Financial Services and Markets Bill [HL]

Baroness Bi Excerpts

Committee stage
Monday 29th June 2026 Grand Committee

[Lord Davies of Brixton (Lab)]

What she just said.

As the final representative of the committee in this Committee, I agree with what the other members of the Financial Services Regulation Committee have said. It is important. I remember sitting across the Room some years ago when the idea was being discussed. It is worth recalling that the original idea was, I think, a Joint Committee of both Houses but, for whatever reason, the Commons decided that it did not want to adopt that approach. I think there are rules about criticising what the other House does, but there is no doubt that the only effective manifestation of the belief that this sort of work is required has been the work of that committee. It is particularly important that we do not lose something that we achieved through cross-party agreement.

[Baroness Bi (Lab)]

My Lords, I declare an interest as chair of Norton Rose Fulbright. Some of my firm’s clients are regulated by the FCA and the PRA. I am not a member of the Financial Services Regulation Committee, which is why I am probably breaking what I have heard as unanimity by speaking in favour of Clause 17 remaining part of the Bill.

I note that the current accountability framework, including the role of the committee, was created only three years ago, pursuant to the Financial Services and Markets Act 2023 following Brexit. Before that, we have to remember that we were content with what was probably pretty limited oversight by the European Parliament, so hearing about the importance of very detailed parliamentary oversight when it comes to looking at every proposal that the regulators might have is a relatively new innovation for us.

I do not think it unreasonable for the Government now to consider how well that post-Brexit system has been working and to propose changes to a regime that the committee itself has criticised as overly complex and difficult to navigate. I note that the noble Baroness, Lady Noakes, commented at Second Reading how difficult it had been to hold the regulators to account under the current system. I am therefore curious about why noble Lords are keen to preserve a status quo that is far from ideal.

There has been significant opposition to Clause 17 and concern about the effect it could have on parliamentary oversight, but I am not convinced that that reaction is warranted. I do not think Clause 17 is a retreat from scrutiny, but it is looking to make it more targeted and effective by merely removing the obligation on the regulators to consider every step they take by reference to the eight FSMA regulatory principles for every day-to-day function. The obligation to notify all those processes to the parliamentary committee does not always lead to the kind of analysis or response and targeted feedback that we have been discussing. That volume of information that the regulators are producing has not led to a better system.

The result is that that documentation requirement has become a burdensome compliance exercise and not truly analytical. The Government’s consultation confirmed that the information produced is too granular to support effectively an overall assessment of regulatory performance, and nearly three-quarters of those who responded to that consultation were supportive of or broadly sympathetic to the approach the Government are proposing, and these are the customers, the regulated body, of the people that the FCA and the PRA are supposed to protect.

We should also acknowledge that Clause 17 does not abolish the Section 3B regulatory principles. The FCA and the PRA will continue to be bound to have regard to those principles when they are preparing or revising their five-year strategy plans, for which they will be held accountable not just by the parliamentary committee but by society as a whole. Those strategies will be subject to consultation and will create a public benchmark against which the regulators’ subsequent rule-making can be assessed and progress against the stated strategy can be monitored, in their annual reports if nothing else. I am not referring just to the glossy brochure that we have heard about.

It is also important to note that Clause 17 does not alter the requirement for the regulators to consider and document to the committee how they are pursuing their statutory objectives. In the case of the FCA, so much of the focus is on the competitiveness and growth objectives. That gives the committee a powerful accountability tool. There is nothing to stop the committee calling them in whenever it likes to talk to them about how they are meeting those objectives in line with the principles.

The requirement of the regulators to present their analysis to the committee on each of the eight regulatory principles in relation to each consultation is disproportionate. Its removal does not reflect a material dilution of the regulators’ obligations because the substantive matters of concern continue to bind the regulators in any event. Is it necessary for the committee to be involved in all the detailed work that the regulators need to do in order to exercise proper parliamentary oversight in what we all accept is a fast-changing financial services market in a post-Brexit regulatory environment where the FCA and the PRA now bear responsibility for significantly more rules than was contemplated when Section 3B of the original FSMA 2000 was drafted?

As a common law legal system, it is right that the Government ask the regulators to comply with broad principles and hold them accountable for the outcome without requiring parliamentary oversight of all operational steps and without expecting the regulators actively to consider and document their analysis of how they have complied with each principle every time they exercise their general functions, however routine they are. I know that there is a discussion about the system being modified and improved through this Bill, but that is not what we have at the moment.

The committee’s mandate is to scrutinise whether the UK’s regulatory framework and regulators operate effectively. That requires the committee to have access to meaningful information and a coherent standard against which to test the regulators’ conduct. The long-term strategy provides that broad standard, and the committee will still receive consultations and examine how individual proposals advance the strategy that the regulator has publicly committed to. Its constitutional role could therefore be strengthened rather than rendered ineffective. Clause 17 keeps the Financial Services Regulation Committee’s oversight where it should be: on the substance of regulatory performance, the delivery of publicly stated strategies and the real-world impact of regulation. It also frees the regulators from unnecessary procedural burden, so that they can focus on regulating well. The mechanism does not have to be the same as before, and keeping Clause 17 could materially improve it.

[Baroness Kramer (LD)]

My Lords, I did not intend to speak in this debate because the case has been put so well. However, having heard the noble Baroness, Lady Bi, I want to join the conversation because I think she has a very different perception of the role of Parliament from that of many others here. We have a responsibility as Parliament collectively—we are not the elected House but the appointed House—directly to the people of this country. The regulators are servants of that responsibility, not masters of it.

What the noble Baroness described is the ability for Parliament to intervene only at the very highest level in a very limited way and to pass huge authority over the financial sector, our financial stability and the economy to the regulators and then walk away. If we were to do that, we would be absenting ourselves from the very requirements that are at the core of a parliamentary system. She dismissed the pretty five-year strategy plan that we have from the FCA for 2025 to 2030, but it is exactly what is envisaged in this legislation: fairly high-level, simplistic comments of the kind that were probably developed by the public relations department.

The committee we put in place in 2023 was put in place not at the proposal of the Government or the regulators but by a Parliament utterly frustrated in not being able to carry out the responsibilities that it has as a Parliament. I have to say that the Labour Party was in a completely different place in 2023—it has now switched; I do not know why it has made such a volte-face. The Government of the day, the regulators and the financial sector were determined to narrow the capacity to scrutinise, to have a parliamentary view and to allow this Parliament to live up to its responsibilities. If we cannot have an expert committee able to look in detail at factors that so fundamentally affect the economy and well-being of the UK, we are, frankly, derelict in our duties. That is why this is a huge constitutional issue. If we were to repeat this in the area—

[Baroness Bi (Lab)]

I am not sure that we disagree very much on what the purpose of Parliament is and its relationship with the people of Britain, but the FCA asked for a risk metric from Parliament and did not get one. I have heard a lot about the obligations to the people but, if Parliament is so crucial to what the regulators need to do, why was no guidance given to the regulators about the extent of risk they should take in their operations?

[Baroness Kramer (LD)]

I am not on the committee, so I cannot answer that particular question—I am sure others would be able to consider this issue. However, if the noble Baroness thinks that, because Parliament did not, in her words, provide political cover for activity that the regulators wanted to carry out, Parliament should then be removed so that the regulators would somehow be exposed, who would they be exposed to? They would not be exposed to a committee. The public does not have the ability. I do not see the regulators going around the country talking to ordinary people in regular communities about what they are doing; they do not engage at that level. Many APPGs in this House have asked the regulators to come and talk to them. They are nearly always refused or somebody junior is sent, so it is only through a limited committee structure that this Parliament has been able to hold the regulators to account at all.

I give huge credit to the committee that sits under the chairmanship of the noble Baroness, Lady Noakes, which was created against the resistance of the regulators and the Government. This, now, is their attempt to try to unravel what is turning out to be a very effective committee that is raising really important issues, creating a requirement for proper answers and initiating real investigation. That is what lies at the heart of this: an attempt to negate the effectiveness of a committee that has been making its mark, and which leaves the regulator feeling uncomfortable because it has to answer questions.

Financial Services and Markets Bill [HL]

Baroness Bi Excerpts

2nd reading
Monday 8th June 2026 Lords Chamber

[Baroness Bi (Lab)]

My Lords, it is a pleasure to take part in this debate and to follow the remarks of the noble Baroness, Lady Noakes. I declare my interest as chair of Norton Rose Fulbright, a law firm.

I thank 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 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, domestically and globally. It provides well-paid jobs across the country and supports our international standing, since the UK is the largest net exporter of financial services. It is therefore important that we have a regulatory regime that is agile and proportionate. Many of us believe that the current burden of regulation is too high, with delays in costs affecting 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 these will reduce administrative burdens on business and allow it to operate more efficiently. I am very glad to see the repeal of the conduct rules as proposed in Clause 35, as they are heavy-handed and do not reflect the approach adopted by many of our competitive markets.

The changes to the senior managers regime will, I hope, address the absurd situation I have seen of senior people who are running their firms in EU capitals moving to London and having to wait for many months before they are able to perform the same role in London pending FCA approval. Similarly, the temporary permission regime under Part 4A 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 has 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 with 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 than 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, 12% of the population, owned crypto assets compared with just 9.3 million—17%—who owned a stocks and shares ISA. We cannot keep looking back when the world before us is so radically different.

There is much else in the Bill that 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 is a rare example of reducing the number of regulators rather than merely increasing them.

However, I would like to indicate three areas where I suggest enhanced scrutiny as the Bill is considered in more detail. First, I really hesitate to disagree with my noble friend Lady Hodge of Barking, who highlights the scourge of economic crime, but I am 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 counterterrorist 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 Regulation Authority, which is a regulator and not an advocacy body, the outcome will be that we will simply have another regulator to answer to, in addition to the 15 we currently have, and one that has no experience of supervising professional services firms, let alone law firms.

I can assure your Lordships that solicitors are not currently an underregulated profession, and it is not a lack of regulation that contributes to financial crime. I suggest that where crimes are being committed, 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, which provides for additional funding for the FCA, exceeding £2.7 million a year for more than two years to,

“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 to support legal aid instead, 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 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 about 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 VIII 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 about what new provisions will be introduced. 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 develop to prevent criminals using crypto assets 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 have not seen additional funding for the many other duties that the Bill will transfer to it.

As we have seen from a number of reports, not least from the Growing pains: Clarity and Culture Change Required report produced by the Financial Services Regulation Committee that has already been referred to, and the No Time to Lose: Reasserting UK Leadership in Financial and Related Professional Services report produced by PwC, there is a strong sense in our professional and services sector that it is currently overregulated and subject to compliance costs and delays that 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.