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.