Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Baroness Bull) (CB)
My Lords, if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Financial Services and Markets Bill [HL]
Wednesday 1st July 2026
(2 days, 5 hours ago)
Grand CommitteeRead Full debate Financial Services and Markets Bill [HL] 2026-27 View all Financial Services and Markets Bill [HL] 2026-27 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 5-IV(b) Amendment for Grand Committee (Supplementary to the Fourth Marshalled List) - (1 Jul 2026)
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
My Lords, I want to address a few key areas before we begin. First, we are starting today with the debate on an adjourned group. Only those noble Lords present earlier in the week at the start of the group should contribute. We have a list to help manage that. I am expecting, based on the adjourned debate, that debate will go straight to Front-Bench contributions.
Secondly, on the general rules, I remind noble Lords again that they should declare any relevant financial interest the first time they speak at each stage of the Bill. This means that, in Committee, relevant financial interests should be declared during the first group to which the noble Lord contributes. The declaration does not need to be repeated in debate on later groups at this stage. The declaration should be specific and brief. Members should briefly indicate the nature of their financial interests and not simply refer to their entry in the Register of Lords’ Interests.
I remind the Committee of the guidance in paragraph 8.82 of the Companion that, when withdrawing amendments, noble Lords should be brief, need not respond to all the points made during the debate and should not revisit points made when moving the amendment. A number of contributions made when withdrawing amendments on previous days were lengthy. I encourage all participants to keep their remarks short, in the spirit of the Companion.
Baroness Kramer (LD)
My Lords, I am sure everyone has reread the Hansard transcript and is fully on top of the debate that took place on Monday, so I will attempt to keep my remarks brief.
I am tempted to engage with the challenge from the noble Lord, Lord Bridges, on this group of amendments, to discuss in depth the issue of international rules on the one hand versus growth and competition objectives on the other. However, I say to the noble Lord, Lord Wilson, as the Whip, that I recognise that we are in Grand Committee and so will limit the comments that I make.
Looking at this group of amendments, it is important to say that my party believes in “better together” rather than “beggar thy neighbour”. International rules provide trust, confidence and certainty, which are key to long-term and sustainable growth. This country plays a key role in shaping international rules in sectors that we care about, including finance. The Bank of England is incredibly highly respected, as are our other regulators. There is extensive participation in key bodies, such as the Financial Stability Board, the Basel Committee on Banking Supervision and others. Indeed, the noble Baroness, Lady Noakes, gave a long list of the various committees in which regulators are engaged. I think she thought it might make them go native, but I consider that it is an important opportunity and area of their influence. We remain a player in making those rules, despite Brexit.
International rules need to provide flexibility, but they mean absolutely nothing if we pick only what suits us in the moment. The world is not thriving in the beggar-thy-neighbour world of Trump in the United States, of Russia and of China. The Committee will not be surprised that I am not sympathetic to Amendment 99, which would reduce international standards to a “have regard”.
As for the other amendments on this sector, I have no problem with the reporting amendments, but I am cautious of Amendments 102 and 104A, because they could easily be read as an instruction to waver on the Bank of England’s primary objective of financial stability. We must be careful not to abandon that focus on financial stability. Some people find volatility attractive—it is certainly a way in which the financial sector has frequently made much of its money. But the cost to ordinary people of both boom and bust and continuous volatility has been exceedingly high. The cost to businesses that need a significant measure of certainty is extremely high. Therefore, we will not be supporting these amendments, though, as I say, the reporting amendments make some sense to me.
Baroness Neville-Rolfe (Con)
My Lords, for me, the group speaks to the essential balance which underpins the purpose and function of effective financial regulation. Of course regulation must promote safety, stability and confidence in the system, but regulation must also support growth, competitiveness and innovation. It must help ensure that the United Kingdom remains one of the world’s leading financial centres.
We have often spoken about the contribution that financial institutions and financial services firms make to the UK economy; they provide employment, tax revenue, investment, lending, infrastructure and global influence. This group is about making sure that we put our money where our mouth is. If we say that competitiveness and growth matter then those principles must be reflected in the way regulators act, report and make their decisions.
That is why Amendment 99, to which I have added my name, is important. It would shift the requirement from “aligning with” international standards to considering international standards. That is an important distinction. International standards matter, and in many cases the UK will rightly wish to follow them, but we should not place ourselves in a position where we become passive rule-takers when it is not in our national interest to do so. We can see some rules, such as the unbundling of research in MiFID II, having totally the wrong effect—in this instance, regulating research so heavily that less research is produced, particularly for smaller firms. I know this from relatives who work in analysis; I do not think that is an interest to declare, but it is evidence. Another example is the EU’s sustainable finance disclosure regulation, which is now under review because it is too complex and burdensome.
The whole point of having an independent post-Brexit regulatory framework is that the UK should be able to design rules that work for our markets, our firms and our economy. The UK’s position in financial services is not secured by right. Other jurisdictions are moving quickly. We know the compliance costs are generally higher in the UK, so unless we offer a regulatory environment that is clearer, more cohesive, more predictable and more conducive to growth, it is likely that firms, capital and innovation will go overseas, the opposite of what we and the Government want. We are already seeing this risk in areas such as digital finance. Firms in digital assets, payments and new financial infrastructure need clarity and confidence. Where they do not find it in the UK, they look elsewhere. The Employment Rights Act is also having a chilling effect.
Amendments 100 and 101 are important because they would strengthen accountability around the competitiveness and growth objective. It is not enough for regulators simply to say that they have considered competitiveness. Parliament needs to see how that objective has been applied, what evidence has been used, what impacts have been assessed—for example, on SMEs, which are a key feature of my noble friend Lord Hunt of Wirral’s amendment—and how regulatory decisions have affected firms and markets over time.
Amendment 102, which I have also supported, would extend the secondary competitiveness and growth objective to the Bank of England’s financial market infrastructure functions. The same should apply to Amendment 104A on payment systems. If we want a dynamic payments ecosystem, competitiveness must be considered across the whole regulatory architecture.
The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)
My Lords, the Government share the views of many in this debate, particularly on the importance of ensuring that the secondary growth and competitiveness objectives are comprehensively embedded in the work of the regulators. That is why the Bill legislates to extend the requirement for the regulators to produce annual reports on their actions to advance competitiveness and growth objectives.
Amendment 99 would amend the secondary objective so that when carrying it out the regulators would need only to consider international standards, rather than to align with them. I recognise the desire to ensure that there are no unnecessary constraints on the secondary objective. However, the Government cannot accept this amendment. Aligning with international standards is central to the Government’s approach to supporting the international competitiveness of the UK as a global financial centre. These international standards underpin global financial resilience and support international trade. Stability, predictability and high regulatory standards are the cornerstone of the UK’s reputation as a global financial centre. Weakening the requirement to align would risk undermining the attractiveness of the UK as a place to do business.
However, it is worth noting that the UK is no passive recipient of international standards: we help to shape them. The Governor of the Bank of England is the current chair of the Financial Stability Board, and the UK authorities play leading roles in international bodies. I reassure noble Lords that international standards generally operate on a comply-or-explain basis. No standard trumps the objectives of the FCA or the PRA. Where it is right for the UK to go further, or where the nuances of our market require a different approach, the FCA and the PRA retain full flexibility to do so.
Amendments 100 and 101 would require the growth and competitiveness reports to be laid in Parliament and would prescribe their contents. These amendments clearly demonstrate the importance this House places on the growth and competitiveness reports. The Government absolutely agree about that. Since they were introduced in FSMA 2023, their value to stakeholders in Parliament and industry has been clearly demonstrated, which is why the Bill extends the original temporary requirement and will require the regulators to keep producing the reports on an annual basis. However, these amendments are not necessary: they are overly prescriptive and overlap with existing reporting mechanisms. For example, the regulators already provide ample public reporting on their authorisation metrics, which are published regularly and allow for year-on-year comparisons, and they already publish metrics along with their competitiveness and growth reports.
Amendment 102 would give the Bank of England a secondary objective to facilitate international competitiveness and growth in its regulation of central counterparties and central securities depositories. The Government recognise the importance of a dynamic and competitive UK clearing and settlement market. However, CCPs and CSDs have a unique role in managing risk at the centre of global financial markets and the value they provide is based on reliability and sound risk management. The UK’s success as a global centre for financial market infrastructure depends on its reputation for resilience, and regulation must reflect the roles of CCPs and CSDs as critical, globally shared infrastructure. The Government therefore do not believe that it would be appropriate for the regulatory framework for these firms to focus on international competitiveness or growth in the same way as other firms, or that the secondary objective for the Bank to facilitate innovation is the right one. However, the Chancellor made it clear in her remit letter to the Bank last year that it should consider how it can best support the Government’s growth mission when pursuing its objectives.
Lastly, Amendment 104A seeks to introduce new secondary objectives for the Bank of England in relation to payment systems. I am grateful to the noble Lord for raising this issue. The Government recognise that, where appropriate, secondary objectives can help the regulator to advance its primary objective in a balanced way. Payment systems are critical economic infrastructure and the Government agree that, alongside security and resilience, regulation in this area should support competition, innovation and growth.
However, the Government consider that the Bill already provides a framework that supports the aims of the amendment. Following the FCA taking on the responsibilities of payment systems regulations, it will retain the substance of the PSR’s objectives. This means that it will be responsible for promoting competition and innovation in payment systems and for protecting the interests of service users. The Bill also applies the FCA’s secondary competitive and growth objective to its general payment system functions and it includes provision to ensure that the Bank and the FCA co-ordinate effectively. I therefore ask the noble Baroness not to press her amendment.
Baroness Noakes (Con)
My Lords, I thank all noble Lords who have spoken today and the previous day. These amendments all relate to the secondary competitive and growth objective. I think that we share the same desire to have an effective secondary competitive and growth objective, which my lead amendment, in particular, was designed to ensure. The Minister says that the regulators have flexibility to do what is right, whatever the international standards. I do not think that that is captured by forcing alignment with standards, but I will think again about that before Report. I was also disappointed by the Minister’s other replies, because it seems that the Government are not taking opportunities to ram home the importance of growth and competitiveness, which is something that we fully support. I will withdraw my amendment now and consider what I shall bring back on Report.
Baroness Neville-Rolfe
Member’s explanatory statement
These amendments ensure that the Treasury has the power to reduce various time limits for regulatory approvals, but not to increase them.
Baroness Neville-Rolfe
My Lords, I rise enthusiastically —we have to get going for the football—to move Amendment 105, in my name and the name of my noble friend Lord Altrincham. I will also speak to the other amendments in the group.
I am grateful to my noble friend Lord Holmes for his amendments, which seek to achieve broadly the same objective as ours. I am also grateful to my noble friend Lord Howard of Rising for Amendment 151, which raises an important question about whether experienced and well-regarded individuals with a strong regulatory track record should be able to benefit from a more streamlined authorisation process.
Fundamentally, the amendments in the group all seek to make regulatory approvals faster, clearer and less prone to delay. We have heard throughout our consideration of the Bill that delays in authorisations, approvals and permissions are a brake on growth. They affect firms’ ability to enter the market, to expand, to appoint senior people and to innovate and compete. The Government recognise the problem: Clause 21 reduces a number of statutory determination periods, including for Part 4A permission applications, senior manager approvals and other regulatory decisions. That is welcome. However, the question is whether the Bill goes far enough and whether the powers that it creates are sufficiently disciplined.
One concern raised with us by firms is that the authorisations process can feel driven by deadline, rather than workflow. The issue is not only whether the FCA or PRA technically meets the statutory deadline; it is whether substantive work begins early enough in the process. If a case is not allocated promptly, if an initial review takes place only late in the period, or if information requests are made close to the deadline, the firm bears unnecessary costs and uncertainty, even if the regulator ultimately meets the formal target.
My first set of amendments today—Amendments 105, 110, 113 and 114—would ensure that the Treasury’s power to alter these time limits could be used only to reduce them. If the purpose of the Bill—and, indeed, the Government’s wider financial services strategy—is to make the regulatory system more streamlined and fit for purpose, success must be measured in part by reductions in the time taken to make decisions. I hope that the Minister will be sympathetic to that principle. The Treasury should be able to shorten regulatory approval periods where experience shows that this can be done safely, and it should not be able to lengthen them without returning to Parliament with a clear and specific justification.
The amendments tabled by my noble friend Lord Holmes take a similar approach but go further by proposing an automatic ratcheting-down mechanism. Where regulators had met the applicable time period for a defined period, the Treasury would be required to reduce the time limit further. That is a sensible principle of continuous improvement. If regulators consistently demonstrate that they can meet a deadline, we should be willing to ask whether that deadline can become more ambitious.
Amendment 109 concerns the FCA’s ability to stop the clock during the senior managers approvals process. We have heard from industry that the power to stop the clock can be used repeatedly during an approvals process. That is extremely frustrating for firms. It makes workforce planning more difficult and can leave firms waiting for months without any real sense of when a decision will be made.
Stop the clock powers can render the headline statutory deadline almost meaningless. Amendment 109 would, therefore, allow the FCA to use the formal stop the clock mechanism only once in relation to a senior manager approval application. When it does so, the FCA would be required, as far as is reasonably practicable, to specify all the information that it requires at that point. The FCA could still ask for further information later, but that later request would not stop the statutory clock.
As I have said, delays in approvals can affect business decisions, market entry, expansion, restructuring and succession planning. They can discourage talented individuals from taking up roles in the UK if they fear that the process will be slow, uncertain or opaque, and they could even put at risk our reputation as a leading financial centre.
I welcome Amendment 151 in the name of my noble friend Lord Howard of Rising. It asks whether there should be a more streamlined or expedited Part 4A authorisation process where the applicant is managed or directed by individuals with an established FCA-approved—or PRA-approved, I assume—track record and good regulatory standing. A review could help to identify where duplication exists and where good regulatory history can be taken into account in a practical way.
I would be grateful if the Minister could address three questions. First, what do the Government see as a reasonable timeframe for the approval of new products, new services and senior managers? Those of us who are used to more dynamic sectors think that the new targets are insufficiently challenging, but let us hear what they are. Secondly, do the Government accept the principle that the Treasury’s power to change approval time limits should be used only to reduce them, not increase them? If the Government do not accept that, in what circumstances do they envisage the Treasury using this power to lengthen regulatory approval periods? Thirdly, what safeguards exist to ensure that the FCA’s stop the clock powers are used proportionately and not in a way that undermines the statutory deadline?
We cannot talk about growth, competitiveness and innovation while tolerating unnecessary delays in the basic processes that allow firms to operate and people to take up senior roles. We know from history that we need strong management, as well as strong and challenging non-executive directors for our banks, but we also need an efficient approvals system that supports that. I beg to move.
Lord Holmes of Richmond (Con)
My Lords, what a pleasure it is to follow my noble friend Lady Neville-Rolfe. I agree with everything she said, with all the principles she set out and with the amendments in this group.
I shall speak to Amendment 106 and the other amendments in my name. We are asking a lot of our financial regulators and it is only right that we offer help in the Bill. When we come to the Minister’s response —I do not want in any sense to pre-empt him—there may be comments around the amendments being overly prescriptive. I suggest that these amendments do not ask for prescription but, in fact, deliver clarity and, in a sense, are variously helpful to our financial services regulators.
My amendments seek to offer that help but also, as my noble friend Lady Neville-Rolfe said, to assist in driving that high-performance culture. Our regulators are well-regarded around the world. That is about high performance, but high performance in its turn is about continuous development and improvement. I think that this Bill can assist in that purpose.
In essence, this is all about the “E”s in this group: efficiency, effectiveness and economic activity. It is often said that delay defeats equity. In this instance, delay defeats economic activity and economic growth. It frustrates small, medium and larger businesses in what they are trying to do right across the United Kingdom economies. I believe that this suite of amendments offers clarity to the regulator and that, through that clarity, the regulator can give the right direction and the right support to all our businesses to do what they do best, which is to create economic activity and drive and deliver economic growth. I look forward to the Minister’s response.
Lord Ashcombe (Con)
My Lords, I declare my interest as an employee of Marsh, an FCA-regulated entity. These amendments in the names of my noble friends Lady Neville-Rolfe, Lord Altrincham and Lord Holmes concern Clause 21, which I very much welcome in principle. The improvements to regulators’ approval timelines are a positive step, as are the powers within the clause that enable the Government to amend those timeframes over time. In effect, the Bill already recognises the need for a mechanism to drive improvement. However, the evidence suggests that we can and should go further. The fact that regulators have consistently met their existing targets—targets that have remained largely unchanged for some 25 years—indicates that there is clear scope for more ambitious deadlines.
These amendments are therefore designed to embed a culture of continuous improvement, as referred to by my noble friend Lord Holmes. They would ensure that any future changes to the timeframe set out in Clause 21 could move in only one direction, towards faster decision-making. Moreover, where regulators have consistently met revised targets over a period of two years, the Treasury would be required to reduce those timelines further. In doing so, we would place a statutory obligation on the system to evolve and improve. This matters greatly for the competitiveness of the United Kingdom, particularly for the insurance market in which I work. The speed at which regulators handle authorisations, variations of permission and approvals for senior managers has a direct impact on the ease of doing business. These processes define many firms’ day-to-day interactions with regulation and shape broader perceptions of our market. Firms today have choices about where to deploy capital, where to grow and where to locate talent. A regulatory system that is clear, predictable and timely is a key part of that decision-making calculus.
The UK must offer a compelling proposition. There are many other places to go. Evidence from the London Market Group reinforces this point. A recent survey of firms regulated by the FCA and the PRA shows that both institutions are respected with strong overall scores, yet concerns remain. More than half of firms believe that aspects of the FCA’s approach negatively affect the attractiveness of the London market, and nearly nine in 10 highlight slow approvals for senior managers as having a strong detrimental impact on their operations. Improving timelines is not about reducing standards; it is about ensuring that our system supports growth, innovation and competitiveness. These amendments help to achieve just that.
Lord Bridges of Headley (Con)
My Lords, I should like to speak briefly and, in so doing, declare my interest as an adviser to and shareholder in Banco Santander. I very much support these amendments. I think that we would all agree that we want our regulations and the entire process to be simple and robust, as that is the bedrock of a competitive global financial centre. I do not think that anyone here is arguing for a weakening to the extent that it would undermine confidence in the market, which is absolutely critical.
To support what has just been said, I draw your Lordships’ attention to a study that TheCityUK brought out a few years ago—I think in 2023. It highlighted in its survey concerns among those in the City about the speed of regulatory requirements. If I am reading it right, of those who responded to the survey and were undergoing FCA regulatory approvals, 92% were experiencing delay. If you look at the views on the opaqueness of the systems, which indeed adds to uncertainty and undermines investor confidence, an enormous percentage—almost 100%—saw the system as opaque or somewhat opaque. If one then looks further on in this study at the perceived overall impact that the efficiency of the regulators’ authorisation processes had on the attractiveness of the UK as a place to establish and do business, in terms of the FCA, if my maths serves me right, almost 90% saw it as detrimental or somewhat detrimental to the UK’s attractiveness.
I am sure that the FCA and others are doing their best to solve this issue, but these amendments would do a lot to add pressure to that process and would strengthen the resolve within the system to address what is a clear need if we are to build on the competitiveness of London as a financial centre.
Lord Howard of Rising (Con)
My Lords, my Amendment 151 seeks to enable employment in the financial services industry to be made more efficient. At present, Section 55V of FSMA requires the Financial Conduct Authority to determine a complete application for Part 4A permission within six months and an incomplete application within 12 months. These statutory limits provide certainty but do not distinguish between entirely new market entrants and applicants who have previously been authorised and regulated by the FCA.
Many experienced financial services professionals have already undergone extensive regulatory scrutiny, have held approved positions within FCA-authorised firms and possess established records of compliance, integrity and competence. Despite this, when establishing a new authorised firm, they are often subject to the same authorisation timetable as applicants with no prior regulatory history. This approach can create unnecessary delays, increase costs, discourage entrepreneurship and inhibit competition within the UK financial services sector. It is also inconsistent with the Government’s broader objective of promoting growth, innovation and international competitiveness within the UK financial markets.
I propose that His Majesty’s Government consider introducing a fast-track authorisation process whereby applicants who have previously been authorised by the FCA or who have held FCA-approved senior management or controlled functions for a substantial period, have no record of serious regulatory misconduct, meet all threshold conditions and prudential requirements and submit a complete application should receive a determination from the FCA within 90 days of the application being submitted.
Such a provision would not reduce regulatory standards. It would recognise that the FCA already possesses significant information regarding the applicant’s competence, conduct, fitness and propriety. The FCA would retain full discretion to refuse applications where concerns arise, but qualifying applicants would benefit from a more proportionate and efficient regulatory process. The United Kingdom’s reputation as a leading global financial centre depends on regulation that is not only effective but efficient. A targeted, expedited process for proven and reputable applicants would help reduce barriers to market entry, encourage innovation, support economic growth and make the UK a more attractive jurisdiction in which to establish regulated businesses. It would tie in with the Government’s declared interest in reducing burdensome regulation, which impedes growth in the economy.
Lord Stockwood (Lab)
My Lords, I am grateful to the noble Baroness, Lady Neville-Rolfe, and the noble Lords, Lord Altrincham and Lord Holmes, for tabling these amendments on statutory deadlines for regulatory approvals. The Government agree that determining authorisations and other regulatory applications must be prompt and proportionate, while maintaining high standards, and they continue to push the regulators to be as ambitious as possible. This is why the Government are taking action to shorten a range of statutory deadlines through the Bill and, on top of this, have agreed voluntary stretch targets for the regulators to go further and faster to speed up the processing of the most crucial applications and facilitate growth. This focus is starting to pay off: for example, the FCA’s authorisation metrics for the last quarter show that the FCA determined 99.9% of senior manager applications within the existing three-month deadline, compared to 92.5% in the same quarter for 2022-23. In addition, the FCA determined 98.1% of senior manager applications within its two-month voluntary stretch target, determining 50% of authorisations within only 19 days.
Amendments 105, 106, 110, 111, 113, 114 and 115 seek to ensure that the Treasury can use the power under Clause 21 to reduce the deadlines for determining applications. The Government understand the intention behind these amendments. The Government are committed to keeping these statutory deadlines under review to ensure that they are as ambitious as possible to support firms. The intention behind this is primarily to allow certain deadlines to be shortened further if conditions change in future and the regulators can process applications faster. However, it is vital that the regulatory framework reflects the need for a robust approvals process and the high standards expected of firms operating in the UK. Limiting the Government’s ability to recalibrate the statutory deadlines in the other direction would limit our ability to react to unexpected circumstances and could risk those high standards being watered down or push the regulators to refuse more applications to ensure they are meeting their legal obligations. This is why the Government’s view is that the powers must remain flexible.
Amendments 107, 112 and 116 would oblige the Government further to shorten these statutory deadlines should the regulator meet these deadlines for two consecutive years. The Government understand the intention and ambition behind these amendments but do not agree that this is the right way to achieve it. Meeting an existing deadline for two consecutive years does not in and of itself mean that further shortening the deadline will be appropriate and could risk watering down standards. Such a ratcheting mechanism could also drive perverse behaviour, disincentivising the regulators meeting these deadlines to avoid further operational pressures. The Government’s view is that these amendments would prevent the exact outcome they are seeking to achieve.
On Amendment 109, I understand the concern that statutory deadlines are less meaningful if the FCA can repeatedly stop the clock and make rolling requests for information. The Government recognise the frustrations that firms feel when applications are paused or when they receive repeated requests for information. The noble Baroness, Lady Neville-Rolfe, asked about the proportionality of circumstances in which the FCA can indeed stop the clock. The FCA can stop the clock only in three specific circumstances under FSMA: for change of control, senior manager and appointed representative applications. This power allows the FCA fully to investigate issues that emerge only after an initial response has been received or where further clarification is needed on matters that were not reasonably identifiable at the outset. This is important for ensuring that robust standards are applied.
The Government think it is important that the regulators retain some flexibility to scrutinise senior manager applications properly. A rigid rule limiting the formal stop the clock power to a single occasion risks weakening the regulator’s ability to conduct proper scrutiny in more complex cases, which it does only on very few occasions when really necessary. It also risks encouraging broad, defensive and overly onerous initial information requests as the FCA seeks to adjust procedures to the new requirement, potentially making the process more onerous for all applications. However, I do not want to sound complacent: the Government will continue to engage with the regulators to ensure that they are processing applications as quickly as possible while maintaining standards and avoiding delays.
Lord Holmes of Richmond (Con)
I would like some clarification from the Minister. Does he have, at his fingertips, figures around the stop the clock function? Are the Government currently satisfied with how the function is being used?
Lord Stockwood (Lab)
Let me come back to the noble Lord with that data; I had it in the original draft, but it seems that we have passed it out. I will write to the noble Lord over the coming days.
Our belief is that the right answer is not to hardwire this procedural restriction into primary legislation but to continue improving operational performance and scrutiny of timelines through our wider framework.
Amendment 108 would insert detailed operational requirements into FSMA for the handling of authorisation applications. I recognise the attraction of measurable standards on case allocation, initial review, information requests, publication of monitoring data and limiting the use of the stop the clock mechanism. However, as we discussed earlier, the FSMA model delegates certain responsibilities to the independent regulators and, like any other organisation, they need to figure out how to fulfil those responsibilities. They are responsible for ensuring that they have the resources, systems and processes needed to discharge their functions effectively. The right approach for Parliament and the Government is to hold the regulators to account for speed, service quality and operational effectiveness, not to prescribe in primarily legislation the detailed mechanics of how an application must be processed.
I have been passed the data that was in the original speech, which answers the question from the noble Lord, Lord Holmes. In the year 2025-26, in 55% of FCA solo-regulated senior management applications there was no stop the clock and for 32% of cases the clock was stopped only once. Even when the FCA does use its stop the clock power, it continues to determine applications promptly. In Q4 of 2025-26, 50% of senior manager cases were determined within 19 days. As mentioned previously, 99% were determined within the new target of two months.
Lord Holmes of Richmond (Con)
I thank the Minister for those statistics and very much appreciate him having them in front of him. This ability to elucidate such detail is incredibly helpful. He set out the importance of enabling the regulator to continue to have the option to increase timelines, rather than just having them set as they are or being able to reduce them, as our amendments suggest. Would he be able to set out to the Grand Committee perhaps four or five examples of where it would be helpful for the regulator to increase timelines?
Lord Stockwood (Lab)
I understand that the regulator does not have the power to increase deadlines without our consent.
Lord Ashcombe (Con)
The wording in the Bill is “changing”, so it can go up or down, but we are asking for it to be reduced. That is significantly different.
Lord Stockwood (Lab)
The noble Lord makes an important point, but the regulator does not have that power. Only the Treasury can grant that power to increase the timelines.
Lord Ashcombe (Con)
Then the Treasury can do it, but it should be down and not up.
Lord Stockwood (Lab)
I think this requires some further detail. It is an affirmative power that the Treasury has to regulate, but I will write to the noble Lord in full to make sure that he understands that we are taking this issue seriously.
I turn to Amendment 151 and thank the noble Lord, Lord Howard, for raising this. I know that it reflects a long-standing frustration that credible firms, particularly those led by individuals already known to the regulator, may still face lengthy authorisation processes that can delay market entry and inhibit innovation and growth. However, while the previous approval and track record of senior individuals is clearly relevant to the regulator’s assessment, authorising a firm is not simply a matter of approving the people who run it. The regulators must assess the firm as a whole, including its business model, governance, systems and controls, and whether it is capable of operating safely and in the interests of its customers.
The Government recognise the importance of timely and effective authorisation processes, especially for new firms. This is why the Government are shortening the deadlines for new firm authorisation applications through this Bill. It is also why the Government are taking steps to establish a provisional licences regime, to reduce the barriers that firms face when seeking FCA authorisation and to help them get up and running faster. The challenges that firms face when seeking authorisation are real, and I am happy to discuss that further with the FCA, but imposing a statutory requirement on the Treasury to undertake such a review is disproportionate and not the right way to address them. As I committed to the noble Lord in our meeting prior to today, I will talk to the FCA about this and how it will ensure that this process is sped up.
I fully recognise the concerns that noble Lords have raised about delays, responsiveness and the need for an approvals regime that supports growth and competitiveness. The Government are actively addressing these through the shortening of a range of statutory deadlines in the Bill, in a way that is targeted, proportionate and will ensure competitiveness without compromising the rightly high regulatory standards that firms must meet to operate in the UK. I therefore ask the noble Baroness to withdraw Amendment 105.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to all noble Lords who have contributed to this debate and to the Minister for his response. I welcome that the Government recognise the problem of delay in authorisations and approvals. Clause 21 is clearly intended to make progress in that respect, but the existing approval figures suggest to me that the deadlines are insufficiently ambitious. Leaving it to the FCA and PRA feeds risk aversion, and it is disappointing to hear the Minister endorsing that.
Unless the powers in the Bill on the Treasury and the regulators are better disciplined, we may not achieve the cultural and operational shift that firms need and we all want. There will not be an incentive for continuous improvement, of the kind that my noble friend Lord Ashcombe described in the insurance industry, that is so badly needed. I am also not sure what the unexpected circumstances are, not on stop the clock but on the basic system. What is the detail of that? Is it Covid? Is it a war? I do not know. I am grateful for the Minister’s comments on stop the clock. It was interesting to hear that nearly half the cases involved stopping the clock—and that we have no idea how long the bad cases take. A statutory deadline is of limited value if it can be paused repeatedly or if firms feel that pauses are being used in a way that creates uncertainty. The FCA should, wherever possible, identify missing information early and comprehensively. I do not think I heard a satisfactory answer on that.
I welcome the points raised by my noble friend Lord Holmes on all granular performance data. My noble friend Lord Howard of Rising has also raised the idea of a fast track for established senior managers, and I very much look forward to hearing the results of the Minister’s conversations with the FCA, and perhaps the PRA, on that. I am not that hopeful, and I encourage the Minister to press these issues. They matter a lot to the industry. I know, from planning and other areas that I have been involved in during my long career, that speeding things up can lead to very positive feedback. I hope the Minister will reflect further, but for now I beg leave to withdraw my amendment.
“Section 166 reviews: threshold and proportionality requirements(1) Section 166 of the Financial Services and Markets Act 2000 (reports by skilled persons) is amended as follows.(2) After subsection (1) insert— “(1A) The regulator may not require a person to provide a report under this section unless it is satisfied that—(a) there is a material risk of serious detriment to regulatory outcomes, and(b) the use of a skilled person is a proportionate response, having regard to—(i) the scale and nature of the suspected issue,(ii) the expected burden on the firm, and(iii) whether the matter could reasonably be addressed through the regulator’s existing supervisory tools.”(3) After subsection (4) insert—“(4A) The regulator must publish, at least annually—(a) the number of reports commissioned under this section,(b) the sectors to which they relate, and(c) the aggregate cost to firms of such reports.”(4) In subsection (5), after “may” insert “, subject to subsections (1A) and (4A),”.”Member’s explanatory statement
This new Clause would introduce a statutory threshold for the use of section 166 skilled persons reviews, requiring the regulator to demonstrate a material risk of serious detriment and to consider proportionality, and would require annual publication of the number, sectoral distribution and aggregate cost of such reviews.
Baroness Bowles of Berkhamsted (LD)
My Lords, in moving this amendment, I shall speak also to Amendment 123 in my name. As I have said before in Committee, when we have been talking about proportionality, it is at least possible to look at rules and assess whether they appear proportionate and growth-friendly, but it is far harder to understand what is happening on the ground in supervision and enforcement because that activity is not public and is, therefore, less visible. This is particularly so with Section 166 notices.
I seem to have once again hit on the same subject as the noble Baroness, Lady Noakes. I promise noble Lords that there has been no conferring, as they say on “University Challenge”. There was a time when a Section 166 notice was very rare. It was regarded as a serious matter and something you did not want others to know about, lest it suggest that you were doing something really wrong, you were in real difficulty, or you were in trouble over something. Now, the reaction is much more along the lines of, “Oh, you too?”, and the sense in the industry is that what was once a rare and targeted tool is becoming a routine, general-purpose device—sometimes even a fishing expedition.
These investigations are not small matters. They can go on for a very long time. They are intrusive, expensive and disruptive to normal operations. They require the appointment of external consultants, often at significant cost, and involve a lot of staff time; they even require the hiring of additional staff to deal with keeping day-to-day activity going. In 2023-24, there were 83 Section 166 notices and in 2024-25 a further 47. The cost of them in 2024-25 was £44.7 million, which is not trivial. There is a legitimate concern that the threshold for initiating a Section 166 notice has drifted downwards, and that matters that should be dealt with through the ordinary supervisory channels are now being dealt with through Section 166. They should be dealt with routinely, using the regulator’s own knowledge and expertise wherever possible, but it seems that some of that is now being outsourced through this Section 166 route.
What is needed is a pinning back to serious matters, as well as greater transparency around how and why these notices are used. My amendment aims to restore Section 166 reviews to what they were always understood to be: a tool for investigating issues that pose a serious detriment to regulatory outcomes. It would also introduce a modest reporting requirement for an annual statement setting out the number of notices issued, a breakdown by sector, the reason there was a material risk of serious detriment and the aggregate financial cost to firms. This is not an attempt to remove Section 166 or constrain the regulator’s ability to act; it is simply an attempt to ensure that a powerful and intrusive tool is used proportionately, transparently and for the purposes for which it was originally intended. Too much use is harmful, and a reputation for routine use is itself a deterrent to locating businesses in the UK.
I turn to my Amendment 123, which concerns the information powers under Section 165 of FSMA. It aims to set a framework around the information demands that regulators can make. It is not intended to intrude on anything reasonably necessary for investigatory, supervisory or other statutory functions, or for advancing the regulator’s objectives. However, as the House of Lords Financial Services Regulation Committee heard in evidence, firms are receiving many requests for information that do not appear necessary or are duplicative or made without co-ordination across teams. These requests impose real cost and disruption and are not always proportionate to the matter at hand. This amendment seeks to put some structure and co-ordination around what can reasonably be expected, ensuring that information requests are targeted, necessary and proportionate, and that firms are not repeatedly asked for the same material by different parts of the same regulator. I beg to move.
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.
Baroness Noakes (Con)
The Minister made great play of the importance of proportionality, on which I think there would be considerable agreement. The Bill removes the requirements to have regard to the regulatory principles, including, importantly, the proportionality paragraphs, for anything other than the five-year plan. It is therefore incumbent on the Government to look at all other areas of the Bill to ensure that proportionality, where it is needed, is correctly referenced in the Bill. By taking it away at the outset from the requirement to have regard in areas other than the five-year plan, the Government are leaving the Bill wide open to the non-proportional use of powers by the regulator. This area has not been fully developed by the Government in their thinking on this.
Baroness Bowles of Berkhamsted (LD)
My Lords, I thank all those who have spoken in this debate, in particular the noble Baroness, Lady Noakes, for her last intervention; I presume that the Minister had finished speaking. Perhaps we need 200 amendments on Report saying, “This has to be done proportionately”. That is literally where we are. Anybody who has been near a Section 166 review will know that an awful lot about it seems awfully unfair. For instance, the regulator may not have its own expertise, so it makes you pay to hire it in. Some of these things should be done under the regulators’ ordinary duties. This needs to be looked at and, as the noble Lord, Lord Altrincham, said, some kind of proper discipline must be put around it. That is what we are asking for.
I am glad to hear that there is a target of cutting the administrative burden by 25%. We will see how that goes, but I do not think that everything can be left as open as it is now, which is the much-repeated message that we have been delivering. For now, I beg leave to withdraw my amendment.
Baroness Noakes
“Cost benefit panels(1) The Financial Services and Markets Act 2000 is amended as follows.(2) In subsection (4) of section 138IA, insert after paragraph (a)— “(aa) keep under review the cumulative impact of rules issued by the FCA including those covered by subsection (3); and”(3) In subsection (4) of section 138JA insert after paragraph (a)—“(aa) keep under review the cumulative impact of rules issued by the PRA including those covered by subsection (3); and”(4) In subsection (5) of section 139A, omit “(e)”.”Member’s explanatory statement
This amendment allows the Cost Benefit Panels of the FCA and the PRA to keep the cumulative impact of regulation, including those rules which are not consulted on, under review. It also requires the FCA to prepare cost benefit analysis for guidance and for the Cost Benefit Panel to review it.
Baroness Noakes (Con)
My Lords, I thank the noble Lord, Lord Vaux, for adding his name. Unfortunately, he is not able to be in Committee today. The amendments in this group concern cost benefit panels, which were created by the 2023 Act to underpin the existing FSMA requirement for cost-benefit analysis to be undertaken and published when rules are consulted on by the PRA and the FCA. The panels were created a little under two years ago and they are doing good work, as their annual reports show. The Financial Services Regulation Committee had a private briefing session with the chairs of the two panels, and we were impressed by the progress that they have made.
My amendment has two elements. The first requires the panels to keep under review the cumulative impact of rules, including those for which a cost-benefit analysis was not required because the impact was expected to be less than the £10 million threshold used by both regulators in their cost-benefit analysis policy statements. Keeping track of the cumulative burden of regulation was a recommendation of the Financial Services Regulation Committee in its Growing Pains report on the secondary competitiveness and growth objective. It was also one of the provisional recommendations of the FCA’s panel in its first report for the period to the end of March 2025. The 2025-26 report is not out until next week, but I would be surprised if it did not feature again.
Ideally, FSMA should be changed so that the existing statutory requirement on the regulators, which is confined to cost-benefit analysis on the proposed new rules, is widened so that it will be the responsibility of the FCA and the PRA to keep the cumulative burden on regulatory activity under review. I have taken the slightly easier drafting route in my amendments by putting a narrower requirement for the role of the panels.
The second element of my amendment concerns guidance by the FCA, which was covered last time in Committee, and the PRA. I confess that proposed new subsection (4) of my amendment captures only one part of what I was trying to achieve. I realised that when I was preparing my speaking notes, but it was too late to do anything about it, so I will speak to what I intended to cover in my amendment rather than what it does cover. This is Committee, after all.
At present, the FCA and the PRA are required to issue guidance under Sections 1K and 3I of FSMA and the FCA has power to issue guidance under Section 139A. If the FCA issues guidance under Section 139A, it has to be consulted on, but no cost-benefit analysis is required to be done or published. Proposed new subsection (4) of my proposed new clause in Amendment 119 seeks to require cost-benefit analysis for Section 139A guidance. I intended, but failed, to require cost-benefit analysis for all guidance issued by both regulators—that is a difference not reflected in the amendments.
I am well aware of the Government’s plan in Clause 18 to remove all the guidance obligations from the regulators, as well as the requirement for consultation on the FSA’s guidance under Section 139A. This part of my amendment is predicated on the Government realising the folly of their ways in Clause 18 for the purposes of today’s debate.
One of the findings of the FCA’s cost-benefit panel last year was the minimalist approach taken to cost-benefit analyses by the FCA: they are undertaken only when required by statute rather than being seen as good regulatory practice underpinning the detailed actions of regulation. The Financial Services Regulation Committee, as part of our inquiry into the FCA’s naming and shaming provisions, which had a potentially very significant impact on certain firms, called for a cost-benefit analysis. However, the FCA refused, saying that it was not required to do it by law. Therefore, I believe that attaching cost-benefit analysis to pretty much everything that the regulators do is necessary. Guidance would have been a good start, but the changes required are even broader than I have tried to achieve in my amendment.
My noble friend Lady Neville-Rolfe’s Amendment 132 seeks to widen the work of the CBA panels, and I look forward to hearing what my noble friends on the Front Bench have to say on that. With that, I beg to move.
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.
Baroness Noakes (Con)
Can the Minister explain what the FCA and the PRA are doing about cumulative burden? Are they focusing on the cumulative burdens of the rules that they have assessed using a cost-benefit analysis, or is it for all of their activities? It is my understanding that they are both pretty clear that they will use cost-benefit analysis in the way the statute has prescribed—that is, they use materiality thresholds, so quite a lot of them are not required at all to be looked at—so the whole range of their activities, which covers anything that is not rule-making, does not get assessed for cost-benefit at all. Can I be clear on what the Minister thinks the regulators are doing?
Lord Stockwood (Lab)
I will have to write to the noble Baroness, because that is a very detailed question.
Lord Stockwood (Lab)
We are trying to be balanced and proportionate here. I recognise that these are important issues but, at the same time, it is about ensuring that the regulator has the flexibility to make those decisions. We are definitely making inroads on this, although I imagine that there is a lot more discussion to be had between now and Report. I want to make sure that I give the noble Baroness the right response.
Amendment 132 seeks to extend the CBA obligations to general guidance and supervisory practices—I take that to mean all guidance. The Government recognise the concern that regulatory burdens can be imposed on firms through guidance and supervisory practice, as well as through formal rules. Where guidance is about rules that have already been made, in most cases the underlying policy would have already been subject to CBA through the rule-making process, so requiring CBA for such guidance would be duplicative. In these cases, the guidance is to help firms understand what the rules require and how they operate. Where guidance may result in significant costs being incurred, the Government note and welcome the regulators’ work to voluntarily prepare CBA for guidance—for example, the FCA’s guidance on fair treatment for vulnerable customers.
Most guidance issued by the regulators does not impose material incremental costs on firms. Obligating the regulators to undertake CBA on guidance would impose heavyweight analysis where it is least meaningful. It would introduce delays for guidance being issued, undermining the regulators’ ability to respond quickly to market developments, risks or firm failures.
The CBA panels are a hugely valuable and still-developing part of our regulatory architecture. The right approach is to allow them to mature and to hold regulators publicly accountable for how they respond to input from the panels, rather than embedding a detailed operational rulebook in primary legislation that will be inflexible in the face of ever-evolving circumstances. I therefore ask the noble Baroness to withdraw her amendment.
Baroness Noakes (Con)
My Lords, I thank the Minister for his reply, but I do not think that it dealt comprehensively with the nature of the problem. I do not think that any of our amendments deal comprehensively with the nature of the problem, actually, because the answer is not loading on extra things for the CBA panels to do; it is about looking again at the obligations of the regulators. That is not what we have put down in these amendments, although we have had a debate on the issue.
I was pleased to hear the Minister say that he was prepared to have discussions between now and Report. This is an area where a number of us would like to get together with the Minister to try to work out how we can make some improvements, because the law as it stands is narrowly drawn. I do not think we can assume that the regulators will voluntarily expand that into the areas that some of us think should be covered, so it is right that we look at the legal provisions—but perhaps not necessarily the ones covered by these amendments. With that, I beg leave to withdraw my amendment.
Baroness Neville-Rolfe
“Review of bank capital requirements(1) Within 12 months of the day on which this Act is passed, the Treasury must lay before Parliament a report reviewing the effect of prudential capital requirements applicable to PRA-authorised banks and building societies, with particular reference to on lending capacity, borrowing costs, competition and economic growth, while also considering financial stability. (2) In preparing a report under subsection (1), the Treasury must consult—(a) the Bank of England,(b) the Prudential Regulation Authority,(c) the Financial Conduct Authority, and(d) such other persons as the Treasury considers appropriate.(3) The Treasury must published the report.”Member’s explanatory statement
This probing amendment would require a review of the effect of prudential capital requirements on lending capacity, borrowing costs, competition and economic growth, while also considering financial stability.
Baroness Neville-Rolfe (Con)
My Lords, my amendment concerns the impact of prudential capital requirements on lending capacity, borrowing costs, competition and growth. Since my amendment was tabled, His Majesty’s Opposition have announced a new policy position in this area, which I shall speak to now.
Our new policy is straightforward. The statutory basis for post-financial crisis bank capital requirements should be amended so that UK regulators are required to take proper account of equivalent capital regimes in competitor jurisdictions, and to identify, justify and, where not justified, remove any UK-specific overcapitalisation relative to equivalent international regimes. We want to consider the position in competitor jurisdictions, to benchmark equivalent regimes, to publish detailed analysis and to explain clearly where the UK is imposing requirements above international standards or above those imposed by comparable financial centres. That seems a basic requirement of a serious competitiveness agenda, on which the UK is particularly reliant. The UK is the world’s largest net exporter of financial services, whereas comparable jurisdictions, such as the US, rely much more on their domestic markets. It is therefore imperative that we remain competitive on the world stage.
Capital requirements matter, but there is a cost. Capital held solely for statutory compliance is capital that cannot otherwise be used to support lending, investment, home ownership, business expansion or economic activity. The central question is therefore not whether banks should hold capital but whether the UK requires materially more capital than comparable jurisdictions without a clear and evidenced stability justification. If we do, we are placing the UK at a competitive disadvantage: we are constraining lending, increasing borrowing costs, making it harder for firms to access finance and weakening growth, and doing so in a way that may not be required by international standards or by the actual risk profile of the system.
The analysis behind our policy suggests that the UK capital framework may materially exceed international Basel III requirements and competitor regimes. It has been suggested that the resulting constraint on UK banks’ lending and financing capacity could amount to £250 billion across overlapping capital requirements and £200 billion across leverage ratio constraints. Of course, not every pound of capital released would automatically translate into new lending—we understand that. Some may be used for business investment, dividends, buybacks or balance-sheet strengthening. The key point remains that capital deployed productively in the economy is preferable to capital trapped by a regulatory framework that is more restrictive than it needs to be.
We appreciate that the Government recognise this issue and have moved a little on it already. They have made the bank resolution regime more flexible, allowing the Bank of England to reduce or remove MREL for some firms where the new FSCS recapitalisation mechanism can substitute for pre-positioned loss-absorbing resources. Our proposal is a step to unlocking a lot more capital. We already require the PRA, in some contexts, to have regard to the UK’s relative standing against competitor jurisdictions, but that duty is incomplete. It does not apply across the whole capital framework and, in particular, it does not fully capture Pillar 2A, the PRA buffer or systemic buffers. The FPC has produced useful comparative analysis, but there is not yet a binding requirement for regular, systematic benchmarking against competitor jurisdictions.
Our proposed review is also about transparency. If regulators believe that the UK should impose higher requirements than comparable regimes then Parliament, industry and the public should be able to see the analysis behind that decision. That is how we preserve independence while improving accountability.
The amendment is part of a wider argument. Prudential regulation must be understood not only through the lens of stability but through the lens of growth, lending, and competitiveness. A capital framework that is more demanding than necessary does not make the economy stronger. It may make it less dynamic, less competitive and less able to support households and businesses, especially SMEs and scale-ups. I speak from experience as a director at a responsible and careful challenger bank, where the UK capital rules were a significant constraint on what we could do. They also consumed a great deal of management and board time.
I would like the Government to accept that the UK should not impose capital requirements above equivalent international competitor regimes, especially if there is no financial stability justification for doing so. The first step is to undertake the necessary analysis. Ours is a serious and responsible policy. It preserves regulatory independence and protects financial stability but recognises that excessive or unjustified capital requirements carry real economic costs. If we want growth, competitiveness and banks to support businesses and homebuyers, then we need a capital framework that is robust but not overrestrictive. That is the balance that our policy seeks to strike. I look forward to the Minister’s response.
Lord Pitt-Watson (Lab)
My Lords, both the amendment and the speech by the noble Baroness, Lady Neville-Rolfe, were sensible in terms of making us think about bank capital requirements and whether we have got them right. As she says, the first step is undertaking proper analysis to be able to work out whether that happens. I noticed she caveated everything that they may not be right. They may be right, but they may not.
My worry is that that is a sensible position to take but it did not sound like the position being taken by the Leader of the Opposition when she made her speech last week saying that she was going to reduce bank capital requirements to release £450 billion in capital. Where did the calculation that hundreds of billions are sitting idly on bank balance sheets come from? Where do those hundreds of billions come from? If we are going to release £450 billion, what is the calculation in the reduction of bank capital requirements that sits behind that calculation? While I feel quite supportive of the issues that the noble Baroness was raising, we need to be sure—I hope she will agree—that we do not jump the gun on this.
Baroness Kramer (LD)
My Lords, the noble Lord, Lord Pitt-Watson, was rather generous in his comments. Sometimes it is important to speak truth to power. This is a lowest common denominator strategy. We have heard it before from the Conservatives, and it is repeated with enthusiasm today. I heard so many of these arguments back in the early 2000s. It contributed and was a fundamental part of the reasons why we ended up with such a major financial crash with huge financial and political consequences that echo through to this day. I could see the argument being made that we need to take proper care that we are looking at capital requirements and that we need to assess them and look at the consequences and do so on a regular basis. That is already part of the programme and certainly would always need to be part of it.
I notice that in line seven of the amendment the phrase is,
“while also considering financial stability”.
If ever there was a phrase lowering the significance of the primary objective with which we tasked the Bank of England, that phrase does it—merely a consideration of financial stability. I was afraid when the growth and productivity objectives were introduced as secondary objectives that quickly the attraction of the phrases would cause them to cannibalise the primary objective. This is a very good example of the way in which that, frankly, has been happening.
I have seen across so many of the measures in the Bill a step away from the precautionary principle—in this case, of looking for appropriate capital requirements, whether in equities or in MREL—to a notion that we deal with all this through a resolution regime. I am suspicious of resolution regimes and of after the fact ways of ensuring financial stability. I would much rather we did not have a bank failure that we must then attempt to remedy through the use of something like bail-in MREL, which I do not think will ever work. Frankly, MREL is held by insurance companies and pension funds, and we are never going to wreck them to save a major bank. I am very concerned about the change in approach that we are hearing today from the Conservative party.
Lord Bridges of Headley (Con)
My Lords, I shall briefly speak in response to the noble Baroness, and I once again draw attention to my interest as an adviser to the chairman of Santander. I want to make three quick points.
First, I overwhelmingly agree with the thrust of the amendment. I think analysis of this critical issue is important for the reasons that the noble Lord, Lord Pitt-Watson, said. He will know much better than I do how notoriously difficult it is to compare the regimes of the United States, the UK and the EU. If noble Lords are interested in this and cannot sleep, I advise them to look online at recent reports that have come out. The Financial Times reports a law firm called Alvarez & Marsal pointing to the impact of the US’s current moves in prudential regulation and how that has unleashed a considerable amount of bank capital. Meanwhile, the ECB has pushed back with its own analysis showing that the US and the EU are broadly on par, so we cannot compare the others. The European Banking Federation has recently come out with its analysis of this issue.
As far as I can see—I stand to be corrected by others—a lot of this depends on how we measure not just the regulatory and prudential aspects but the supervisory actions, and how supervisors can put buffer upon buffer, depending on the banks, the GSIPPS and who you are looking at within the perimeter. This analysis will be very important, and it could be very worthwhile, but it has to try to overcome the enormous problem that exists, now matter we how bridge it. That is the first point.
The second point, flowing from that, is that the more I look at this, the more I think that the objectives—and, underlying those, the culture—of the regulators and supervisors seem to be almost more important here. When you look at the difference in regulatory approach, be it by the Singaporeans or the US, you find that it is largely a matter of the culture within those bodies, where they are coming from and the messages that the politicians are sending them.
I will cite just one example. Picking up on what the noble Baroness, Lady Kramer, said—we disagree on this violently, I know—I am very interested in the US approach. Secretary Bessent in the US Treasury gave a speech about eight months ago where he told the Financial Stability Oversight Council, which is a key body that brings together regulators and supervisors, that low growth was in itself a financial stability risk—let me repeat that: low growth was a financial stability risk—and that they needed to act accordingly. That sent a signal, as far as I can tell, throughout the entire regulatory and supervisory environment in Washington and the States, and they have acted accordingly. That has had more of an impact than necessarily what the capital requirements are for various bodies.
The final point is on SMEs. We will not have a long debate about this, but I would make one point here about the demand from SMEs for lending. We can debate the role of capital requirements—I think there is more of a role for and more impact from capital requirements on bank lending than perhaps the noble Baroness does—but where we would probably agree is that it is the overall general environment in which SMEs are operating that will stimulate demand for lending. If you have a Government who are piling pressure after pressure on SMEs—to be taxed more on employment, to have more regulation, et cetera—that will dent their demand for lending and for more investment. That is what will happen. Therefore, it is very important that we look at that issue per se in the round. With that, I will sit down.
Baroness Kramer (LD)
I probably have a right to reply, because it is Committee and we can speak more than once. The noble Lord, Lord Bridges, and I often find a whole lot of common ground, and I agree completely that the environment in which SMEs are operating is extremely difficult. However, if he goes back and looks at the numbers produced by the Federation of Small Businesses, he will find that there is significant demand for borrowing, which is continuously turned down and rejected. I just want to make sure that the noble Lord understands that side of the picture.
I have no problem with people going away, as I said, and doing proper analysis and trying to understand exactly what the picture is, but there is another side to that, and it is not included in this amendment. If I was amending it, I would add a line, because we need an analysis of the cumulative risk that has been reintroduced into the financial sector by everything from Solvency UK to the whole range of changes—I think I listed them once in a Second Reading speech, and it went on for nearly a page and a half—that have been made. Measuring that cumulative risk would be extremely instructive to us when we start to look at issues such as financial stability. But for goodness’ sake, if we are reducing financial stability to no more than a “have regard”, which is exactly what this amendment would do, we are stepping into really dangerous territory.
Lord Stockwood (Lab)
My Lords, I am grateful to the noble Baroness for raising this important issue. Prudential capital requirements play a vital role in ensuring that our banking system remains resilient, supports sustainable lending and underpins confidence in the wider economy. We have heard a range of views on capital requirements today. The UK’s framework is internationally respected and has been carefully designed to balance growth with financial stability.
Amendment 120 would require HM Treasury to publish within 12 months a report reviewing the impact of capital requirements on lending, borrowing costs, competition and economic growth, alongside financial stability, drawing on consultation with the Bank of England and the regulators. I genuinely recognise the intent behind the amendment. However, it is unnecessary, as the Financial Policy Committee is already undertaking a comprehensive review of the UK’s bank capital framework through precisely the lens that the amendment seeks, including the impact on lending, growth and financial stability.
Baroness Kramer (LD)
Can I just check whether it is looking through the lens of treating financial stability as only a “have regard”? Is that what the Minister is saying? The amendment says “considering”. It is a “have regard” statement.
Lord Stockwood (Lab)
No.
The FPC has been tasked by Parliament with responsibility for the stability of the financial system overall. It is the right body to carry out this review, which needs to balance the economic impacts of capital requirements against the protections that they may offer. Getting the balance right in the prudential framework and bank capital requirements has been a key priority for the Chancellor and an issue she discusses frequently with the industry.
The noble Baroness, Lady Neville-Rolfe, raised the issue of international comparisons. The FPC set out its assessment of international comparisons when it reviewed this in December 2025. It found that the requirements are broadly in line with international comparators. In some areas, such as leverage requirements on domestic firms, the FPC noted that the requirements may be higher. However, I assure the noble Baroness that it noted leverage as an area for further reform that it plans to cover in next week’s update.
As noble Lords may be aware, the Chancellor sets out the annual remit and recommendations for the FPC. The most recent remit letter was sent last November and sets out clearly that the UK must regulate for both risk and growth, and remain competitive in a changing world. As part of that, the Chancellor recommended that the FPC’s review should ensure the UK’s capital framework strikes the optimal balance to deliver resilience, growth and competitiveness. I assure the noble Baroness that the FPC understands this balance. In December 2025, the Financial Policy Committee reassessed the optimal level of system-wide bank capital, reducing its benchmark from 14% to 13% of risk-weighted assets.
For these reasons, while I understand the objective, this amendment is unnecessary and risks undermining the clarity and credibility of the current regime. We will come back to this discussion over the coming weeks. I therefore ask the noble Baroness to withdraw her amendment.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to noble Lords who have contributed to this debate and to the Minister for his response. I thank the noble Lord, Lord Pitt-Watson, for being generally supportive and for explaining that this is a matter of judgment. We now have the resolution regime, so things have changed. As I noted in my introduction, some changes in this direction have already been made. Indeed, I note the Minister’s summary of what is being done by the PRA and the FPC, and I want to look at that before Report. I am sure that we will come back to this issue at a later point, as he said.
Contrary to the suspicions of the noble Baroness, Lady Kramer, we recognise the importance of financial stability and why capital requirements exist. That is why I mentioned financial stability in my amendment—it was meant to be a positive. Perhaps she is overinfluenced by past failures, but they of course took place before we had the resolution regime.
My concern is that the current requirements go further than is necessary or further than the equivalent regimes in competitor jurisdictions, without proper justification. As my noble friend Lord Bridges said, there seems to be a gap. We have a different regulatory culture, and that may be having an effect. He quoted someone saying that low growth is also bad for financial stability—and I feel that strongly.
The cost is felt in lending capacity, in borrowing costs, in competition, in investment and, ultimately, in growth. It is also felt in the UK’s ability to remain one of the world’s leading financial centres. I want to make it clear that I and my party support the UK financial services sector. We want the UK to be the place where firms choose to invest, lend, innovate and grow. That is especially true for SMEs, which have been referenced in discussion.
I repeat that ours is a serious and responsible approach: it protects independence while strengthening accountability and preserving resilience. It recognises that unnecessary overcapitalisation can constrain productive activity in the wider UK economy. Given the objective of growth, which I think is shared across the political divide, we hope that there will be further consideration on what is the right way forward. For now, I beg leave to withdraw the amendment.
“Periodic independent review of financial regulatorsAfter section 1S of the Financial Services and Markets Act 2000 (reviews) insert—“1SA Periodic independent review of financial regulators(1) The Treasury must appoint a panel of at least three independent persons (“the Review Panel”) to conduct a periodic general review of the effectiveness of—(a) the Financial Conduct Authority,(b) the Prudential Regulation Authority, and (c) the Bank of England in respect of its functions under Parts 1 and 5 of the Banking Act 2009 and Part 2 of the Financial Services Act 2012.(2) A person may be appointed to the Review Panel only if—(a) the Treasury has proposed the appointment, and(b) the appointment has been approved by a resolution of the House of Commons and a resolution of the House of Lords.(3) A person is not eligible for appointment if, within the previous three years, they have held senior office in the Treasury, the FCA, the PRA, the Bank of England, the Payment Systems Regulator, the Financial Ombudsman Service, or in any firm or body materially affected by the review, unless the nature of the interest has been fully disclosed and the appointment has been expressly approved by both Houses.(4) A general review must take place at intervals of every two to three years and must include a review of—(a) internal operations and controls,(b) systems for responding to whistleblowers, parliamentary correspondence and reports, and public interest concerns,(c) regulatory perimeters and customer classifications,(d) the effectiveness of relevant legislation and rules and the regulatory burden,(e) whether statutory and public policy objectives have been met,(f) the operation and effectiveness of engagement practices before and during rule making,(g) the skills base of staff,(h) follow up from previous reviews,(i) access to redress and effective remedies,(j) the operation of the FCA/FOS relationship and systemic complaint escalation, (k) evidence handling, audit trails and responses to parliamentary, whistleblower and public interest concerns,(l) whether statutory rights and remedies transferred into regulator rules remain effective in practice,(m) redress shortfalls, repeat misconduct and deterrence,(n) any other matter the Review Panel considers relevant, and(o) any matter requested by a relevant Committee of the House of Commons or House of Lords.(5) The Review Panel must not determine the merits of any individual complaint, regulatory decision or enforcement case, but may consider individual cases, whether anonymised or otherwise, for the purpose of identifying systemic, procedural, evidential, perimeter, redress or accountability issues.(6) On completion of a review, the Review Panel must make a written report to the Treasury—(a) setting out the results of the review, and(b) making such recommendations as the Panel considers appropriate.(7) A copy of the report must be—(a) laid before Parliament within 30 days of receipt, and(b) published in such manner as the Treasury considers appropriate,subject only to necessary redactions for confidentiality, privilege or enforcement sensitivity.(8) The Treasury must publish a response to the report within 60 days of its publication. (9) The FCA, PRA and the Bank of England must each publish a response to the report within 60 days of its publication, including a statement of actions they will take as a result.(10) The Review Panel has a right of access (at any reasonable time) to all information which it may reasonably require for the purpose of performing its functions under this section.(11) The Review Panel is entitled to require from any person holding or accountable for such information any assistance or explanation which the Panel reasonably considers necessary for that purpose.(12) “Information” includes any document, record, data, correspondence, internal report, or other material held by the FCA, the PRA or the Bank of England.””
Baroness Bowles of Berkhamsted (LD)
My Lords, I am moving my Amendment 121, and I support the amendments in this group in the name of the noble Lord, Lord Bridges. My proposal is for an independent oversight mechanism for our financial services regulators. It builds on the ideas in Section 1S of FSMA 2000, under which the Treasury can require an independent review. This is usually triggered after a significant event: the most recent review, Gloster’s review published in December 2020, was triggered after the collapse of London Capital & Finance.
Baroness Bowles of Berkhamsted (LD)
Shortly after my proposal first surfaced, I was contacted by people involved in the Australian royal commission on financial services, because they had noted that I had reached the same conclusion as them: that it was too big a job for Parliament to do by itself, given everything else that national Parliaments have to do.
Australia introduced two-yearly reviews, and it is not the only country to have an independent review. A similar arrangement now exists in New Zealand, and in the US all regulators come under powerful scrutiny by the Government Accountability Office. One advantage of my proposal is that it follows a path we understand from Section 1S reviews, and it could be done quickly—maybe as an interim solution, for example, until an office such as that proposed by the noble Lord, Lord Bridges, could be formed. By having regular reviews, oversight of progress would also be possible. After her review, Dame Elizabeth Gloster told the Treasury Committee that we are left to “hope” that the regulator “implements” regulations. Hope is not a system.
Why did I propose this? It was the point at which the Government were looking at the post-Brexit future financial framework. As has already been rehearsed in this Committee, this Parliament does not have the structure and focus that was available in the EU Parliament. Having been chair of the ECON committee dealing with all the post-financial crisis legislation, I can safely say that I know what it takes and that it is not easy. That is another reason why I do not recommend a continuous process.
There will be more to it in the UK, because many issues arise from the execution of supervision post rule-making. Brexit created the first need, which we eventually tried to patch with a new committee. Your Lordships heard from members of that committee and in the report of the Industry and Regulators Committee, Who Regulates the Regulator?, that now the overwhelming conclusion is that significant independent review is needed.
Now we have a new, second need due to the changes in this Bill, which remove the “have regards” away from operational effectiveness and into a five-year strategy. How is that to be monitored? Is there any intention at all for follow-through? The changes make the already difficult acquisition of information even harder. Several things that the Minister has said in his replies ring alarm bells and show the absolute need for scrutiny. We need it because financial services regulation and supervision is too important to allow issues to creep up—all the more so in a higher-risk environment. LCF-type regulator risk needs even more guarding against.
The Minister has said that proportionality will now be tested only at the strategic level. Let us be clear: testing proportionality at only the strategic level is barely a nudge. Rule-level and supervisory-level proportionality is the real test, but that has been put out of reach of accountability, as there is nothing to measure against. Indeed, they are not even looking at it apart from every five years. From that, it is pretty clear that substantial follow-ups on the five-year strategy are necessary. The Minister says that annual reports and remit letters provide accountability. Some substantial upgrading and interrogation of those is needed. What actionable event flows from an annual report? It is judge, jury and public relations all in one place. Does the Minister genuinely believe that an example here and there constitutes accountability?
The Minister argues that principles remain central, yet they are being moved into a document that cannot be enforced by the courts and cannot be used to test a specific rule or supervisory action. They are applied every five years, when the future cannot really be seen. This is not lip service; it is just print service, and as my noble friend Lady Kramer has shown us from the current version of the five-year report, there is little substance. Will we get something detailed for every category and size of financial market business?
The Government’s rhetoric suggests that reducing the burden of accountability will unleash a more dynamic and agile regulator, but that does not demonstrate the stability that is a prerequisite for competitiveness. Stability is the best friend of a competitive financial sector. Whether you cite centuries of institutional experience or the second law of thermodynamics, left to their own devices, systems corrupt or tend to disorder. Someone has to be on their case. But the Government are making the regulators far more insulated from the procedures that keep them on their toes. Avoiding the burden of accountability today is like banking a much larger, more expensive crisis for tomorrow. Additional periodic or permanent oversight has become even more necessary. I beg to move.
Lord Bridges of Headley (Con)
My Lords, I will speak to Amendments 133 to 135 and 136 to 139 in my name, but not Amendment 135A, which is in the name of my noble friend Lady Lawlor. I thank my noble friends Lady Noakes and Lady Lawlor and the noble Baroness, Lady Bowles, for putting their names to my amendment. This little clutch of amendments is turning into déjà vu, because the noble Baroness, Lady Bowles, has just spoken about issues that she raised some years ago. My amendment is one that I raised in this very Room, sitting on the other side, exactly three years ago—so it is déjà vu all over again.
I start from a basic point, which picks up exactly where the noble Baroness left off. I believe that we here in Parliament need more powers and, critically, more independent analysis to hold financial regulators and supervisors to account. In fact, I just mention here that we need to do far more to hold the Bank of England to account, but that was declared out of scope. I had wanted to table an amendment calling for a regular, probably five- or six-yearly, review led by Parliament into the remit and performance of the Bank of England as an entity and as an institution. I believe that that is an enormous democratic deficit that we need to address. I was told that it was out of scope for this piece of legislation, but I very much intend to return to that at a future date. It is much to the Minister’s relief, I am sure, that we are not going to do that now.
We spent Monday debating clauses in the Bill that I see as weakening parliamentary accountability. My amendments and those of the noble Baroness will take us in the opposite direction, towards more accountability. A number of us, on all sides of the Committee, have been asking a very simple question: do we, in this House and in the other place, have sufficient means to hold our financial regulators and supervisors to account without compromising that operational independence? The answer keeps coming back, resoundingly: no, we do not.
It is not as though this is the first time we have said this. As the noble Baroness mentioned, in its excellent 2024 report, Who Watches the Watchdogs?, your Lordships’ Industry and Regulators Committee found that parliamentary scrutiny of regulators remains too fragmented, too reactive and—I stress this—too limited by the resources available to Parliament. It concluded that the balance between regulatory independence and democratic accountability needs to be strengthened. As I said, that report came after all the debates we had in this Room on the previous Financial Services and Markets Bill, now an Act. We warned then that the transfer of extensive rule-making powers from Parliament to the regulators had created an accountability gap. That is why I addressed this very same proposal then. My concerns about accountability have not diminished; if anything, they have grown in the years since I was standing over there, so I am trying again.
Noble Lords will be grateful to hear that I will not go line by line through what each of these amendments would do. I simply say that Amendment 133 would establish an office for financial regulatory accountability, OFRA, as an independent body to support Parliament in scrutinising the work of financial regulators. It is crucial to stress that I do not see this as second-guessing regulatory judgments or interfering with regulatory operational independence. Rather, as set out in Amendment 135, which is pretty key in this clutch of amendments, it would provide Parliament and the outside world with impartial analysis of regulation, the actions of regulators in the round and, crucially, their performance at meeting their objectives, as set by Parliament.
Why do we need this? For a very simple reason—my noble friend Lady Noakes will pay testament to this. The volume and technical complexity of financial regulations are now making this absolutely necessary. If Parliament is to fully and effectively scrutinise the hundreds of pages of regulation that our regulators keep churning out, we need to do more. My concern—I would be grateful if the Minster could put my mind at rest—is that the Government seem to be suggesting that we do not need to have a case-by-case analysis of regulations. That is wrong: it is absolutely critical to have that analysis. We cannot rely on a five-yearly strategic report, or overall impressions and analysis, from regulators. We need to be able to analyse regulation point by point.
If the Minister responds by saying, “Don’t worry. The regulators will reflect their objectives in their actions and decisions, so we have nothing to worry about here”, I will say, “Let’s prove it”. Let us have the independent analysis to make sure that it is indeed the case that our regulators are reflecting the objectives that Parliament has set them in what they do. Greater scrutiny and, with it, greater accountability, will surely strengthen trust, which is critical.
The Minister might go on to argue that my proposal is not needed for two other reasons, the first being the cost-benefit analysis panels that my noble friend Lady Neville-Rolfe and others talked about when discussing previous amendments. I completely accept that they perform a very important function, but I see their role as being very different. Their role is to improve the quality of individual cost-benefit analyses prepared by the regulators. They are advisory bodies to the regulators themselves. They are not designed to provide Parliament and others with an independent assessment of the overall effectiveness and proportionality of regulation, bit by bit. This amendment would therefore complement rather than replace those panels: the cost-benefit analysis panels improve regulatory decision-making from within; OFRA would strengthen parliamentary accountability from without.
The second reason the Minister might use to oppose my proposal is that the FCA introduced its rule review framework in 2024, with the stated aim of undertaking increasingly rigorous post-implementation analysis of what it does. I stand to be corrected, but my delving into this suggests that the results so far of this new framework are modest. As far as I can see, since its introduction, only one full impact evaluation has been published, and one other has appeared in the past five years—I think that is overall, pre the framework being introduced. I would like to know whether that is the case and how effective the rule review framework has been.
Either way, that underlines the point that Parliament needs access to independent analysis, especially as the Government want to give regulators more discretion. This seems to be the entire drift of the Bill: more discretion for the regulators. If that is the case, surely the quid pro quo for more discretion must be having more mechanisms for accountability. If we are being asked to entrust the regulators with more, we need greater ability to have independent scrutiny of what they are doing.
Baroness Noakes (Con)
My Lords, I have added my name to my noble friend Lord Bridges of Headley’s amendments creating OFRA. I also support the amendment from the noble Baroness, Lady Bowles, which would use a panel to look at how the regulators are performing. The key thing is that we need more external heavyweight oversight of what the regulators are doing. As noble Lords have identified throughout this Committee, accountability is the key issue that we are focusing on, in particular because of the way in which the Bill weakens the current accountability constructs.
My noble friend Lord Bridges referred to the previous time that we were debating the same amendments, when we were sitting on the other side of the Room—I remember it very well. At that time, as my noble friend knows, I did not support his amendments because I was dead set on trying to get either a House of Lords Select Committee or a Joint Committee of both Houses involved. The original version of what is now FSMA 2023 had the involvement of only the Treasury Select Committee in the other place and we were clear that this House had far more expertise in financial services, and that it was important to leverage that either through the use of a dedicated Select Committee in your Lordships’ House or a Joint Committee. There was no appetite for a Joint Committee from the other place. We ended up with a committee, but it took an amendment to the then Bill in 2023, on which I focused all my effort last time. Also, as I said to my noble friend at the time, I did not think that we needed yet another unaccountable public body.
The Financial Services Regulation Committee has been in operation for about two and a half years, and I am now clear that the scale of the task is very large and very hard to execute without the kind of independent analysis that we would get from having something such as OFRA or a panel to assist in the task. It is just too big a task for one Select Committee in your Lordships’ House to handle. We meet weekly, as is customary for all Select Committees, but we have limited staff resources, in common with all other Select Committees of your Lordships’ House. We do pretty good work on that basis, but we cannot cover the whole area, nor can we look at as many things as we would like; we have to be selective about what we look at. We cannot take a comprehensive look at the accountability of the regulators; that is the missing piece now. We need something that is resourced and able to look at it in the round.
I support all the amendments in this group because anything would be a big improvement on what we have to date. I bring good news for the Minister: I have, today, tabled another idea for improving accountability, based on discussions with some people in the industry, which some Members of the Committee already know about. I tabled that this afternoon so I hope that we will be able to debate that on Monday.
The only point I am trying to make is that we are looking for options to improve accountability, which was already under pressure, but we now have huge new consumer credit legislation coming in that will mean lots of regulations and rules being issued over the next couple of years. There is quite a big task coming down the line, and we have to do something about it in the Bill.
Baroness Lawlor (Con)
My Lords, I have added my name to Amendments 133 and 135, in the name of my noble friend Lord Bridges, and I shall say a few words about them. I have also tabled Amendment 135A, which amends Amendment 135.
Two of the questions raised by the Bill are how will the regulators operate, make, impose and judge the rules and how will Parliament’s proper role in the legislative process be ensured? In some cases, not only do we not know what we are supposed to be legislating on, as the Committee has discussed, but we do not know the basis on which the regulators will, in practice, be held to account. Indeed, as matters stand, the arrangements and the deployment of powers is not known, or not entirely, in many cases.
The amendments tabled by my noble friend Lord Bridges and supported by my noble friend Lady Noakes and the noble Baroness, Lady Bowles, to which I have added my name, would establish an office for financial regulatory accountability, which would have the specific duty of examining and reporting on the performance of the FCA and the PRA and how they perform on specific measures, would provide some of the essential answers. The office would assess how far the regulators meet their statutory objectives and principles under FSMA 2000 and, importantly, the effect of specific pieces of regulation. We need to know the impact of these regulations on the domestic development of the financial services and the market, as well as the impact internationally, and we need to know the costs and burdens of compliance. Amendment 135 contains very specific duties, and I think they have been very well thought out. I hope the Minister will take them into account and consider why we need this office, which will be independent of the process of regulation. It will be independent of Parliament, not just of the regulators, and it will help Parliament to do what it ought to do as the legislature.
My Amendment 135A would include in these independent reports examples of how the rules have been implemented and applied to different firms, including similar firms doing the same kind of activity, because we do not have an independent analysis of those rules and regulations, the process or the compliance. Very often, small businesses are at sea; they cannot look to Parliament because we do not have the basis for assessing them, they cannot look to our reports, and they cannot necessarily look to the regulators. They tell me about this and quite often explain that they are not sure. They want to take a step to grow their business, perhaps to develop some new instrument or to expand their market, but they are not quite sure how the regulators will treat it. They have no example of how these things have been seen in the past or of how the rules have been applied.
Requiring an independent office for financial regulatory accountability to provide some examples will help not only Parliament but businesses in being competitive and growing their businesses. They will see the precedents and be able to predict much more easily how the system operates. It is not an expensive way in which to make judgments. They do not have to get in expensive consultants or do little trials here and there and pilots. They would give security in knowing where the boundaries are set and judged and whether they are consistent with the opportunities they need to seize if they are to make their businesses grow.
Above all, such an office reporting and assessing these duties would encourage the regulators to be consistent and predictable and to focus on their statutory objects. As the Bill aims to focus on the competitiveness and growth objective—we have talked a lot about reporting requirements and the overall strategic plan—there is a problematic lack of transparency and accountability by the regulators, other than to the Treasury, and that relationship sometimes seems a little too cosy.
The amendments tabled by my noble friend Lord Bridges would promote an affective mechanism to ensure that we have objective, transparent and impartial evidence externally provided by an independent body. I support them for that reason but add my small amendment so we have greater transparency in how they are applied.
Baroness Donaghy (Lab)
My Lords, I do not want to get involved in the mechanics of the group in how we get this independent scrutiny, but I want to emphasise that it is important. We would welcome a discussion with the Minister about how it is done. We have had various inquiries over the past two and a half years, and I would ask the federations and organisations whether they thought having a concierge service would be useful to overcome some of the difficulties that the noble Baroness, Lady Lawlor, has outlined, especially to help the new boys on the block and the smaller companies to find their way around the complex barriers that they have to face. It seemed to be quite a popular suggestion, but nothing ever came of it.
The example was used was the Singapore settlement, although I am wary of international comparisons, and it is right not to follow too much because they are different, but it has a kind of concierge service to help new companies. Where we have a difficulty—I am thinking back on the history of the relationship between Governments and regulators—is that regulators are subject to political pressures. You might not agree, but that is the fact and the real politics. When things go bad, the regulator will be blamed, so they are cautious. Their very nature makes them cautious because they do not want to be the ones that go on holiday and get the sack because something has gone badly wrong. We need protections for the methodology that the regulator uses. I have to say that the cost-benefit analysis panels are on the nursery slopes. I was rude about them last week, as the Minister knows, and I do not want to be rude again, but they need nurturing. The work that they could do will be really good if they are given more clarity on their possible role so that they cannot be fobbed off by the regulator. I am not suggesting the regulator will fob them off, but there would be a tendency to stick to the law and not go beyond that.
I feel that we need to build this into a system not just because we want to protect the existence of a committee that we think is important, although I do, but because parliamentary scrutiny is important, and we sometimes search for the objective facts and figures, the granularity of why a regulator does something or neglects to do something and to what extent political pressures are involved. I know that no system, even the system that the noble Lord, Lord Bridges, has asked for, will ever get to the bottom of some of that—we are not naive—but I believe we need more transparency and, yes, less complexity, but we need a system that has more checks and balances. I think a lot in this legislation is going the wrong way and what we need to do is carefully assess what is working well, what needs to be nurtured in these very early days and what we need to be avoiding like the plague.
Baroness Kramer (LD)
My Lords, I shall be extremely brief on this. I and my colleagues take the position that from this collection of amendments in the name of the noble Baroness, Lady Bowles, and the noble Lord, Lord Bridges, the Government could craft something really effective and create the information base and the capacity for Parliament to have very appropriate oversight of the regulator. The point I particularly want to add is that this is not hostility to the regulator. Part of the regulator’s problem is that it is trying to communicate to so many different parts of the political framework, with very different levels of understanding.
We have all seen that five-year strategy from the FCA. Let us admit that it is a completely vacuous document, but I can understand that those who crafted it thought that they were dealing with people who had almost no grasp at all of how the finance sector works, operates and is directed or regulated. We have given it the absolutely impossible task of not knowing whom they talk to, in what level of detail, and what information to provide. I would say that, from a regulator’s perspective, having an educated oversight body would remove a huge burden and create a proper and constructive conversation, in the end benefiting both sides. I hope the Minister will take away that this is not some hostility to the regulator; this is a process that will make sure that Parliament can do its job but also that the regulator is far better positioned to be able to do its job and communicate and understand.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to noble Lords who have brought our attention to past debates on these knotty issues from a position of great expertise. All the amendments raise fundamental questions about how we hold our financial regulators to account. We fully support the principle that sits behind these amendments: that Parliament must have proper oversight over the way in which the regulators work. That includes their internal operations, their rule-making and their engagement with firms and consumers, the quality of their impact assessments, their effect on competition and competitiveness, and the burden they pose on the wider economy.
This point has been underscored by many noble Lords throughout our debates on the Bill. If the FCA and the PRA are to be given greater powers and a wider remit, as proposed, that must be matched by greater transparency and stronger accountability. Greater delegated power cannot simply mean more decisions being taken further away from Parliament, with fewer mechanisms for scrutiny. The Minister has written to noble Lords setting out existing mechanisms. That letter refers, among other things, to the ability of noble Lords to ask Parliamentary Questions and to the work of our excellent Financial Services Regulation Committee. Parliamentary Questions have their place, but they are not a systematic mechanism for reviewing the performance, effectiveness or proportionality of regulators. Committees do valuable work, but they cannot be expected to provide continuous expert institutional scrutiny of the FCA’s and PRA’s operations. What is needed is a mechanism through which the regulators can be reviewed, tested and held to account.
The problem is that we have an accountability gap. My noble friend Lady Noakes, from her unique position as chair of the committee, has highlighted the scale of the task that it now faces, so we need an independent source of analysis and expertise. The amendments in this group provide a number of serious and compelling proposals for how that might be done.
The amendment in the name of the noble Baroness, Lady Bowles, would provide for periodic independent reviews of the regulators. A recurring independent health check of the FCA, the PRA and the relevant Bank of England functions could help Parliament understand whether the regulatory system is working as intended, whether burdens are proportionate, whether the regulators are engaging properly, and whether firms and consumers are being treated fairly. I thought we had a good example of the problem in the earlier discussion on Sections 165 and 166.
The amendments in the name of my noble friend Lord Bridges propose a more permanent structure: an office for financial regulatory accountability. This is a valuable suggestion. As I understand it, the office would assess the FCA’s and PRA’s overall performance against their statutory objectives and regulatory principles. It would also analyse impact assessments for specific pieces of financial regulation in order to determine how those regulations contribute to the regulators’ objectives. As my noble friend Lady Lawlor suggested, their reports could include individual precedents and examples to bring problems to light. That is the sort of scrutiny we need.
The two parliamentary committees would have an important locus in scrutinising the reports from the office, improving overall parliamentary accountability while not getting in the regulators’ hair in a way that they are not set up to do. The proposed arrangements would also allow Parliament to see not only what concerns have been identified, but how the regulators intend to respond to them. Significantly, the office would be required to prioritise the analysis of regulations which restrict domestic competition, reduce the United Kingdom’s international competitiveness in financial services, create new compliance costs or have a significant impact on business and individuals in the UK economy —an excellent objective. As we heard from my noble friend Lord Bridges, it would not interfere with operational independence.
The regulators have become powerful institutions. They make rules, issue guidance, set expectations, supervise firms, authorise market entry, influence conduct and shape the competitiveness of one of the most important parts of the UK economy. As we heard from my noble friend Lady Noakes’s committee, they suffer from a culture of risk aversion, fuelled by the current system. It is no longer enough simply to say that the existing accountability mechanisms are adequate. There is clearly a deficit in oversight and that deficit becomes more serious as more power is transferred from Parliament and primary legislation to regulators and rulebooks.
If the Government are asking Parliament to accept that shift, they must accept the need for stronger accountability. Essential parliamentary scrutiny has to trump deregulation. The challenge is set for the Minister and I hope he will provide the clarity that we really need—a request that was echoed by the noble Baroness, Lady Donaghy, who, in another bit of history, I served under very happily on the EU Services Sub-Committee.
Lord Stockwood (Lab)
My Lords, we turn to the important topic of the accountability of the financial services regulators. I am grateful to the noble Baroness, Lady Bowles of Berkhamsted, and the noble Lord, Lord Bridges of Headley, for tabling these amendments and for the thoughtful contributions made by noble Lords during this debate. I hear what the Committee has said on regulatory accountability and am glad to be meeting the Lords Financial Services Regulation Committee, chaired by the noble Baroness, Lady Noakes, next week. I have also written to noble Lords, as has been mentioned, about the existing framework that governs the accountability of regulators and a copy of the letter is available in the Library.
Amendment 121 proposes establishing an independent panel for periodic independent review of the FCA, the PRA and the Bank of England. The Government agree that it is important that regulators are held to account for their performance. This is why they have formalised biannual performance reviews, which the Economic Secretary to the Treasury holds with the CEOs of the FCA and PRA. The minutes of these are published on GOV.UK to support transparency.
A prescriptive, legislative requirement would duplicate this and would not be a good use of taxpayers’ money, as the purpose of such a review could be only to understand the regulators’ performance. But through FSMA, Parliament and the Government already have a large number of levers to understand and assess the performance of the regulators. There is of course nothing to stop the Financial Services Regulation Committee from calling up the CEOs of the FCA and the PRA, or the Governor of the Bank, to discuss their performance as frequently as that committee desires. It is also difficult to see where the panel would get its legitimacy from, when the Government and Parliament are responsible for democratic oversight and accountability for the regulators—the regulators that Parliament has vested with the responsibility for regulation of our financial services sector.
It is the Government’s view that the existing avenues for accountability are appropriate and sufficient, and that Parliament has the authority to do this in a way that no other body could. If Parliament wants to enhance the scrutiny of the regulators, it must consider how best to do that.
Amendments 133 to 139—including Amendment 135A —would, taken together, create a new statutory body, the office for financial regulatory accountability, charged with examining and reporting on the performance of the FCA and the PRA, supported by a charter setting out the Treasury’s regulatory objectives, with full information access rights and funding drawn from the regulators themselves. Such a body would complicate the accountability framework in a way that could dilute individual responsibility and accountability, and create significant additional costs. As such, the Government cannot support the amendments.
Since this proposal was last made, during the debates on the Financial Services and Markets Bill in 2023, the landscape has changed materially. The Financial Services Regulation Committee of this House was established precisely to provide sustained, expert parliamentary scrutiny of the regulators, and it has done so with considerable rigour. In the other place, the Treasury Select Committee continues to hold the FCA and the PRA to regular account. These are active, resourced bodies with the standing and powers to interrogate regulatory performance in depth. More importantly, as parliamentary committees, they have the constitutional authority to scrutinise and opine on the effectiveness of our independent regulators.
Creating a new statutory office alongside these structures would fragment accountability, rather than strengthen it. There is a risk that the existence of a parallel body would blur the lines of responsibility and create confusion about where the authoritative scrutiny sits.
Lord Bridges of Headley (Con)
I just do not understand this argument at all. The committees in this House and in the other place, as my noble friend Lady Noakes said, have the power to summon but, as far I know, they have one policy adviser and one expert adviser—and that is it—to analyse regulations and the actions of regulators and supervisors. As the Minister knows full well, that is nowhere near enough to fulfil what would be the purpose of OFRA.
As I said, OFRA would establish a means by which there is independent analysis of regulations—on the specifics and in the round—and of the performance of the regulators and supervisors. They are very different things. One is a means to hold regulators to account; the other gives parliamentarians the means, analysis and insights to do that. I do not understand how the Minister can say that that would dilute accountability.
Lord Stockwood (Lab)
The point I was making is that the structure that exists today gives the effective governance that we believe is required. We are open to a conversation about the noble Baroness’s options to improve accountability, but the noble Lord rightly raises a separate conversation about the requirements to make sure that those committees are sufficiently resourced. That is a separate conversation but, in our current position, we are trying to balance the accountability that already exists with the ability for the regulators to be flexible. As I have stated previously, we are open to that discussion, because we want to make sure that this process does not dilute that.
Lord Bridges of Headley (Con)
I completely agree, but this is not about making them inflexible; it is about giving Parliament the ability to hold them effectively to account. I do not hear anyone saying that there is that means at the moment, and I cannot think that there would ever be a committee, of either this or the other place, enabled to do that. It would require an enormous resource for a committee, which would be completely impossible, as far as I can see. That is why we need a separate body.
Lord Stockwood (Lab)
We are happy to have that conversation. We believe that the framework we have set out is the right one: it balances that ability to have oversight with the flexibility that we have empowered through FSMA. However, I agree that this debate has clearly illuminated that there is work to do, and I look forward to having that conversation with the Committee next week. I am sure that there are more conversations to be had on this issue between Committee and Report.
Amendment 139 would require the FCA and the PRA to fund this new body from their own resources, which are ultimately drawn from industry levies. The regulators would presumably need to increase their fees on authorised firms to cover this. Establishing a body of this kind, with its own membership, staff, legal powers of information access and publication obligations, would involve significant and recurring costs. We would be making industry pay twice to fund functions that have significant overlap.
Baroness Bowles of Berkhamsted (LD)
My Lords, I sometimes think that a useful thing to do with the Minister would be to sit down with him with the rulebook and go through some scrutiny. Perhaps he might then begin to see the scale of the task.
As I have said, when I chaired the ECON in the European Parliament, the committee there had nearly 100 full and substitute members. All of them were capable of doing work in specialist clusters, doing legislation and scrutinising everything. It was basically a full-time job—they did it all day, every day—and it did not even have anything to do with what was happening in supervision.
This task is not within the capacity of a national Parliament. The Minister was out of the Room when I explained that Australia had a royal commission, as part of its post-financial crisis review, to look at what went wrong with regulation. As royal commissions do, it took a long time. When it finally reported, it came to the consultation that an oversight body was needed; similar has been done in New Zealand and the United States, where they have powerful oversight over all of their regulators.
It is unreasonable to suggest that a committee that sits once a week for three hours could in any way touch this issue. Our committees are really good at doing specific inquiries into problem areas, but they cannot see things across the piece. That is what I described as our first need, when we left the EU. It has perhaps taken some people who do not have my experience a while to gain an understanding of how much it would take, but it happened pretty soon afterwards because, a year later, when the noble Lord, Lord Bridges, came forward with his proposals, the Industry and Regulators Committee had already realised that we needed more.
Then there is, as I said, a second need, following on from the Bill, which has distanced us further away because we do not even have the things we are supposed to measure. We do not have the information. Clause 16 creates the strategy—
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
Can the noble Baroness take a seat, please?
Baroness Noakes (Con)
I think that the Committee would like to hear from the noble Baroness.
Lord Wilson of Sedgefield (Lab)
As I said at the start of this session, when it comes to withdrawing an amendment, noble Lords need to be brief. We do not want them to rehash the whole debate. They have to be respectful to the Committee because we have other amendments to discuss.
Baroness Noakes (Con)
We are a self-regulating House, and this is such an important area that I would like to hear the end of the noble Baroness’s remarks.
Lord Wilson of Sedgefield (Lab)
The noble Baroness is absolutely right that this is a self-regulating House, but the other side of the coin is self-discipline.
Baroness Bowles of Berkhamsted (LD)
I am sorry, but I am replying to the Minister, and I have to say some things again because he was out of the Room. I am trying to explain that the Bill introduces a second need, because we will no longer have access to the information. It is going into a strategy and there is no link to operational duties, no reporting or guidance, and the annual report is only about competitiveness and growth. We are short of the basic information on which we are supposed to do this scrutiny: it is not coming to us; it is being rubbed out by the Bill. It is no good saying that a committee of this House—able, competent and hard-working though the committees are—can do it when you have taken the basic information away. That is the point. There is the fundamental size need, and then the removal of the information need. We need this independent body for the first need and, my goodness, we will jolly well need it if the Act ends up being anything like the Bill is now.
I think we will all want to return to this on Report, but for now, I will withdraw my amendment, even though the Minister seems to think that he has the equivalent of a perpetual motion machine and that something will happen with no input.
“Reducing regulator duplicationIn section 3R of the Financial Services and Markets Act 2000 (arrangements for provision of services), after subsection (3), insert—“(3A) In exercising functions in relation to—(a) a PRA-authorised person within the meaning of section 2B, or(b) a person performing a senior management function in relation to such person,the FCA may rely on analysis, findings, information, or judgments of the PRA, so far as it is reasonable to do so.(3B) In exercising functions in relation to a person falling within subsection (3A), the PRA may rely on analysis, findings, information, or judgments of the FCA, so far as it is reasonable to do so.(3C) Subsections (3A) and (3B) apply in particular in relation to— (a) rule-making,(b) supervisory activity,(c) investigatory functions, and(d) enforcement decisions.(3D) Where a regulator relies on the other regulator under this section, it must have regard to—(a) the need to ensure that its statutory objectives are advanced, and(b) the desirability of avoiding unnecessary duplication of work or inconsistent outcomes.(3E) Nothing in this section prevents either regulator from undertaking its own analysis or reaching its own conclusions where it considers it appropriate to do so.(3F) For the purposes of this section “a senior management function” has the same meaning as Section 59ZA.””
Baroness Bowles of Berkhamsted (LD)
My Lords, the Committee will be pleased to know that this will be very short. I will speak briefly to my Amendment 122, which is quite simple. It is intended to encourage the sharing of analysis, findings, information and judgments between the FCA and the PRA, particularly in relation to senior appointments, regulatory and supervisory activity and enforcement. The amendment would not make this binding in any way; it would apply only in so far as it is reasonable to do so and the regulators want to do so. The objective is to remove duplication and give encouragement to the regulators to rely on one another’s work where that is sensible.
I have not looked recently at their memorandum of understanding; they probably have enabled themselves to do some of this, but I am not sure that that enablement has extended to actually doing it. This meshes with some of the other amendments we have had around not duplicating things. If a person has already been approved as fit and proper by one regulator, why would they not be approved by another regulator to do the same thing?
However, I would not expect this to be done blindly or without review. It goes to what I said: everything should be tried to avoid unnecessary duplication, because duplications are leading to delays. This could help to shorten approval times under the SMCR for tried and tested individuals and to align rules or processes where the underlying purpose is the same. It is a modest, practical amendment aimed at reducing friction and delay in areas where both regulators are already engaged. I look forward to hearing from the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, on Amendment 166, which tilts in the same direction, to some extent. I beg to move.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to the noble Baroness, Lady Bowles, for bringing forward Amendment 122. I will speak to Amendment 166 in my name and that of my noble friend Lord Altrincham. I know that we are all very excited by the result in the football but, as the Minister knows, this is an area of great concern to me, so I will make the case.
In our discussions with firms, we have repeatedly heard that regulation has accumulated over many years in a way that is often overlapping and unnecessarily complex. Firms are required to repeat similar information to different bodies, in slightly different formats, at different times and through different systems. They are expected to absorb new rules and expectations while older requirements remain in place. The result is a regulatory environment that becomes heavier and more expensive over time. This affects not just large institutions but smaller firms, new entrants and challengers, which do not have the same compliance teams, legal budgets or administrative capacity as the largest incumbents.
Amendment 122 raises an important point in this regard. Where both the FCA and the PRA are dealing with the same firm, it is sensible that they should be able to rely on one another’s analysis, findings, information and judgments where it is reasonable to do so. Our Amendment 166 follows the same principle but would apply it more broadly. It would require the Treasury, the FCA and the PRA, when exercising powers under the Bill, to have regard to minimising the overall regulatory burden on regulated persons. That burden is not only the direct cost of complying with a new rule; it includes administrative burdens, reporting requirements, the costs of delay and the disproportionate impact that regulation can have on smaller firms and new entrants. If the Treasury, the FCA or the PRA considered that an increase in burden were necessary, our amendment would require them to publish reasons and an assessment of the expected effects on growth, competition, innovation and market entry.
Regulation should be judged by its practical economic effects. Does it make it harder for firms to grow? Does it reduce competition? Does it deter new entrants? Does it slow innovation? Does it make the UK a less attractive place to do business? Those questions matter because financial services are an internationally competitive sector, as we keep emphasising. If we allow our regulatory environment to become too complex, too expensive and too slow, firms and capital will go elsewhere.
The Bill is presented as part of a wider effort to make our regulatory framework more competitive and more supportive of growth, which we support. Amendment 166 would help make that ambition real. It would require the Government and regulators to keep the burden of regulation in view and to justify increases where they consider them necessary. This sort of provision does not exist in this regulatory area, although we have had amendments of this kind in other areas, in my experience. I hope that the Minister will engage constructively with the amendments in this group.
Lord Stockwood (Lab)
My Lords, I thank the noble Baronesses and the noble Lord for the proposed amendments. These are both important topics. I continue to listen and will definitely try to continue to engage in constructive debate and discussion as the weeks develop.
Amendment 122 seeks to reduce duplication between the work of the FCA and the PRA. I thank the noble Baroness, Lady Bowles, for raising this important issue. The Government agree that it is important to identify and remove duplication between the FCA and the PRA. They have distinct objectives and functions, and each must remain clearly responsible and accountable for the exercise of its own statutory functions and the advancement of its own objectives. Co-ordination is important, but we must be careful about blurring accountability between the FCA and the PRA.
To support co-ordination, the FCA and the PRA have, as noted, a memorandum of understanding, which sets out the framework for how they will co-ordinate and co-operate while carrying out their respective responsibilities. The MoU covers their approach to rule-making, supervision and enforcement investigations under FSMA, as well as how and when they will consult and share information with each other. It is designed to ensure that they do not introduce incompatible requirements; that they share information from supervisory activity that is materially relevant to each other’s objectives; and that they avoid duplication in regulatory data collection. In particular, it makes a commitment that information available to one regulator, including regularly provided regulatory data that is relevant to the responsibility of the other regulator, will be shared where requested. If either regulator considers that the information gathered will be of material interest to the other, it will actively offer it.
Baroness Neville-Rolfe (Con)
I think that, in my amendment, I was trying to talk about when powers are exercised under the Act. Obviously, I appreciate the work that is being done to get the thicket out of the existing regulator. However, we are trying to introduce a system that, when regulations are being made—there will be many as a result of the Bill, because we are extending financial regulation into lots of new areas—that will be done in a way that really looks at the burdens. I am not sure that the cost-benefit panels and their work, which we discussed earlier, quite do that, so I ask the Minister to look at this constructively.
Baroness Bowles of Berkhamsted (LD)
My Lords, I thank the Minister for his reply, and everybody else who has spoken in the debate—I do not need to go over any of it again. It was interesting that the Minister elaborated on some of the co-operation that already goes on. I think that it could be interesting for the Committee to ask the regulators to further explain to us how they do that. We hear from industry that if feels there is duplication going on, so maybe we can try to join up that loop. For now, I beg leave to withdraw the amendment.
Lord Holmes of Richmond
“Open finance framework(1) The FCA must establish and maintain a framework for open finance.(2) The framework must provide for—(a) secure and standardised data sharing interfaces,(b) rights of customers to direct the sharing of their financial data, and(c) interoperability between different categories of financial services providers, including digital asset providers.(3) The FCA may make rules to give effect to this section.”Member’s explanatory statement
This amendment gives the FCA the power to make rules in relation to open finance.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to speak to this group of amendments. Amendment 127 is also in my name, and I thank my noble friend Lady Altmann for co-signing it. These amendments are my latest attempt to get some focus on innovation and technology in a Bill that is currently, strangely, surprisingly and unfortunately largely silent on this subject. It is my latest effort, but it will not be my last.
If we take a step back when it comes to open finance, how have we got to where we are? It is something in which everybody across the UK should take incredible pride. Open banking was created here. I offer anybody who believes the false dichotomy that recurs with tedious inevitability—that you can have either regulation or innovation—open banking as a deliberate, willed and intended regulatory intervention to address a market failure. Has it had a measure of success? That is not for me to say, but open banking, which was made in the UK, has been replicated and taken up in just shy of 80 jurisdictions around the world, many of which have taken it much further and much faster than the United Kingdom.
Although open banking is an excellent, positive and inclusive innovation, it still has not come to fruition in terms of mass take-up. However, we should consider how these principles can apply to open finance. We have some good stuff in the Data (Use and Access) Act, but we need more to provide a focus on what open finance can do, not least in obviously adjacent sectors such as telco and energy. My Amendment 126 seeks to do exactly that by looking at what is possible with the data that is currently out there. This would not be a data grab. It would not push citizens off the ball, to give an up-to-the-minute analogy; it would enable and empower those citizens who are often at the sharpest end of financial services and who may even be unable to avail themselves of financial services at all. Imagine being able to look in real time, on a consented basis, at existing alternative data, such as rental history or other activity, to empower an individual to access financial services, perhaps for the first time, or to access better financial services. All too often, what happens is that those who have the least have to pay the most. How can anybody tolerate that in 2026? Open finance could be enabling, empowering and transformational. We have the technologies. I suggest that Amendment 126 would be a tiny element of the next step on that journey.
Amendment 127 suggests an innovation unit for the Financial Conduct Authority. I am well aware that the FCA already has an innovation unit internally; it does excellent work. In terms of the work of regulators across the piece on innovation, it is far more than market-leading. It goes back to the innovations on which the FCA has led for more than a decade: the excellent fintech regulatory sandbox, the digital security sandbox and the tremendous AI sandbox, which was announced last year. They are all market-leading not just in this country but internationally. It is fantastic work. It is similar on other emerging technologies, such as quantum.
Therefore, in no sense is this amendment suggesting that the regulator is not looking at emerging technologies. What this amendment seeks to do is to empower the regulator further by putting that innovation unit on a statutory footing and bringing in external voices and expertise to be part of it, not a board of the great and the good, white, male, pale, stale, but experts in the area of emerging technologies. What a fabulous addition that would be to the excellent work that it is already doing. It would be a minor change, but it would have a major impact. I very much look forward to the Minister’s response and the discussion on this group. I beg to move.
Baroness Kramer (LD)
My Lords, I am absolutely delighted with these two amendments from the noble Lord, Lord Holmes. To begin with Amendment 126, I have long been, as he has, a real supporter of open banking and see the potential for it to expand into open finance, and have been utterly frustrated that it languished for so many years. I am convinced that, under the current leadership, real change is happening and real progress is being made. I hope that is a correct assessment, and in other places the Bill continues to assist that process. It is absolutely logical that entities are looking for financial services and going to one provider that they presumably know or can access but are failing to find a satisfactory answer, and cannot then avail themselves of the ability to talk to the rest of the financial services provider world. Open banking and open finance provide those mechanisms.
I have one caveat. In proposed new paragraph (c) to be inserted by Amendment 126, the noble Lord, Lord Holmes, explained that the framework needs to provide for
“interoperability between different categories of financial service providers, including digital asset providers”.
I agree completely with that. The question is who pays. Traditionally, it has always been the banks that have paid. I took a position earlier in the Bill, and continue to take it, that all users of the payment system should be contributing. This should not be something that falls on the banks while the tech companies, in particular, end up with a free ride. That will leave us with an unsustainable system that is far less effective than it could be if it had the full resources of all those who participate and potentially benefit from it. It would also engage them in innovation, which is addressed in Amendment 127.
I can see the advantages presented by Amendment 127, but there is one more feature that I want to add. One of my permanent frustrations with the regulator has been that it does not step in when there is market failure. It always says that if a new company or business comes in that will fill a gap, it will regulate it appropriately—that is its contribution to encouraging players to come in and fill the space where there is market failure. One good example is lending to small businesses, but there are many more market failures that the FCA will happily acknowledge, but then say it is nots its job to get that gap filled.
The US regulators take a very different view: if there is a market failure, they will be proactive in trying to design incentives and opportunities to go out and, in effect, market to relevant players so that the gap is filled. A simple example in the United States, thanks to the regulators, is something I call “bank in the box”—I have to be careful because there is a company of that name. It was devised to enable small players to come into the lending space. In the box were all the regulatory pieces that a banking service needed to offer, so that it would be very simple for a new player to simply plug in the investors at one end and the particular customer base at the other. It also means that, in time of failure, that small bank can easily be recovered, because all the complex content of regulation and compliance is in the box in a way that that is understood by the others within the system.
I have talked to the FCA and asked about bank in the box. It says that if someone comes forward with it, it will gladly regulate it, but it will not take a step that would encourage the provision of some such service. I would love to see this approach to market failure incorporated in the innovation discussion. Regulators are incredibly influential; it is amazing what a few words from a regulator, or a proposal from a regulator, will do to make sure that action actually happens.
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.
Lord Holmes of Richmond (Con)
My Lords, I thank all noble Lords who have taken part in this short debate. I agree entirely with the points raised by the noble Baroness, Lady Kramer, about who pays and I agree with the noble Baroness’s earlier amendment on APP. When we have variety in our participants in this market, it is right that, if you are in the market, you pay alongside all other participants, rather than having the asymmetry which currently exists of banks being on the hook and others swimming freely. I also agree with the main thrust of the noble Baroness’s other points, none of which made me queasy at all.
I thank the Minister for his response. I agree largely with his comments. I delicately say that bringing in expert independent voices in a more formalised but flexible structure would further empower the FCA to take the excellent work that it does in innovation and go broader and faster. I ask the Minister to reflect on that and if there is more that the Government can do in concert with the FCA, without in any sense fettering its discretion. It would give the FCA even more power to increase the fantastic work it is doing across all these emerging technologies. For now, I beg leave to withdraw the amendment.