Financial Services and Markets Bill [HL]

Debate between Lord Davies of Brixton and Baroness Bi

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.