Lords Chamber

Monday 8th June 2026

(began 2 days, 1 hour ago)

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None Portrait Oral questions: Assessment of the performance of Royal Mail
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Third oral question. Third Oral Question Lord Sikka.
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None Portrait Private Notice Question: UK defence capability and the threat posed by Russia
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Lord Dobbs private notice. capability and the threat posed by Russia. Lord West of Spithead.
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Lord Coaker Portrait Lord Coaker, The Minister of State, Ministry of Defence (Labour)
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Well, first of all, can I? It would be wrong of me not to say I really appreciate the remarks that my noble friend, the noble Lord, has just made. And there were a number of us in Normandy on Saturday. Someone else, Lord Evans, his relative, was the day after my uncle, who I'm named after, was killed on D-Day. After landing soon after landing on Sword Beach. So I really appreciate the comments that he's made on. On the current situation. He will know the Defence Investment Plan is due to be published, and the Prime Minister has made that clear that it will be before the Ankara summit, which takes place on the 7th of July.

We are in discussions about the money he's seen that well reported. I can't tell him exactly what the outcome of all of that will be, but there will be additional investment. I would just say to to my noble friend, he's right to point out the need for us to increase our capability. We are doing that. But in terms of countering the Russian threat, as it as it stands at the moment, we are not standing still. We are taking action with both our RAF typhoons, with working with our NATO allies in the North Atlantic and in the High North.

He will know as a as a Navy, with the experience he has in the Navy, the. The carrier HMS Prince of Wales, following a bit of maintenance in Norway, is now out ready for Operation Firecrest, and so that. And Nordic warden. Arctic century. There are a number of operations which are taking place to both protect our interests, to take action to counter the Russian threat and to protect things like underwater cables. So, of course, there is a need for more investment.

Of course, there's a need for more readiness. Of course there is a need for more capability, but we are taking action with the resources that we have now to defend our country as well as much as we can.
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Baroness Hayman of Ullock Portrait Baroness Hayman of Ullock, The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Labour)
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The noble makes makes a really >> The noble makes makes a really good point. I mean, I think one of the problems that we've clearly got in this country is that there are in this country is that there are parts of the country that have plenty of water, and there are parts of this country that has very, very little water. And unfortunately, the parts of the country that have very, very little water tend to be the ones with the most the highest population, with the most people in it.

So we have to look about how we're going to manage that long term, because clearly what we're doing at the moment is simply not working. It's simply not the right approach. And again, it's why we want to reform the water industry, you know, really shake it up properly. And I think that the points that the noble Lord made are absolutely critical to be to be taken into

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consideration because we have to get this right. You know, she has my full. Support in shaking up the water Support in shaking up the water industry, as we've discussed on quite a number of occasions. But while it's very well for us to tell while it's very well for us to tell her to hurry up and supply more water, could she tell the house? How long does it take to build a

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reservoir? That's a. Very good question. Well, that's a very good question. Obviously, we a very good question. Obviously, we haven't built a new reservoir for more than 30, more than 30 years. And that's one of the reasons we have reduced domestic capacity, is the noble Lord so rightly knows. So what we need to do is just get on with this as best as we can. And we're trying to get a coordinated, system wide approach to it. And Havant Thicket has been the first new reservoir, so we're using that as a learning opportunity for
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Baroness Cash Portrait Baroness Cash (Conservative)
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My Lords, I thank the noble Baroness, the Minister, for bringing this statement to the bringing this statement to the House and for her kind words to me before I look forward to working constructively with her in the coming months and time in the interests of all children and young people. We on the conservative benches welcome this statement. Indeed, as the previous conservative government that commissioned the review by Josh McAllister, upon which this government's social care strategy is based. My Lords children who enter care have often experienced circumstances too horrible for us to imagine.

And as they enter adulthood, as the report reminds us, they report much higher levels of loneliness and isolation, often lacking a single loving or supportive relationship. It's well established now by the evidence that higher numbers of adverse childhood experiences correlate with poorer life and health outcomes. So of course, we will support, where possible, reforms to improve the care system. I do have some questions today, my Lords, and I particularly welcome the Minister's focus on kinship care, but I do wish to raise some points in relation to the target of 10,000 new foster places, a laudable and necessary target.

The question is surely this report. Some proportion of this is more easily achieved through the family. Currently, the proportion of fostering households through kinship care is just 20%. But my Lords, finding foster care is among a child's kin. Could be the surest and most efficient way of getting children into a placement in which they feel a sense of safety and belonging already. But the biggest barrier is qualifying as foster carers. Even though there are significant advantages to a child which might justify a less than perfect score.

Of course, this would have to be done without compromising safeguarding, but it must merit further exploration. And so I ask the noble Baroness, the Minister, whether she will commit to revisiting this in this session. We also recommend the expansion of regional care co-operatives, particularly as a means to encompass children currently on or at risk of a deprivation of liberty order. I am, however, concerned about the funding of these rtks. The two RCC pathfinders in Greater Manchester in the South East, received 3.46 in programme funding and 5 million in capital funding between them.

The government's paper cites over 10 million to support the expansion of the six new rccs. Unless I have misunderstood, that's a large discrepancy in per RCC terms. So can the noble Baroness, the Minister, please tell the House if she believes that this funding will be enough for all of the new co-operatives, or whether she expects more to be announced in the future? My Lords, we also welcome the Minister's resolution to secure the best possible outcome for care leavers who too often, as we've, as I've said, have not a single enduring relationship in their lives.

But there are some unanswered questions about how the new enduring relationship metric will be applied, and I would be very grateful for more information from the Noble Minster. Noble Baroness May Minister will support for those who score lower be increased. For example, what form will that support take and will it allow for early intervention before those vulnerable individuals identified have actually left care? More information on all of this would be very welcome. I look forward to hearing the noble Baroness.

The minister's response.
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Lord Mohammed of Tinsley Portrait Lord Mohammed of Tinsley (Liberal Democrat)
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My Lords, could. >> My Lords, could. >> I. Also welcome the statement. I think it's really important that we think it's really important that we in this House send a strong message to those young people that are in care that we actually are on their side. I know on many occasions Lord Purvis, who's just left his place here, often refers to those young people having the richest parents. I corporate parents I the state. But often the state, particularly at a local level, has not been there to support them.

So we actually welcome this enduring relationship strategy for children in social care, because we've long believed that every child, no matter where they are and what their circumstances are, they deserve the best start in life because that's what we want for our children. And as we if we the state, both at a national level and a local level, are the corporate parents, then if that's good enough for our own children, then it should be for the children that are under our responsibility.

And that's what we've long advocated for children in care to off for, because they've often been the ones that are overlooked, and particularly those that reach adulthood, but clearly still have issues. And I know this overlaps with the debate that I'm sure we will have following the Milburn review around NEETs, because often those that have been in care are the ones that are overrepresented in the knees. And I'm sure I'll come back to that topic at a later date. And we've long talked about the fact that some young people live in relationships that are broken, and I just want to play a tribute to my colleague Baroness Tyler, who's really wanted to be here but couldn't be here because she's long campaigned for children, often ones in care, and the other isn't.

And that relationship and maintaining that relationship was something she's campaigned for for many years. And I want to thank the Minister for her efforts to supporting the efforts of Clare, that we were able to get that into the Children's Wellbeing in Schools bill recently in the last session of Parliament, because I think that was a really important change in the law that guaranteed that children in care are supported to stay in contact with their brothers and sisters, because we want to make that upbringing as closely mirrored as the ones that we've all had.

And, you know, at the moment, for example, my children are having. And also the kinship care is a vital role in society. So, so often we see that that support is something that holds families together. And it's something that we've long for called for the government to support in terms of financial support. So whilst they are there to support foster carers, we feel that kinship carers should also be better financially supported. And you know, whilst we support the government's intentions, we must remind the government that kinship care is still lack that financial support and we've tried to fix that last time during the Children's Wellbeing Schools Bill, but we didn't on that occasion succeed.

So I've got a couple of questions for the government Minister. The government's mentions a new financial allowance pilot for kinship carers, while the Minister explained. Will the Minister explain why the government did not support the kinship care amendment? So the schools Bill that was proposed in the last session, and similarly, the government states that its goal is to shift children's social care towards stronger families and stable homes, and that's welcomed. But when a relative of a close family friend is willing to take on a child located, it's often faces immense financial barriers.

So when will the government guarantee kinship carers financial support on par with foster carers?
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Baroness Smith of Malvern Portrait Baroness Smith of Malvern, Minister of State (Education) (Labour)
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Can I thank noble Lords opposite >> Can I thank noble Lords opposite for their. Welcome to the government's proposals around government's proposals around enduring relationships? And yes, my. The noble Lady, the Baroness Cash is right, of course. The independent review of Children's Social Care was commissioned by the last government and led by my hon. Friend, the Minister for Children and Families, Josh McAllister, and in that he did call for a relentless focus on enabling care. Experienced children to build lifelong relationships, creating a tribe around them as they grow up.

And that is the basis of the enduring relationships strategy that we have published. It's framed around our central ambition to allow every child in care to maintain the loving, supportive, and trusting relationships that they need to thrive. It builds upon our recent work to legislate for social care reform, to reset how the system operates, and to give our partners clarity on delivery. In November 2024, the government published Keeping Children Safe Helping Families Thrive, which laid the foundations for reform.

We follow through with the Children's Wellbeing and Schools Act 2026, which many of us spent many happy long hours discussing as it went in its way through this house. I'm sure we'll have a suitably chunky bill for the noble Lady to enjoy in this session. This has enabled the most significant overhaul of children's social care in a generation, and these changes are supported by over £3 billion in funding across programmes, capital investment and implementation. Most recently, on the 21st of May, we published our implementation plan to support local partners to deliver these reforms.

So this work has laid the foundations, but now, as noble Lords have recognised, we must move to the full implementation phase to bring about a real and tangible difference to children's outcomes and a key focus of our reforms, as identified by Josh McAllister in his review, is to help care experienced children build long lasting, loving relationships. Every young person needs relationships like these to form a strong sense of identity and to reach adulthood with confidence. The evidence is clear, as the noble Lady has already identified just one stable, trusted and loving relationship can transform a child's life.

It can improve their resilience, their health, their education, and their long term outcomes. Yet too often the system does the opposite of facilitating the permanency that allows these relationships to grow. So in our strategy, we are now setting out a new focus for children's social care. We know that many social workers, carers and professionals work extremely hard to support young people to build and sustain trusted relationships. But often this depends on individual commitment rather than reliable structures. And that's why, to deliver this, our reforms will be aligned to four key outcomes.

First of all, children's social work must prioritise relationships, not just as an add on, but as the core purpose of practice, the lens through which every professional judgement is made. And this is at the heart of the family's first partnership programme, where mandatory family group decision making will bring children's families, will bring children's families and wider networks into their care decisions at an earlier stage. And the noble Lady Baroness Cash noble Lord Lord Mohammed both raised the issue of kinship care.

Quite rightly, we are strengthening kinship care. Every local authority will be required to publish a local kinship offer, giving families the clarity and support they need. We've also committed £126 million to pilot seven kinship zones, including family network support packages, which will tackle the barriers that can prevent families from stepping in to support their kin. And that I think that work and that investment will give us the basis on which to develop. As noble Lords have said, this really important provision for young people.

We have also strengthened local authorities duties to promote sibling contact for children in care. And the noble Lord is right. The noble Lady, Baroness Tyler, did make a very strong case for this. During the course of the Children's Wellbeing and Schools Act. So at every point in proceedings now we must ask not only is this child safe, but who matters to this child? And how do we enable and nourish those relationships? Secondly, we must create stable homes for children in care that support long term relationships.

That's why we're investing £88 million and working in partnership with fostering hubs and the sector to reform, fostering and recruit ten 000 new foster carers. And that will, in response to the noble Ladies question. That will also involve reviewing standards, ensuring national consistency so that the rules that are in place are those that support a child's safety, not limit the ability of foster carers to come into the system. Far fewer children should be in residential care, and only when it is the best place to meet their current needs, and creating a route back to family life should be the focus of these children's care.

But too often the right residential care is not available, leading to child placement according to what is available rather than what is needed. And that's why to improve the planning and commissioning of residential care places, we are rolling out regional care, regional care co-operatives and we will have more to say about the where those co-operatives will be and what support will be available for them in the near future. Thirdly, we must support children's transition to adulthood through supporting their long term relationships.

We're strengthening support for care experienced young people so they can move to interdependent, independent living, supported by strong, trusted relationships. Through staying put and staying close, we're ensuring continuity of care and connection. And through strengthened corporate parenting, we're ensuring that public services step forward to support young people who have left care. Many children currently in care have already lost their most important relationships, and that's why we're launching a national sprint to roll out family finding services in every local authority and primer.

And finally, as noble Lords have said, we must embed the primacy of children's long term relationships through accountability and inspection. Care must be judged not on placement numbers or types, but on children's experience of them. That's why we will have more to say soon about the measure that we will use for recognising the success here. We are already working with local authorities and with foundations, the What Works organisation in children's social care, to determine how we will measure success here, and we will announce more about that soon.

Long term relationships must be the standard by which the system judges success. So we will introduce, as I say, an enduring relationships measure to gauge improvement and provide accountability. And that also means that we will work with Ofsted to build enduring relationships into inspection criteria. I hope I welcome the support of noble Lords for these measures today, and I look forward to working with noble Lords across the House as we make this fundamental difference to ensuring that all care experienced children have not just the care and the safety that they need, but also the ability to keep or to rebuild the enduring relationships that will be so important for their success in future life.
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Baroness Armstrong of Hill Top Portrait Baroness Armstrong of Hill Top (Labour)
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My Lords, I. statement from the government. It is uplifting to see the shift from. is uplifting to see the shift from. We are just the corporate parent to actually. It is our responsibility, all of our responsibilities to ensure that those children who do. For reasons we may not like very often and they may not like, enter the care system, that we actually understand that the important thing for them is enduring relationships. I want to ask my noble friend, particularly about one aspect of the statement, and that is that that relates to long lasting relationships.

I did some work. I've done work with family, family rights group for many years now, and they did the initial work on that. And that has been followed up by the What Works Centre Foundation's looking at it. And this is how do you establish for young people in their last couple of years before they leave care? A lifelong relationship. All of your children will have aunts, uncles, cousins, friends they can go to even when they've fallen out with their mum and dad.

These children have no one. And talking with them. When you've re-established a relationship with a long distance school teacher that they had a good relationship with, with somebody even from their nursery or other areas of their life, or you've found a long distance relative that they didn't know about. It makes an enormous difference. I know that we're going to make sure that Ofsted are covering these things. Can my noble friend assure me that the slim down offset said, actually will have the resources to make sure these changes have the real effect that they're meant to do?
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Lord Stockwood Portrait Lord Stockwood, Minister of State (Department for Business and Trade) (Labour)
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and it makes up around 20% of UK exports. The sector makes up 8% of exports. The sector makes up 8% of UK GVA in 2025, totalling £224 billion. It plays a vital role in billion. It plays a vital role in our economy, underpinning services that households and businesses rely on every day. It provides high on every day. It provides high quality jobs all throughout the country. It was in recognition of this that the Chancellor announced this that the Chancellor announced a significant set of reforms in her speech to the sector in Leeds.

I'm very happy to take this bill because I worked in the sector in the past. I was the CEO of an insurance technology firm offering protection to small businesses, and I've been on several boards of businesses in the financial services sector. While I no longer hold these roles, perhaps it is right moment to declare my interests as set out in the ministerial register. In particular, a number of my investments in funds which are managed by regulated FCA firms. In my role as investment Minister, I see and hear firsthand just how our financial services sector reaches the extent to which our institutions, regulation and rule of law are respected overseas.

My Lords, the Financial Services and Markets Bill will modernise how the sector is regulated. It will enable it to grow and to lend more to businesses and make consumer protections fit for the digital age. It will achieve these objectives by maintaining high standards of regulation and oversight, ensuring that consumers and businesses continue to engage with the sector with confidence, and it will meet their needs. I am pleased that the Bill has been welcomed by a range of stakeholders operating across the sector, and there is a general recognition that there was an all party meeting that hosted this week.

There is a question of balance that we are trying to achieve, as the noble Lords would expect. This is a large technical bill, so I will briefly set out its purposes and why the government has adopted measures it has, and why we believe that they strike the balance of promoting innovation and growth while managing and mitigating risk, and, of course, protecting consumers. Turning first to consumer protections and redress arrangements. Clause one and schedule one repeal large parts of the provisions remaining in the Consumer Credit Act 1974, so that many of these can be recast into the rule book of the Financial Conduct Authority, known as the FCA.

Continuing the changes introduced as part of the Financial Services Act 2012, the Consumer Credit Act was designed for the pre-digital age where everything was done on paper forms. It predates the smartphone by over 30 years, and research shows that parts of the Consumer Credit Act can be harmful to potentially vulnerable customers, as lenders are often required to send complex communications that result in individuals feeling disempowered, confused and reluctant to seek help. This shows how bad regulation can harm consumers.

The FCA is already responsible for making rules that protect consumers, and has already made rules to replace some parts of the Consumer Credit Act. It has the expertise needed to perform this role, and the powers needed to appropriately police compliance within the rules. Repealing more provisions from the Consumer Credit Act will ensure that it can make rules fit for the digital age. Moving on clauses 4 to 12 reform the operation of the Financial Ombudsman Service, known as the Fos, to improve the consistency and predictability of its decision making.

At the moment, in a small but significant minority of cases, a regulator, by which I mean that it simply resolves humans and firms as intended. Its decisions have the effect of setting minimum standards for firms. This can lead to uncertain and inconsistent expectations of outcomes for consumers and firms, which undermines confidence. The bill is reforming fair and reasonable tests as well, which guides decision making, introducing a mechanism to ensure greater coherence between the Fos and the FCA, and makes a number of other reforms to allow the force to successfully fulfil its original role as a quick and informal dispute resolution service.

Clause 23 to 28 improve protections for consumers who purchase financial products through an appointed representative, for example, when purchasing insurance from a retailer acting on behalf of an authorised firm. The bill will require the FCA to check that an authorised firm is up to the job of ensuring its appointed representatives operate with high standards of conduct, and when something goes wrong, the bill will ensure that consumers are appointed representatives will be able to bring a complaint to the force, which is not always the case at the moment.

Now let me turn to the regulatory framework. I would like to thank all the members of the House of Lords Financial Services Regulation Committee for the Growing Pains report that I read over the weekend. There is a strong alignment between this committee's conclusions in the report and the government's perspective and actions. The Bill will consolidate the regulatory framework to deliver stronger coordination and clear responsibilities. Clause 13 and schedule two will abolish the Payment Systems Regulator, known as the PSR, and consolidate its functions within the FCA.

The PSR has been effective in driving competition and innovation amongst payment firms, but the current framework is too fragmented. The bill will reduce the number of regulators that firms need to engage with. The bill also makes a number of reforms to support effective operation of the two largest financial services regulator, the Prudential Regulation Authority, the PRA and the FCA. The actions of the FCA and the PRA are absolutely critical to ensure that the UK has the right regulatory environment, a key part of the government's Financial Services Growth and competitiveness strategy.

Clause 21 speeds up the regulator's decision making by reducing the statutory deadlines for determining a number of key applications, including authorising new forms and clauses 29 and 30 create a new provisional licence. This regime will support innovative new firms by allowing them to begin operations on a temporary and limited basis, while they apply for full authorisation. The bill also makes a number of changes to the internal operations of the regulators to ensure that they are focussed on their activities in the right places, and to support the effective oversight and scrutiny of their work.

The government has looked to a wide variety of requirements currently applying to firms, some overlap in some obscure and some simply of low value. Clause 16 requires the regulator to develop and publish long term strategies. Clause 17 requires the regulators to consider their existing regulatory principles while preparing or revising their long term strategies, while removing the requirement to consider them every time they exercise one of their functions. Clause 18 removes a number of requirements from the regulators that are duplicative or impose a burden on the regulators that is disproportionate to any transparency benefits that they bring.

Collectively, these changes are designed to ensure that the Government and Parliament can give clear direction to the regulators at a strategic level, and support scrutiny of their broader approach in a way that is meaningful and impactful. Rather than focusing on the minutiae or clogging up the regulators with process that adds no value. The Bill two also supports the international competitiveness competitiveness of our world leading financial services sector, including through clause 37, which enables the Treasury to create Overseas Recognition Regimes to make business across the borders without compromising consumer or financial protections.

I will now turn to the section relating to administrative burdens on firms. I have said that the bill ensures that the administrative burden that regulation puts on forms is firms is proportionate without compromising on core consumer, prudential and market protections. At the core of this objective are reforms to the senior managers and certification regime in clauses 31 to 36. This regime holds senior leaders in financial services firms personally accountable for their actions. This is a vital regime that was introduced after the failures of the financial crisis.

Following the reports of 2012 Parliamentary Commission on Banking Standards, many members of the House took part in that commission, including the noble Lady, Baroness Kramer, who I look forward to hearing from today. This regime has vastly improved the standards of governance and conduct across financial services sector, and we have the Baroness Kramer and others to thank for that. However, the way that the regime operates in 2026 results in significant regulatory burdens, costs and operational flexibility. Following careful consideration, the bill will reduce those burdens while retaining the core guardrails that the regime introduced.

The bill gives the FCA and the PRA flexibility in how senior management appointments are overseen. The bill removes the certification regime, which applies to roles below senior manager level. In its place, regulators will be able to make appropriate rules in their rule book. Last week I met with many noble Lords, including the noble Lord Sharkey, the noble Lady Baroness Bowles of Berkhamsted, my noble friends Lord Davies of Brixton and Lord Pitt-Watson. They asked me for assurances that the bill does not weaken the core protections of this regime.

I am happy to give those reassurances. Firms will remain responsible for ensuring those they appoint are fit and proper, and individuals will remain individually accountable for their decisions. This is not about deregulation, but about ensuring the rules operate in a more proportionate and targeted way. I will now speak to the opportunities for credit unions. The bill will enable credit unions to serve more people and communities, something I know that will be strongly recommend welcomed by many in this House, the government is committed to supporting the growth of mutual and cooperative sector, recognising the important role credit unions play in promoting financial inclusion and providing affordable credit.

Clause two expands the common bond requirements of credit unions. It enables credit unions to reflect modern arrangements in living in our living conditions, allowing them to admit relatives of existing members who live outside the same household and members of the same household who are not relatives, enables credit unions to permit retirees to remain as fully qualified members and to join credit union after retirement. It enables credit unions to admit students as eligible members under the locality bond, even where they do not live or work in the same place as they study.

This delivers on long standing assets of the credit union movement, which the Chancellor is proud to be able to deliver. This is one of the government's ambition to double the size of the cooperative sector. On lending and investment clauses 39 and 40 update the statutory framework underpinning the ring fencing regime. This regime requires major banks to separate their UK retail services from riskier investment banking activities. I would like to take a moment to pay tribute to the Parliamentary Commission on Banking, whose work was instrumental in establishing this regime.

I want to be clear ring fencing has played a central role in strengthening the resilience of the UK retail banking sector since the financial crisis, but it is also true that the wider prudential and resolution regime has developed significant significantly since then. In particular, the UK now has extensive resolution powers to protect depositors and taxpayers in the event of future failure. The UK is therefore now much stronger in its position to respond to banking failure compared to the global financial crisis.

The independent Skeoch Review of 2022 concluded that ring fencing should be retained, but identified areas of rigidity and recommended better alignment with the resolution framework. I mansion House last year, the Chancellor announced a further review of ring fencing regime, and last month the government set out a package of reforms designed to support growth while maintaining financial stability. The bill makes changes to deliver the outcomes. It clarifies that the regulator need not duplicate rules where protections are delivered elsewhere, and updating statutory purposes to reflect how banks could fail today.

Overall, these changes create a more coherent and adaptable regime, supporting a more efficient environment for banks to lend and invest in the UK economy. And it does so while upholding financial stability and protecting depositors. The Bill will also enable the Treasury to update existing legislation to help small and medium enterprises, known as SMEs, to access lending through a wider range of lenders. Legislation already requires certain banks designated by HM Treasury to share credit information about their SME customers, subject to consent, with designated credit reference agencies to encourage greater lending.

Since that regime was introduced, the probability of SMEs establishing new borrowing relationships has increased over 25%. However, almost 70% of new lending to SMEs now comes from outside those core designated banks, including from new challenger banks and fintechs. Clauses 41 to 43 allows the Treasury to expand the scheme to a wider variety of lenders for the first time. The government is also extending the scheme to support the provision of credit to the charity sector. Clause 44 advances the government's ambition to make the UK the location of choice for specialist and complex insurance, by enabling the PRA to set more appropriate funding requirements for specialist insurance undertakings, known as transformer vehicles.

Clause 45 advances the government's ambition to establish a new globally competitive captive insurance framework, and now it's the subject of anti-money laundering. I have spoken about the importance of maintaining the UK's pre-eminent global position as a finance for global a global financial sector. However, being a financial hub means we have now faced heightened vulnerability to illicit finance. Money laundering firms harm legitimate businesses by distorting competition, increasing costs and enabling organised crimes crimes. The UK has set a robust set of anti-money laundering rules, but the supervision supervision of those rules is not consistent.

So in October 2025, the government announced its intention to reform the supervision framework with the FCA, become the supervisor of compliance with anti-money laundering and counter-terrorism financing rules for professional service firms. The detailed implementation will be through secondary legislation. Clause 14 will allow the FCA take responsibility for supervised anti-money laundering and counter-terrorism financing amongst these professions. This will mean more consistent and effective supervision and improved collaboration with law enforcement. Financial crime increasingly takes place via crypto assets, and those assets are increasingly held outside the UK.

Seven pieces of legislation enable government to seize illicit crypto assets with a connection to the UK. However, these powers have not been working effectively. The Bill enables the government to ensure the work intended and can be modified as criminal practices evolve. Finally, clause three gives the government the power to act on access to banking services. The way people access banking services in the UK has changed significantly over recent years. More and more of us are banking online and banks are closing branches.

In response, the government is committed to ensuring that those customers who need it retain sufficient access to essential banking services. In-person banking hubs play a critical role in this ambition, and we remain committed to supporting the financial services industry's roll out of 350 banking hubs by the end of this Parliament. Last month, the government launched an independent review into access to banking services led by Richard Lloyd, former witch director and former board member of the FCA. This review is to better understand the impact of the current trajectory, including the scale of any detriment to consumers, particularly vulnerable groups.

The bill contains a power to take action on access to banking services, including implementing the outcomes of the review. Should the evidence demonstrate that this is necessary. My Lords, I have only been able to touch briefly on what is clearly a wide ranging bill. I look forward to discussing it in more detail. This bill will help financial services sector grow and to lend to more businesses and, importantly, make consumer protections fit for the digital age. When I began my speech, I said that the bill is a matter of balance.

I hope the noble Lords will agree that this bill achieves its modernising objectives, while maintaining the UK's high standards Lords, I beg to move.
17:00
Baroness Neville-Rolfe Portrait Baroness Neville-Rolfe (Conservative)
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This bill, be now read a second time. >> My Lords. It is a pleasure to follow the noble Lord, the Minister, follow the noble Lord, the Minister, as we begin our deliberations on the Financial Services and Markets Bill. Now, like him, we believe that financial services are one of Britain's great success stories, a sector that accounts for around 12% of GDP, supports 2.5 million jobs and contributes roughly £110 billion in tax each year. It is not simply a sector to be regulated.

It is, my Lords, a national asset to be championed. We need the sector to grow because that will benefit us all. Turning to the economy overall, we have had, unfortunately a lengthy period of low growth following the financial crisis of 2007 and eight, and there is no sign of imminent recovery. Expectations are now for low UK growth in 2026. This continuing trend must be reversed. The government's rhetoric on the importance of growth must now be matched by serious action to.

Often warm words have been followed by policies that pull in the opposite direction. The bill comes after a tidal wave of anti-growth measures, of which the Employment Rights Act is only the latest example. It is our view that a major factor in our low rate of growth is overregulation, and that this is especially true of the financial services sector. Now, our Financial Services Regulation Committee agreed, and it's good to see the Chair My noble friend Lady Noakes here today.

Their excellent report, Growing Pains, Clarity and Culture Change Required, which the Minister has already referenced, warned that the regulatory pendulum has swung too far towards elimination of all risk. My Lords, that matters because an economy that seeks to eliminate all risk will, in the end, eliminate growth as well. The consequences are already being felt. International firms are looking elsewhere. Businesses already operating here face costs that make the UK less attractive and less competitive. And the CEO of Marshall Marsh McLennan told the committee that from a regulatory perspective, the UK is at least six times more expensive than our next most expensive country.

That's an extraordinary warning and one the government should take seriously. So the question is whether this bill measures up to what is required to meet the concerns of the committee and the wider needs of growth. I fear that, once implemented, the Bill will not lead to the step change required as we take it through the House, a major perspective from which we will be judging it is its likely effect on growth. However, several. In several respects, the bill is moving in the right direction.

There is a broad consensus that reform is needed. The Treasury itself has acknowledged that the United Kingdom has been left with an overly complex system, and the National Audit Office has pointed to delays between problems being identified and regulatory action being taken. Industry has been saying the same thing. UK finance has made clear that the Consumer Credit Act is outdated and no longer reflects the protections needed in a modern digital market, and the UK has called for a more coherent, streamlined post-Brexit framework.

We therefore welcome, in principle the proposed changes to credit unions and the proposed transfer of the Payment Systems Regulator into the FCA. The changes outlined to the Financial Ombudsman Service are also positive, and we expect that this will bring some further clarity to their role and to the regulatory landscape more widely. We also welcome measures designed to reduce approval timelines and to reform the senior managers and certification regimes. Accordingly. The greatest problem with this bill is not what is in it, but what is missing from it.

For example, it contains nothing on financial education, so key to improving our savings and investment culture and performance. More important, whilst the legislation before us removes significant amounts of old regulations, it has extensive powers to the Treasury and to the regulators to design what comes next. Yet Parliament is being asked to approve that transfer of power without seeing insufficient detail. The regulatory framework that will replace what is being repealed. The incredibly broad powers set in clause three on in-person banking is a good example.

The repeal of a large volume of consumer credit architecture, with the expectation that much of what is removed from statute will later be recast into FCA rules. Transfers responsibility for policy making from Parliament to the FCA. So that's another example, and we believe that this is unwise. Moreover, the obscure provisions in clause 14 of the Bill on anti-money laundering appear to give the FCA MP EFRA new powers to extend regulations and impose burdens on a number of professions not currently so regulated.

We are told by some that this is a deregulatory bill and that is welcome. But deregulation ought not to mean removing rules from primary legislation and recreating them elsewhere. Beyond proper parliamentary scrutiny. The test is not just whether the statute books look thinner, but whether the burden facing firms is actually reduced. Now, I'm sure the noble Lord, the Minister, will point to the regulator's growth and competitiveness objective. But the Financial Services Regulation Committee was clear that this objective has not yet translated sufficiently into policy or practice.

Recent history does not give us confidence that a culture of risk aversion, delay and excessive caution will correct itself without stronger statutory direction, clearer accountability and more effective parliamentary oversight. There is also a wider question about whether the regulatory framework being created will be fit for the future. The Minister touched on this. Financial services are changing at extraordinary speed, led by remodelling overseas, especially in the US. Digital assets are becoming more sophisticated and more integrated into mainstream finance.

We are now discussing discussing sovereign bonds on blockchains, digital settlement systems, tokenised assets and new payment technologies capable of transforming everyday transactions. Yet industry is warning that the government still lacks a clear strategy for digital assets. As a result, firms face uncertainty, innovation is delayed and business connected to digital asset activity risk risk being actually debunked. And I fear that other countries are moving faster in this area. The United Kingdom should be leading in this space.

We have the legal system, the financial expertise, the history, the capital markets and the international reputation to do so. We also need to have regard to the competitive interest of our UK firms. One very senior banker has warned me that the last minute proposals on ring fencing would be welcomed by his overseas competitors, since it would reduce his competitiveness. There is also concern from our huge insurance industry, where the UK is a true world leader, with 69% of income coming from overseas, they fear that downgrading the proportionality duty and confining its application to long term strategies, rather than to regulatory decisions, will make the UK a less attractive place to do business.

So before I close, I want to ask some questions of the noble Lord. The Minister. First, our present Ministers determined that the regulations made under this Bill will prove less onerous in practice than the architecture they replace. Second, what assessment has the government made of the FCA's operational readiness to take on the additional responsibilities conferred by this bill? Third, is the Minister confident that the measures in this bill will materially reduce delays in authorisations and approvals, particularly for smaller firms, for challengers and for new entrants.

The ability to stop the clock without an independent arbitrator undermines the targets. And fourth, is the Minister confident that, following the adoption of this bill, regulator behaviour will become more growth focussed? My Lords, there is a missed opportunity at the heart of the Bill. It contains measures that we welcome. As I have said, it moves in the right direction. It recognises, at least in part, that the current system is too complex, too slow and too burdensome. For that reason, we will approach the Bill constructively, and I look forward to working with the noble Lord, the Minister, on many of the details, not least given his background in the sector that we are discussing.

I hope and believe that there are medium scale issues on which we can reach agreement in this House, but there are two broad problems as I see it. First, this is a bill that begins the process of reform but does not, on its own, meet the scale of the challenge. The test for this bill is not simply whether it makes technical changes to the financial services framework, but whether it helps make the United Kingdom once again the most dynamic, competitive, innovative and attractive financial centre in the world.

Second, we are being asked to take a lot on trust because of the remarkable degree of delegation in the bill. We are required to trust that the regulators will deliver in a timely and effective way to trust that the Treasury will deliver the necessary framework, and to trust that Treasury Ministers will oversee the step change that we need. My Lords, looking to the past and to the volatility of current politics, can we really put so much trust in the

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proposals before us? I welcome. This Bill. And the growth and competitiveness objectives that competitiveness objectives that inform it, and I want to thank many organisations that have provided us with briefings, and I want with briefings, and I want especially to thank the APPG for investment fraud and fairer financial services. There are 70 financial services. There are 70 page analysis deals with each part of this bill in depth, and reaches an important overall conclusion.
17:12
Lord Sharkey Portrait Lord Sharkey (Liberal Democrat)
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an important overall conclusion. That conclusion is that the case for protecting consumers within any reform of financial services is not merely a moral case. Although the moral case is strong, it is an economic case grounded in a clear eyed analysis of how trust works, how it is destroyed and what happens to markets when it is lost. The report also notes that the bill should not simply make complaint handling faster or more predictable for institutions. It should ensure that ordinary people can get the real issue investigated, decided, escalated when necessary, and put right.

It is not at all clear that the bill does this or does this sufficiently. Look at part two of the bill illustrates the problem. It contains a number of significant reforms. Clause five, for example, which concerns the appointment of the chair of the scheme operator. Under this clause, the chair is appointed directly by the Treasury. This is a major structural shift that was not included in the original consultation. The clause also states that the terms of appointment must secure the chair's independence from both HMT and the FCA.

The Ombudsman scheme occupies a unique position within our regulatory architecture. It must command the confidence of consumers while maintaining credibility with the industry. Independence is therefore essential and is not merely a matter of statutory wording. It's also a matter of perception. Where appointments are made directly by government, questions inevitably arise about whether sufficient distance exists between Ministers and those exercising important quasi judicial functions. Clause six also contains significant reform proposals. It addresses time limits for complaints under the compulsory jurisdiction.

It introduces a long stop period of ten years from the relevant act or omission, while preserving the possibility of alternative limits set through rules and allowing exceptions in specified circumstances. This is a process which they critically important, allows no meaningful parliamentary scrutiny. It is, of course, true that there is a strong case for providing greater certainty. Financial firms should not face indefinite exposure to complaints relating to events that occurred decades earlier. It's also true that financial misconduct can sometimes take years to emerge.

Consumers may not discover that they have suffered detriment until long after the original transaction occurred. The challenge is one of balance. Parliamentary involvement will be helpful. Still, in part two, clause seven introduces one of the most consequential innovations in the bill the referral of matters from the Fos to the FCA. The Ombudsman may also seek the FCA's opinion of FCA rules where ambiguity exists. This proposed reform reflects the concern that individual complaints can sometimes raise wider questions, affecting thousands of consumers and firms.

The proposed reform also reflects long standing industry criticism that the Ombudsman has occasionally interpreted regulatory requirements different from the regulator, but in reality, it's hard to see this as a well-founded or convincing criticism of the current setup. The Fos resolves over 200,000 cases each year, upholding about 30% or so. We're told that the Fos is acting inconsistently, that it strayed into becoming a quasi regulator. If that were true, if this were really a systemic problem, then the government should be able to produce a substantial body of evidence.

If it were true, then there should be hundreds or even thousands of Fos decisions demonstrating this pattern. If such a list exists, HMRC and the FCA have not published it. It's certainly not in the impact assessment. And if such a list does not exist, and the case for much of the reforms to the Fos rests on assertion rather than evidence, I invite the Minister, when he replies to point us towards the specific Fos cases that justify the proposed sweeping reforms. As things stand, the government appears to be jumping to conclusions that will reduce access to the forest, reducing access to free and impartial redress, introduce extra bureaucracy and costs, and ultimately damage confidence and trust in the financial services industry.

We must guard against any risk that the Ombudsman becomes subordinate to the regulator, or loses the independence that has been central to its legitimacy. There is a strong case for removing clause seven from the Bill. Clause eight reforms the test used when determining complaints under the compulsory jurisdiction. This may well be the most controversial provision in part two. Historically, the Ombudsman has determined complaints according to what is fair and reasonable in the circumstances. Critics have argued that it is sometimes allowed decisions to diverge from the regulatory rulebook, creating uncertainty for firms.

They believed they had complied with the FCA requirements. We should ask ourselves whether strict alignment with regulatory rules could weaken consumer protection in cases where the rules themselves are incomplete, outdated or silent on emerging risks. The strength of the Ombudsman system has been its ability to look beyond technical compliance and to consider fairness in a broader sense. If that flexibility is narrowed too far, some consumers may find that conduct was plainly unfair. Nevertheless escapes effective remedy.

There are already voices, such as the centre for Responsible Credit, calling for the removal of clause eight from the Bill, and Stepchange has said the fair and reasonable test was carefully designed by Parliament, requiring FOS to consider all the circumstances of the case. In contrast, the FCA rules are often high level and permissive. We believe that the scope and flexibility of the existing test is essential for the was to decide cases in a manner that is fair. Shifting this to be based on compliance with FCA rules risks creating a tick box exercise and weakening consumer protection.

Martin Lewis has warned that restricting access to free and fair redress is not a recipe for economic growth. Once consumers are warned about the erosion of their rights is possible. This will lead to a disengagement from financial services and diminishing trust on this issue. As and others in the Bill, Parliament Parliament must ensure that in pursuing regulatory certainty, we do not sacrifice fairness, that in pursuing efficiency we do not diminish accountability, that in strengthening regulatory coordination, we do not weaken the independence of the Ombudsman.

The UK's financial services sector thrives not merely because it is competitive, but because it is trusted and to be trusted. Consumers must have confidence that when things go wrong, there is an independent, accessible and effective route to redress. The bill may not expressly repeal consumer protections or statutory rights, but the concern is more subtle. Rights created by Parliament may be diminished in practice if access to redress depends on FCA rule. Compliance, FCA intent, FCA interpretation, or Treasury made conditions rather than independent interpretation of the underlying legal issue.

And I close by quoting which the proposed reforms to the Fos and the FCA appear to come at the expense of consumer protections. Any benefits arising from weaker consumer safeguards are likely to be temporary, or longer term costs could be significant, particularly for vulnerable, who rely most on access to redress and effective regulatory protections. My Lords, I agree with that.

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My Lords, before we move on to the backbenches, can I just remind members, noble Lords, at the time members, noble Lords, at the time limit or advisory time limit is eight minutes. If we can all stick within that, we can get everybody within that, we can get everybody in. It's fair to everybody else, and we'll be able to finish at a reasonable time as well.

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reasonable time as well. My Lords, this bill is another example. I'm afraid of my past
17:20
Lord Burns Portrait Lord Burns (Crossbench)
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example. I'm afraid of my past catching up with me. It's 27 years ago that I was asked to chair a joint select committee of both houses to scrutinise the draft Financial Services and Markets Bill that was introduced. At that point, the committee met for three months and published two reports. I believe Lord Eatwell is the only other member of the committee still in this House, and it was that, of course, that then became the Financial Services and Markets Act 2000, which all of the subsequent changes that have taken place, including in 2012 and and others has followed, has been the amendment of, of that act that was put in place.

I should also note my interests in this legislation is outlined in the Register. I own shares in Banco Santander and Flagstone Group. Furthermore, I was chairman of Abbey National and then Santander UK from early 2002 until 2015. It is worth recalling, just for a moment, some of the factors that lay behind the need for the bill back in 2000. The first, of course, had been the decision by Chancellor Gordon Brown to remove banking supervision and regulation from the Bank of England and to transfer those responsibilities to the proposed Financial Services Authority.

Second, this provided the opportunity to consolidate various financial regulatory bodies that had previously operated independently, and these included. And this is just the beginning of the list the Building Societies Commission, the Securities and Investment Board, several self rating bodies, the various ombudsman schemes. In fact, it's really quite astonishing to now think back just how complicated and how complex the arrangement was before the 2000 act. And of course, third, there had been, as there always seems to be, problems with a number of financial institutions, including.

We had even during the time I was Permanent Secretary the closure of BCCi, the collapse of Barings, some difficulties with smaller banks, and before that there had been the the collapse of Barlow Clowes. So there were quite a lot of lessons to be learned in which the Bill was aimed at trying to put into a comprehensive framework. The committee agreed, and with the government. And one of the significant issues that came up was that the appropriate approach to this legislation was that it should be principle based rather than rules based.

Even then, the financial services industry was growing rapidly. The building societies were in the process of becoming banks. The banks were getting themselves involved in the in the mortgage market, and a principles based approach was seen as the most practical way to ensure the regulatory process remained fresh and relevant. As these changes progressed. Now, as I explained in the explanatory notes, this approach does involve a three stage process, and it can make it look very complicated. And some of the issues we've already heard from Baroness Neville-Rolfe are the product of the way in which this was designed, because the the way it was designed, I think, is the case as it remains, you know, the primary legislation, Parliament sets the overall regulatory framework in primary legislation, including the regulator's objectives.

The second step, the Treasury then sets the regulatory perimeter through secondary legislation, including specifying which activities are regulated and in what circumstances. And then the third step, the PRA and the FCA operate as independent statutory bodies who are responsible for setting and enforcing the detailed rules for firms engaged in regulated activities. And, you know, some of these issues about when and what should come to Parliament, what should be in delegated responsibilities and who, you know, how far the the regulators are allowed to set the the rules are always going to be issues which overlap each other and people will worry about them, various stages, but I think it is important throughout the discussion and debates that will take place now to keep recognising that from the beginning, it has been this sort of three stage process that has been in mind.

Personally, I believe the principle based legislation has been effective for this fast moving industry. However, achieving the right regulatory balance, as we've heard this afternoon already at any time is actually very challenging. Sometimes regulation becomes overly burdensome and the economy suffers. At other times, insufficient regulation can lead to consumer harm, detriment or firm failure of of firms. And lots of factors influence this balance, including external developments, product innovation, the expectation of customers, and the level of effective competition.

And it's therefore and I feel very happy with the fact that it is important to periodically review these various components of the principle based approach and assess their effectiveness and determine if any rebalancing is necessary. And for myself, many of the changes that are proposed here I regard as very sensible rebalancing of, of some of, of the factors involved in the past. Of course, the rebalancing has happened on several occasions following the financial crisis, it became clear that banks capital requirements were insufficient during the run up to the crisis.

It was demonstrated clearly in a subsequent FSA report into Rbs's banks that held two little capital against complex, complex products that they were dealing with. Many banks were overly reliant on the interbank market for funds, with lending over concentrated in the real estate market and subsequently, of course, the FSA and the FCA rightly raised capital and liquidity requirements. The question, of course, is was did they change it by the right amount? Was it not sufficient or

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Losses. Excessive at the time. Of course. It was understandable. We'd been through this.

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We'd been through this. Very painful process. But for myself, to me, the later evidence.

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myself, to me, the later evidence. Suggested that, in. Fact. The response had been excessive. It contributed to a sharp reduction It contributed to a sharp reduction in bank lending to the private sector, particularly to SMEs. This, sector, particularly to SMEs. This, in its turn, has had, of course, some substantial knock on effects. Given this subsequent evidence, my view was that some rebalancing of the capital requirements is appropriate. I think that the ring fence banks should also be looked at.

Just what the size is of the ring fence around which they operate. It's also important, of course, to recognise that the rapid growth of new products also led to under regulation of some products at times, and leading to consumer detriment. Product details were not always clearly communicated to customers as we would expect today, but this has got to be seen against the huge success of the introduction of internet banking. It's also important to ensure that senior people working in the financial industry are fit and proper.

But again, the question is of balancing the whole question of bureaucracy against and whether the question was raised of a more of a less onerous approach. So this is a dynamic system. Getting the right level of regulation right has to evolve over time, but it's never going to be a straightforward task. And I regard this bill is an important part of trying to move forward that rebalancing.
17:29
Lord Bishop of Manchester Portrait The Lord Bishop of Manchester (Bishops)
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My Lords, I declare my interest as set out in the register, as with all my colleagues on these benches. all my colleagues on these benches. Not that they seem to be many of them here today. My stipend, pension contributions, housing and working costs are provided by the Church Commissioners for England as a issuer of bonds, something we started when I was chairing the started when I was chairing the regulated body. I welcome the intention behind this bill to modernise our financial services and to support economic growth.

However, our aim must be to enable economic opportunity for all communities in the midst of what still a cost of living crisis. We must measure economic success not only by the growth of the economy itself, but also how it promotes the dignity of those who are most in need and protects individuals at times when the system fails. It's a large bill. I'll focus on just a few main aspects. Access to credit, credit unions, consumer protection, and access to wider banking services.

I think those are probably the issues most appropriate for someone who's a bishop and not a banker. Access to fair and affordable credit. My Lords, is not simply a financial issue. It's a matter of dignity, equal opportunity and participation in community life. Deepening poverty across the UK is making it more difficult for people to break free from debt. Almost everybody needs to borrow money at some point in their lives. Too often it's those with the least who end up paying the most. They face a poverty premium.

They have fewer options. Christians Against Poverty, a wonderful charity, has found its clients are now borrowing money simply to pay for food, clothing, rent, utility bills. For many, credit has ceased to be a tool for flexibility. It's become a necessity for meeting basic needs, and that drives you deeper into debt. And debt fosters feelings of shame, of fear, of hopelessness, which often prevent families then from reaching out for support. Christians Against Poverty quote that 46% of clients they surveyed had actually gone as far as considering ending their own lives because of debt related pressures.

But of course, we can't overlook the emotional toll of financial insecurity on real lives. This inaccessibility of credit for underserved communities creates a significant gap in financial policy. Whether these effects could be alleviated as such, I do strongly welcome measures in this bill aimed at addressing the problem, but these efforts must be sustained. They must be targeted. We must ensure those facing the greatest barriers are not left behind. I was first involved in setting up a credit union almost 40 years ago.

Astonished me just how small the sector was in England. It had grown a bit since then. There's 2.16 million people in Great Britain are now members of a credit union, and we do have a credit union for Church of England and other clergy. But Britain still compares poorly with other similar economies in what is, across many nations, a network of trusted, community based saving and borrowing solutions, particularly for those communities least well served by conventional banking. Hence, my Lords, I strongly welcome the measures in this Bill to promote the expansion of credit unions, including, critically, the broadening of common bonds to increase the number of people who are able to access this kind of credit.

This measure is particularly important for serving those in more deprived areas, where they may not previously have had access to banks or similar opportunities. Whilst expanding credit unions will go a long way towards improving access for many customers. It still remains the case that certain communities. Think of those who are migrants or individuals with less. Financial literacy literacy remain excluded from credit opportunities offered by the mainstream banks. So what might the government consider doing to further improve transparency and accountability among mainstream lenders in how they can also serve marginalised groups? Alongside an expanded credit union sector? Turning to financial protections, increasing credit availability is an important step forwards, but it must be met with adequate protections to prevent mis selling or overborrowing and to ensure proper redress when things go wrong.

Whilst I understand that the proposed changes to the Financial Ombudsman Service are designed to streamline the process, I am concerned that stricter criteria there may make the most of the whole process more inaccessible and less robust. Some proposals, such as stricter time limits on making complaints, may present barriers to certain consumers making claims in the first place, particularly when they may only discover the issue after many years. I also wish to echo concerns expressed by a number Lord Sharkey regarding the proposed reforms to the Consumer Credit Act.

Once modernisation is clearly needed, the shift away from detailed legal protections towards regulator led rules may reduce, as others have said, parliamentary scrutiny that we can establish routes to redress. We also reduce certainty for consumers, making it less clear when they're entitled to redress and how they can secure it. And that is slightly, again, to have the greatest impact on those who are less financially literate than may struggle to navigate complex financial systems alone. For the more existing protections, such as those offered by Consumer Duty, don't provide protection to communities are excluded from credit access in the first place.

Without real effort from mainstream providers to incorporate underserved groups in credit opportunities. Those most in need of support will continue to fall through the cracks. It's therefore essential that protections evolve alongside access, ensuring that increased participation in financial services doesn't come at the expense of security. And I'll follow with interest the debate about how much really ought to be on the face of this bill, and how much can safely be left for later regulation. I do welcome the government's proposed scheme to improve financial literacy in schools by 2028, but that's no replacement for adequate routes to redress democratic accountability and fair and equal access to credit to everyone who needs it.

And finally, I suspect many of you in your Lordships House nowadays access all of our banking services electronically. I can't think when I last went into a bank or even rang one up. There are those in our communities who need access to in-person banking services beyond mere cash. Financial exclusion fosters real world isolation. Many of the communities the church supports elderly people, disabled populations face greater barriers to financial independence in an increasingly digital age, and I'm not sure we're doing quite as much as we should in this bill to ensure in-person services beyond cash are available in both urban and rural settings.

So, my Lords, this bill does, I think, present an important opportunity not only to modernise our financial system, but also to ensure it serves the common good. We must reflect not only on how this bill will enable growth, but also on how it might promote justice, equality of opportunity and dignity for those communities who are most in need. I look forward to engaging with its progress through the Lordships House.
17:36
Baroness Hodge of Barking Portrait Baroness Hodge of Barking (Labour)
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My Lords. introduction to what is a complex technical bill. In my contribution as the Prime Minister's anti-corruption champion, I will focus on a part that may not be at the top of everybody's agenda and wasn't on the minister's top part. But for those of us who are engaged in efforts to tackle the challenge of dirty money, it comprises an important and welcome proposal set out in clause 14. Tragically, Britain has over recent decades become the destination of choice for too many wanting to hide or launder their dirty money.

The National Crime Agency estimate that £100 billion is laundered annually into the UK. Academics estimate. If you add this to the money lost through fraud, the cost of economic crime to the UK rises to 350 billion. That's more than five times what we spend on schools in England, or nearly six times the amount Britain currently spends on defence. It's huge, a loss that harms our economy, undermines trust in the integrity of the financial services sector, threatens our security and damages our public services.

But the guilty criminals responsible for these crimes don't invent the schemes used to hide or launder their ill gotten gains. They depend on the advice of professional enablers accountants, lawyers, banks and company service providers who devise the schemes and and either enable, facilitate or collude with economic crime. Most professionals work in both a lawful and ethical manner, but sadly, there are some bad apples in the professions who must be rooted out and punished. At present, the professionals are not adequately supervised and identified, and too often they are left free to pursue their highly profitable but immoral and in some cases, unlawful practices.

Introducing a robust, efficient and effective supervisory scheme for vigilantly vigilantly vetting the professionals should have a dramatic impact on the incidence of economic crime. Punish and get rid of the bad apples, and wrongdoers will lose their access to advice and support on how to hide or launder money. At present, there are 22 separate organisations that supervise accountants and lawyers. Many of these bodies also act as advocates for their members, and do not have effective systems in place, separating their regulatory and advocacy functions.

There are further three government bodies that supervise other relevant professionals. OPBAS, the body tasked with supervising the supervisors, recognises that the current system is inadequate. In their March 2026 report, they say that the supervisory bodies that I quote continue to perform poorly in their enforcement approach, and some aren't undertaking consistent, proportionate and sufficiently dissuasive disciplinary measures in the. In circumstances where it would be warranted and justifiable statistics confirm this judgement, the Chartered Institute of Taxation found that 31% of firms they visited were not compliant with anti-money laundering regulation.

Yet only four were disciplined, three were fined and one was suspended. The Council for Licensed Conveyances imposed no fines at all, despite finding that 62% of firms they. Super supervisor non-compliant, the Solicitors Regulatory Authority cancelled the membership of just one professional body in 2324 and the fine imposed on Mishcon de rare in 2022 for multiple breaches of the AML regulations, was £232,500. It would have been £5.4 million had it been calculated by the rules used by the FCA.

So I strongly support the government's proposal to merge the supervisory body into one body that will operate within the FCA. This creates a simpler, more consistent framework, better placed to work with law enforcement agencies that will have access to data, allowing a joined up approach across the professional disciplines. I would, however, seek some assurances from the Minister to strengthen the effectiveness of the proposed change to ensure that the FCA properly prioritises this work. Will the government ring fence the funding the FCA will receive in fees from legal, accountancy and company service provider firms, and ensure that those resources are used to fund their supervisor and enforcement duties on money laundering.

Will the FCA maintain a register of supervised entities, as they do for financial institutions, so that companies providing unlawful services that are not registered can be identified? Will the government ensure that data collected as part of the supervisory process can be shared with law enforcement agencies, and that those agencies share their information with a supervisory arm of the FCA? Will the government ensure that the FCA can access legally privileged documents from law firms, where that is required for regulatory regulatory purposes? And will the government ensure that the FCA uses the enforcement powers in relation to professional services firms that it currently employs in relation to financial services firms? The threat of robust enforcement is always an effective deterrent to bad behaviour behaviour.

Finally, I am concerned, my Lords, that this excellent proposal will take time to implement and I'm worried as to how effective supervision will be maintained during this period of transition. Would the Minister say what he proposes to do to ensure that supervision of professionals is as robust as possible? Can I suggest that he gives OPBAS the power of public censure, so that it can name and shame those companies that deliberately fail to abide by the AML regulations, or that OPBAS, and that OPBAS levies fines against those supervisory bodies that fail to fulfil their obligations, and that.

But it's also given the power to remove supervisory responsibilities from those who fail to fulfil their duties. And would he consider creating a duty to ensure that the existing bodies co-operate with the FCA during the transition? My Lords, I welcome the proposal. I look forward to working with the government to strengthen its effectiveness and to protect the supervision of professionals during the transition to the new scheme.
17:43
Lord Eatwell Portrait Lord Eatwell (Labour)
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My Lords, may I begin by drawing attention to my interests listed in attention to my interests listed in the register. My Lords, the financial crisis of 2007 to 8 and financial crisis of 2007 to 8 and nine left lasting scars on the UK financial system. The cost of that crisis have reverberated in the form of embedded risk aversion, particularly amongst financial services regulators. Yet, of course, risk aversion has its uses. Since the 2009 crisis, the financial services industry has been battered by further successive crises Brexit, Covid, the wars in Ukraine and the Middle East.

It's to the credit of the Bank of England and the financial services regulators that the industry has displayed a remarkable level of financial stability throughout these storms. Yet there remains a persistent dissatisfaction with the performance of the regulators. The costs of compliance are excessive. A PwC study puts the sector's annual compliance bill at nearly £35 billion, roughly 13% of total operating costs. Regulators are said to take excessive time over crucial decisions, such as authorisations. There is no consistent cost benefit analysis of regulatory measures, despite the fact that the 2023 Fisma required the FCA and the PRA to establish cost benefit panels, and regulatory decisions often create uncertainty, stifling innovation and discouraging investment.

The fact that this bill addresses some of these concerns is certainly to be welcomed. The simplification of the senior managers regime and other administrative requirements should reduce costs. The new provisional licences should speed up effective authorisation. The changes to the relationship between the falls and the FCA will perhaps reduce regulatory uncertainty. There may have other effects, as the noble Lord Lord Sharkey suggested. Moreover, the increased flexibility provided to the FCA and the PRA in several sections of the bill must be used with care.

Less flexibility generates uncertainty. I am, however, whilst welcoming these measures, concerned by the changes to ring fencing, the claim in the explanatory notes that quote updating the statutory framework underpinning the ring fencing regime is part of a wider programme of ring fencing reforms, unquote sets alarm bells ringing. Updating may well be the origin of increased systemic risk. The protection of activities within the ring fence must be a primary objective. Weakening the ring fence in the name of financial innovation would be unacceptable.

Moreover, the claim that, and I quote, I quote again, these reforms will unlock more finance for the UK economy actually sets alarm bells ringing even louder when he sums up. Could the Minister enlighten us as to the content of the quote, wider programme of ring fencing? What exactly does the government have in mind now? It's claimed in the explanatory notes that this Bill modernises How Financial Services Financial Services is regulating regulated, supporting it to grow and to lend more to businesses.

But overall, the bill gives the impression of tidying up rather than embedding a greater financial commitment to investment and growth. Of course, the emphasis on investment and growth is surely correct. It's necessary for the economic well-being of the people of this country in this vital respect. For many years, the financial services industry has failed and it is continuing to fail. Since the year 2000, the share of financial services in GDP has grown by 50%, from 6% to 9% of GDP over the same period.

The share of investment in GDP has not grown at all, and indeed has tended to decline and has been persistently lower than in other major industrial countries. Now we have to reflect on the fact that the prosperity of the UK's financial services sector is not solely a success of private enterprise. It is a success of a particular institutional framework in which public authorities and the market are deeply intertwined. The prosperity of the City of London depends upon the global prestige of English law and the public institutions that enforce it.

Similarly, financial services depend on the public provision of a stable monetary framework and a respected code of financial regulation, ranging from the role of the Bank of England as lender of last resort and guardian of systemic stability to consumer protection and the prevention of financial crime. Public provision defines the environment within which financial services prosper. In return, financial services should work in a way that serves society by funding the investment in innovation, productive capacity, research and skills the country needs.

That is the settlement between the public realm and financial services. My Lords, it's a settlement that's not working. A new settlement is required. What might a new settlement look like? It should begin with a framework of financial institutions committed to the needed investment. And by that, I don't mean greater flows of funds into stocks and shares and bonds in secondary markets. Britain needs financial institutions that fund real investment, new research, new products and services, new infrastructure, new homes, new international competitive industries.

Now, the government's made an attempt at this by creating the National Wealth fund. But the National Wealth Fund will invest only if a firm that seeks funds from it has already acquired private sector funding. In other words, an institution that exists because private markets have failed defers to those failing markets to guide its own investment decisions. That's just not good enough. But the new settlement must not solely rely on government regulators or even politicians. The financial services industry itself must play its part.

Building on current initiatives such as the Capital Markets Industry Task Force, convened by the London Stock Exchange, the bill before US is not part of this new settlement to which I refer. It's worthwhile, it's sensible. But the task of building a financial services industry that truly serves our society needs to go a lot further.
17:51
Baroness Noakes Portrait Baroness Noakes (Conservative)
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Great speech. in that I hold shares in a number of listed financial services companies. It's a pleasure to follow the noble Lord Lord Eatwell, follow the noble Lord Lord Eatwell, who is one of the select group of noble Lords who regularly take part in the scrutiny of financial services legislation, and I welcome the Minister to our club. There is much in this Bill which is good. In particular, I welcome clauses dealing with the SME regime to how the FOS works and the transformer and investment insurance vehicles.

In addition, the changes to ring fencing are positive, but I do not think they go far enough to roll back this burdensome regime, which cost billions to implement and run and is so flawed that not a single other country has adapted, has adopted it. There are, however, several areas of the bill which I shall be looking to improve in committee. I'm going to focus my remarks today on just one area, which is clause 17. Now, the PRA and the FCA currently have to have regard to the regulatory principles in section three B of Fsma, and that applies to everything that they do.

Clause 17 downgrades that so that the principles are being rendered impotent. If clause 17 becomes law, the regulators will merely have to talk about the principles in the new five year strategies required by clause 16. Now, the regulatory principles were certainly due an overhaul, but neutering them is a shockingly bad decision by the government, and it is not surprising that many in the financial services sector have criticised it. I'm going to frame my remarks around the regulatory principle of proportionality, though what I say applies to other elements of the principles.

Proportionality requires burdens imposed to be proportionate to the benefits expected to result. Now, this is manifestly something which ought to be uppermost in the mind of the FCA and the PRA when they are designing new regulatory burdens or updating existing ones. The lack of proportionality in the way that regulators currently operate is one of the key criticisms made by financial services firms. Now, I do not doubt that the proportionality principle is relevant when regulators develop their long term strategies.

Strategies, however, tend to be high level abstractions. They are not blueprints for how regulation actually works in practice. It is the detail of the rules and the guidance rather than strategic statements, which actually determine how regulation impacts the financial services sector. Now, the effect of clause 17 is that the regulators no longer have to consider how the detailed rules and guidance actually work in practice of the various firms they regulate. From a proportionality perspective, the regulators will be entitled to ignore representations made about proportionality during any consultation phases.

Now, this downgrading not only directly affects how firms can engage with the regulators when rules or guidance are developed. It also importantly impacts the accountability of the regulators, which is already problematic. The regulators like to say they are accountable both to the Treasury and to Parliament. I have not yet found an example of how the Treasury has held the regulators to account, and focusing on strategic plans will not be enough. The regulators are masters of the art of wordsmithing documents to make them attack proof.

Parliamentary select committees try to grapple with holding the regulators to account. But, my Lords, it is an uphill battle. And this this bill makes that battle harder. The root problem is the Fisma model. As the noble Lord Lord Burns explained, under the Fisma model, Parliament decides the principles of regulation and the regulators are left to get on with the detail of regulation. Now that worked pretty well while we were in the EU, where the quasi democratic processes of the EU Parliament in which no Baroness Bowles of Berkhamsted played such a central role, meant that there was significant oversight of new directives and regulations post-Brexit.

The previous government decided to continue with the Fisma model when the huge body of retained EU law was repealed and replaced, so that massive areas are now wholly delegated to the regulators. That is what the 2023 Financial Services and Markets Act enabled, and it exposed a large accountability deficit. Partial mitigation. The 2023 act ensured that the regulators consultations had to be sent to the select committees of each House of Parliament. And that that act also paved the way for the creation of the Financial Services Regulation Committee in your Lordships' House, which I currently chair.

Now, clause 17 not only excuses the regulators from having regard to the regulatory principles, but also repeals the need for the regulators to explain to the parliamentary committees how the regulatory principles apply to their draft regulations. This is a naked attempt to neutralise the work of the Select Committees of Parliament. In holding the regulators to account. Now the model is a bureaucrats and politicians dream come true. The Treasury can always point to the regulators if something goes wrong, and the regulators are largely unaccountable.

We must use this bill to make the accountability of regulators stronger, not as currently weaker. My Lords, there will be much to discuss in

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committee. My Lords. It's a pleasure to

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My Lords. It's a pleasure to take part in this Second Reading of the Financial Services and Markets Bill, and to follow the remarks of Baroness Noakes in doing so. I declare my interest as chair of declare my interest as chair of Norton Rose Fulbright, a law firm. I'd like to start by thanking my noble friend, the Minister, for his comprehensive introduction to this bill. The bill contains an important balance of protections for consumers, from widening the scope of the common bond for credit unions to ensuring access to
17:58
Baroness Bi Portrait Baroness Bi (Labour)
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in-person banking services while responding to the needs of the financial services industry. As your Lordships know, the financial services sector is important to the nation, both domestically and nation, both domestically and globally. It provides well-paid jobs across the country and supports our international standing. supports our international standing. Since the UK is the largest net exporter of financial services, exporter of financial services, it's therefore important that we have a regulatory regime which is agile and proportionate. Many of us believe that the current burden of regulation is too high, with delays and costs affecting both growth, growth and competitiveness.

The bill implements measures that the financial services industry has been calling for. I particularly welcome the changes to the senior managers and certification regime, as it will reduce administrative burdens on business and allow it to operate more efficiently. I'm very glad to see the repeal of the conduct rules proposed in clause 35, which are heavy handed and don't reflect the approach adopted by many of our competitor markets. The changes to the senior managers regime will hopefully address the absurd situation I have seen of senior people running their firms in EU capitals, moving to London and having to wait many months before they're able to perform the same role in London, pending FCA approval.

Similarly, the temporary permission regime under part four of Fsma is a welcome and pragmatic regulatory innovation that allows start up and early stage businesses to conduct regulated activities while they meet the threshold conditions. It's been nearly two decades since the global financial crisis, and it is right that the bill is updating the statutory framework underpinning ring fencing to reflect the reality that banks are much better capitalised now compared to 2008. And we also have the resolution framework. Today, there are greater concerns about the systemic risk created by the growth of private credit and the valuations underlying it, and concerns about retail banks, an indication of how much the broader financial marketplace has changed since 2008 and where consumers may be exposed, is suggested by the FCA's research in 2024, which found that 7 million UK adults that was 12% of the population owned crypto assets, compared to just 9.3 million 17% who owned a stocks and shares Isa.

We can't keep looking back when the world before us is so radically different. There is much else in the bill which is to be applauded, including the Financial Ombudsman Service reforms and the abolition of the Payment Systems Regulator with the transfer of its functions to the FCA. That has been welcomed by the PSR itself as a pragmatic next step in simplifying and clarifying payments regulations, and it is a rare example of reducing the number of regulators rather than merely increasing them.

However, I'd like to indicate three areas where I would suggest enhanced scrutiny. As the bill is considered in more detail, firstly, and I really hesitate to disagree with with my noble friend Baroness Hodge of Barking, who highlights the scourge of economic crime. But I'm not at all persuaded that clause 14 will have the desired effect that she is looking for. By giving the FCA supervisory responsibilities for anti-money laundering and counter-terrorism financing for professional services. I can see why the Treasury thinks it would be tidier for the FCA to be the single supervisor in the place of 22 professional supervisory bodies, but if I apply this to law firms, which are currently supervised by the Solicitors Regulatory Authority, and that is a regulator and not an advocacy body, the outcome will be that we will simply have another regulator, in addition to the 15 we currently have to answer to, and one which has no experience of supervising professional services firms, let alone law firms.

I can assure you, Lordships, that solicitors are not currently an under-regulated profession, and it is not a lack of regulation which contributes to financial crime. Why might I suggest that where crimes are being committed, that the law is enforced and where schemes exist that are not currently illegal, they are made so. The fact that the FCA has no experience of professional services firms and will need to develop its expertise is reflected in clause 48 of the bill, which provides for additional funding for the FCA exceeding £2.7 million a year for more than two years.

Two, and I quote, cover costs incurred as a result of the preparatory work for the expansion of the FCA's AML CTF supervisory responsibilities. May I suggest that we use this money instead to support legal aid, which is sorely needed? Professional services firms are part of the ecosystem, which makes the city so successful, and the likely lack of clarity which may persist for some time as the FCA takes responsibility for a sector it is unfamiliar with, is likely to add to both increased compliance costs and delay, which the bill is seeking to diminish.

I know the Law Society is extremely concerned about this proposal and has raised important issues as to how legal. Professional privilege. Client confidentiality and duties to the court will be protected, which will need to be addressed if clause 14 is to apply to law firms. Secondly, I am concerned about the extent to which Henry VII's powers are relied on in the Bill generally, and suggest that we look carefully at the extent to which this is necessary in each case.

One of the biggest concerns of business will be uncertainty. While we wait for clarity as to what new provisions will be introduced. And there are, of course, broader concerns about parliamentary oversight with which I have sympathy. I understand that regulation needs to be agile in a fast changing world and see the necessity, for example, in clauses 46 and 47, of introducing a broad power, allowing the seizure and forfeiture regime to evolve as technology and language develops to prevent criminals from using cryptoassets for illicit purposes.

But I query whether this approach is needed in every case in which it has been proposed. Finally, I believe there will also be concerns about whether the FCA has the capacity to take on all these additional roles and responsibilities at a time when it is under pressure to respond to the second competitiveness objective. I note that the FCA is receiving extra funding for taking on AML/CTF responsibilities for professional services firms, but I haven't seen additional funding for the many other duties that the bill will transfer to it.

As we've seen from a number of reports, not least from the Growing Pains report produced by the Financial Services Regulation Committee that has already been referred to, and the No Time to Lose report produced by PwC. There is a strong sense in our professionals and services sector that it is currently overregulated and subject to compliance costs and delays, which negatively impact its competitiveness. This bill makes a start in addressing those concerns, so I welcome it, and I look forward to engaging constructively in the debate as it progresses through your Lordships' House.

My Lords. Unlike many noble Lords who will
18:06
Baroness Hayman Portrait Baroness Hayman (Crossbench)
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contribute to today's debate, I have no direct experience of working in the financial services working in the financial services sector, although I suspect I might even apply for associate membership even apply for associate membership of the noble Baroness Noakes club of members of your Lordships' House who take part in this legislation and like pretty well everyone else in the country. I have had in the country. I have had experience, not always happy experience of being a customer of the financial services industry.

Sometimes because of my status as a politically exposed person, which seems to bleed into my daughters in law and all sorts of people, and sometimes simply wrestling with the challenges of communication and relationships with banks, insurers, and others. But I do have experience as a regulator, not in this area, but in relation to health. Initially, decades ago, in the approval of clinical trials, then in the setting up of the Human Tissue Authority, which I chaired. I sat on the human Fertilisation and Embryo Authority and was for six years a member of the General Medical Council.

Those experiences have made me a firm believer that clear, effective, and proportionate regulation can not only protect patients and consumers, but can also protect those who deliver those services and who are committed to their growth and their success. This bill gives us the opportunity to take stock of whether the current frameworks are both protecting consumers and properly supporting the smooth functioning of our financial services industry, ensuring that it will remain attractive and able to continue growing and contributing positively well into the future.

So it will be a matter of finding the correct balance, as it so often is on so many issues in your Lordships' House. The area that I want to explore today is the sector's ability to prepare and respond to the systemic impact of climate change and nature loss. We took a similar approach in the last Financial Services and Markets Act 2023, which introduced important regulatory principles that align governance of the UK financial services sector with the UK's climate and environmental goals.

The challenges these provisions sought to address do not follow. National borders, and the threats they pose are no longer distant or hypothetical concerns, but are impacting actors within the financial system. Now, the Climate Change Committee and the Bank of England both warn that these types of risks can have tipping points, which could have serious implications for the UK's financial stability. Our ability to avoid or manage sudden shocks to the market, and long term economic resilience. Some aspects of the financial ecosystem are particularly vulnerable.

For instance, we are already seeing the effects of drought or flooding, of coastal erosion from sea level rises and extreme weather, whether on the insurance markets. And we have seen the problems that arise out of that in terms of mortgage lending affordability for homeowners, as well as to infrastructure and supply chains, both in the UK and globally. According to the Swiss Rail Institute, the global quotes protection gap between insured and uninsured losses from national from natural catastrophes rose to an estimated $424 billion in 2025, up $29 billion from 2024.

With wildfires and flooding accounting for more than 50% of the increase. And however, there is anxiety that within the bill's objectives to drive growth, increased competition and innovation for financial services. The new system proposed does not account for the risks faced right now and the solutions to adapt to them, which are then not put in place, have the potential to undermine the government's goals. One area where progress is urgently needed is on the government's stated intention to deliver its manifesto pledge to mandate UK related financial institutions including banks, pension funds, insurers and FTSE 100 companies, to develop and implement transition plans in line with the Paris Agreement.

There was a consultation last summer, but we haven't seen any plans and can ill afford for there to be further delayed. The Taskforce on Nature Related Financial Disclosures, a global voluntary framework designed to help businesses and financial institutions assess, report and act on their nature, dependencies and impacts, also remains only voluntary and in contrast to the requirements for some funds under the Task Force on Climate Related Disclosure. So it would be helpful to understand what steps the government is taking to expand coverage and adoption of the two TNF d, and then, of course, there is the concern raised by the noble Baroness.

Lady notes that it appears that the FCA and PRA will no longer be required to have regard to some of their regulatory principles, which include climate and environment and obligations in their day to day functioning, and will instead be asked to set out how they are adhering to them in strategy documents. There is a concern that this could Lord Alli useful and necessary steer at a point where we need to be asking regulators to do all they can to safeguard financial services, preparation, preparedness to deal with and adapt to climate change.

So I will look forward to debating clause 17 in some detail. Finally, I and many others were encouraged by the government's previous commitment to bring forward statutory guidance that will offer pension schemes clarity as to how they consider investments for savers in relation to systemic risks like climate change. I would be grateful if the Minister can reassure me that schemes will not have to wait too long to see details as to when and how these plans will be brought forward. I close by stressing that this bill is about making sure the financial sector is able to capitalise on all the economic and investment opportunities at hand, and that includes adapting to the impacts of climate change, which are already

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being felt. My Lords, my background profession before I joined the profession before I joined the House of Lords was as a finance practitioner and I still work pro bono with consumer organisations, some of which have a view on this some of which have a view on this bill. But I think most relevant for what I'm going to say. I am a fellow at Cambridge University, fellow at Cambridge University, where I teach a course which is focussed on how we create a purposeful finance industry, one which, like all good market
18:14
Lord Pitt-Watson Portrait Lord Pitt-Watson (Labour)
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institutions, prospers when it serves the outside world. And I serves the outside world. And I think to help build such a process, a purposeful industry should be the a purposeful industry should be the goal of this legislation, because it's a profoundly important goal, it's a profoundly important goal, partly because of what a noble Baroness Neville Rolfe said. This Baroness Neville Rolfe said. This is the jewel in our economic crown in the UK. But you know, it's more than that.

We need a successful finance industry if we're going to be able to solve the really critical problems of the country and the world growth, prosperity, looking after people in old age, thinking how we address a as a Baroness, Hayman was saying, the growing climate challenge and look, there is no successful finance industry without effective regulation. And as the House of Lords Committee on Financial Regulation has noted, we don't have a blueprint for what the best regulation looks like a.

And we've made big mistakes in the past. The global financial crisis took place despite the regulation that was there. Some might even argue in some ways because of the nature of the regulation. And so I just wondered whether as a whole House, we might a agree on a starting point. That is, we are trying to get a finance industry which will fulfil its purpose well, in serving the outside world, that means keeping our money safe. It means helping us to transact.

It means allowing us to share risk and critically allowing us to take our money from point A, where it is to point B, where it's needed and can create growth and prosperity. A, a. But for that to happen, we need an industry that is trustworthy and trusted to carry out these purposes. Otherwise people won't safe and people will not borrow. So that all seems pretty straightforward. But there is a problem which I think we should recognise.

You know, people don't express that they trust the finance industry. According to FCA surveys, in 20 1924, 36% of people only 36%, felt that most financial firms are honest and transparent in the way that they are treated. 27% felt exactly the opposite of that some years ago. You know, the the Bank of England asked British people to find one word to describe the finance industry. You know what word they chose? It was corrupt. The finance industry is about a 8% from the noble Lord, the Minister, or 12% from the opposition bench, or 9%, but 9% of the GDP of the UK.

It's responsible for 42% of corporate fines that have been issued. The Local Government ombudsman gets 22,000 complaints each year. The Financial Ombudsman gets 216,000. I could go on and on, but this is an issue that needs solved. And I think it's not the most concerning issue. Malfeasance is not the most concerning issue concerning issue. I think it's about productivity because on the best academic evidence that we have, there is little evidence that the cost of getting money from point A to point B has fallen by very much, even over a period of 100 years.

No other major industry has such a poor a a a a a a a, a record in productivity terms over such a period of time. And at the same time, 1.3 million British people don't have a bank account. British bank lending, according to the ft. The ft. A couple of weeks ago to SMEs is the lowest percentage of GDP than it has been this century. So big gaps also in what our financial system is doing. And these problems occur despite or maybe even because of the regulation, the lot and lot of regulation we've got.

Robin Allison is a partner in one of the big law firms, now retired, a pensions partner. He reckoned in 1990 we had 3000 pages of regulation of pensions. A couple of years back, it has risen to 165, from 3000 to 165,000. And we must be sure that we're not encouraging a world where finance practitioners are spending their time thinking about how it is that they get around the regulation. You know, it's euphemistically called regulatory arbitrage. And what happens is it creates a game of whack a mole where there's a rule, someone finds a way around.

We whack that rule, someone finds a way around, and we end up with a burdensome and expanding rule book as, say, the Nobel Lord Eatwell say we need a new settlement. But in that settlement, regulation is just one piece of the ecosystem. There are also institutions and markets and incentives and ethics and professionalism and technologies, all of which are changing rapidly day to day. So getting the regulation right means it needs to fit into this much larger a system so that I would have as a background, and I hope, a background on which we might agree.

And I think it is implications. If I was just to turn to the bill itself and look, first of all, I'd applaud many parts of this bill. For example, the encouragement of credit unions and thinking about how it is that we can get a credit to people who need that fairly. But one concern might be, and it might be helpful to clarify, that as we change the rules by which the Financial Ombudsman Service adjudicates, that we need, as the noble Lord Burns said, to keep these principles based.

Why is that? Because these are dynamic markets and we're trying to minimise regulatory arbitrage, and maybe that could be made clear just from the outset that when reference is made to the Financial Ombudsman Service, only adjudicating on breaches of the FCA rules, that these rules include the principles of business and the code of conduct. Look, there are many other comments that one might make a, a, a, but I think they are best addressed in committee for now. Really, my key points would be these.

First, that in any effective market economy, success should be contingent on serving customers. Well, those are deficit of trust for the financial services industry and regulation that should be there to align consumer, producer and society. But my broader point for this House would be that it might be helpful in debating this bill if we can express a consensus shared with industry, shared with consumer groups, that we want a finance industry that is there effectively to fulfil its proper purposes to the world, I look forward to our coming discussions.

Thank you.
18:22
Baroness Bowles of Berkhamsted Portrait Baroness Bowles of Berkhamsted (Liberal Democrat)
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First, I better declare my interest as a Director of Impact interest as a Director of Impact Captive. This bill is a chunky addition to the impenetrable forest addition to the impenetrable forest of financial services legislation, relocating key issues into the even relocating key issues into the even larger forest of regulator rules. And I ask, who is it for? It can't only be for business, it must also be for people. And that is how I will interrogate Bill. How are people affected when primary legislation is repealed and their rights transferred to regulators? How will they feel when their MP says it's out of the hands of Parliament? In fact, often out of the hands of Treasury and out of the hands of the courts, because that's what clauses one and 17 do.

Fair for people means anchored in law, not left to discretion, not left to drift, not left to five year strategies which warns that the bill removes vital protections without clarity on how or if they will be replaced, and uncertainty for people is also uncertainty for business. And while I understand well the pressures on firms and regulators to achieve more certainty over long tail risks that cannot justify parliament removing statutory rights before we know what will replace them.

Now I do share the aim for growth, investment and competitiveness. But growth cannot be built on taking advantage of people, stripping primary legislation of fundamental protections, both rights and remedies, replacing them with yet to be seen secondary legislation and removing Parliament from its past and future. Influence is not the route to stable, responsible growth. Three areas illustrate this. Consumer credit, access to banking and the removal of the have. Regards on consumer credit. The Unfair relationship provisions.

Section 75 Unenforceability rules and protections for vulnerable borrowers are core statutory rights and remedies, not conveniences. The FCA is. Conflicting provisions on motor finance where they originally said there was no need to disclose commission arrangements unless asks, shows that the legislative line set by Parliament was not followed. They didn't get that right. Will they get it right in future? So before the Consumer Credit Act is hollowed out, will the government define in this bill a core of statutory protections, the rights and the associated remedies that make those rights effective, that will remain in primary legislation? Turning to clause three on access to banking, this raises a fundamental question about the balance between consultation, ministerial discretion and parliamentary scrutiny.

The government wants to consult on access to banking services and then implement the outcome through regulations that amend primary legislation and including with FCA rules, as they change over time. Parliament's role becomes a take it or leave it vote on an Unamendable instrument. Clause three could be more tightly framed, for example, linking it expressly to matters already consulted on or by avoiding automatic changes to the law. When a FCA rules are updated, access to banking is vital.

Members of the other place will not want to tell their constituents we have no influence. My Lords, the consistent pattern is that this government wants to do without Parliament in future and eradicate its past, and the next eradication of Parliament's voice is the removal of the. Have regards the principles that anchor regulators to law, proportionality and Parliament's intent. In practice, regulators trivialise them, then, in their consultation response, said these duties were burdensome and the government did their bidding, removing them from operational decision making.

And fundamentally the basis on which courts can test that that delivery, administrative inconvenience is not a constitutional principle. And if the issue is frequent or laboured, reasoning, that can be solved without removing the duties. British Steel pensions showed why the have regards must stay. The FCA had full Prime Minister responsibility, yet the principles vulnerability, transparency, proportionality were treated as a box ticking exercise. Parliament had to drag the issue into the open before the regulator acted.

The answer is not to remove the principles on which we were able to drag, but to insist that they are applied properly. Dame Elizabeth Gloucester's report into LCF found the same pattern. The FCA failed to apply the statutory principles Parliament had set, treated them as peripheral and did not understand the framework in which they were meant to operate. Their response mechanistic have regards tables which was defensive paperwork, not culture change. If anything, that shows why these duties must remain in law, be effective and not be removed at the regulator's request.

And before anybody says the Consumer Duty does it all, it doesn't. It doesn't replace statutory duties. It doesn't bind the regulator in any way that Parliament can. And it certainly doesn't give courts the tools they need to test regulatory decisions. It is an FCA rule, changeable by them, not a fair substitute for a statutory duty. Proportionality, transparency and respect

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For the size and nature of firms

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must apply to regulators, rule Level. Strategy with no legal bite. And

**** Possible New Speaker ****

Strategy with no legal bite. And the same is very much true for addressing climate change. And this addressing climate change. And this is not just a view of consumer groups. The city UK warns that groups. The city UK warns that clauses 16 to 18 weaken Parliament's ability to hold regulators to account. The London Market Group is equally clear that downgrading proportionality is a step backwards when consumer groups and industry and parliamentarians all say the same thing.

The government should listen. I don't know how Treasury has been suckered into suggesting that this is merely administrative, but I'm not buying it. These are protections for people. The fiduciary bargain. So to conclude, this bill has ambition, but it removes safeguards and too much to regulators. Difference in franchises, Parliament and leaves people without rights and without the remedies that make those rights enforceable and effective, grounded in law. That same uncertainty hurts responsible business. And I'll submit amendments on which I hope we can work together.
18:30
Lord Davies of Brixton Portrait Lord Davies of Brixton (Labour)
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There's a thought experiment more than a century old, that I think should be made compulsory for think should be made compulsory for every financial regulator, every market reformer, and frankly, every politician who has uttered the word modernisation. It comes from G.K. Chesterton, writing in 1929. He's writing about why he was a Catholic, but he makes a critical point that applies more generally. Imagine you come across a fence in the road and cannot immediately see why it is there.

The temptation. The modern, progressive, efficient temptation is to conclude that because you cannot see the purpose, there is no purpose. And to tear it down. Chesterton's counterpoint is simple and devastating. Don't touch it until you understand why it was put there. Because someone at some point thought hard enough about this road to put a fence on it. Only. Only when you know. Why are you entitled to remove it? This is Chesterton's fence and I hope people will understand its relevance to this bill.

The timeline of financial markets is littered with the wreckage, where it was decided that a fence was no longer required. We have experienced a cycle of financial disaster, followed by stronger regulation, followed by the growth of complacency, followed by demands to remove restrictions on markets, followed by injudicious deregulation, followed by yet another disaster. We are seeing this playing out in real time, with, appropriately enough, ring fencing. After 2008, the Vickers Commission recommended that retail banking be ring fenced from investment banking.

Rebuilding in modified form. Something close to the fence that had existed back before Big Ben in Big Bang in 1986. But within a decade, within living memory pressure has built to weaken the rule. The fence looked costly and complicated. The arguments are familiar. The fence is inefficient. The other jurisdictions don't have it affecting our competitive position, and which puts London at a disadvantage. These are precisely the arguments that preceded the events of 2008.

The fence was built because we had just watched what happens Without it. Now we have this bill, and the government, I am pleased to see, is not unaware of the need to maintain consumer protection. The explanatory memorandum states the need to make changes, quote, without compromising on core consumer, prudential and market protections. It also states the aim again quoting ensuring that consumers continue to act. Access to effective redress. And I thank my noble friend, the Minister, for his clear statement in introducing this Bill.

In reply to questions raised by myself and other members that consumer rights will be protected. Nevertheless, whilst I trust my noble friend, our aim during the passage of the Bill will be to verify that these aims are achieved. We must all be concerned, therefore, that not everything in this Bill has been welcomed by organisations representing consumers, not least the Consumers Association itself. So, given its record of defending consumer rights, it is worth highlighting some of its concerns.

First, there are the changes to the Financial Ombudsman Service that will restrict consumers access to timely redress. To my mind, the proposals to closely mirror what the industry has proposed without providing the adequate supporting evidence to move in that direction. The Treasury's own assessment of the of the Fos is that it functions well in the majority of cases. This is a poor basis for such a fundamental reform. Secondly, the Consumers Association has concerns that the Bill removes enforcement sanctions under the Consumer Credit Act 1974 without introducing equivalent replacements and shift other protections from statute into a Financial Conduct Authority rules which we have not yet seen.

Yet received any consultation. A third problem is the new ten year time limit on false complaints. It's totally unsuited to financial products. Most of met large proportion of which are long term typical of mortgages, life insurance and pensions. Now the consumer. The Consumers Association concerns are far from trivial and will have to be addressed at committee, and I look forward. The debates now. The government have been clear that legislation is driven by an economic argument to foster growth in our world leading financial sector, but there is also a compelling case made clearly by my noble friend, Lord Pitt-watson, that the effective consumer protection has an economic rationale as well.

It's a sector that requires consumer confidence and trust. Financial services. Unlike other markets, products are complex, time horizons are long, and the information gap between the provider and the consumer is substantial. In those circumstances, consumer protection is not an impediment to a well-functioning market. It is a key to that market functioning properly. Remove the fence without checking rioters there and the likely result is not greater efficiency. But the familiar cycle of mis selling scandal and declining consumer engagement with the very products that we are supposed to serve, the products that are supposed to serve their financial interests.

A reform agenda framed around growth should therefore be cautious about weakening conditions that make sustainable growth in financial services possible.

**** Possible New Speaker ****

Can I begin by thanking the noble Lord, the Minister, for his recent letter, the meeting he convened last week, but also for convened last week, but also for clearly laying out the ambitions for this financial services bill for many years. I sat on the Economic and Monetary Affairs Committee of the European Parliament and worked closely with the noble Baroness, noble Baroness the noble Baroness, noble Baroness wealth. I also see no way Baroness Gill, when we worked on money market funds together and on that market funds together and on that committee, we scrutinised a slew of regulation following the 2007 to 2008 financial crisis.

And in each
18:38
Lord Kamall Portrait Lord Kamall (Conservative)
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case I asked for questions. Firstly, do we need this legislation given how much regulation we already have? What problem is it that we are trying to solve, or are we just regulating to be seen to be doing something? Secondly, if a bank or other financial institution to fail tomorrow, how do we make sure it tomorrow, how do we make sure it would not be bailed out with taxpayers money? Thirdly, who takes responsibility for failure? We responsibility for failure? We debated the merits of a director liability and if this would encourage directors to take more interest in what is on their banks balance sheets.

And fourthly, how do we make sure that when it comes to complex financial instruments on balance sheets, that while banks might be willing to book the income up front, they make sufficient provision for potential losses, just as we saw with the financial instruments like CDOs and CDs. In the run up to the financial crisis. My Lords, as others have said, it is nearly 20 years since the last crisis. But we should remember that after each crisis, there is a temptation to regulate for the last crisis.

Then, after a while, there are calls to loosen, rules to increase liquidity or access to credit, which in turn raises concerns about whether this could contribute to the next crisis. So with this bill, I welcome the ambition to reduce complexity and inflexibility, to simplify what has become a complicated consumer credit regime, and to streamline regulations and reduce the number of overlapping regulators. But like my noble friend Baroness notes, we remain concerned about regulatory regulator accountability. And while I generally support less regulation, I also recognize that when things go wrong, quite often the public expect politicians to do something, just do something.

So we should remember why measures such as ring fencing were introduced or, some would argue, reintroduced. Now, the explanatory notes to the bill say that the benefits of ring fencing vary across areas and can, quote, give rise to unintended consequences in practice, unquote. And there's also some concern about the impact on the bank resolution regime. So could the noble Lord, the Minister, explain what those unintended consequences were, and also the impact of the reforms on the bank resolution regime. Now, on overseas recognition regime, I welcome the government's intention to take a different approach to the EU.

During my time in the European Parliament, much of the equivalence was driven more by protectionism than than resilience, often limiting choice for investors and consumers. And on accountability, I welcome reforms to the senior managers and certification regime to improve accountability of appointed representatives. But also we'll be looking to understand how proportionate or burdensome this requirement would be. My Lords, I now come to the area of financial services where I maintain a strong interest, and that is how do we increase access for those that many describe as financially excluded? Now, both the UK and the EU brought in legislation to force banks to offer basic bank accounts.

Now, that may sound reasonable, but in reality this was forcing banks to offer accounts to customers they didn't particularly want to serve. I do wonder what that means in terms of customer service, but an unintended consequence is that this squeezes out potential competition from non-banks, such as credit unions, who would welcome the ability to serve these customers and grow. So I welcome the government's intention to increase the number of mutuals and cooperatives and to widen the common bond requirement. But I do wonder whether it could go further and be a slightly radical.

Can I ask a noble Lord the Minister has the government looked at the feasibility of abolishing the common bond altogether, and if so, what concerns were raised? Also, we, as we see more banking hubs in response to high street banks, bank branch closures, could we perhaps create a win win situation where credit unions or cdfi's, which I'll discuss later, actually run those banking houses? Not only can they serve their customers, but they can earn additional revenue from facilitating payments into or withdrawal from accounts held with banks.

And my Lords, I am disappointed not to see an explicit reference to micro microfinance. What in the UK we call community development finance financial institutions, or Cdfi's non-profit, community based organizations that offer financial support and credit to individuals and financially excluded entrepreneurs who otherwise might turn to payday lenders. Now, one of the most amazing dfis, and one I try to help where I can, is Purple Shoots, founded by Karen Davis, who, when she worked in financial services in London, realised that entrepreneurs from poorer backgrounds were often being turned down, not due to their poor business case, but because of their credit status.

So she set up purple shoots to offer mentoring and loans of between £500 and £3000. And when it turned out alone but thought that the idea had merit, it provides wraparound care to get the entrepreneurs business case into position where it merits a loan, and the impact has been amazing. When I hosted a parliamentary event for Purple Shoots, we heard from Trevor Palmer, who turned up in a complicated electric wheelchair and partly for this had been written off by mainstream finance.

Now, thanks to advice and a loan from Purple Shoots, he was able to start his enterprise, take himself off benefits and later employ others and take them off benefits. So organisations like Purple Shoots are driven by both a belief in the spirit of enterprise, but also a real social purpose. As Sam Edwards and Kay Poley from the Financial Innovation Lab said to me, talent, ambition and entrepreneurial potential are spread across the country. Access to finance is not. And while many larger organisations are able to access lottery funding, which in turn means that they can offer much larger loans, purple Shoots cannot access these funds to offer much smaller loans, but often with a higher social impact.

And when they applied for lottery funding, they were told to raise their interest rates and effectively to lend to less entrepreneurs. And while anyone who's unable to pay back on time, quite rightly, is counted as a default, and it's understandable, and that might be understandable for mainstream banks, purple shoots instead prefers to give them a little bit more time to repay. For these reasons, it does not tick the right boxes for lottery funding. And while I understand that lottery funding is dealt by another government department, DCMs, could I ask the noble Lord the Minister, given that the Bill does not explicitly mention Cdfi's, what is the thinking in both his departments on how to create the space for cdfi's, such as purple shoots to grow and for others to enter the market to increase access to credit and advice for entrepreneurs from all communities, not from those who have easy access.

Not only those who have easy access to credit. My Lords, time is limited, so I'll end by saying that this bill deserves support where it reduces needless regulations, but not reduce the accountability of regulators, where it strengthens financial resilience but does not reduce proportionality and where it widens financial inclusion, but does not reduce consumer rights.
18:46
Baroness MacLeod of Camusdarach Portrait Baroness MacLeod of Camusdarach (Labour)
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My Lords, it is truly humbling to hear from so many Lords today with such expertise. As many of you have said, there is much to commend in this legislation. Any measure which will strengthen the financial services in this country is welcome. As was laid out in the lead reforms last year, every encouragement should be given to banks and individuals who want to invest in the United Kingdom. The ambitions of the Scottish financial service industry are hugely important. Employer in Scotland.

In fact, the biggest chimes with the government's ambitions. It is incredibly important and it hopes the new legislation will shake up the planning system and reduce red tape for investors in this legislation, amongst other measures. Emphasis is put on the government's support for lending and investment. Hopefully, the reforms will unlock more finance for UK businesses and improve competition in small and medium sized enterprise lending will help small businesses access finance. I am not going to talk about regulation.

I shall leave it to the experts amongst the noble Lords. It is about investment in SMEs, particularly in Scotland. I want to talk about today. Basically it is not happening as it should, and I am not exactly sure where this bill will make the difference that is needed. This is a cri de coeur to the Minister. There are entrepreneurial, far sighted men and women wanting to start a business to contribute to their communities, to employ people in the communities, and all the time contributing to the UK economy.

But there are many obstacles in their way, not least accessing the financial support they often need to confidently take the first steps to create a business. Many areas of Scotland are struggling. Not only are they stranded, for Scotland's ferry service does not function, but there is not enough housing and too few jobs, and there would be even fewer jobs unless SMEs are able to access investment throughout Scotland. Businesses are struggling to get investment. Some of the reasons are given that it is too remote.

Perhaps it is time that people in London or Edinburgh think of themselves as remote, rather than those who live beyond a metropolis. We know that bank lending to British businesses has fallen to its lowest level for many, many years. Perhaps the banks and other lenders did not read the memo from Leeds, but until they change their behaviours, there will be little chance of stronger economic growth and it may be timely to remind the banks they owe us. Hardly one of them would be standing if it wasn't for the Labour government's herculean support.

During the financial crisis of 2008, when bank lending failed. SMEs are disproportionately affected and banks have pivoted away from lending because it can be riskier and less profitable. Banks do not want to invest in start ups. They only want to help when businesses established when any risk has been minimised. Surely it is not unreasonable to suggest banks could take more responsibility to invest in the country's most enterprising and entrepreneurial sector. Banks tell you there is no lack of lending capacity, but there is little demand and it seems many SMEs are less likely to apply for credit for fear of rejection.

So it becomes a self-reinforcing loop. One senior figure at a UK bank, quoted in the Financial Times recently said that there was no lack of lending capacity. They said all the banks are issuing board lending targets, but if there is no demand, as no one wants to borrow, there isn't a lot we can do. I would suggest to that senior banker that they should find out what more they can do to get money out of the door. Levels of Scotland investment in Scotland are typically lower than the best performing countries in the OECD, in areas such as research and development, investment has been chronically low in comparison with the OECD and below the UK average.

And yet Scottish universities contribution to R and D is amongst the best in the OECD countries. SMEs form the backbone of the Scottish economy. There are 350 000 of those important companies, employing over 1.3 million people. They are hugely important in farming, retail, hospitality and increasingly in life sciences and space technology. There are great innovation in AI, digital assets and tokenization in Scotland, but these modern day pioneers need investment. According to the business sector, they are underserved and of the ever going to scale up and contribute meaningfully to our economy and the funding of public services.

And that needs to change. Too often, start ups have had to leave Scotland to seek investment since investment banks, venture capital and private equity no longer have offices in Scotland. The investment community is very heavily centred in London. That is a pity and a blow to the Scottish economy as it is to other parts of the UK outside the south east of England. It is important Scottish firms connect with London based investors, and that those investors visit Scotland to properly understand its vast potential.

And there are huge opportunities if only they knew about them. Nobody wants to undermine London's economy, but it is a waste of potential. If investment horizons in the UK remain so limited. There is confusion about the responsibilities of the UK and Scottish governments. There is a suspicion that too many UK civil servants think Scotland's machinery is completely separate from the UK's. That needs to be cleared up. The City of London joined forces with number 11 to set up a single investment portal for the UK, which allows all potential investors to see what opportunities there are.

Unfortunately, there has been little take up in Scotland and it may be that politics are getting in the way. While business north of the border thinks Scottish civil servants may be too sceptical about anything that comes from London. So I would appeal to both governments to work more closely together to take advantage of any facility that might help. In conclusion, I have four specific asks for the UK government, which I hope they can consider in this legislation. Please set out a clear vision and structure for accessing funds to grow businesses.

Please flag a flag for the whole of the UK when it is talking to overseas investors. Please encourage banks to be more courageous and take risks. And lastly, please tell investors to think beyond London and go to other places. From time to time they will find opportunities. If the government can embrace those asks, I am sure this bill will feel ever more relevant.
18:52
Lord Carlile of Berriew Portrait Lord Carlile of Berriew (Crossbench)
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Privilege to. >> Privilege to. >> Speak in a debate with those who have such deep understanding of financial services and markets, financial services and markets, including a Minister with transformational business experience which we all respect. My own experience as a lawyer has been largely limited in this area to providing unwelcome and pessimistic advice in relation to large frauds, some of which have enriched the egregious fraudster to an extent that he. And it's usually a. He has gone on to lead a very successful financial life.

This is not good for the reputation of the financial services industry. And in that context, I would just remind your Lordships of something that my profession, the legal profession, does rather successfully and in an increasing amount as part of the informal part of financial regulation. And that is the increase in private prosecutions which are used to bring fraudsters to justice. And I would just remind your Lordships who are interested in this rather narrow subject of the successful prosecution in 2018, in what is called the Allseas case, in which the Director of Public Prosecutions at the time had twice refused to prosecute.

But the private prosecution was successful. But to turn to the generality of this very interesting Bill, I would say to your Lordships that financial markets are living instruments in the most literal meaning of that phrase, and when we legislate, there is an imperative to provide flexibility to meet need rather than waiting for reactive new legislation when something has to be done because it's gone wrong. So this is a very important legislative opportunity in which you have a duty to enact the new law with anticipation of potential unpredictability, a difficult but important task intrinsic to this bill, my Lords, is the relationship between parliament, regulators and the citizen.

Over recent decades, we've witnessed a significant, significant shift in the way financial services are regulated. Increasingly, Parliament has established broad frameworks, while regulators are entrusted with responsibility for detailed implementation. There are understandable reasons for this and in this area, although I'm rather against regulations rather than a main act provision, I think there is room for quite a lot of regulation so that that living instrument can survive. For my Lords, technological innovation proceeds at extraordinary speed.

Parliament can enable the regulators are there to provide expertise and experience at. Which uses the statutory foundation to enable proportionate reaction to whatever future challenges may arise. I turn now, My Lords, to three specifics. First, clause seven in part two of the Bill reforms the Financial Ombudsman Service. I support those changes in the round, but I do urge on the government that thought should be given to enhancing them so that entities themselves have the ability to request a referral to the Financial Conduct Authority for advice on rule interpretation, rather than leaving it to the Financial Ombudsman Service on a case by case service.

Important principles can arise and it should not take so long to resolve them. Secondly, I would urge additional attention to authorise push payment fraud. This is a major and egregious fraud to consumers, costing about £450 million in losses annually, mostly to unsophisticated people. I hope that this bill can be amended to strengthen safeguards to prevent that kind of fraud at source, specifically by requiring online marketplaces to apply know your customer checks to sellers and also on platform traceable payment methods to defeat the cruelty of fraudsters.

Thirdly, I want to mention the important issue of collective actions. Collective actions are funded by litigation funders who are now part of financial services and are recognised as such. I have played some part in collective actions and still do. Sometimes. They may involve a dozen claimants, sometimes they involve 10,000 claimants. These are collective actions that give the opportunity for ordinary people to recover damages for frauds committed upon upon them, some by the financial sector, I'm afraid, which they would not otherwise be able to recover from.

Litigation funding inadvertently has been very damaged by a Supreme Court case called the Packer case. Legislation was introduced in the last Parliament with the agreement of both main parties. Indeed, all three main parties to push it through quickly. But the election came and that was not done, and I and other noble Lords are happy to discuss with the Minister the Packer situation in the hope that it could be dealt with in this Bill, in which I believe it is in scope.

But returning to more general matters matters. My Lord. Parliament should never lose sight of the distinction between creating rights and administering those rights. The House must therefore carefully examine any provisions that may have the effect of transferring important questions of consumer protection from primary statute into a wood which we cannot see through for the trees. My Lords, I illustrate this concern through the issue of consumer redress. One of the recurring themes in modern financial services regulation, regulation, recognition that consumers require effective mechanisms through which to enforce their rights.

I've been waiting years to say this to my Lords, but a right without an effective remedy qualifies what the eminent jurist Hoffelt strikingly described as a no right. This bill should avoid no rights.
18:59
Baroness Morgan of Cotes Portrait Baroness Morgan of Cotes (Non-affiliated)
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My Lord, it's a great pleasure >> My Lord, it's a great pleasure to follow such a thoughtful speech from the noble Lord, Lord Carlile, from the noble Lord, Lord Carlile, who has picked up on a couple of points that I was going to to mention. Firstly, I should draw the House attention to my interests as a non-executive director at Santander UK, a non-executive director at the Financial Services Compensation Scheme, which oversees consumer redress and also as chair of the Advertising Standards Authority, which is a regulator.

Because of those interests, I don't normally talk about financial services in this House, but because this is a more general debate at the start of the legislation, I wanted to hopefully assist with a couple of factual points and then to pick up on some two areas of policy on which I think the bill is currently silent. And the noble Lord, Lord Carlile, has just picked up on one of them. I don't intend to take part in further stages, except possibly depending on the minister's.

The noble Lord. The minister's answer on the final policy issue I raise. I might return to that. Let me start with ring fencing reform, and we've already heard from a number of noble Lords as to why reforms were introduced, just to keep this on a factual basis, or to give an example of Lord Karmal's unintended consequences. There are two examples I want to give of. Why ring fencing is something that can be unhelpful to consumers, and in the case of economic growth.

So for a travel company, for example, offering package trips who wanted to mitigate its exposure to increased fuel costs and foreign exchange costs, it want to take options on forward fuel costs. They cannot be offered within the Ring Fence bank, which they bank with. That can be obtained from another financial institution, but obviously it means extra costs and takes longer, which means that consumers ultimately will pay those costs. Or for UK energy company looking for investment. The ring fence rules, as currently drafted, meant that lending to the holding company was not permitted, so lending had to be to a subsidiary on a strict reading of the rules.

Is that really what was intended? Are we serious about bringing down the cost of doing business in a sector? Energy which has very real resonance for households, as well as a link to national energy security? Moving to the Financial Ombudsman Service and reform, I appreciate the significant strength that we have heard in the briefings to noble Lords, the strength of feeling amongst consumer groups on these proposed reforms. I would just say two things here. Firstly, that predictability of law and regulation is an important principle of doing business in the United Kingdom and something that businesses want to see.

And secondly, so far today in the speeches I have heard about financial Ombudsman service reform, I haven't heard anything said about the the actions taken or the way that certain claims management companies, business models are based on bringing cases to the Ombudsman. And I think that Financial Ombudsman performs an incredibly important role, and financial institutions should be held accountable when they get it wrong for customers. But we should not lose sight of claims management companies making money from customers, and those customers do not need to use the services of claims management companies when they are looking for financial redress.

Let me turn now to one area which the Ombudsman has had many complaints about and has rightly upheld many of those complaints. And that's the one that the noble Lord, Lord Carlisle, mentioned, which is fraud. In November 2022, I had the privilege of overseeing the publication of a House of Lords inquiry report on fighting, which was called Fighting Fraud, Breaking the chain, and in which we said that over 80% of fraud is cyber enabled. In the year ending June 25th, 2025, there were an estimated 4.1 million fraud incidents, according to the Crime Survey for England Wales, this was a 14% increase compared with the figures for 2024, and out of those 4.1 million incidents, around 3 million involved loss and victims said they were fully reimbursed in 2.2 million of those cases.

And the reason for mentioning it here is the bill is not is silent, does not contain anything about fraud affecting the financial services sector. And I think the point is just that I hope that the Treasury is not leaving it to the Home Office to lead on this. Fraud is not a victimless crime, as we've already heard, the role of online platforms and marketplaces is is very important. Romance fraud is hugely costly, both financially but also personally to the victims. We've heard debate earlier on about the changes to the senior managers and certification regime.

Whilst I understand that perhaps in this context of the Bill, frankly, I would extend the senior managers and certification regime to the bosses of the tech companies to make them accountable for what is happening on their platforms. And of course, since 2022, the the world has moved on. And the issue of deepfakes in relation to fraud, the relation. And today I was hearing about ChatGPT recommending fake websites which are costing their victims huge amounts of money. So I'm sorry that this bill is silent on such an important issue for financial services.

Let me move to the final policy area, which I hope that the noble Lord, the Minister, might be able to say something about which relates to economic abuse. This is a devastating form of domestic abuse used by abusive partners or ex-partners to control a victim, survivors money and economic resources, and it includes the misuse of financial products and services such as a bank account, a mortgage or credit. 4.2 million UK women experienced economic abuse in the last year alone, leaving them carrying debts coerced in their name, trapped in joint financial products with abusers long after separation, while their credit scores are tarnished by the abuse leading to immediate and long term financial exclusion.

A staggering 750 000 UK women experienced economic abuse through the joint mortgage that they share with an abusive partner or ex-partner, and perpetrators will routinely use these ties to coerce and control survivors long after separation, leaving their victim survivors facing arrears, repossession, credit destruction and even homelessness. Now, financial services firms contractual obligations to both parties through the concept of joint and several liability limits, the steps those institutions can take to prevent these harms through joint mortgages. And it is clear that urgent legislative reform is necessary.

To address this. I welcome the government's financial inclusion and violence against women and girls strategies. Both of them make significant commitments to tackle economic abuse and to ensure consistent responses from financial services to support victim survivors. So can I just ask the noble Lord, the Minister, how he will the government will ensure implementation of the bill effectively supports good outcomes for economic abuse, victim survivors as vulnerable customers, and will his department use this bill to remove the legislative barriers that still prevent financial services institutions from safeguarding victim survivors against the harms caused through joint mortgage abuse? I fully agree with the comment that the noble Lord made at the beginning of this debate, which is.

This whole bill is a question of balance, and I look forward to hearing how that balance is resolved in the forthcoming debate.
19:07
Baroness Gill Portrait Baroness Gill (Labour)
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My Lords, the financial services >> My Lords, the financial services sector, as many have already highlighted, remains an absolute highlighted, remains an absolute engine of the British economy, contributing £290 billion, or roughly 11% of the total UK economic output, with productivity at 2.6 times the national average. To maintain this competitive edge, our regulatory framework must prioritise nimble execution while reinforcing structural accountability. Therefore, the Financial and Markets Bill is a necessary modernisation of our economic architecture and like Baroness Hodge, I welcome that this legislation directly addresses critical pressure points in economic crime and market efficiency.

Firstly, by combating financial crime, the expansion of FCA oversight across legal and accountancy sectors tackles a severe risk channel. Financial institutions currently spend estimated 38.3 billion annually on financial crime compliance, unifying oversight directly addresses the structural fragmentation noted by His Majesty's Treasury, where 25 separate supervisors have historically led to inconsistent enforcement across sectors. Secondly, it's protecting the infrastructure for cash access secures vital banking functions for millions of people who depend on cash and face to face banking.

Thirdly, it's streamlining regulations, merging the payment systems regulator into the FCA. Excuse me. Eliminates costly institutional overlap and accelerates decision making. I particularly welcome that it's empowering credit unions by reforming the historic common bond members requirement that this bill allows credit unions to sustainably scale up and expand their services. Under the old 1979 limits, these rules became a restrictive postcode lottery. For example, a credit union was banned from growing if the population its geographic area, exceeded 3 million.

That's most of London relatives who didn't live under the exact same roof were also barred from joining. So by reforming historic constrain, the bill drags these rules into the 21st century by raising the membership cap from 3 to 10 million, allowing credit unions to expand, merge and scale up, and adding students to the local criteria so younger people can access affordable community borrowing and updating family rules so relatives can join, even if they live in different households. As the government states that this bill provides a major boost to affordable community finance and directly supports the national goal to double the size of the mutual and cooperative sector.

We already heard that the bill also modernises the Financial Ombudsman Service, and I believe that disputes will be resolved faster with much greater operational certainty. And the proposal, again, we've heard from various members of your Lordships House that will unlock billions of potential lending to small businesses across the country through raising primary deposit thresholds from 25 billion to 35 billion, which would free retail focused banking groups from overly restrictive ring fencing rules. Now, the majority of financial organisations have welcomed this bill.

However, there are some concerns. I've been contacted, like others by UK Finance City UK and Parliament's own Treasury Committee have highlighted that clauses 16, 17 and 18 are of concern as the balance of power shifts from necessary democratic checks. It's good to see my friend Lord Campbell in his place because he and I, as he alluded to, served on the Parliament's European Parliament's Economic and Monetary Affairs Committee together and during the major post-crisis reforms, particularly when we were building the single rule book, econ faced these exact structural pressures.

We learnt the hard way that when you delegate sweeping powers to independent regulators, you need to hardwire accountability in their operations. We had to fight to ensure that principles like proportionality weren't pushed into a vague, multi-year strategies, but were applied to everyday policy making. So it is that specific, practical experience of balancing regulatory independence with democratic scrutiny that has informed my analysis today. So just referring to some of the clauses, clause 16, which introduces a statutory requirement for FCA and PRA to introduce long term strategies at least once every five years.

Whilst I accept that a long term roadmap is incredibly useful for business planning, markets move fast, a five year plan can easily become outdated if there isn't a required check in point to adjust the strategy to new economic realities. So could my noble friend the Minister clarify how will the government guarantee that the regulators formally consult with the consumer, business and commercial panels during the development phase? Would a review at three year mark overcome this? To prevent these roadmaps from staggering, stagnating? If no new remit, letters are issued now, clause 17 removes the operational requirement for regulators to consider core statutory principles such as proportionality, transparency and risk based regulation in their day to day functions, moving them exclusively into five year strategic loop.

However, in March 2025, the Regulation Action Plan explicitly committed to introducing a streamlined, consolidated list of having regards by a secondary legislation. So could the Minister confirm that the government will use secondary legislation to establish a rationalised daily checklist for regulators, ensuring that the day to day policy making remains structurally bounded by proportionality? Finally, clause 18 removes the obligation from regulators to consult on guidance, guidance and minor rule changes while they're lifting requirements to explain how routine standard setting of the core objective now in the financial sector, regulatory guidance serves as de facto rules.

Firms alter compliance frameworks and deploy significant capital based on it. So with that statutory duty to consult on guidance, what mechanisms will protect market participants from Unvetted sudden shifts in regulatory expectations?
19:15
Lord Howard of Rising Portrait Lord Howard of Rising (Conservative)
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I know I declare an interest as a holder of listed shares and a director of a listed investment trust. There's much to be commended in this proposed legislation. Any reduction in regulation and the consequential benefit on the wealth of the nation is to be applauded. I am, however, concerned about the proposed power which will enable new regulations to be introduced without scrutiny. Although introduced with the best intentions, regulations can do more harm than good, partly recognized by having the bill in front of us today, it is not always possible to foresee the full consequences of regulation.

Generally speaking, the more markets are left to themselves, the better off we all are. An example of regulations having a negative effect is the Basel two agreement. This ruled that personal mortgages were safer than other types of lending, and therefore banks would need a lower capital requirement for lending for house purchases. I won't waste your Lordship's time with the full story. Caravans and trailer parks being classed as houses and so on.

But this was ultimately a major contributor to the 2008 financial crisis, brought about by a change in regulations because of the crisis. Regulation in Great Britain was made for pension funds to invest a higher proportion of their funds into safer gilt edge securities. The gilts gave a lower return than other types of investment. To compensate, pension funds used their gilt edge securities as collateral to buy more gilt edge securities to give an overall larger return little risk as both governments, both instruments, were government backed.

Unfortunately, it slipped their minds that interest rates can go up as well as down, and rising interest rates would result in losses. Interest rates did go up. Even the Bank of England's own pension fund was caught out as interest rates rose and its pension fund faced large losses. One regulation on top of another. It is not always possible to see the knock on effect of regulations, so I urge your Lordships, when taking this Bill forward, to have clearly in mind the inability of anyone to fully know what benefits or what collateral damage may result from new regulations.

Whilst flexibility may be desirable, delegating too much power without the ability for rule making bodies to be questioned independently and firmly is very important. It will not do everything, but it may put a brake on rules which impede or hamper the development and success of our financial services industry and

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reduce risk. My Lord, I'd.

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My Lord, I'd. Like to thank my noble friend, the Minister, for bringing this bill and for the many important clauses contained therein, and we've had some excellent contributions, but I particularly want to thank the right Reverend want to thank the right Reverend prelate, the Bishop of Manchester, for his powerful intervention on the nature of debt and its particularly devastating particularly devastating consequences. And to the noble Baroness Morgan of Cotes for raising the important issue of financial abuse, and how this Bill may legislate to be firmly on the side of victim survivors.

I wanted to contribute to this debate, not because I am an expert in financial services. Like many eminent speakers from across your Lordships House today, I wanted to speak in this debate because I care about fairness and the accessibility of financial services to all of those in our society, so that everyone in the country is able to access ethical and affordable finance. I welcome the measures in this bill, and particularly the clauses regarding credit unions and measures to protect face to face banking.

As a member of the sister party to the Labour Party, the Co-operative Party, I declare an interest and I was delighted to see in 2024 that Labour manifesto commitment to double the size of the UK's co-operative and mutual sector, and this Bill puts legislative meet on the manifesto bones of how we might do that. A financial system should serve the economy and the economy should serve society. As last year's
19:21
Baroness Hyde of Bemerton Portrait Baroness Hyde of Bemerton (Labour)
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Triodos Bank report noted, finance has too often become an end in itself. A self-referential network itself. A self-referential network of balance sheets and algorithms more focused on extracting value more focused on extracting value than creating it. And this Labour government is committed to growth, but not growth at any cost. Not but not growth at any cost. Not extractive slash and burn economics, but growth that offers people in every part of the UK the every part of the UK the opportunity to flourish.

Before I come to the proposed changes to the Bill, I want to outline why these measures to increase the use of credit unions are so crucial. As others have said today, as other noble Lords have said today, the UK has an affordable credit problem. Between 16 and 20 million people, depending on the source you use, are underserved by the credit market. That's up to 20 million people in the UK who typically have a credit history that falls outside mainstream underwriting criteria.

This is a large, non-standard population with a growing. With a growing need for credit. They fall into broadly three groups those known as thin files. That's people with low or no credit history. The credit impaired are those with a poor credit rating. Often, this may be linked to disruptive life events, usually temporary something like moving house repeatedly, divorce, loss of a job which might have, which might lead to missed repayments. And the third group, those who are highly indebted. People who have taken on too much debt and cannot afford to repay it.

And these households are facing material economic headwinds and access to affordable credit is of crucial importance to ensure both the near-term economic well-being of those people, their families and communities, and also to ensure that the near-term economic conditions do not become entrenched so as to affect the long term viability of these households and communities as credible borrowers outside the realm of personal finance, SMEs and social enterprises also face a multibillion pound finance gap, particularly those based outside London and the South east.

According to figures from the Federation of Small Business, over half of small businesses rate the overall affordable availability and affordability of new credit, as poor, so this is those are some of the reasons why I am passionate about credit unions and the increase in their use. As has been said before in this debate, there are member owned co-operatives with deep ties to local communities who are accountable to their members rather than to shareholders. They provide access to credit for people who may be excluded from high street banks, and offer a more relationship based model of lending, an essential quality of a financial system that works for everyone in society.

To illustrate this, I've picked a few thumbnail testimonials from Salford Credit Union. For example, the unemployed parent who was offered a free college course to train as a hairdresser. They can afford the £200 needed to provide the equipment to undertake that course. Salford Credit Union stepped in load them £200. They were able to buy the kit, retrain and then pay that loan back. When employed as a hairdresser, the person with two children made homeless due to domestic abuse. They were rehoused by a housing association.

Quite right too, but that property had no furniture, so they applied for and received a loan of £700 to buy to buy furniture, which they were able to pay back at the reasonable rate of £15 per week, or take the man who was living in a hostel whose only income came from selling the Big Issue. He was desperate to move out of that hostel because of the difficult living conditions and the abuse that he suffered. The credit union helped him. Helped him over a number of months, slowly save enough for a deposit.

His own deposit to buy, to rent a flat in the private rented sector. He would not have been able to do that without the assistance of Salford Credit Union. I could go on and on. Credit unions are brilliant, but, crucially, the proposed reforms to the common bond will enable the credit unions to serve that wider membership, and this is an overdue reform and another reminder of how this Labour government is working hard every day to improve things for all citizens nationwide, to support even greater sustainable growth and use of credit unions.

I ask my noble friend, the Minister, to consider also capital reforms. Two credit unions, for example, enabling access to new forms of investment through them. There is also currently no overarching mechanism to assess how effectively banks are meeting the credit needs of underserved communities, and no mandate for the FCA to drive that change. So again, I ask my noble friend, the Minister, whether the bill could address this by requiring greater transparency and accountability from mainstream lenders, including that formalising of a referral pathway to credit unions or community development finance institutions where

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customers have been declined by then. These Credit unions and community development finance institutions development finance institutions are often best placed to support people and businesses excluded from people and businesses excluded from mainstream finance. In 2025 alone, community development financial community development financial institutions lent over 389 million to small businesses, start and to small businesses, start and Individuals, which launched 5741 businesses, created over 7000 jobs and safeguarded over 6500 jobs. 88% of those business customers had been previously declined by another lender.

And with Cdfi's lending disproportionately to ethnic minority led businesses, women led businesses and businesses based in areas of high deprivation, demonstrating their growing contribution to inclusive economic growth and local resilience. I would ask my noble friend, the Minister, to look again at these and how they might be used more. Credit unions are growing and an increasingly important part of the UK's community financial infrastructure, providing affordable lending, savings and financial resilience to millions of people. So let us, noble Lords, make the most of the opportunity presented by this legislation to turbocharge the potential of credit unions.

Finance is not an abstract mechanism, it is a social relationship built on trust, shared expectations and collective institutions a common bond indeed, at a time when we are in need, more and more of vehicles for all types of common bond, not just the kind found in a credit union to be spread more widely and used wherever they can be.
19:28
Baroness Young of Old Scone Portrait Baroness Young of Old Scone (Non-affiliated)
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My Lords, can I declare my environmental interests as listed environmental interests as listed in the Register? And can I thank the Minister for his engaging introduction? He obviously knows something about this, and I look forward to discussing amendments with him during the Committee stage, because I want to draw the Minister and the House's attention, not to the specific things that are in the bill, but to the specific things that are not in the bill. And I would ask the noble Lord well know the noble Lord, I think, very adequately outlined how important the UK is as a financial centre.

It is home to the biggest share of international bank lending and borrowing. It's big in insurance, it's big in pensions. It's developed a reputation also for being big in sustainable finance. And I think that UK financial services have major further potential to accelerate the transition to a climate and nature positive economy and to unlock green growth. And that is what I would like to focus on today. So it's disappointing a bit that this bill doesn't move that agenda forward.

And I do think the short title actually gives a bit of wiggle room to get some good stuff in. One of the government's stated goals is to make the UK the green finance capital of the world. So I don't think I'm trying to press for something that hasn't already been endorsed by government. I'm simply lending a helping hand to get us on the road and to make sure that this bill isn't a missed opportunity. Let me just give you two brief examples and one more substantial one of the issues this bill could tackle.

First of all, the 2024 manifesto and the Financial Services Growth Strategy said the government intended to mandate UK regulated financial institutions. That includes the banks, the pension funds, the insurers and Footsie 100 companies to develop and implement transition plans in line with the 1.5°C Paris Agreement goal. Now, these plans would state how each of these institutions would reduce emissions, reshape investments and business activities, and manage climate related risks. And the government consulted in 2025 on taking forward these requirements.

But since then, there's been silence. This bill could have introduced legislative action on Mandation, and I'd like to press for that. The second example is the bill could have made progress on mandating nature related disclosures. The institute actually, Faculty of actuaries warn that too many financial institutions insufficiently account for climate and nature related risks in their decision making and risk management. And I think that the insurance industry is very rapidly waking up to those impacts. Reporting on climate related financial disclosures.

T, CFD is mandated for the 1300 largest UK registered companies, but not for TNFD the nature related financial disclosures, though this is the case that these are mandated in the rest of the European. Sorry, I shouldn't say the rest of the European Union since we aren't in the European Union anymore, but you know what I mean. So if if we don't get some movement in the bill, can the Minister tell us when and how the government intends to bring forward nature related financial disclosures, anything other than voluntary but the missed opportunity I really want to focus on most today is the action that we need to tackle the the financing of of international deforestation, and I should declare an interest as chair of the Forestry Commission, deforestation and nature loss pose a.

Material risks to financial systems as nature related risks could reduce UK GDP by 6% over the next decade, according to the Green Finance Institute. The World Economic Forum ranks biodiversity loss as the second greatest long term risk globally. Now in the Environment Act 2021, we committed to bringing into force secondary regulations under schedule 17 of that act to prevent businesses from using illegally produced forest goods and to require them to exercise due diligence systems and introduce reporting.

Ministers, if pressed, continue to state that an approach on this will be set in due course. I love that word in due course. This is strange because the UK actually positively led and brokered at Cop26, a deal to end and reverse deforestation by 2030. It was a real piece of global leadership and since then we've had governments own security assessment that deforestation driven biodiversity loss and ecosystem collapse are high level threats to the UK's national security. If you haven't read the security report, Global Biodiversity Loss, Ecosystem collapse and National Security do read it.

It's short but devastating, and I would have a stiff gin by your side while you do read it. It's. It's an official UK government security assessment. So it's not just us greenies being alarmist. Now, the 2023 Financial Services and Markets Act requires that the Treasury carry out a review to assess the extent to which regulation of the UK financial system is adequate for the purpose of eliminating the financing and use of prohibited forest risk commodities. So there is a commitment in that bill, in that act to make sure that we do deal with the issue of forest products.

So could I ask the Minister whether this review that is committed in the 2023 Financial Services Act is happening? And if not, why not? And when it will be undertaken? Because its results could have been by now in this bill. So can I urge the Minister that at the very least, he persuades his colleagues and other government departments to lay the regulation under schedule 17 of the Environment Act, which would make it illegal to use commodities in the UK that have been produced on illegally deforested land.

This would at least be a step in the right direction. I don't know about you, but if you read the government's security report, which talks about terrorism, state threats, pandemic risks, economic insecurity and everything else, including falling arches, I think you would be pretty scared by it, I certainly am. Let's not miss the opportunities of this bill to deliver deliver on government's environmental commitments.
19:35
Lord Sikka Portrait Lord Sikka (Labour)
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My Lords, this is primarily an enabling bill and much of the substance will follow later through the FCA and PRA rulemaking and secondary legislation. Parliament will not have the. Not have a proper opportunity to amend whatever the FCA agrees with the industry lobby, consumer protection and confidence in the finance industry will be the biggest casualties. There is much to agree and support in this bill, but alas, it also omits crucial issues. There's no reform of short termism in the City of London, even though for nearly 30 years the UK has languished near or at the bottom of the G7 and OECD Investment League, the investment gap cannot be addressed without reform of corporate governance, accounting, executive pay law and dividends and empowerment of stakeholders.

Hopefully the Minister will tell us why these issues are not being addressed. Shadow banking is now bigger than retail banking, but there's no plan to regulate that either. Even though shadow banking is likely to be the epicentre of next financial crash in this vacuum, the bill continues with a deregulatory agenda and more of the post 2008 crash reforms are being dismantled. The weakening of the senior managers and certification regime and accountability is one such example. Currently, complaints can be brought to the Ombudsman indefinitely, provided they are brought within three years from the date when the complainant became aware of, or should have reasonably become aware of the event being complained of.

The ten year limit proposed by clause six is a regressive step. How exactly are people supposed to become aware of the trigger events? When governments and regulators seek to bury them? The Bank of Credit and Commerce International was closed in July 1991. To date, there has been no investigation. So what is the tale? How does the ten year period affect that? The victims of that scandal on numerous, numerous occasions in this House, I have referred to the plight of the victims of both frauds, which go back to 2002 and 2007.

The senior bank managers fleeced SMEs of around £1 billion. The regulators did little. The SFO, the FSA and the police passed the buck. In 2017, the Thames Valley Police and Crime Commissioner secured a six criminal convictions. Still, the FCA, the SFO and the police did not fully investigate. The government of the day left it to Lloyds Bank, which owns H boss, which then appointed Dame Linda Dobbs in 2017 to investigate and issue a report in 2018.

To date, there has been no report and victims are still awaiting compensation without an investigation and a report, victims of bank frauds cannot approach the Ombudsman. Taking H Moss fraud as an example. Can the Minister explain when this ten year window might commence under the clause in this Bill? Clause six, in my view, harms customer rights and allows banks to escape liability, and that is unacceptable. I am also concerned about restructuring. Restructuring the Financial Ombudsman Service.

It was created in 2001 by Gordon Brown to adjudicate on financial services. Relationships that are inherently unequal. You have laypersons on one side and giant corporations with billions at their disposal on the other. Clause eight severely narrows the right to seek redress by requiring the Ombudsman to prioritise whether firms technically complied with the FCA rules, rather than whether their actions were fair and reasonable in the circumstances. The Ombudsman here is being asked to find in favour of the firms.

If the tick the right boxes, not by whether they took fair and reasonable action. Clause eight also adds the concept of consumer responsibility when things go wrong. So even when a breach of rules has occurred and the firm has acted unfairly, the Ombudsman would be required to consider the general principle that consumers should take responsibility for their decisions. There are many kinds of consumers. We have individual versus corporate. Amateur versus professional. Those with or without expert advice. Diversified or non diversified.

I do not know what kind of consumers this clause seeks to address. The entire clause really needs to be deleted. It is unacceptable that in this day and age, consumer protection is being diminished. I welcome absorption of the payment systems regulator into the FCA. I also welcome clause 14 and transfer of the regulatory powers of 22 trade associations to the FCA. This will eliminate duplication, buck passing and ineffectiveness. It was a huge mistake by the previous government to make accountancy law and other trade associations, AML regulators.

In his 2018 report, the office for Professional Body Anti-Money Laundering Supervision, the acronym is obsolete, said, and I quote, the accountancy sector and many smaller professional bodies focus more on representing their members rather than robustly supervising standards, partly because they don't believe or don't want to believe that there is any money laundering in their sector, partly because they believe that their membership will walk if they come under scrutiny. In its follow up report in 2024, October said that it, quote, has not seen any material improvement in the professional body supervision.

That is bad. This consolidation is totally justified and I will support it. And I hope that the Ministers extend this to the regulation of insolvency and auditing as well. I look forward to hearing the Minister's reply.
19:42
Baroness Lawlor Portrait Baroness Lawlor (Conservative)
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My Lords. sicker, and I always learn from his speeches. The Bill is laudable to promote growth by cutting regulatory barriers, compliance, duplication and fragmentation, and so reduce the burdens and costs for businesses and to support innovation. It aims to achieve these objects by giving the FCA new powers, as we've heard today, and I thank the Minister, the noble Lord, for his very lucid explanation to the powers of the Payment systems regulator, which regulates credit card transfers.

Faster credit and Bacs transfers are to be transferred and the powers abolished. The Financial Ombudsman Services Regulatory powers for alternative dispute resolution under FSM 2000 and the anti-money laundering and counter-terrorism duties of the existing 22 professional bodies, and so on. The FCA will also have, as we've heard, the duties transferred from legislation such as many in the Consumer Credit Act. But the transfer of so many powers and functions to the FCA will not be a magic solution, nor indeed a solution at all, unless there is reform on how this regulator operates and how greater accountability can be achieved.

The Bill will therefore need some amendments if the FCA is to promote growth and cut regulatory barriers effectively with better arrangements than those it replaces. Since there are many queries about how the FCA operates. The Lords Select Committee, which has already been mentioned. It's. It's very good. Report on financial Services regulation found in 2025 that the failings of the two main regulators, the PRA and the FCA, include, and, I quote, a deeply entrenched culture of risk aversion getting in the way of doing what firms do best competing, innovating and growing.

One question here is whether, given such doubts, the changes proposed in the Bill to how the FCA itself works, particularly in clauses 16 to 22, will lead to the regulator working to promote growth and competition and whether there is at the same time sufficient accountability, predictability and transparency, as well as the checks and balances we need. I'll comment on this in respect to the principles which have had a very good airing today so far, and I hope you will forgive me.

Lord Burns, for instance, referred to the background to the 2000 act and and and how they came to this solution. Why and but the. They seem sensible enough. Firms are obliged, amongst other things, to conduct their businesses with integrity, skill, care and diligence. Take reasonable care with management and control and pay due regard to the interests of its customers, and treat them fairly, and all of which seem pretty sensible. But how they have been interpreted has been a matter very often of subjective judgement.

It, and smaller businesses especially, have found aspects of the regulation baffling, lacking transparency and unpredictable. They therefore play safe and avoid risk and hence are often at the expense of growth. My noble friend Baroness Snoots and the noble Lady Baroness Bowes, referred to one of the proposals here, which is to take out the. Have regard to such principles. Baroness Bowes added that the problem is they need to be applied properly. And I will say a few words about the application.

The Financial services regulatory lawyer, Barnabas Reynolds, has explained that the principles used by. As applied by the regulators, can lead to considerable uncertainty given the subjective, often idiosyncratic judgments of the regulators applied to pin the blame on firms. And I'm quoting from something he wrote on firms and senior personnel. Regardless of whether relevant rules or guidance existed existed when the event occurred. Since the principles are not used in the matter, most of normal common law to inform the interpretation of specific rules, the industry is unable to determine in advance whether many specific actions are permitted or not, and this is a problem of application.

Indeed, the evidence of the Select committee bore this out. Take principle 12 consumer duty, the outcome of which the FCA intended, was for consumers to have confidence in retail, financial services markets with healthy competition based on high standards and good consumer outcomes, witnesses explained to the committee that the implementation of the FCA had generated uncertainty that the FCA had provided insufficient clarity around how it expected firms to comply and the duty that it had created duplication and complexity within the duty that implementing the consumer duty had been difficult due to the ambiguity of the rules and lack of clarity provided by the FCA.

Now, this is in respect of the application of these rules, about which the noble Baroness Bowles has spoken as well. The Bill's accountability mechanisms, I would suggest, should be strengthened, and that could help deal with this problem of application. A noble Lords, you've heard, have objected to removing them altogether, and the danger of nobody knowing at all. What on earth will. They will be judged by. earth will. They will be judged by. And so I would.

I would like to consider how how we can insert clear obligations under law which can be judged in the court's obligations for predictability, fairness, objectivity and transparency. Under law, they could be further promoted by obliging regulators by statute to supervise and enforce, predictably, in accordance with their rules, ensuring their decisions are consistent between firms which operate businesses of the same size and scope, they should be obliged to publish examples of predictable rulings for firms and how they were reached.

In this way, there would be greater transparency. Predictability would be enforced. Firms, as a result, would be encouraged not to be risk averse, certain in the knowledge that what the rules say they mean and can be established and, if not predictably enforced, can be challenged in court, under law.
19:50
Baroness Northover Portrait Baroness Northover (Liberal Democrat)
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Here will be on. >> To the financial system is adequately addressed or addressed at all in the new arrangements that the government is putting forward the government is putting forward in this bill and with the potential consequences of that, and I think it is worth standing back on this. We all know that at least the complacency about the subprime market in the US resulted in the 2007 eight financial crash, something few were paying attention to that that crash had global effects the City of London and therefore the UK economy were particularly badly affected.

I recall the panic of ordinary people who feared that their savings would be lost and queued to draw them out, with widespread retail bank failures on the cards, strenuous and expensive efforts were made to prop up the banks to protect customers. The UK Treasury injected almost £140 billion into failing banks at the peak of the 2008 financial crisis, the government provided a further £1 trillion in financial guarantees and liquidity backstops to stabilise the financial system.

We need to remember that and we especially need to remember the consequences of austerity. For years, living standards frozen people feeling left behind. Many have argued that this contributed to Brexit, as people thought that coming out of the EU would improve their financial position, as was predicted at the time, and has now been borne out. This actually led to major damage in the UK economy. Far from improving things, then came the expenditure on the pandemic and the cost to the UK economy grew.

People's living standards have not improved for two decades, and it's not surprising that we now see moves to the populist right and left for simple and immediate answers. Economic challenges have their social and political effects, as we've seen before. Therefore, this bill matters. The government is right to seek growth in the economy. The financial sector is rightly identified as a potential source source of growth. Clearly, where regulation is serving no purpose and is obstructing that growth or is out of date, then it makes sense to reform this.

However, we need to be acutely aware of the huge economic, political and social costs that have resulted from lax regulation and regulators not properly focused on real threats. That's what we need to guard against. And Baroness Noakes has decimated the proposals to reduce parliamentary engagement and the removal of regulations into various strategies. So let me come to my focus here. Just as we have a new landscape in crypto, for example, we need to be aware of climate change as a current and future risk to the financial sector over both the short and the long term.

Clause 17 removes whole swathes of protection to be replaced by as yet undefined strategies. The FCA has been given huge new responsibilities. When we know that regulators have a poor track record in monitoring areas already under their responsibility, let alone horizon scanning for new risks, the deletions in the bill take out regard for climate change, the need to focus on sustainable growth and to be compliant compliant with the Climate Change Act, as Baroness Hayman mentioned.

Yet, as Baroness Young said, the UK remains well positioned to capitalize on its reputation as a hub for finance for sustainable finance. But I would go further. We need now to be acutely aware of climate risk. Therefore we should be strengthening, not weakening the rules here. I hope that everyone has read, at very least, the summary of the recent report produced by the Adaptation Committee of the Climate Change Committee, chaired by our colleague Baroness Brown of Cambridge. The world is currently on a path to around two degrees above pre-industrial levels.

By 2050, we will not return to pre-industrial levels. Our aim has to be to stop further, further escalation in global heating, but also to seek to adapt for what is already our new climate. There will be parts of the world where this is far more acute than in the UK, but the financial sector is global, with implications back to our own economy, society and politics. A global threat even beyond subprime markets. The priority risks in the UK alone are intensifying heat, a growing flood risk and rising droughts and wildfire risk.

The risk to the insurance industry is obvious, the adaptation report points out that flood related insurance claims are rising. Home insurers have paid out more in claims than they received in premiums for the five years to 2024. They conclude that by 2050, under two degrees centigrade global warming, many homes and businesses may not be able to access insurance at all. This threatens the viability of the property market, the economy and the sustainability of communities. As the report states, a large insurance protection gap means many homes and businesses cannot access insurance due to a lack of coverage or high premiums.

It also puts stress on the financial sector as banks face higher default rates on mortgages and business loans, and on public finances through disaster support needs. The 2039 end date for flood Re and reinsurance scheme is also, at the moment, creating uncertainty in the property insurance market, having an effect on the housing market, as happened with subprime mortgages. As the report states, and I quote, actions by financial institutions are needed to ensure that physical climate risks don't disrupt the financial system.

The actions will support the maintenance of essential financial services across the economy. The UK is home to the biggest share of international bank lending and borrowing. It's the largest market for international debt issuance and the world's largest specialty insurance market, as well as the world's fourth largest insurance market overall, one can see parallels with what happened leading up to the 2008 financial crash, the current risk to the housing market and to the insurance industry is clear.

Therefore, it is vital that climate risk is included on the face of the bill, rather than excluded even from regulation. This is one challenge which, unfortunately, we can be absolutely sure will persist for many years to come way beyond the life of this legislation and therefore must be enshrined within this bill.
19:58
Baroness Bennett of Manor Castle Portrait Baroness Bennett of Manor Castle (Green Party)
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My Lords. the noble Lady, Baroness Northover, and to agree with her warning. I will add the phrase carbon bubble in here as the further financial in here as the further financial risk, and I also must cross-reference her contribution to the words in the opening from the noble Lord, the Minister, about increasing the financial insurance business in London. This seems like a very bad idea indeed, in face of the risks that we face in the climate emergency and nature crisis.

And I note that we are right at this moment facing the risk of an extreme El Nino with impacts where we should well understand. But, my Lords, here we are again. I join a small but merry band of financial services Bill veterans. This is my third and in. Welcome and welcome the Minister to our group and look forward to our deliberations. I say look forward genuinely, because this is the most positive start to such a debate that I've heard. There was a great deal in the speeches thus far that I agree with more determination than I've heard previously in your Lordships House to at least start to tackle what economist and Pettifor has termed the global casino, of which the UK financial sector is a significant part.

And we didn't just hear those powerful words from the noble Lord. Lord speaker, are always welcome as they are. That makes a welcome change. When I first took part in the debates on what became the Financial Services and Markets Act 2021, I was new enough to be shocked at the narrowness of the debate, with the conservative government reducing regulation and controls, while the Labour frontbench just nodded along. Amendment after amendment at committee and Report stage came from those wanting the government to go further and faster in deregulating, in letting the financial sector rip, even though it was little more than a decade since we'd seen the cost of that in 2007 2008.

Today, though, we've heard from the right Reverend prelate, the Bishop of Manchester, powerful words about the financial sector's not just failure to meet the needs of many parts of our society, but also the damage the sector does to many of the vulnerable. I haven't yet persuaded the House's champion against child poverty, Baroness Lister, to take part in one of these debates. But I hope one day she and others will, because finance is far too important and damaging to be left to the bankers today.

The noble Lord, Lord Sharkey, was speaking up for the interests of consumers of financial products, so often the victims of predatory practices, not just by the fringes of the sector, but by the highly profitable giant organisations at its heart. And I associate myself in the Green Party with those remarks. While declaring my membership of the APPG on investment fraud and fear of financial services. And we heard from the noble Lady, Baroness Hodge of Barking, well known for her championing of action against corruption, about the need to tackle the rampant corruption and fraud.

Although I don't agree with the noble Lady's conclusion that we're talking about a few rotten apples rather than structurally embedded corruption, with roots going back centuries. After all, the City of London and with crown dependencies so disturbingly highlighted last week in an exhibition in portcullis House that, unsurprisingly attracted a great deal of negative attention, is, as the then deputy foreign secretary, Andrew Mitchell, said in 2024, a conduit for nearly 40% of the world's dirty money. And as Lord Evans of Weardale said in 2022 in a debate on corruption secured by my noble friend Baroness Jones, we have clearly, as a matter of policy, turned a blind eye to the perpetrators of corruption overseas, using London for business or leisure purposes.

That, of course, has been helped by those enablers to which the noble Lady, Baroness Hodge, referred. Looking back to 2020, if fellow Lords had expected me to take part at all in the debate, they probably would have predicted I'd make comments resembling those powerfully made today by the noble Lady. Baroness Hayman and Baroness Northover, work on which peers for the planet has been so prominent in pointing out that there is no financial sector on a dead planet, that the economy is a complete subset of the environment.

But the House was in for a shock in 2020, perhaps not for the last time. When I spoke then about corruption in the city of London's place, at the heart of it, I got more than the odd gasp and fervent head shaking in opposition. This was then for the win for the government. Lord Agnew of Oulton was saying the UK is internationally recognised as having some of the strongest controls worldwide for tackling money laundering and terrorist financing. Well, on these subjects, my Lords, we have come a long way, as indeed the noble Lord, Lord Agnew, did in his views.

The debate has shifted far closer to where the Green Party has always been saying, as the noble Lord, Lord equal said, in the relationship between society and the financial sector, the settlement is not working. The financial sector is not providing the appropriate support to the real economy is extracting excessive profits from its traditional sectors and from parts of our society in which it should have no place, such as children's social care and aged care and water companies and many other public services.

And excessive pay is being extracted as the high pay centre has been so prominent in highlighting and the sheer size and risk taking threatens the security of us all. We have too much finance, so this bill should not be seeking to grow more as of well, of course, too much corruption and fraud. There is another way. As the Global Justice report by Thomas Piketty's World Inequality Lab demonstrated this week. And there's also an issue not yet raised by others. The cost of the speculation in the prices we all pay for the basics of life, for food, for fuel, the impact of the financial sector's bulking up, of lending on house prices, food security.

As the Green Party is trying to get the government to understand, is a huge and present issue in the UK and the financial sector is a significant part of the problem now, the noble Lord Lord said. Risk aversion has its uses. I can only agree. He questioned, however, the cost to the sector of regulation, but the cost to all of us, of course, in getting it wrong is enormous, possibly existential. We must must not forget how close we got in October 2008 to total collapse.

It's customary at Second Reading to mention issues that one wishes to raise at committee, and I think I've pointed to my areas of interest making the financial sector work for the real economy, tackling corruption and fraud, protecting consumers and, of course, nature and climate, and tackling the costs of speculation to us all. But I will raise one final issue, which I will be tackling within this bill if I can find a way, an issue that politicians around the Global North have been facing for a long time.

I go back to us, President Roosevelt in 1936, and I quote, business and financial monopoly speculation. Reckless banking had begun to consider the government of the United States as a mere appendage to their own affairs. We now know that government, by organized money, is just as dangerous as government by organized mob. We have just down the road from us the City of London and the City of London Corporation, which has a unique, archaic and dangerous place outside the rules that apply to the rest of society, rules about democracy, rules about transparency.

This is a place where organized money rules. I mentioned the APPG on investment fraud and fear of financial services. Well, I'm working with it now on a survey asking for views whether the corporation should be maintained as it is reformed or abolished, as a Royal Commission recommended in 1894. We've come a long way in our understanding of the issues in the financial sector. We will have to see how far we can go because we need to grasp, as I respectfully say to the Minister, that the city is not one of our greatest economic success stories, but an entity that needs far tighter, stronger controls from the government for the security of us all.
20:07
Lord Mann Portrait Lord Mann (Labour)
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If we got green technology on households and businesses households and businesses everywhere, then we'd be less reliant on Russia, on China, on Iran. So why is there no financial product that the householder can get hold of to put, say, solar panels on their roof? And the country benefit and then benefit or a product for schools to do the same thing or a product for an NHS trust to do the same thing. Because if the technology works and the technology is sufficiently profitable, then a good financial product would make common sense.

But I see none for schools, I see none for NHS trusts and I think those for householders and small businesses in particular are rather limited. And I'd be interested in the minister's observations, because it seems to me that's relevant for this bill far more than it's relevant for the Energy Secretary. Second, the Minister was very bullish about how mutuals and co-operatives are going to double where, two years into five years of a Labour government, but interested to know if we're 40% towards that doubling now and if not, which of the sectors that are going to lead the way in the next three years and how and I'd also be interested perhaps in writing, to understand with one small sector county cricket clubs, whether it's the government's expectation that in the next three years they will be as mutualised as they are now, or significantly less.

So. My third and my substantial point is on financial mis selling. I've raised already previously the V 11 group working class footballers who were done out of their investments by fraud. Now the experience, looking at exactly what happened to them is very similar to to coal miners separate case, not financial fraud. It was lawyers who were ripping them off that obviously take him money there. The Ombudsman did a special report in 2008. I managed to get 43 firms of solicitors disciplined and fined.

I got 12 removed from practice. Now, if we take the financial sector and what's happened to those former footballers, but also to many other groups in society who have been mis sold products, I don't see the same system. My dealings with the Financial Ombudsman Service I did as vice chair of the Treasury Select Committee in the House. I have to deal with them. For four years. I found them lacking in purpose, losing skills, experience all the time, and I didn't see the level of leadership needed to take hold of things.

How is that going to change? And I hope it will, with a shift of power to the Financial Conduct Authority. If we look at the V 11 case as an example, the fraud was palmed off to the Serious Fraud Office and to the City of London Police. Why? Why to one specific police force? My dealings with the SFO, when it came to the coal miners and the legal scandals which were mega, I got money back for more than 2000 of my then constituents and millions of pounds back.

Why? Why is that not being handled more effectively at the beginning? Because in this case we're talking financial mis selling, which is a conduct issue, but also fraud, which is a policing issue. And there's a mish mash in the middle. And I want to be convinced that the Financial Conduct Authority will cut away through that, because, you see, if working class people, let's say sports stars, let's say musicians, come into money and find others taking their money away from them by mis selling or worse, by fraud and mis selling.

Well, why will they invest in those products in the first place? And in the case of those footballers, of course, and Kingsbridge Asset Management ones that were brought forward by the government in terms of developing the UK film industry, put forward by then Chancellor Gordon Brown as the right thing to do. But if working class people do the right thing and get some money and invest it, who's going to protect that? People who are not surrounded by good accountants or any accountants or good lawyers or any lawyers when they first get money? And if we look at the financial fraud cases, we see case after case after case where people are getting done over by people who appear to be cleverer than them, giving them advice and mis selling.

And the system is not helping them out. That's fundamental. And that's the bit that I want to see more of in this bill, because if we're appealing to the country to say, do the right thing, invest in the future, whatever kind of investment there has to be the guarantees, and the system has to be robust enough that somebody, when there's wrongdoing, is going to sort it out. And the mish mash of the SFO and the City of London police, that is not a system.

That's a hope. And it's a failed hope and proven to be a failed hope. So if the FCA is taking that responsibility, my question of the Minister what precisely is government going to say to them in terms of the systems, the skills, the reporting back, including to Parliament, that they're going to give to show that they are up to the mark in being able to handle the mis selling and handling the fraudsters, and have they got the powers they need to prosecute? Because it seems to me there is fundamental the separation of prosecution.

And those looking at financial mis selling is one of the lessons from the V 11 and the loan charges and the other scandals, the multiple scandals that we've seen in the last two decades. People need to be confident in the city, in the system when it comes to financial services. We need to make sure they are. I look forward to hearing from the Minister on what precisely is going to say to the FCA should this bill be passed and they be given more power.
20:15
Lord Holmes of Richmond Portrait Lord Holmes of Richmond (Conservative)
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My Lords, pleasure to take part in this Second Reading debate. In doing so, I declare my technology interests as adviser to the Crown Estate, Endava plc and Simmons and Estate, Endava plc and Simmons and Simmons LLP. Can I congratulate the Minister on the clear and cogent way he introduced the provisions in the Bill? I will largely concentrate on what isn't in the bill, but by the time we get to Third Reading, I hope maybe in the bill. Turning to AI, first of all, it's across our society, across our economy, throughout our financial services, be that in fraud detection, credit, decisioning, algo trading, any part of the financial services.

And yet currently the bill is strangely silent when it comes to AI. The regulator merely having to use existing powers which were never designed for these new technologies. Can I ask the Minister to that effect? What does he believe is the right approach in this bill when it comes to AI, in that the government have stated they're taking a domain specific approach, leaving it to the individual regulators. But if one takes that approach, how can any consumer how can any customer of financial services product be guaranteed clarity, consistency and a coherent approach when they avail themselves of financial services, not least because there are two regulators in this sector.

And if you're a business, you may well have dual regulatory responsibilities. How will it work to not have horizontal cross sector AI regulation moving to cyber? Again, nothing in the bill when it comes to an effective framework for cyber resilience. In contrast to AI, the government have decided on cyber. You can have a cross economy cross society approach. So I can ask the Minister what's different about cyber? Why can that be seen to be cross sector? But AI, not so much on financial inclusion.

I welcome the provisions around access to banking and to in-person services. As other noble Lords have mentioned, though, the devil is largely in the detail as to what precisely is meant by those services, there is almost no point whatsoever having a branch open if, when you go into that branch, you're told there's a machine or a screen in the corner which you can go and use, how is that financial inclusion? How is that digital inclusion? And when financial exclusion and digital exclusion all too often walk hand in hand, we need greater clarity on the face of the bill when it comes to these financial inclusion and access requirements.

Moving along, we should consider what the third largest economy in the world is the United States first, China second in third place, fraud and economic and cyber and financial crime 10.5 trillion, which could be hospitals, schools, teachers, nurses, doctors, defence. Any potential element of state spending. And one can be sure that the UK is losing its share of billions in that financial crime and fraud. And yet, where is the modern framework in the Bill to address these new fraud vectors, not least AI enabled fraud? Why is there not more on the face of the bill? Looking to see how AI can be deployed as a sword and a shield against nefarious use of AI to finance education? There are a few nods and winks in the bill, but we need to see much more on this if we're to have less of the asymmetry between customer and firm, then financial education is critical to this.

Can I ask the Minister how the government, the Financial Inclusion Committee, the Money and pension Service who do such great work and the firms themselves can be brought together to have a far greater, coherent and consistent approach to financial education for all. And how will this tailor with what's currently proposed with the excellent Francis review into the curriculum, and what financial education look like in that? My Lords, there are many positive provisions in the Bill, but for me it is marked by errors and omissions excepted.

There is so much which is not in the Bill which needs to be in the Bill. A significant Financial Services and Markets Bill, significant and yet silent on AI, on cyber quiet, if not completely silent on financial inclusion, fraud and financial education. If this continues unamended, these issues unaddressed individuals, our communities, our country will be the worse for it. Under enabled, under empowered and as a consequence, more than suboptimal economic activity. As a consequence, my Lords, we have the bill.

We don't need to make it bigger, but we can make it better.
20:21
Lord Sahota Portrait Lord Sahota (Labour)
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My Lords, I welcome the opportunity to contribute to this debate on the Financial Services debate on the Financial Services Bill, in particular to consider its implications for local authorities and local communities, local authorities and the people we are here to serve. At a time when High Street continued to face a significant challenges, there are aspects of this bill that deserve recognition and support. One of the most important is the effort to preserve access to essential banking services. For many people, particularly our older residents, small businesses and those who are less confident using digital services.

Access to physical bank branch remains vital. The closure of bank branches over the years has had a profound impact on communities across our country. A local bank is not merely a place to deposit money or seek financial advice. It is often an anchor institution that helps sustain footfall, support local businesses and contribute to the vitality of the high street. In many communities that I have visited, the loss of local bank branches has been felt just as keenly as a loss.

Loss of local post offices, measures that seek to maintain access to cash and banking facilities, therefore have benefits that extend far beyond the financial sector itself. They help keep our town centre active, accessible and economically resilient. The bill also contains provision aimed at strengthening consumer protection and promoting a more competitive financial services sector. It implements a implemented effectively if implemented effectively, these measures could improve access to affordable financial product, encourage innovation and help ensure that customers receive fair treatment.

Such outcome would be welcomed by household facing, continued cost of living pressure and by small businesses seeking access to finance and investment. However, while there is a much to command command in this bill, there are also important questions that deserve careful consideration. Local authorities have long played a crucial role in supporting vulnerable residents, promoting financial, inclusive and house responding to local economic needs. They possess local, detailed knowledge of the challenges faced by their communities, and are frequently the first to identify emerging problems.

I would therefore be grateful if the Minister could clarify how local authorities will be consulted as a new regulatory framework and when powers are implemented. What mechanism will exist to ensure that local knowledge will be used in decision making? How will Council be able to raise concern where changes in a banking provision, financial services or regulatory practice have unintended consequences for local residents? I would also welcome clarification on how the government intends to measure the impact of these reform on financial exclusion.

What assessment has been made of the effects on rural communities, deprived urban areas, and those who continue to rely heavily on face to face services. Furthermore, what safeguards will be put in place to ensure that transition towards digital financial services does not leave behind those who are least able to access them. Finally, can the Minister explain how the government will balance this regulatory efficiency with equally important need for local accountability and community engagement? My Lords, the success of this bill should ultimately be judged not by its effect on market and institutions, but by its impact on ordinary people.

If it helps maintain vibrant high street, protect access to essential services, strengthen financial inclusion, than it will make a valuable contribution. But we must also ensure that local authorities retain a meaningful voice in shaping the outcome for the communities they know best. Thank you.
20:26
Lord Thomas of Cwmgiedd Portrait Lord Thomas of Cwmgiedd (Crossbench)
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My Lords. I too welcome this >> My Lords. I too welcome this strengthening. >> The position of London in the world's financial markets, but I world's financial markets, but I also would like to pay tribute to the regulators, particularly the FCA, who have had to cope with markets that have changed enormously over the years. The FCA has been in existence, but the fact that one extends praise to them does not mean that things don't need putting right. And there are two areas I wish to address.

The first is the whole problem of climate change, which has been so ably addressed by Baroness Hayman and Baroness Northover. I agree completely with what they've said. All I wanted to do was to underline the. The effect this is having. There is worldwide litigation in almost every country in the world about the risks of climate change and banks and regulators, central banks and regulators worldwide are concerned about its impact, and we must therefore ensure that this bill is fit to deal with this problem and to ensure that regulation of the financial markets, because of what is involved for the longer term deals properly with the

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this area. The A second area I wanted to turn

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A second area I wanted to turn to was the control, and I use that word deliberately that Parliament should exercise over regulators and their accountability. And in doing so, I want to declare my interest so, I want to declare my interest as chairman of the Financial Markets Law Committee. Though I speak an personal capacity. And I think one symptom of the current problem is can be taken simply from the volume of litigation we all suffer in this House, and everyone complains about the thickness of the bills and the Statutory Instruments we have to look at.

And maybe this is the problem of of our age in being unable to express ourselves concisely enough, but it's an extremely serious problem in the financial markets. Last year, the FCA produced 1918 pages of regulatory instrument. Now, the fact that so much legislation is being produced and. Lord Wolfson gave an illustration earlier of the change, shows that someone needs to ask to hold the regulators accountable. Why do we need it all? And there are five points I'd like to make.

First, I really think there is a serious problem with a clause 17 of the bill because of the weakening effects it has on transparency, proportionality, and as Baroness Noakes so clearly demonstrated, the long the more insidious impact it will have on the ability of this House to scrutinise, to scrutinise bills. We must increase scrutiny and outside control because, fundamental to any body that makes laws or, as in the case of the FCA, also enforces them, is accountability.

And I think there is a plain lack of accountability. Secondly, I accept, as the Treasury rightly point out, that expertise is required to draft the regulations. These transactions, when I look at them, are transactions of immense complexity. And you really need to understand the market to draft them. But that doesn't mean that you don't need someone looking over your shoulder to see whether you're getting it right. It's very easy to see just trees and forget the wood. And what I can't understand is, is why isn't the regulator very happy for someone to look over what they're doing? Because if things go wrong, it is a mighty source of comfort.

And there is no doubt we shall have another financial crisis in a way none of us can anticipate. Thirdly, I think there's a wider issue as to the form of rules. I think we've got to a stage now where we produced very detailed rules, and I think we have to ask ourselves two questions. Is this the right approach? Because I think if you and compliance departments like detailed rules, because if you have detailed rules, all you have to do is go through them all and tick, tick, tick, tick, and you've complied with your obligations.

But that shouldn't be the test. The test should be. Have you complied with the principles? And I think what we're in the danger of doing is transferring to the regulator the risk that market participants should have in complying with the underlying principles, and not merely with the tick box exercise of dealing with rules. I pointed this out when the inspector in the system of inspections we used to have many years ago, we said that one of the problems with the whole Maxwell problem was a tick box mentality, and we must always remember that.

But there's a second matter to which it's also necessary to point out that if you have very clever people, and one of the regulator's difficulties are that the people he supervises pay so much money. You can always use rules to justify what is done. And it's worth turning up what happened in Enron time does not permit me to explain, but Enron is a classic case of applying rules to produce a result that was completely contrary to the underlying principles.

Fourthly, cost. The point is, E is very shortly made. Long and complex rules are very, very expensive. And fifth consultation. It's very, very important that we look very carefully at the provisions in the bill relating to consultations with the market. It is very easy, as long experience has taught me, that when drafting, you can overlook the obvious. And I think we've got to be very, very careful in what we permit the regulators to do without consultation with the market.

For those reasons. Therefore, I very much hope we will scrutinise these two areas of the Bill in particular. And may I again pay tribute to Baroness snakes for the extraordinarily lucid explanation of. She gave of the problems with part three and in particular, clause 17 of the Bill. Thank you, my Lords. For 14 years I was the
20:34
Lord Tunnicliffe Portrait Lord Tunnicliffe (Labour)
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most junior. Opposition Treasury spokesman. A slight problem with spokesman. A slight problem with that is I was occasionally, in fact, more than occasionally, the most senior opposition Treasury senior opposition Treasury spokesman, largely because there was only one of me. Settling into was only one of me. Settling into being a backbencher. I glanced at what was coming ahead and decided I what was coming ahead and decided I had sort of a duty to participate in this debate and learn. I've looked at the bill and concluded that it is.

I'm going to call it motherhood. What I mean by motherhood is not not belittling, but part by part by part. It attacks individual problems, proposes solutions, and will be very good at that. We'll work at it and we will get a hopefully a good result. The only bit that hit my eyes was clauses 39 and 40 on on ring fencing. The global financial crisis in 0809 was right at the beginning of my career as an early informed frontbencher.

I've been through virtually all the bills. I think only the noble Baroness and I, I think, have been so consistently there. But there was also, of course, Baroness Kramer. We had in 0809 the global financial crisis. And we really have to remember that it's been mentioned that there's going to be another one. We don't know what it is, but we should think about how we are prepared for it. And I couldn't agree more. The financial crisis we had in 0809, the world teetered on the edge of financial chaos.

It was solved by a lot of people. But I'm particularly proud of Alistair Darling and Gordon Brown for what they did in those weeks when we really didn't know what was going to happen next. After the crisis, we created the Independent Commission on Banking. The Vickers report, which reported in September 2011, and they proposed ring fencing. Now, I must say, the consensus view on our side was it was a good report, good commission, great people, and the output reduced general approval, including from me, in anticipation of this debate and looking at the ring fencing being the most significant point that it touched on, I decided to read a few reports.

I read the ring fencing and Proprietorial Trading independent review by Keith Skeoch. I apologise to him if I've got the name wrong, but it's a fascinating document which was published in March 22nd. The Treasury produced not a ring fencing regime in November 24th, and the safeguarding and stability once again from the Treasury in May 26th. I'm afraid I conclude it, that the ring fencing regime was doing little good, and in many parts harm.

It has been overtaken in the area of protection by the Bank of England's approach to resolution. October 2017. I became fascinated. Really funny things that happened to you in old age. I became fascinated by this resolution stuff and managed to get somebody in the Bank of England. The official who is in charge of resolution, to give me a series of seminars on the telephone. He was a bit suspicious, so he said he had to have a solicitor with him.

Throughout the conversation. I feel I understood it, and I think the claim that's made in some of these reports, that all the good that. Fencing produces is covered by the resolution regime, but the resolution regime, in the end of the day takes years in preparation, as various banks are persuaded to take particular actions to make them more robust in a crisis. But it actually happens in about 60 hours over a weekend. It's a very elegant process, and they have enormous powers, and I feel there is a strong case for a relook.

Ring fencing. Recognizing that the resolution regime gives all the protection. We mustn't lose sight of the fact we were trying to do. We were trying to avoid the too large to fail dilemma. The resolution regime does that. And it doesn't just do it for ring fence banks. It does it for all banks. It achieves almost certainly the minimum cost of the public purse, normally no cost to the public purse. It prevents systemic impacts. Now, the reason I'm making this so short is because the only bill that goes into the details about 40, 40 minutes, and I didn't think this was the time of the night to start on it.

I have to simply say, I hope I will be able to find a way or hopefully perhaps even find some support to produce amendments in the bill so that we can have a proper discussion that looks at whether ring fencing is still fit for purpose, and the extent to which the resolution regime can take over much of its work, and the rest of that, the work it does, if any, can be distributed within the regime, and particularly if we can take away the detailed problems all over the place in its application, which is a negative to the system, and also essentially remove the fact that there are two regulators, which is always a bad thing, especially when one is going to take over at the last minute as the as the reserve Bank of England has the power to do in the resolution regime.
20:41
Baroness Kramer Portrait Baroness Kramer (Liberal Democrat)
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My Lords, that can I just as the first of the winding speakers to say, I want to thank the Minister say, I want to thank the Minister for his willingness to meet. I suspect, after listening to what I think has been an extraordinary and exceptional debate, just everything, a powerful contribution. He now knows this is not a small technical bill that is going to slide easily through this House. My Lords, we've agreed generally that financial services sector contributes something like 10% of the UK's economic output, and consequently that innovation and growth in this sector matters.

But I also want to pick up those points that others have made that it's important we don't repeat the mistakes of the past. This sector brought the UK economy to its knees. Baroness Northover That Lord Davies of Brixton to some extent Lord Tunnicliffe gave us a feel of how damaging that was at the time. I mean to say the world teetered was probably the right phrase that. But the consequences have dragged on way beyond that, and the consequences still have deep impacts on us today on an ordinary people dealing with their cost of living.

Now, following that crisis, the revised regulation that was put into the books was based on precautionary principles. Now, I have no objection ever to streamlining and efficiency and eliminating duplication, and I can agree that some measures went too far or were too broad. But this bill fundamentally changes that precautionary approach and replaces that principle with assurances of enforcement action in relation to poor or corrupt behaviour, and in terms of bank failures of the resolution, that a scheme that coming to the rescue, that, as Lord Tunnicliffe described, and I really question whether the bill

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adequately structures the capacity to make the. Shift in the case of enforcement.

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Shift in the case of enforcement. I've asked the Minister directly to demonstrate to me that enforcement has teeth. I talked with the city has teeth. I talked with the city again this morning, and frankly, they laughed. That's a. And it's one of the reasons. If we can't one of the reasons. If we can't have certification and precautionary principles around fit and proper, that enforcement is absolutely critical. And I do want to hear much more from the government on that issue. And that's just one example.

In the case of the resolution, this picks up Lord Tunnicliffe's point, but I disagree with him completely that we don't need to have ring fencing because we've got that we've got a resolution regime in place, or we can have a mixture of we can weaken the one because the other exists. Will the Minister be able to actually look me in the eye and say that he would activate a bail in bond scheme if a big bank failed, because the consequence would be huge financial instability amongst those who held those bail in bonds.

And I'm talking about the insurance companies and pension funds. Many would be on the verge of collapse if we ever exercised poor bailing in those bonds. And it's one of the reasons why the financial crisis that have happened. No government has ever taken that step. It's a there's a minor issue around ring fencing, though. I mean, I think there are lots of issues there, but I do want to pick up the one on interbank group services because the removal of the ring fence there.

I'm just giving notice to the government that allows services to be brought in from overseas bodies that are not regulated by any UK authority. So there's that issue. But around these issues we heard from Lord E well, who I know is very concerned about MRL and whether or not bail in bonds could ever be used. Lord Davies of Brixton and others. Now, I also want to join my colleague Lord Sharkey in his utter frustration at the undermining of the force of the Financial Ombudsman Service and the narrowing that of protection, the sort of narrowing of free and fair redress.

And we are going to take that on in this bill that I want to join that Baroness. Note what a really, truly brilliant speech, but also Baroness Bowles, around the same issue that Baroness Northover, Lord Thomas in some ways Baroness Noakes used the word shock, that the principle that regulatory principles to be applied by both regulators, which currently sits in primary legislation, that's proportionality, fairness, responsibility, transparency and yes, regard to climate change are removed from primary legislation by this bill and reduced to elements in a five year strategy document.

Those regulatory principles are Parliament's instructions to the regulators, and they will now have no legal standing. If the regulator does not pursue them, there can be no action in court. There could be no charge of judicial review, that it is entirely up to the regulator whether or not that those principles are observed. And I note it's very clear in the bill that the strategy document on which we will now depend can be revised at any time, with no consultation.

And the regulators are really merely required to note in their annual reports whether or not they have bothered to have any regard to the principles. Now, the main purpose of this change, and we've seen this pressure before from the regulator, is to cut Parliament out of any control over the principles of the regulator and to make sure that there is no judicial recourse when they're abandoned. This change has to go, and I suspect that would be the verdict of most of this House.

But that brings me not just to commissions in this bill, but to the omissions. And I'm really grateful to Lord Holmes, who raised issues around AI and cyber, about which I am frankly not sufficiently informed. But I'm sure he's right that they need to be addressed in this bill. But the omission that exercises my party the most is around the access to financial services for both small businesses and disadvantaged individuals who are very poorly served at present. And these issues were eloquently addressed by Baroness MacLeod, the right Reverend Bishop of Manchester, Baroness Hyde, Lord Carmel, Lord Sir Sahota.

Really powerful discussions. This bill does take some necessary steps on credit unions credit, data sharing and permits action on the anticipated Lloyd review of in-person banking. But it could go so much further. And to bolster. And I'm so glad Lord Carmel and others have mentioned this, that community development financial institutions, including credit unions, with thanks to the Fair Banking movement, I will propose a rating system to show where there are shortfalls in lending and other financial services, and then I will go beyond that to propose remedies, including mechanisms to provide investment into cdfi's for those banks that don't wish to change their lending practices, a revival of local banking, which has largely been discarded in the business models of the big banks, would drive up growth, jobs and living standards in all of our communities.

My Lord, the US tech sector is brilliant at not paying its way at the expense of British competitors. Online platforms facilitating fraud should have reimbursement liability, not just the banks. We hope we can find a way to bring in that change. We also insist that across all recognised payment systems, including big tech participants, not just the banks, must be subject to the levy to support financial inclusion. Again, I hope we can bring in language for that. We should also use this bill to face up to the expected risks in financial stability, and a key concern is the burgeoning private asset backed market, now $18 trillion strong, and the private credit market discussed by Baroness by.

But it's interconnected through lending, investment and derivatives throughout the regulated financial sector. That private market is opaque. It's an intermingling of excellent credit and complete garbage, and it easily becomes illiquid. I want it to be a clear responsibility of the Bank of England and the PRA to assess the risks of a broad based credit crunch in private markets. I'm also concerned that the regulatory perimeter, which excludes small businesses for most FCA protections, may become a serious issue in a private credit crunch.

So I'm going to seek to add to the regulator's principles consideration of the risks arising from these issues. My Lords, digital payments and finance are coming out as fast. We can't be King Canute, but frankly, we have had enough of scams and money laundering that Baroness by that a very extensively. Baroness Hodge talked about the importance of taking action to deal with enablers. But I think this bill should also be an opportunity to get in place the right guardrails for crypto.

And I'm very much behind putting requirements on the tech sector and requiring the stablecoin exchanges to act against fraud, sanctions busting and money laundering. But I'm not sure this should be done through Henry the Eighth Powers. And I'll give you a reason. I'm concerned, for example, that in exchange for putting these requirements on stablecoin exchanges, the Bank of England is proposing to step in as a backstop if they have liquidity problems. They've made that statement publicly. Now, even in the US and in the EU, no government will touch that offer of liquidity backstop with a bargepole.

It's such a big issue. This is an area where Parliament should be making the decision, not the regulator. History tells us those who cannot remember the past are condemned to repeat it. If we repeat 2007, we lose all our chances to seize the opportunities for the future. So my and my colleagues will try to make sure that Parliament's voice remains. The guardrails are in place for the financial sector and even for crypto, with the tech companies paying their share. And we will see game changing improvements to achieve access to finance for all communities, individuals and small businesses.

Fair and sustainable growth is more than possible and it is what the public expects of us.
20:53
Lord Altrincham Portrait Lord Altrincham (Conservative)
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I thank the noble Lord, the Minister, for hosting this debate Minister, for hosting this debate with such courtesy and speaking so well at the start, and declare my interest as Director of South Molton Street Capital and also as a former director of the Co-operative Bank. I would start by following the words of my noble friend, Baroness Neville Rolfe in saying that we welcome this Bill. It addresses a widespread sense that financial regulation has become a little too complex. And that sense we've heard this evening in debate, but in that sense seems to be held by the Treasury and also by the National Audit Office and clearly by the government.

And the government has has generated multiple reviews and inquiries that underpin the clauses in the bill. Just looking at a few of them to start with clause A, clause 26 follows the Committee on Banking Standards, and this is the clause that looks at the senior management regime and where there's a huge need for reform and a reduction in bureaucracy, and the government has asked for a 50% reduction in bureaucracy, which we would welcome. The senior management regime itself is really quite a complex thing and probably doesn't quite do what what members of your Lordships House would expect, partly because some of the people who participate in it don't fully understand the regime themselves or what their obligations are.

And then turning to clauses 16 and 17, these are the two clauses quite controversial and spoken about this evening, the one on the five year plan. This is the UN supervised five year plan, the FCA and the other on weakening the link to the regulatory principles. Noble Lords this evening have spoken about the importance of oversight and keeping an eye on what the FCA is up to. But going right back to the beginning of how the regulators were set up and the noble Lord, Lord Edward, reminded us of his participation in.

In it. And noble Lord, that when the Financial Services and Markets Act was set up in 2000, it established there would be a cost benefit analysis that would hold the regulators essentially to to account, to be honest in how they develop regulation. And the FCA is actually running a review at the moment of cost benefit analysis with Doctor Felix Martin. And we might at the very least hold the regulators to to that part of their own obligation, proper cost benefit analysis and proper supervision of the cost benefit analysis.

And that's even before we get to proper supervision in Parliament, which is which we've only just managed to put in in the last bill, as you know. And turning to clause 39, this is on the on the ring fence. And it was interesting to hear the words of Lord Tunnicliffe on on the ring, on the ring fence. So the ring fence, of course, also sits. The ring fence clause also sits on a variety of reviews, in particular the Keith Scott Review of 2022, and it is worth remembering what the review in 2022 said, which it did support the ring fence, but it was very explicit on a few other other points, one of which is it's very expensive.

So there's an economic burden of running this ring fence regime, and it's something of the order of £1.5 billion a year. But he also said that the benefits of the ring fence regime would be diminishing for the reasons we've just heard. They're diminishing because of the the strength of the regulatory regime elsewhere, and particularly the resolution regime. And then he went on to add that the ring fence might lead to ossification. It's quite a strong word in retail bank services, and we might hope that hasn't quite happened.

But we know that there have been closures of hundreds of bank branches. And so we might expect that the closure of all those branches would suggest at least a moderate reduction in retail bank services. And that's before we even get to the provisions in clause three, which themselves are underpinned by a review into what's happening in retail banking at the moment. And we might take quite a hard look at that, because that touches on the issues raised by my noble friend Lord Carmel on on access to banking services for more vulnerable people.

And also my noble friend Baroness Morgan on financial abuse. And what's, what's happening in the in the retail bank market. So just to underpin that, these so many of these clauses do, do sit on quite careful inquiry. But this this pattern whereby there's a review, there's a recommendation, it winds up in consequential legislation. This pattern means that every single time the FCA acquires more powers. And then we come back to why the FCA has all these powers and what they're doing with these powers and what we what we can do in Parliament about it, which is why in the last Financial Services Bill, we spent so much time on oversight and accountability.

And I will start there with oversight and accountability. Oversight and Parliament for financial regulation has been improved with the last Financial Services and Markets Act and to the credit of Parliament and the government, there have been quite important changes with the increase in the threshold in September, the deposit threshold for the leverage ratio in November and reduction for the first time since the financial crisis in the tier one capital ratio by the Bank of England in December. Oversight in Parliament was at least part of the reason for the change.

But as a number of noble Lords have said, this Bill removes significant parts of the existing regulatory architecture, and this was specifically of concern to my noble friend Lord Howard, and was mentioned by Baroness Bowles. In doing so, it transfers considerable part of the Treasury, the FCA and the PRA to design and implement the new regime. Clause three, adds Henry, the eighth powers that might create quite unintended consequences clause 16, 17 and 18, quite specifically, tend to weaken supervision.

We understand the argument that the Minister is likely to make, which is that placing more of the framework outside primary legislation can allow for greater flexibility, speed and responsiveness. But flexibility must not come at the expense of accountability and simplification. Simplification must not become a means of transferring major policy choices away from Parliament and into the hands of regulators. Without proper oversight, the FCA and the PRA rightly enjoy statutory independence from the Chancellor. But that independence makes parliamentary accountability even more important.

Their principle democratic accountability is not to Ministers but to Parliament. And in practice that accountability is exercised largely through committees in both houses. Turning to regulatory proportionality, the second key concern I have is in proportionality. As discussed extremely clearly by my noble friend Baroness Noakes and also by Baroness Lawlor. Commenting specifically on, on, on the words of Lady Noakes, she's right to say that proportionality needs to be uppermost in the minds of the regulators. It is the detail of rules, guidance and decisions that matter, not the broad based strategies.

Lack of proportionality can arise, of course, for lots of reasons, perhaps starting with legislation itself, but it suggests a lack of regulatory judgment, which is rather unlucky. Anti-Money laundering rules have reached the furthest corners of English life. Alas, as we guard against wickedness in very small financial transactions in this country, there is a degree of quite significant capital flight out of the country going on. The timing of this bill suggests that it may be the last chance for Parliament to set clear guidelines on proportionality before the next government.

Only Parliament can do this because financial regulation will default to maximum caution in most instances, with consequences very clearly identified by noble Lords. This evening, clause 14 on AML, clause 39 on ring fencing clauses 1617 on the five year plans and clause 26 on changes to the senior management regime are all about proportionality. The government's own 2025 Action Plan recognises that regulation can be too complex and duplicative, and that the cumulative effects of individually rational rules can impose significant burdens on business.

Smaller banks, challenger firms, wholesale firms and those caught by overlapping conduct and redress frameworks. Your Lordships Financial Services Regulation Committee has also raised important concerns about whether aspects of the Pra's capital approach may limit the commercial incentives and capital available to finance growth over calibration could reduce lending, particularly for SMEs and productive investment, and especially where requirements bear down on smaller, growth orientated lenders. The bill touches on some of these issues of proportionality, reform of the Financial Ombudsman Service, simplification of the senior managers, senior managers regime, faster application deadlines and the consolidation of the payment systems regulator into the FCA.

Those are welcome steps. My Lords, we welcome this bill. We hope that through our deliberations in this House, we can help shape a bill that restores confidence, competitiveness and momentum in our financial services industry for the wider benefit of our economy and our country.
21:03
Lord Stockwood Portrait Lord Stockwood, Minister of State (HM Treasury) (Labour)
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My Lords, I'd like to thank everyone who has spoken in the debate this evening for their debate this evening for their valuable contributions. It's an incredibly well informed and a courteous debate as well. Overall, recognise the balance that needs to recognise the balance that needs to be found to ensure that consumers are protected and risks appropriately managed, while avoiding an ever increasing burden avoiding an ever increasing burden on regulation. A noble Lords have a range of views where exactly that balance might be. I'll try to respond to many of the points raised as possible in the time that I have, but I'll not be able to do justice to all the points raised today.

But I would like a meeting scheduled with many people who have talked today, but I also reiterate that I'm happy to meet anyone that would like to discuss any of the issues, and will find it helpful ahead of the Committee stage. My Lords, as I've said, the Financial Services and Markets Bill will modernize how the sector is regulated to help the sector grow, to lend more to businesses, and it will make consumer protections fit for the digital age, and it will achieve these objectives while maintaining high standards of regulation and oversight.

I would like to remind noble Lords that this is why, as important as I mentioned when I opened the debate, the financial services sector contributes 8% of total UK GVA, although I've been corrected that the city UK estimates that in related professional services this rises to 11%. We can all agree it's a substantial part of the UK economy. So as the industry is a direct source of jobs and tax revenue. But of course it's much more than that. It's a key enabler of growth in other sectors and provides is the provider of payments, credit, insurance and investment services to households and businesses all across the UK.

A successful financial services sector is one that meets the needs of the broader economy and of course, of society at large. And that is what this bill aims to deliver. Before I turn to some specifics, I'd like to set out the government position on some of the broader points raised in the debate. A number of peers, including the noble Ladies Baroness Neville-rolfe and Baroness Noakes, asked if it was appropriate to pass more responsibility to regulators. Fsma 2000 gives the financial services regulator's responsibility for making the detailed rules that apply to firms the regulator operate within this regime, set by the Government and Parliament, including a set of statutory objectives that they need to advance.

As a noble Lord, Lord Burns reminded us this is a long established approach, and the government believes that the regulators remain the most appropriate entities to make rules for the sector. Both the IMF and the OECD support the principle of regulators making rules independently from government. The delegation in this bill is entirely in line with the approach Parliament has repeatedly affirmed, and the government is in full agreement with the noble Lord, Lord equal, when he notes that the success of the UK's financial sectors depends in part on a highly respected system of regulation and strong, effective regulators, the noble Lady Baroness and the noble Lady Baroness Bowles, also asked of the government's use of delegated powers, and especially the power related to the banking services.

In clause three, the Treasury has submitted a full delegated powers memorandum to the DPRC which sets out the justification of each power on clause three. In particular, the government is taking this power now to ensure we can respond swiftly to the independent review of access to banking services once it concludes. The government is committed to keeping all aspects of power under review as the Bill progresses through Parliament and as the independent review completes its work, we would expect to now have this power once the review is concluded and on the matter of regulatory complexity, the Chancellor has been really clear that the UK needs to regulate for growth and that regulation must be proportionate.

Well, of course, adequately protecting consumers and ensuring we maintain high standards, which we are known for around the world. This bill targets unnecessarily burdensome regulation while maintaining those high standards, and we are focused on speeding up regulatory decision making and removing administrative burdens. The government is committed to creating regulatory environment that is proportionate, effective and supports growth and good regulation also supports consumers. For example, the reform of the Consumer Credit Act is designed to ensure consumers receive clearer and more useful information from lenders, empowering them to make better informed choices on their finances.

The current framework is prescriptive and outdated. The literacy The Literacy Trust has found that 1 in 7 adults has literacy skills at or below those expected of a 9 to 11 year old. Yet fairer finance has found that reading age required for credit card providers materials range from 11 to 20 years old. It is obvious that a simpler, more flexible regime one focused on outcomes rather than rigid prescription, would enables firms to produce clearer, more accessible financial information, better meeting the needs of a significant proportion of consumers with lower levels of literacy and numeracy.

The FSA has experienced to design the system to deliver this and the powers it needs to enforce compliance. I have listened carefully to the concerns from the noble Lady Baroness Ralph, Baroness Noakes, Baroness Gill and others about changing the application of the regulators have regards applying them to the long term strategy rather than the day to day functions. My Lords, it is vitally important that the regulators are subject to effective oversight and scrutiny so that Parliament can have confidence they are acting with appropriate activity, appropriate measures and achieving the outcomes required, much like other areas of regulations that apply to firms, the reporting requirements on regulators have developed over time and have sometimes laid on top of each other.

What results is a detailed set of information, but there also is of overlap and duplication. And, to use a metaphor also by the noble Lord, Lord Thomas. At times it can be difficult to see the wood for the trees. The changes will require regulators to set out for regulation and supervision, clearly making it easier for parliament and stakeholders to understand, engage with and challenge the have regards will remain in legislation. This will support the work the Government and Parliament hold to the regulators to account, cutting out dense, piecemeal reporting to focus on the bigger picture.

The reforms will reduce unnecessary and duplicative burdens on regulators, which allow them to speed up and focus on what's important, while maintaining the important information needed for meaningful scrutiny. For example, the bill will require the FCA and the PRA to continue to report annually on how they advance in their competitiveness and growth strategies. This will support the Treasury's biennial performance reviews held with the CEOs and regulators introduced as part of the government's wider regulation action Plan. Turning now to reforms of the Financial Ombudsman Service.

The falls. The government is in full agreement with the noble Lord, Lord Sharkey, and my noble friend Lord Pitt-watson, when they talked about the importance of trust. It's absolutely essential that regulatory system supports trust in the financial services sector and that people have confidence that they will be supported when things go wrong. I can give my noble friend Lord Pitt-watson, the reassurance he has asked for that the FA considers whether firms have met their obligations under FCA rules. This will include principle based rules including the consumer duty.

The new arrangements introduced by the Bill will bring in greater coordination between the FCA and the Fos will mean that widespread issues can be spotted and addressed more quickly and effectively. For example, if the FCA spots the large numbers of firms are letting down their customers in a certain way, they can make the regulatory intervention to nip that issue in the bud, rather than waiting until consumers lose out. I understand that some noble Lords have concerns about limiting claims to the Fos at ten years, concerns about potential long term liabilities that are difficult to assess can hold back investment, making firms and willing to invest, or to have certain consumer groups or to serve certain consumer groups.

However, historic complaints also pose significant practical challenges. When we look at the lack of availability of relevant evidence on which to which to base decision, the government has conducted a comprehensive cost benefit analysis when designing this policy. Looking at recent history, only 11% of cases that are older than ten years result in redress being paid much lower than the overall rate. In order to assess these claims, the Fos has charged firms £18.1 million per year in case administration fees will only award in £600,000 to consumers, so the case fees are 30 times higher than the redress awarded.

However, I appreciate the point that some financial products are long term by design, such as life insurance. Issues with these products may not come to light within the ten year cut off, so I am happy to assure my noble friend Lord Pitt-watson and Lord Davis of Brixton that clause six of this bill enables the FCA to make exceptions to time limit these types of products. This is aimed at ensuring that holders of long term products continue to be protected. Baroness Kramer raised concerns that the government is weakening the senior managers and certification regime.

I can assure my noble Lords that this is not the case. These reforms are about improving how the regime operates in practice by removing unnecessary complexity to help increase efficiency and effectiveness, while preserving the regimes core focus of maintaining strong accountability standards. Firms will remain responsible for assessing the fitness and propriety of senior managers, and pre-approval by the regulators will still be required. Where regulatory regulators determine it necessary to advance their statutory objectives, targeting the regulator's attention where it matters most, the regulatory regulators will continue to hold all senior individuals to account.

Where standards fall short, where there is any tension between reducing regulatory burden and maintaining high standards of senior level individual accountability. Regulators will be expected to prioritise the latter in accordance with their statutory objectives. Senior managers will remain responsible and accountable for areas of their business they oversee, including where they fail to take responsible steps to prevent regulatory breaches, regardless of whether they approved or appointed. My noble friend Lord Pitt-watson and my noble friend Lord equal, ask for assurances on the reforms to the ring fencing regime.

And as I set out when I opened this debate, the independent review, led by Sir Keith Silk in 2022, concluded that ring fencing should be retained but recommended better alignment with the resolution framework. The bill enables that alignment, meaning the PRA will not need to duplicate efforts where protections are already delivered elsewhere, especially through the resolution regime. This fundamental safeguard the separation of retail banking from riskier investment banking activities is unchanged. The government will also set out the wider reform programme in the Ring Fence review, which will be published and goes beyond the measures in the bill today.

It focuses in particular on enabling ring fence banks to support growth, including consulting on a new growth allowance and expanding the range of products and services that they can provide to support UK businesses and the real economy. The noble Lady, Baroness Hodge, asked a number of questions about the FCA's new responsibilities for anti-money laundering. I will try to answer them briefly. The government is working closely with the FCA to ensure that they are ready and able to take on new responsibilities.

On the question of registration and legal privilege, the Treasury will shortly publish a response to the consultation on anti-money laundering supervision. This covers the FCA maintaining a register of supervised firms, access to legally privileged material and powers to ensure robust supervision during the transition period. A duty of cooperation between anti-money laundering supervisors already exists in the in the Money laundering regulations. Bass also has essential power and can recommend that the Treasury strips PBS of their supervisory role. The bill provides authority to HMT to make payments to the FCA for proprietary work.

Therefore, the FCA's AML CTF supervisory activities will be fully funded by fees paid by the supervised population. This funding for start up costs will be fully ring fenced for these purposes, and the government intends for the FCA's AML CTF supervisory activities to be funded on a cost recovery basis through its fees charges to supervise firms consistent with the existing funding model. I expect the FCA to consult separately on the detailed structure and operating of these fees. The noble Baroness, Baroness young, Baroness Hayman and others raised sustainable finance.

As I noted, the government has clearly set out ambition to position the UK as the leading hub for sustainable investment, leveraging our sustainable finance expertise to support transition and to drive growth. The government is working closely with the regulators to drive forward this ambition through work, including the FCA's recent consultation on aligning listed companies sustainability disclosures with international standards, the launch of the Transition Finance Council and work to regulate ESG ratings. To answer the specific question, Baroness Young, the government consulted last year on how to implement its manifesto commitment to require financial services firms and listed companies to develop and implement credible transition plans.

The government is considering next steps and will respond to the consultation in due course. I would also like to make the general point that the noble Lord should not conclude that if something does not appear in the bill, it means the government is not doing anything about it. The government has a much broader programme of financial services work, sitting alongside the measures in this primary legislation, and I acknowledge the thoughtful questions from Lord Carmel, Baroness Young of Old Scone and Baroness McLeod about business and community finance, and in the interest of time, I will write to them.

Following the debate. I'd be happy to meet the noble Lord, Lord Holmes, to discuss the issues raised relating to technology and innovation also. And finally, the noble Lady, Baroness Morgan, raised an important issue of economic abuse. Tackling economic abuse is a priority for the government and a key theme of the financial inclusion strategy. Ministers will be happy to write to the noble Baroness with details of how we are working with industry, regulators and specialist organisations to tackle economic abuse and help victim survivors to regain financial independence.

My Lords, I have rather breathlessly tried to answer as many questions as I have as I can. I look forward to revisiting all of these points in

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detail at the Committee stage. I beg to move. Question is this bill be now

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Question is this bill be now read a second time. As many as that opinion will say content. To the contrary, not content. The contents

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have it. I beg to move the commitment motion standing in my name on the Order Paper.

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Order Paper. Motion be agreed to as many as are that opinion will say content to the contrary, not content. The

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to the contrary, not content. The contents have it. My Lords, I beg to move that the
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