Financial Services and Markets Bill [HL]

Baroness Kramer Excerpts

Committee stage
Wednesday 1st July 2026 Grand Committee

Debate on Amendment 99 resumed.

[Baroness Kramer (LD)]

My Lords, I am sure everyone has reread the Hansard transcript and is fully on top of the debate that took place on Monday, so I will attempt to keep my remarks brief.

I am tempted to engage with the challenge from the noble Lord, Lord Bridges, on this group of amendments, to discuss in depth the issue of international rules on the one hand versus growth and competition objectives on the other. However, I say to the noble Lord, Lord Wilson, as the Whip, that I recognise that we are in Grand Committee and so will limit the comments that I make.

Looking at this group of amendments, it is important to say that my party believes in “better together” rather than “beggar thy neighbour”. International rules provide trust, confidence and certainty, which are key to long-term and sustainable growth. This country plays a key role in shaping international rules in sectors that we care about, including finance. The Bank of England is incredibly highly respected, as are our other regulators. There is extensive participation in key bodies, such as the Financial Stability Board, the Basel Committee on Banking Supervision and others. Indeed, the noble Baroness, Lady Noakes, gave a long list of the various committees in which regulators are engaged. I think she thought it might make them go native, but I consider that it is an important opportunity and area of their influence. We remain a player in making those rules, despite Brexit.

International rules need to provide flexibility, but they mean absolutely nothing if we pick only what suits us in the moment. The world is not thriving in the beggar-thy-neighbour world of Trump in the United States, of Russia and of China. The Committee will not be surprised that I am not sympathetic to Amendment 99, which would reduce international standards to a “have regard”.

As for the other amendments on this sector, I have no problem with the reporting amendments, but I am cautious of Amendments 102 and 104A, because they could easily be read as an instruction to waver on the Bank of England’s primary objective of financial stability. We must be careful not to abandon that focus on financial stability. Some people find volatility attractive—it is certainly a way in which the financial sector has frequently made much of its money. But the cost to ordinary people of both boom and bust and continuous volatility has been exceedingly high. The cost to businesses that need a significant measure of certainty is extremely high. Therefore, we will not be supporting these amendments, though, as I say, the reporting amendments make some sense to me.

[Baroness Neville-Rolfe (Con)]

My Lords, for me, the group speaks to the essential balance which underpins the purpose and function of effective financial regulation. Of course regulation must promote safety, stability and confidence in the system, but regulation must also support growth, competitiveness and innovation. It must help ensure that the United Kingdom remains one of the world’s leading financial centres.

We have often spoken about the contribution that financial institutions and financial services firms make to the UK economy; they provide employment, tax revenue, investment, lending, infrastructure and global influence. This group is about making sure that we put our money where our mouth is. If we say that competitiveness and growth matter then those principles must be reflected in the way regulators act, report and make their decisions.

That is why Amendment 99, to which I have added my name, is important. It would shift the requirement from “aligning with” international standards to considering international standards. That is an important distinction. International standards matter, and in many cases the UK will rightly wish to follow them, but we should not place ourselves in a position where we become passive rule-takers when it is not in our national interest to do so. We can see some rules, such as the unbundling of research in MiFID II, having totally the wrong effect—in this instance, regulating research so heavily that less research is produced, particularly for smaller firms. I know this from relatives who work in analysis; I do not think that is an interest to declare, but it is evidence. Another example is the EU’s sustainable finance disclosure regulation, which is now under review because it is too complex and burdensome.

The whole point of having an independent post-Brexit regulatory framework is that the UK should be able to design rules that work for our markets, our firms and our economy. The UK’s position in financial services is not secured by right. Other jurisdictions are moving quickly. We know the compliance costs are generally higher in the UK, so unless we offer a regulatory environment that is clearer, more cohesive, more predictable and more conducive to growth, it is likely that firms, capital and innovation will go overseas, the opposite of what we and the Government want. We are already seeing this risk in areas such as digital finance. Firms in digital assets, payments and new financial infrastructure need clarity and confidence. Where they do not find it in the UK, they look elsewhere. The Employment Rights Act is also having a chilling effect.

Amendments 100 and 101 are important because they would strengthen accountability around the competitiveness and growth objective. It is not enough for regulators simply to say that they have considered competitiveness. Parliament needs to see how that objective has been applied, what evidence has been used, what impacts have been assessed—for example, on SMEs, which are a key feature of my noble friend Lord Hunt of Wirral’s amendment—and how regulatory decisions have affected firms and markets over time.

Amendment 102, which I have also supported, would extend the secondary competitiveness and growth objective to the Bank of England’s financial market infrastructure functions. The same should apply to Amendment 104A on payment systems. If we want a dynamic payments ecosystem, competitiveness must be considered across the whole regulatory architecture.

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[Lord Pitt-Watson (Lab)]

My Lords, both the amendment and the speech by the noble Baroness, Lady Neville-Rolfe, were sensible in terms of making us think about bank capital requirements and whether we have got them right. As she says, the first step is undertaking proper analysis to be able to work out whether that happens. I noticed she caveated everything that they may not be right. They may be right, but they may not.

My worry is that that is a sensible position to take but it did not sound like the position being taken by the Leader of the Opposition when she made her speech last week saying that she was going to reduce bank capital requirements to release £450 billion in capital. Where did the calculation that hundreds of billions are sitting idly on bank balance sheets come from? Where do those hundreds of billions come from? If we are going to release £450 billion, what is the calculation in the reduction of bank capital requirements that sits behind that calculation? While I feel quite supportive of the issues that the noble Baroness was raising, we need to be sure—I hope she will agree—that we do not jump the gun on this.

[Baroness Kramer (LD)]

My Lords, the noble Lord, Lord Pitt-Watson, was rather generous in his comments. Sometimes it is important to speak truth to power. This is a lowest common denominator strategy. We have heard it before from the Conservatives, and it is repeated with enthusiasm today. I heard so many of these arguments back in the early 2000s. It contributed and was a fundamental part of the reasons why we ended up with such a major financial crash with huge financial and political consequences that echo through to this day. I could see the argument being made that we need to take proper care that we are looking at capital requirements and that we need to assess them and look at the consequences and do so on a regular basis. That is already part of the programme and certainly would always need to be part of it.

I notice that in line seven of the amendment the phrase is,

“while also considering financial stability”.

If ever there was a phrase lowering the significance of the primary objective with which we tasked the Bank of England, that phrase does it—merely a consideration of financial stability. I was afraid when the growth and productivity objectives were introduced as secondary objectives that quickly the attraction of the phrases would cause them to cannibalise the primary objective. This is a very good example of the way in which that, frankly, has been happening.

I have seen across so many of the measures in the Bill a step away from the precautionary principle—in this case, of looking for appropriate capital requirements, whether in equities or in MREL—to a notion that we deal with all this through a resolution regime. I am suspicious of resolution regimes and of after the fact ways of ensuring financial stability. I would much rather we did not have a bank failure that we must then attempt to remedy through the use of something like bail-in MREL, which I do not think will ever work. Frankly, MREL is held by insurance companies and pension funds, and we are never going to wreck them to save a major bank. I am very concerned about the change in approach that we are hearing today from the Conservative party.

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[Lord Bridges of Headley (Con)]

My Lords, I shall briefly speak in response to the noble Baroness, and I once again draw attention to my interest as an adviser to the chairman of Santander. I want to make three quick points.

First, I overwhelmingly agree with the thrust of the amendment. I think analysis of this critical issue is important for the reasons that the noble Lord, Lord Pitt-Watson, said. He will know much better than I do how notoriously difficult it is to compare the regimes of the United States, the UK and the EU. If noble Lords are interested in this and cannot sleep, I advise them to look online at recent reports that have come out. The Financial Times reports a law firm called Alvarez & Marsal pointing to the impact of the US’s current moves in prudential regulation and how that has unleashed a considerable amount of bank capital. Meanwhile, the ECB has pushed back with its own analysis showing that the US and the EU are broadly on par, so we cannot compare the others. The European Banking Federation has recently come out with its analysis of this issue.

As far as I can see—I stand to be corrected by others—a lot of this depends on how we measure not just the regulatory and prudential aspects but the supervisory actions, and how supervisors can put buffer upon buffer, depending on the banks, the GSIPPS and who you are looking at within the perimeter. This analysis will be very important, and it could be very worthwhile, but it has to try to overcome the enormous problem that exists, now matter we how bridge it. That is the first point.

The second point, flowing from that, is that the more I look at this, the more I think that the objectives—and, underlying those, the culture—of the regulators and supervisors seem to be almost more important here. When you look at the difference in regulatory approach, be it by the Singaporeans or the US, you find that it is largely a matter of the culture within those bodies, where they are coming from and the messages that the politicians are sending them.

I will cite just one example. Picking up on what the noble Baroness, Lady Kramer, said—we disagree on this violently, I know—I am very interested in the US approach. Secretary Bessent in the US Treasury gave a speech about eight months ago where he told the Financial Stability Oversight Council, which is a key body that brings together regulators and supervisors, that low growth was in itself a financial stability risk—let me repeat that: low growth was a financial stability risk—and that they needed to act accordingly. That sent a signal, as far as I can tell, throughout the entire regulatory and supervisory environment in Washington and the States, and they have acted accordingly. That has had more of an impact than necessarily what the capital requirements are for various bodies.

The final point is on SMEs. We will not have a long debate about this, but I would make one point here about the demand from SMEs for lending. We can debate the role of capital requirements—I think there is more of a role for and more impact from capital requirements on bank lending than perhaps the noble Baroness does—but where we would probably agree is that it is the overall general environment in which SMEs are operating that will stimulate demand for lending. If you have a Government who are piling pressure after pressure on SMEs—to be taxed more on employment, to have more regulation, et cetera—that will dent their demand for lending and for more investment. That is what will happen. Therefore, it is very important that we look at that issue per se in the round. With that, I will sit down.

[Baroness Kramer (LD)]

I probably have a right to reply, because it is Committee and we can speak more than once. The noble Lord, Lord Bridges, and I often find a whole lot of common ground, and I agree completely that the environment in which SMEs are operating is extremely difficult. However, if he goes back and looks at the numbers produced by the Federation of Small Businesses, he will find that there is significant demand for borrowing, which is continuously turned down and rejected. I just want to make sure that the noble Lord understands that side of the picture.

I have no problem with people going away, as I said, and doing proper analysis and trying to understand exactly what the picture is, but there is another side to that, and it is not included in this amendment. If I was amending it, I would add a line, because we need an analysis of the cumulative risk that has been reintroduced into the financial sector by everything from Solvency UK to the whole range of changes—I think I listed them once in a Second Reading speech, and it went on for nearly a page and a half—that have been made. Measuring that cumulative risk would be extremely instructive to us when we start to look at issues such as financial stability. But for goodness’ sake, if we are reducing financial stability to no more than a “have regard”, which is exactly what this amendment would do, we are stepping into really dangerous territory.

[Lord Stockwood (Lab)]

My Lords, I am grateful to the noble Baroness for raising this important issue. Prudential capital requirements play a vital role in ensuring that our banking system remains resilient, supports sustainable lending and underpins confidence in the wider economy. We have heard a range of views on capital requirements today. The UK’s framework is internationally respected and has been carefully designed to balance growth with financial stability.

Amendment 120 would require HM Treasury to publish within 12 months a report reviewing the impact of capital requirements on lending, borrowing costs, competition and economic growth, alongside financial stability, drawing on consultation with the Bank of England and the regulators. I genuinely recognise the intent behind the amendment. However, it is unnecessary, as the Financial Policy Committee is already undertaking a comprehensive review of the UK’s bank capital framework through precisely the lens that the amendment seeks, including the impact on lending, growth and financial stability.

[Baroness Kramer (LD)]

Can I just check whether it is looking through the lens of treating financial stability as only a “have regard”? Is that what the Minister is saying? The amendment says “considering”. It is a “have regard” statement.

[Lord Stockwood (Lab)]

No.

The FPC has been tasked by Parliament with responsibility for the stability of the financial system overall. It is the right body to carry out this review, which needs to balance the economic impacts of capital requirements against the protections that they may offer. Getting the balance right in the prudential framework and bank capital requirements has been a key priority for the Chancellor and an issue she discusses frequently with the industry.

The noble Baroness, Lady Neville-Rolfe, raised the issue of international comparisons. The FPC set out its assessment of international comparisons when it reviewed this in December 2025. It found that the requirements are broadly in line with international comparators. In some areas, such as leverage requirements on domestic firms, the FPC noted that the requirements may be higher. However, I assure the noble Baroness that it noted leverage as an area for further reform that it plans to cover in next week’s update.

As noble Lords may be aware, the Chancellor sets out the annual remit and recommendations for the FPC. The most recent remit letter was sent last November and sets out clearly that the UK must regulate for both risk and growth, and remain competitive in a changing world. As part of that, the Chancellor recommended that the FPC’s review should ensure the UK’s capital framework strikes the optimal balance to deliver resilience, growth and competitiveness. I assure the noble Baroness that the FPC understands this balance. In December 2025, the Financial Policy Committee reassessed the optimal level of system-wide bank capital, reducing its benchmark from 14% to 13% of risk-weighted assets.

For these reasons, while I understand the objective, this amendment is unnecessary and risks undermining the clarity and credibility of the current regime. We will come back to this discussion over the coming weeks. I therefore ask the noble Baroness to withdraw her amendment.

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[Baroness Kramer (LD)]

My Lords, I shall be extremely brief on this. I and my colleagues take the position that from this collection of amendments in the name of the noble Baroness, Lady Bowles, and the noble Lord, Lord Bridges, the Government could craft something really effective and create the information base and the capacity for Parliament to have very appropriate oversight of the regulator. The point I particularly want to add is that this is not hostility to the regulator. Part of the regulator’s problem is that it is trying to communicate to so many different parts of the political framework, with very different levels of understanding.

We have all seen that five-year strategy from the FCA. Let us admit that it is a completely vacuous document, but I can understand that those who crafted it thought that they were dealing with people who had almost no grasp at all of how the finance sector works, operates and is directed or regulated. We have given it the absolutely impossible task of not knowing whom they talk to, in what level of detail, and what information to provide. I would say that, from a regulator’s perspective, having an educated oversight body would remove a huge burden and create a proper and constructive conversation, in the end benefiting both sides. I hope the Minister will take away that this is not some hostility to the regulator; this is a process that will make sure that Parliament can do its job but also that the regulator is far better positioned to be able to do its job and communicate and understand.

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to noble Lords who have brought our attention to past debates on these knotty issues from a position of great expertise. All the amendments raise fundamental questions about how we hold our financial regulators to account. We fully support the principle that sits behind these amendments: that Parliament must have proper oversight over the way in which the regulators work. That includes their internal operations, their rule-making and their engagement with firms and consumers, the quality of their impact assessments, their effect on competition and competitiveness, and the burden they pose on the wider economy.

This point has been underscored by many noble Lords throughout our debates on the Bill. If the FCA and the PRA are to be given greater powers and a wider remit, as proposed, that must be matched by greater transparency and stronger accountability. Greater delegated power cannot simply mean more decisions being taken further away from Parliament, with fewer mechanisms for scrutiny. The Minister has written to noble Lords setting out existing mechanisms. That letter refers, among other things, to the ability of noble Lords to ask Parliamentary Questions and to the work of our excellent Financial Services Regulation Committee. Parliamentary Questions have their place, but they are not a systematic mechanism for reviewing the performance, effectiveness or proportionality of regulators. Committees do valuable work, but they cannot be expected to provide continuous expert institutional scrutiny of the FCA’s and PRA’s operations. What is needed is a mechanism through which the regulators can be reviewed, tested and held to account.

The problem is that we have an accountability gap. My noble friend Lady Noakes, from her unique position as chair of the committee, has highlighted the scale of the task that it now faces, so we need an independent source of analysis and expertise. The amendments in this group provide a number of serious and compelling proposals for how that might be done.

The amendment in the name of the noble Baroness, Lady Bowles, would provide for periodic independent reviews of the regulators. A recurring independent health check of the FCA, the PRA and the relevant Bank of England functions could help Parliament understand whether the regulatory system is working as intended, whether burdens are proportionate, whether the regulators are engaging properly, and whether firms and consumers are being treated fairly. I thought we had a good example of the problem in the earlier discussion on Sections 165 and 166.

The amendments in the name of my noble friend Lord Bridges propose a more permanent structure: an office for financial regulatory accountability. This is a valuable suggestion. As I understand it, the office would assess the FCA’s and PRA’s overall performance against their statutory objectives and regulatory principles. It would also analyse impact assessments for specific pieces of financial regulation in order to determine how those regulations contribute to the regulators’ objectives. As my noble friend Lady Lawlor suggested, their reports could include individual precedents and examples to bring problems to light. That is the sort of scrutiny we need.

The two parliamentary committees would have an important locus in scrutinising the reports from the office, improving overall parliamentary accountability while not getting in the regulators’ hair in a way that they are not set up to do. The proposed arrangements would also allow Parliament to see not only what concerns have been identified, but how the regulators intend to respond to them. Significantly, the office would be required to prioritise the analysis of regulations which restrict domestic competition, reduce the United Kingdom’s international competitiveness in financial services, create new compliance costs or have a significant impact on business and individuals in the UK economy —an excellent objective. As we heard from my noble friend Lord Bridges, it would not interfere with operational independence.

The regulators have become powerful institutions. They make rules, issue guidance, set expectations, supervise firms, authorise market entry, influence conduct and shape the competitiveness of one of the most important parts of the UK economy. As we heard from my noble friend Lady Noakes’s committee, they suffer from a culture of risk aversion, fuelled by the current system. It is no longer enough simply to say that the existing accountability mechanisms are adequate. There is clearly a deficit in oversight and that deficit becomes more serious as more power is transferred from Parliament and primary legislation to regulators and rulebooks.

If the Government are asking Parliament to accept that shift, they must accept the need for stronger accountability. Essential parliamentary scrutiny has to trump deregulation. The challenge is set for the Minister and I hope he will provide the clarity that we really need—a request that was echoed by the noble Baroness, Lady Donaghy, who, in another bit of history, I served under very happily on the EU Services Sub-Committee.

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[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to speak to this group of amendments. Amendment 127 is also in my name, and I thank my noble friend Lady Altmann for co-signing it. These amendments are my latest attempt to get some focus on innovation and technology in a Bill that is currently, strangely, surprisingly and unfortunately largely silent on this subject. It is my latest effort, but it will not be my last.

If we take a step back when it comes to open finance, how have we got to where we are? It is something in which everybody across the UK should take incredible pride. Open banking was created here. I offer anybody who believes the false dichotomy that recurs with tedious inevitability—that you can have either regulation or innovation—open banking as a deliberate, willed and intended regulatory intervention to address a market failure. Has it had a measure of success? That is not for me to say, but open banking, which was made in the UK, has been replicated and taken up in just shy of 80 jurisdictions around the world, many of which have taken it much further and much faster than the United Kingdom.

Although open banking is an excellent, positive and inclusive innovation, it still has not come to fruition in terms of mass take-up. However, we should consider how these principles can apply to open finance. We have some good stuff in the Data (Use and Access) Act, but we need more to provide a focus on what open finance can do, not least in obviously adjacent sectors such as telco and energy. My Amendment 126 seeks to do exactly that by looking at what is possible with the data that is currently out there. This would not be a data grab. It would not push citizens off the ball, to give an up-to-the-minute analogy; it would enable and empower those citizens who are often at the sharpest end of financial services and who may even be unable to avail themselves of financial services at all. Imagine being able to look in real time, on a consented basis, at existing alternative data, such as rental history or other activity, to empower an individual to access financial services, perhaps for the first time, or to access better financial services. All too often, what happens is that those who have the least have to pay the most. How can anybody tolerate that in 2026? Open finance could be enabling, empowering and transformational. We have the technologies. I suggest that Amendment 126 would be a tiny element of the next step on that journey.

Amendment 127 suggests an innovation unit for the Financial Conduct Authority. I am well aware that the FCA already has an innovation unit internally; it does excellent work. In terms of the work of regulators across the piece on innovation, it is far more than market-leading. It goes back to the innovations on which the FCA has led for more than a decade: the excellent fintech regulatory sandbox, the digital security sandbox and the tremendous AI sandbox, which was announced last year. They are all market-leading not just in this country but internationally. It is fantastic work. It is similar on other emerging technologies, such as quantum.

Therefore, in no sense is this amendment suggesting that the regulator is not looking at emerging technologies. What this amendment seeks to do is to empower the regulator further by putting that innovation unit on a statutory footing and bringing in external voices and expertise to be part of it, not a board of the great and the good, white, male, pale, stale, but experts in the area of emerging technologies. What a fabulous addition that would be to the excellent work that it is already doing. It would be a minor change, but it would have a major impact. I very much look forward to the Minister’s response and the discussion on this group. I beg to move.

[Baroness Kramer (LD)]

My Lords, I am absolutely delighted with these two amendments from the noble Lord, Lord Holmes. To begin with Amendment 126, I have long been, as he has, a real supporter of open banking and see the potential for it to expand into open finance, and have been utterly frustrated that it languished for so many years. I am convinced that, under the current leadership, real change is happening and real progress is being made. I hope that is a correct assessment, and in other places the Bill continues to assist that process. It is absolutely logical that entities are looking for financial services and going to one provider that they presumably know or can access but are failing to find a satisfactory answer, and cannot then avail themselves of the ability to talk to the rest of the financial services provider world. Open banking and open finance provide those mechanisms.

I have one caveat. In proposed new paragraph (c) to be inserted by Amendment 126, the noble Lord, Lord Holmes, explained that the framework needs to provide for

“interoperability between different categories of financial service providers, including digital asset providers”.

I agree completely with that. The question is who pays. Traditionally, it has always been the banks that have paid. I took a position earlier in the Bill, and continue to take it, that all users of the payment system should be contributing. This should not be something that falls on the banks while the tech companies, in particular, end up with a free ride. That will leave us with an unsustainable system that is far less effective than it could be if it had the full resources of all those who participate and potentially benefit from it. It would also engage them in innovation, which is addressed in Amendment 127.

I can see the advantages presented by Amendment 127, but there is one more feature that I want to add. One of my permanent frustrations with the regulator has been that it does not step in when there is market failure. It always says that if a new company or business comes in that will fill a gap, it will regulate it appropriately—that is its contribution to encouraging players to come in and fill the space where there is market failure. One good example is lending to small businesses, but there are many more market failures that the FCA will happily acknowledge, but then say it is nots its job to get that gap filled.

The US regulators take a very different view: if there is a market failure, they will be proactive in trying to design incentives and opportunities to go out and, in effect, market to relevant players so that the gap is filled. A simple example in the United States, thanks to the regulators, is something I call “bank in the box”—I have to be careful because there is a company of that name. It was devised to enable small players to come into the lending space. In the box were all the regulatory pieces that a banking service needed to offer, so that it would be very simple for a new player to simply plug in the investors at one end and the particular customer base at the other. It also means that, in time of failure, that small bank can easily be recovered, because all the complex content of regulation and compliance is in the box in a way that that is understood by the others within the system.

I have talked to the FCA and asked about bank in the box. It says that if someone comes forward with it, it will gladly regulate it, but it will not take a step that would encourage the provision of some such service. I would love to see this approach to market failure incorporated in the innovation discussion. Regulators are incredibly influential; it is amazing what a few words from a regulator, or a proposal from a regulator, will do to make sure that action actually happens.