Financial Services and Markets Bill [HL]

Lord Holmes of Richmond Excerpts

Committee stage
Wednesday 1st July 2026 Grand Committee

[Lord Holmes of Richmond (Con)]

My Lords, what a pleasure it is to follow my noble friend Lady Neville-Rolfe. I agree with everything she said, with all the principles she set out and with the amendments in this group.

I shall speak to Amendment 106 and the other amendments in my name. We are asking a lot of our financial regulators and it is only right that we offer help in the Bill. When we come to the Minister’s response —I do not want in any sense to pre-empt him—there may be comments around the amendments being overly prescriptive. I suggest that these amendments do not ask for prescription but, in fact, deliver clarity and, in a sense, are variously helpful to our financial services regulators.

My amendments seek to offer that help but also, as my noble friend Lady Neville-Rolfe said, to assist in driving that high-performance culture. Our regulators are well-regarded around the world. That is about high performance, but high performance in its turn is about continuous development and improvement. I think that this Bill can assist in that purpose.

In essence, this is all about the “E”s in this group: efficiency, effectiveness and economic activity. It is often said that delay defeats equity. In this instance, delay defeats economic activity and economic growth. It frustrates small, medium and larger businesses in what they are trying to do right across the United Kingdom economies. I believe that this suite of amendments offers clarity to the regulator and that, through that clarity, the regulator can give the right direction and the right support to all our businesses to do what they do best, which is to create economic activity and drive and deliver economic growth. I look forward to the Minister’s response.

[Lord Ashcombe (Con)]

My Lords, I declare my interest as an employee of Marsh, an FCA-regulated entity. These amendments in the names of my noble friends Lady Neville-Rolfe, Lord Altrincham and Lord Holmes concern Clause 21, which I very much welcome in principle. The improvements to regulators’ approval timelines are a positive step, as are the powers within the clause that enable the Government to amend those timeframes over time. In effect, the Bill already recognises the need for a mechanism to drive improvement. However, the evidence suggests that we can and should go further. The fact that regulators have consistently met their existing targets—targets that have remained largely unchanged for some 25 years—indicates that there is clear scope for more ambitious deadlines.

These amendments are therefore designed to embed a culture of continuous improvement, as referred to by my noble friend Lord Holmes. They would ensure that any future changes to the timeframe set out in Clause 21 could move in only one direction, towards faster decision-making. Moreover, where regulators have consistently met revised targets over a period of two years, the Treasury would be required to reduce those timelines further. In doing so, we would place a statutory obligation on the system to evolve and improve. This matters greatly for the competitiveness of the United Kingdom, particularly for the insurance market in which I work. The speed at which regulators handle authorisations, variations of permission and approvals for senior managers has a direct impact on the ease of doing business. These processes define many firms’ day-to-day interactions with regulation and shape broader perceptions of our market. Firms today have choices about where to deploy capital, where to grow and where to locate talent. A regulatory system that is clear, predictable and timely is a key part of that decision-making calculus.

The UK must offer a compelling proposition. There are many other places to go. Evidence from the London Market Group reinforces this point. A recent survey of firms regulated by the FCA and the PRA shows that both institutions are respected with strong overall scores, yet concerns remain. More than half of firms believe that aspects of the FCA’s approach negatively affect the attractiveness of the London market, and nearly nine in 10 highlight slow approvals for senior managers as having a strong detrimental impact on their operations. Improving timelines is not about reducing standards; it is about ensuring that our system supports growth, innovation and competitiveness. These amendments help to achieve just that.

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[Lord Holmes of Richmond (Con)]

I would like some clarification from the Minister. Does he have, at his fingertips, figures around the stop the clock function? Are the Government currently satisfied with how the function is being used?

[Lord Stockwood (Lab)]

Let me come back to the noble Lord with that data; I had it in the original draft, but it seems that we have passed it out. I will write to the noble Lord over the coming days.

Our belief is that the right answer is not to hardwire this procedural restriction into primary legislation but to continue improving operational performance and scrutiny of timelines through our wider framework.

Amendment 108 would insert detailed operational requirements into FSMA for the handling of authorisation applications. I recognise the attraction of measurable standards on case allocation, initial review, information requests, publication of monitoring data and limiting the use of the stop the clock mechanism. However, as we discussed earlier, the FSMA model delegates certain responsibilities to the independent regulators and, like any other organisation, they need to figure out how to fulfil those responsibilities. They are responsible for ensuring that they have the resources, systems and processes needed to discharge their functions effectively. The right approach for Parliament and the Government is to hold the regulators to account for speed, service quality and operational effectiveness, not to prescribe in primarily legislation the detailed mechanics of how an application must be processed.

I have been passed the data that was in the original speech, which answers the question from the noble Lord, Lord Holmes. In the year 2025-26, in 55% of FCA solo-regulated senior management applications there was no stop the clock and for 32% of cases the clock was stopped only once. Even when the FCA does use its stop the clock power, it continues to determine applications promptly. In Q4 of 2025-26, 50% of senior manager cases were determined within 19 days. As mentioned previously, 99% were determined within the new target of two months.

[Lord Holmes of Richmond (Con)]

I thank the Minister for those statistics and very much appreciate him having them in front of him. This ability to elucidate such detail is incredibly helpful. He set out the importance of enabling the regulator to continue to have the option to increase timelines, rather than just having them set as they are or being able to reduce them, as our amendments suggest. Would he be able to set out to the Grand Committee perhaps four or five examples of where it would be helpful for the regulator to increase timelines?

[Lord Stockwood (Lab)]

I understand that the regulator does not have the power to increase deadlines without our consent.

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[Baroness Noakes (Con)]

My Lords, I thank the noble Lord, Lord Vaux, for adding his name. Unfortunately, he is not able to be in Committee today. The amendments in this group concern cost benefit panels, which were created by the 2023 Act to underpin the existing FSMA requirement for cost-benefit analysis to be undertaken and published when rules are consulted on by the PRA and the FCA. The panels were created a little under two years ago and they are doing good work, as their annual reports show. The Financial Services Regulation Committee had a private briefing session with the chairs of the two panels, and we were impressed by the progress that they have made.

My amendment has two elements. The first requires the panels to keep under review the cumulative impact of rules, including those for which a cost-benefit analysis was not required because the impact was expected to be less than the £10 million threshold used by both regulators in their cost-benefit analysis policy statements. Keeping track of the cumulative burden of regulation was a recommendation of the Financial Services Regulation Committee in its Growing Pains report on the secondary competitiveness and growth objective. It was also one of the provisional recommendations of the FCA’s panel in its first report for the period to the end of March 2025. The 2025-26 report is not out until next week, but I would be surprised if it did not feature again.

Ideally, FSMA should be changed so that the existing statutory requirement on the regulators, which is confined to cost-benefit analysis on the proposed new rules, is widened so that it will be the responsibility of the FCA and the PRA to keep the cumulative burden on regulatory activity under review. I have taken the slightly easier drafting route in my amendments by putting a narrower requirement for the role of the panels.

The second element of my amendment concerns guidance by the FCA, which was covered last time in Committee, and the PRA. I confess that proposed new subsection (4) of my amendment captures only one part of what I was trying to achieve. I realised that when I was preparing my speaking notes, but it was too late to do anything about it, so I will speak to what I intended to cover in my amendment rather than what it does cover. This is Committee, after all.

At present, the FCA and the PRA are required to issue guidance under Sections 1K and 3I of FSMA and the FCA has power to issue guidance under Section 139A. If the FCA issues guidance under Section 139A, it has to be consulted on, but no cost-benefit analysis is required to be done or published. Proposed new subsection (4) of my proposed new clause in Amendment 119 seeks to require cost-benefit analysis for Section 139A guidance. I intended, but failed, to require cost-benefit analysis for all guidance issued by both regulators—that is a difference not reflected in the amendments.

I am well aware of the Government’s plan in Clause 18 to remove all the guidance obligations from the regulators, as well as the requirement for consultation on the FSA’s guidance under Section 139A. This part of my amendment is predicated on the Government realising the folly of their ways in Clause 18 for the purposes of today’s debate.

One of the findings of the FCA’s cost-benefit panel last year was the minimalist approach taken to cost-benefit analyses by the FCA: they are undertaken only when required by statute rather than being seen as good regulatory practice underpinning the detailed actions of regulation. The Financial Services Regulation Committee, as part of our inquiry into the FCA’s naming and shaming provisions, which had a potentially very significant impact on certain firms, called for a cost-benefit analysis. However, the FCA refused, saying that it was not required to do it by law. Therefore, I believe that attaching cost-benefit analysis to pretty much everything that the regulators do is necessary. Guidance would have been a good start, but the changes required are even broader than I have tried to achieve in my amendment.

My noble friend Lady Neville-Rolfe’s Amendment 132 seeks to widen the work of the CBA panels, and I look forward to hearing what my noble friends on the Front Bench have to say on that. With that, I beg to move.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow my noble friend Lady Noakes. I congratulate her on her purposive, rather than literal, interpretation of her amendment. I support her amendment and everything she said, as well as the other amendments in this group. I will speak to my Amendment 129.

Many noble Lords here today were in the Grand Committee debates for the then FSM Bill 2023. As my noble friend Lady Noakes rightly identified, the CBA panels have done very good work in their first couple of years of existence. My Amendment 129 seeks to give them further clarity to assist them in doing that good work, to ensure that they have the materials they need to do it, and to bring an additional element around public awareness of the panels’ work. That speaks to greater transparency, awareness and engagement, which can help not only the work of the CBA panels but the wider work of the regulators themselves. I look forward to the Minister’s response.

[Lord Altrincham (Con)]

My Lords, I am grateful to noble Lords who have tabled amendments in this group, which all take broadly the same approach to the cost benefit analysis panels. The underlying point addressed here is simple: if we are serious about accountability, proportionality and reducing regulatory burden, the panels that already exist to scrutinise the costs and benefits of regulation should be able to look at the full practical impact of what regulators do.

Amendment 119, in the names of my noble friend Lady Noakes and the noble Lord, Lord Vaux, raises the important issue of cumulative regulatory burden. Amendment 129, in the name of my noble friend Lord Holmes, would give the panels a broader and more visible role, including through regular impact assessments, stronger access to information and greater transparency. Amendment 132, in my name and that of my noble friend Lady Neville-Rolfe, addresses a specific gap: the use of guidance and supervisory practices, which may have significant practical effects on firms, but which do not currently receive the same level of cost-benefit scrutiny as formal rule changes.

I start with the cumulative burden point, because it is extremely important. Regulation is not experienced by firms as a series of isolated events. New rules come on top of existing ones, including guidance, reporting requirements, supervisory expectations, data requests, “Dear CEO” letters and enforcement signals. Individually, each new intervention may appear manageable, but collectively they can become very burdensome. The effect is not only on cost but on management time, operational complexity, legal advice, compliance headcount, systems changes and a reduced capacity to focus on customers, innovation and growth.

Therefore, it seems ineffective that the cost-benefit process so often considers individual regulatory interventions, without proper reference to the wider impact of the regulatory environment as a whole. If the regulator is required only to ask whether one new proposal is proportionate in isolation, there is no real incentive to look back at legacy regulation and ask whether the total burden has become excessive. That is why there is real merit in allowing the cost-benefit analysis panels to look more strategically at the total regulatory load. If we want regulators to support growth and competitiveness, they must not only justify new burdens but have incentives to remove or reduce old ones.

Amendment 132 would extend the existing cost-benefit analysis and consultation framework so that it applies not only to formal rules but to materially significant general guidance and general supervisory practices or policies. That is important because, in practice, guidance and supervisory expectations can have effects that are very close to rules. If such a measure has a material effect on regulated firms, it should not be able to escape scrutiny simply because it is not formally described as a rule.

Our amendment would create a sensible check: it would require the regulator to notify the relevant cost-benefit analysis panel early where guidance or supervisory practice may be materially significant. The panel could then give an opinion on whether the proposal is likely to have a material effect and, where appropriate, request that a cost-benefit analysis be carried out. If the regulator disagreed, it would still be able to proceed, but it would have to publish a statement explaining why it did not accept the panel’s view alongside the panel’s opinion.

The purpose of this is to recognise that materially significant guidance and supervisory practices can impose real costs and that those costs should be scrutinised. This sort of reporting would provide valuable information to inform the work of our important committees, both in this House and in the other place. I do not see why the Government would resist this as a sensible expansion of the remit of the cost-benefit analysis panels, particularly where the regulators they are overseeing have had, and continue to have, a substantial increase in their remits. Indeed, the more power we give regulators, the more important these mechanisms become. If more of the regulatory framework is to be made through rules, guidance and supervisory judgment, rather than primary legislation, Parliament must be confident that there is proper scrutiny of the costs and proportionality of the cumulative burden. The cost-benefit analysis panels are already part of that architecture; these amendments do not create an entirely new body. They strengthen the role of an existing mechanism and make it better able to do the job for which it was created.

Could the Minister explain why, if firms experience regulation cumulatively and guidance or supervisory practices can have material effects, even where they are not formally binding, the cost-benefit analysis panels should not have a broader remit to examine those wider burdens? I hope the Minister will engage constructively with these amendments and particularly with the principle behind Amendment 132.

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Is it worth speaking if the Minister is not here?

[Lord Holmes of Richmond (Con)]

You might get a better response.

[Baroness Bowles of Berkhamsted (LD)]

Shortly after my proposal first surfaced, I was contacted by people involved in the Australian royal commission on financial services, because they had noted that I had reached the same conclusion as them: that it was too big a job for Parliament to do by itself, given everything else that national Parliaments have to do.

Australia introduced two-yearly reviews, and it is not the only country to have an independent review. A similar arrangement now exists in New Zealand, and in the US all regulators come under powerful scrutiny by the Government Accountability Office. One advantage of my proposal is that it follows a path we understand from Section 1S reviews, and it could be done quickly—maybe as an interim solution, for example, until an office such as that proposed by the noble Lord, Lord Bridges, could be formed. By having regular reviews, oversight of progress would also be possible. After her review, Dame Elizabeth Gloster told the Treasury Committee that we are left to “hope” that the regulator “implements” regulations. Hope is not a system.

Why did I propose this? It was the point at which the Government were looking at the post-Brexit future financial framework. As has already been rehearsed in this Committee, this Parliament does not have the structure and focus that was available in the EU Parliament. Having been chair of the ECON committee dealing with all the post-financial crisis legislation, I can safely say that I know what it takes and that it is not easy. That is another reason why I do not recommend a continuous process.

There will be more to it in the UK, because many issues arise from the execution of supervision post rule-making. Brexit created the first need, which we eventually tried to patch with a new committee. Your Lordships heard from members of that committee and in the report of the Industry and Regulators Committee, Who Regulates the Regulator?, that now the overwhelming conclusion is that significant independent review is needed.

Now we have a new, second need due to the changes in this Bill, which remove the “have regards” away from operational effectiveness and into a five-year strategy. How is that to be monitored? Is there any intention at all for follow-through? The changes make the already difficult acquisition of information even harder. Several things that the Minister has said in his replies ring alarm bells and show the absolute need for scrutiny. We need it because financial services regulation and supervision is too important to allow issues to creep up—all the more so in a higher-risk environment. LCF-type regulator risk needs even more guarding against.

The Minister has said that proportionality will now be tested only at the strategic level. Let us be clear: testing proportionality at only the strategic level is barely a nudge. Rule-level and supervisory-level proportionality is the real test, but that has been put out of reach of accountability, as there is nothing to measure against. Indeed, they are not even looking at it apart from every five years. From that, it is pretty clear that substantial follow-ups on the five-year strategy are necessary. The Minister says that annual reports and remit letters provide accountability. Some substantial upgrading and interrogation of those is needed. What actionable event flows from an annual report? It is judge, jury and public relations all in one place. Does the Minister genuinely believe that an example here and there constitutes accountability?

The Minister argues that principles remain central, yet they are being moved into a document that cannot be enforced by the courts and cannot be used to test a specific rule or supervisory action. They are applied every five years, when the future cannot really be seen. This is not lip service; it is just print service, and as my noble friend Lady Kramer has shown us from the current version of the five-year report, there is little substance. Will we get something detailed for every category and size of financial market business?

The Government’s rhetoric suggests that reducing the burden of accountability will unleash a more dynamic and agile regulator, but that does not demonstrate the stability that is a prerequisite for competitiveness. Stability is the best friend of a competitive financial sector. Whether you cite centuries of institutional experience or the second law of thermodynamics, left to their own devices, systems corrupt or tend to disorder. Someone has to be on their case. But the Government are making the regulators far more insulated from the procedures that keep them on their toes. Avoiding the burden of accountability today is like banking a much larger, more expensive crisis for tomorrow. Additional periodic or permanent oversight has become even more necessary. I beg to move.

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Moved by

[Lord Holmes of Richmond]

126: After Clause 22, insert the following new Clause—
“Open finance framework(1) The FCA must establish and maintain a framework for open finance.(2) The framework must provide for—(a) secure and standardised data sharing interfaces,(b) rights of customers to direct the sharing of their financial data, and(c) interoperability between different categories of financial services providers, including digital asset providers.(3) The FCA may make rules to give effect to this section.”Member’s explanatory statement
This amendment gives the FCA the power to make rules in relation to open finance.

[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.

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[Lord Holmes of Richmond (Con)]

My Lords, I thank all noble Lords who have taken part in this short debate. I agree entirely with the points raised by the noble Baroness, Lady Kramer, about who pays and I agree with the noble Baroness’s earlier amendment on APP. When we have variety in our participants in this market, it is right that, if you are in the market, you pay alongside all other participants, rather than having the asymmetry which currently exists of banks being on the hook and others swimming freely. I also agree with the main thrust of the noble Baroness’s other points, none of which made me queasy at all.

I thank the Minister for his response. I agree largely with his comments. I delicately say that bringing in expert independent voices in a more formalised but flexible structure would further empower the FCA to take the excellent work that it does in innovation and go broader and faster. I ask the Minister to reflect on that and if there is more that the Government can do in concert with the FCA, without in any sense fettering its discretion. It would give the FCA even more power to increase the fantastic work it is doing across all these emerging technologies. For now, I beg leave to withdraw the amendment.

Amendment 126 withdrawn.