That was extremely helpful, especially the direction of travel in terms of reform. I would be very interested to know what the growth questions to the PRA and the FCA were. The letters were written last autumn. The Minister has repeated the vision, as it were, and has talked about flexibility, which can be very useful. If the Minister could reflect a bit further on that and on transparency—emphasised by the noble Baroness, Lady Kramer—that would be great. Are the regulators being transparent in the way that they move forward? That is another way that we are able to feed in and criticise if we are not happy.

My other point perhaps goes wider than this debate, but I asked how the Government were getting on with the process of making these post-EU regulations. I do not know whether the Minister can answer that now, but if not, it would be helpful to hear separately on that.

[Lord Wilson of Sedgefield (Lab)]

I do not know exactly where we are with working our way through the EU regulations et cetera and decoupling where we think it is necessary to decouple. I am sure that we can write in some respects. I am sure that we will be doing it diligently in the best interests of the UK and our international standing. On the other issues, I should have mentioned the Leeds reforms which were mentioned on 15 July. The changes will help UK banks to compete internationally and provide the vital investment required to drive growth in the economy. We are implementing the Basel III.1 arrangements on international banking by delaying investment banking requirements until 2028 and implementing other requirements in 2027 and communicating that the Treasury will avoid ring-fencing and that the PRA will undertake a review and report by early 2026. There is a lot going on in this area. The Leeds reforms are critical to that. What drives all this is the fact that we are pursuing growth. That is the one thing that we want to achieve.

[Baroness Neville-Rolfe (Con)]

I support the objective of growth. I used to be a Treasury Minister and I know that the Treasury will move forward, but it would be good to get this process done.

[Lord Wilson of Sedgefield (Lab)]

I welcome the Opposition’s support.

Motion agreed.