Financial Services and Markets Act 2023 (Prudential Regulation of Credit Institutions) (Consequential Amendments) Regulations 2025

Baroness Kramer Excerpts

Monday 8th December 2025 Grand Committee

[Lord Jones (Lab)]

My Lords, surely these instruments must be welcomed, and surely we all want a smarter regulatory framework. I thank the Minister for his helpful and concise outlining of the regulations and the order. There is a lot of business ahead and time is of the essence, so my brevity is guaranteed.

One can only welcome the policy context as stated at paragraph 5 of the helpful Explanatory Memorandum. Can my noble friend the Minister or his department say what the Prudential Regulation Authority is? In particular, can he perhaps give some detail on how big it is and who sits on it? Who chairs it and, on the presumption that the chair is full-time or part-time, is he or she salaried and how much are they paid? Are all the PRA membership paid or are they voluntary? How often does the PRA meet? The department may not give answers now but if not, might the Minister reply by letter?

[Baroness Kramer (LD)]

My Lords, I will take these two statutory instruments in the order in which they are on the Order Paper, which is the reverse of the Minister’s discussion. That is not a criticism; it is just to explain where I am starting from.

The first of these two SIs removes the current assimilated law on capital requirements for banks, building societies and investment firms and replaces it with rules to be set solely by the regulator—in this case, the PRA. In effect, it removes the control of capital requirements from any intervention by Parliament. As always, I want to register my concern that an issue of fundamental importance to the financial stability of the country is, in effect, being removed from any meaningful parliamentary oversight or action.

The regulators may be experts, but they got it terribly wrong in the 2000s by misunderstanding CDOs, which triggered the financial crash of 2007-08, and by not recognising the precarious state of liquidity or lack thereof in many of the big banks, which worsened the crisis. They also turned a blind eye to the manipulation of Libor benchmarks, which damaged the UK’s reputation for integrity in financial services in ways that are still with us today—never mind, frankly, the financial damage to so many clients across the globe. Recently, the PRA has been permitting an erosion of capital requirements, almost certainly to fit with the Government’s agenda for short-term growth, rather than being based on any evidence of risk reduction, which I have looked for and cannot find.

I sat on the Parliamentary Commission on Banking Standards that examined the 2007-08 crash for nearly two years. We predicted that amnesia about how risk actually works would set in. I note that the banks are using the new leeway provided by looser capital requirements to leverage private equity funds, even though they cannot assess the risks embedded in those funds, which are, by definition, not transparent. However, of course, we recognise that those funds pay the banks’ substantial fees. It is all so predictable.

The second SI makes provision for environmental, societal and governance ratings, as related to investments, to be set in the rulebook of the FCA. Once again, what is properly a policy decision will escape parliamentary oversight and intervention. Clear rules will be welcomed by investors, but this is a contentious area. Is nuclear included? Is carbon capture and storage included? Is defence green? I am not answering those questions; I am saying that those questions naturally arise. In the Commons debate on this SI, the Conservatives basically reflected a Trumpian view of oil and gas investments—the “burn, baby, burn” view. Is that the view the FCA will follow, or will the Minister say to me, as I think he must, “That’s not up to Parliament; it’s up to the FCA”? The investment market is an international one and, frankly, investors care much less about what the rules are and much more about whether they are globally consistent. How will the FCA rules sit with the new anti-green US approach? The EU has a new ESG framework, which comes into effect in 2026. How will the UK rules sit with that? How will the UK’s overseas recognition regime work—the Minister referred to it—and what will be its parameters and consequences?

Surely, Parliament should have more of a view than just being one of the many consultees, which seems to be the current position. I continue to be very concerned about the direction of travel away from legislation, with debate, oversight and parliamentary responsibility, to rulebooks in the sole control of the regulators.