Financial Services and Markets Bill [HL]

Debate between Lord Holmes of Richmond and Baroness Bowles of Berkhamsted

Committee stage
Monday 6th July 2026 Grand Committee

[Lord Holmes of Richmond (Con)]

My Lords, I support Amendments 142A and 142C from my colleagues, the noble Lords, Lord Hunt and Lord Ashcombe. As has been said, this can be summed up in one word: proportionality. We have debated these themes on previous days in Committee and they are still as strong as they were when we mentioned them on day one. To “proportionality” I would add “specificity” and “applicability” because, without making this critical distinction—though difficult in some of the marginal cases—we are effectively saying that rules apply across the piece, which inevitably means increased burdens, increased costs, a lack of specificity, inapplicability, and holding firms and the UK economy back.

As the noble Lord, Lord Hunt, rightly said, we have the at least odd situation right now where pet insurance is treated the same as marine or aviation insurance. I can see only one potential case where this would be appropriate: if many people were petting flying fish. As I do not believe we have an increase in flying fish petting, I believe that proportionality, specificity and applicability would be achieved by embracing the principles set out in Amendments 142A and 142C.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I broadly support Amendment 142A, and I thank the noble Lord, Lord Hunt, for bringing it forward. I also think that the amendment in the name of the noble Lord, Lord Ashcombe, or something similar would obviously be needed as some kind of companion to it.

Whatever the FCA may have been intended to be, it is now proudly and explicitly a consumer protection body. For much of its work that is good, but some noble Lords will know that it has taken me and others four years to get incorrect cost disclosure descriptions for listed investment companies corrected, simply because consumers like the incorrect versions. Indeed, that saga led to a telling exchange at a meeting of the Financial Services Regulation Committee. The FCA chair insisted that consumer views always took priority, and I replied, “If you ask whether one and one makes two or three, and the consumer says, ‘I like three—it’s a bigger number’, is that what you use?” There was no denial. That is the scale of the problem: a regulatory culture where consumer preference for something factually incorrect overrides market integrity. It is a mindset that has already cost billions in potential investment in productive assets.

That was where it touched consumers; now let us move on to look at the wholesale areas. The trouble is that that mindset gets pasted across too. We do not need to debate whether the FCA went overboard in demanding that wholesale businesses had to proactively prove that they do no consumer harm in transactions that never touched consumers. The admission is there in consultation CP26/23 at paragraph 1.3, acknowledging overreach, as well as acknowledging

“unnecessary cost, complexity and uncertainty, without clear benefits for retail consumers”.

However, having finally identified the cancer, the regulator is merely applying a sticking plaster. All that is being offered is the mildest semantic tweak to guidance—effectively, a guide to guidance. It has no legal effect. It allows the regulator to continue its current trajectory with a slight adjustment to its vocabulary. We all know that this change was extracted only after heavy nudging by the Chancellor and intense parliamentary scrutiny. It is hardly being done with good grace and provides no guarantee of permanence.

The fact is, we must deal with the FCA as it is, not as it might have been. Since the advent of the consumer duty, the retail-first culture is irreversibly embedded into the psyche of staff, and in many instances it is the reason why they joined the regulator in the first place.

Perhaps one of the most telling things is to look at what is said about other regulators. On the Monetary Authority of Singapore, which I found a very enlightened body on my visit there some years ago, the comment is, “Although MAS is a unitary regulator, it splits its internal policy divisions strictly by target market rather than by trying to govern everything under an overarching outcomes-based code like the UK’s consumer duty”, and, “It works because the wholesale division, answerable to the MAS leadership, is judged primarily on market liquidity, innovation and international competitiveness. There is zero risk of a consumer advocacy group hijacking a wholesale policy consultation”. I wonder where they were thinking about. A ring-fenced, structurally separate wholesale unit within our regulator’s architecture must live up to that standard.

Some may argue that all wholesale activity impacts retail eventually, and I agree, but there is a massive, fundamental difference between regulating wholesale markets for the integrity of the system, which protects everyone, and regulating as if they are a high-street retail shopfloor. The former ensures safety, the latter ensures paralysis. For any noble Lord worried about this structural change, nothing being suggested would remove liability for wrongs or harms to consumers, should that occur. Let us be clear: this amendment is not an attempt to escape oversight; it is an attempt to ensure that oversight is competent, technically accurate and focused on the reality of the market being regulated. Let nobody forget that MiFID and other legislation already provides a rigorous framework governing transparency, best execution and conflicts of interest. This is no soft ride: this amendment is a necessary structural correction, and I support it.

Financial Services and Markets Bill [HL]

Debate between Lord Holmes of Richmond and Baroness Bowles of Berkhamsted

Committee stage
Wednesday 1st July 2026 Grand Committee

[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.

Financial Services and Markets Bill

Debate between Lord Holmes of Richmond and Baroness Bowles of Berkhamsted

Committee stage
Wednesday 1st February 2023 Grand Committee

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I have several amendments in this group. Amendment 48, which has already been referred to, seeks to add “sustainability” in as a sort of foil to the international aspect. Amendments 49 and 59 seek to remove the bits in brackets relating specifically to financial services, which is more of a comprehension issue. Amendments 51 and 60 propose another placing of the efficiency amendment in case it might sit better within the competitiveness and growth objective.

There is another very dangerous thing going on here, on which I agree with the noble Baroness, Lady Noakes—we agree more often than people would think. To some extent I support her Amendment 47, as I will explain later.

As has already been said, my Amendment 48 seeks to add in “sustainability” so that the competitiveness and growth objective would be “subject to sustainability and aligning with relevant international standards”. We have been talking about the need for balance and I felt that that, potentially, was a balance that we wanted. That also seemed a suitable place in which to write sustainability into the Bill. Perhaps we could choose other words, because I meant it to cover sustainability in financial terms and in a humanitarian and environmental context, too. I am not clear that some of the things which are said to be covered actually are covered.

When we were talking about position limits, I believe that the Minister said that taking humanitarian matters into account was something that the FCA could do. I cannot see anywhere among its objectives or anywhere else where that comes about. I can see that there can be market integrity things on position limits, but not whether you want to think about whether you are causing people to starve. There are things that we expect to be taken into consideration—it is not a subliminal matter, but just by implication—but they are not there if you look for the words. From experience of looking at things when they have gone pear-shaped and the regulators want an excuse, it seems to me that they will be asking where it says those things.

Returning to the competitiveness and growth objective, the more I look at it, the less I like it, not from the point of view of the competitiveness and growth bit but for all the other drafting around it. This is where I agree: what on earth is this “subject to international standards” doing there?” It gets sprinkled around quite liberally in legislation. When I was an MEP, I learned very soon after I got to Brussels that the Treasury wanted “alignment with international standards” put liberally into EU legislation as a way to try to cut down EU degrees of freedom. Now, here we are, post-Brexit, trying the same trick on ourselves and handing it to unelected bodies. Much as I did not object to the EU system, we are where we are. I do not think it is right. If we think recently in terms of LDI and so on, we hear the Bank of England saying, “Until we have the international rules on non-bank financial institutions, we have not done anything”, when something that is a complete viper’s nest is going on that is completely within everything to do with the United Kingdom. That shows us—we will come to this later on with some of my financial stability amendments—that it is looking for support and to hugger-mugger together with the rest of the regulatory organisations rather than putting the UK first and thinking clearly about what we want.

Are we now trying to control the regulators as we tried to tie the EU? We do not need it to control the regulators because they largely control what goes into the international standards, and those international standards have far less parliamentary scrutiny than anything done by UK regulators for the UK. I accept that the Treasury has a seat at the table and therefore knows what is going on, but it is very difficult to scrutinise what goes on at Basel and the other international organisations. You can get our regulators to explain what they agree with and claim victories where they put things in, but to get any explanation in time to be able to react to it and to influence it is extremely difficult. I tried this while I was chair of ECON in the European Parliament when we were doing the capital requirement rules. We forced one or two meetings with them, but they did not really want to know, and we are going to be in even more difficulty trying to follow those kinds of things within the UK’s parliamentary system.

Here we are signing up blind to something rather than signing up after scrutiny. That is what happens in other countries, notably the EU and the US, which have a whole system, including parliamentary procedure, to determine whether they are going to sign up to the international rules.

There is nothing wrong with political statements being made which say that the broad expectation is for us to be in alignment with the international standards, but I do not see what that does without any kind of caveat around it within primary legislation. It makes a mockery of us trying to scrutinise anything when we know that what we will be getting is just what the regulators have decided with other regulators, at a different level over the UK’s head.

As I mentioned on the last group, I also put my amendments on efficiency here, so I will not go into those again. We can discuss among ourselves where they fit best.

My final point relates to the words in brackets, which I address in my Amendments 49 and 59. Simply, when I read this part of the Bill, it did not read as if the financial services references were in there because that was the bit that the regulators were empowered to do; I thought that it was possible to make it read as if some kind of preference could be given to financial services over and above other things. I know that that is not the intention, so my only objection to these words is to ask whether the Government are absolutely sure that they read properly. I am not suspicious of the motives but, if one of my assistants had written this back in my patent attorney days, I would have been thinking that it was not quite right and asking if we could rephrase it. So there is nothing more suspicious to it than that.

I do not think that those words are actually needed because, as the noble Baroness, Lady Noakes, said, they can only influence financial services. Financial services must serve the economy and must serve other businesses. So you could, theoretically, enhance the economy within financial services by putting up all your charges to the rest of industry. One hopes that competitiveness and competition laws would stop that from happening, but you could have that interpretation. Somebody might be able to hang something on those words if they are still there.

That explains my amendments. I do not think there is anything too untoward; I would be interested to hear from the Minister about international standards. I accept that we have them in other pieces of legislation, but if we have got it wrong somewhere else, we do not need to keep repeating it.

[Lord Holmes of Richmond (Con)]

My Lords, I speak briefly to give full-throated support to the amendments in the name of my noble friend Lady Noakes. This tying to international standards seems odd, at best, for at least two reasons: first, this is attached to the competitiveness objective and not run through all objectives, not least the primary objectives; and, secondly, this objective, even before it has been launched, is fettered and shackled through this connection to international standards and the ISSBs that they are under. That seems curious, in that it seems to run counter to the espoused purpose and intention of the Bill. I would be very keen to hear my noble friend the Minister’s comments when she comes to sum up on those points.

Financial Services Bill

Debate between Lord Holmes of Richmond and Baroness Bowles of Berkhamsted

Report stage
Wednesday 24th March 2021 Lords Chamber

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, in Committee, I supported the amendments of the noble Baroness, Lady Noakes, as something that had to be done. It seemed to be a reasonable, if simple, concept that a flawed benchmark reference in a contract, if changed to a closely corresponding but not flawed benchmark—a change required by the regulator—should not give rise to litigation, not least because the contracts should still largely perform as originally intended.

Some contracts may have had termination clauses in the event of no benchmark, which could give rise to premature terminations and winners and losers. However, this is not really a no-benchmark situation. While not everyone has sympathy with banks and industry should they be the losers, this is not a matter on which they would be at fault. I am sure that everyone would have sympathy if consumers were losers but what if it goes the other way and banks want to pursue consumers if they are the winners? I am sure that that would be seen as unacceptable.

This is not mis-selling but, as far as contracts are concerned, it is a blameless matter and it seems to me that continuity is the closest to honouring original intents. If there were a way in which to make simple compensatory adjustments, we would not be facing these problems. I therefore still feel that something has to be done and doing the same as the US also seems to be good in terms of the UK’s reputation for giving certainty to markets.

However, the noble Baroness, Lady Noakes, has now come up with a third amendment, Amendment 6, which empowers the Treasury to address matters further down the track and gives more flexibility in what may be determined. It is a bit of kicking the can down the road and a bit of Henry VIII, but one hopes that it will encourage more solutions to be found. I have therefore added my name to that amendment and hope that at least, if the Minister cannot accept the other amendments, it can be accepted as a way forward.

[Lord Holmes of Richmond (Con) [V]]

My Lords, I am delighted to speak to this group of amendments and declare my interests as set out in the register.

I congratulate my noble friend Lady Noakes not just on the eloquence that she demonstrated in introducing these three amendments but on the quality of their drafting. As an ex-City solicitor, I look on that with awe. I also congratulate my noble friend on offering options. We had a thorough and in-depth debate in Committee on these issues. My noble friend has done the House a great service in bringing a buffet approach for the Government to consider. If they are not partial to Amendments 4 or 5, Amendment 6 will work just as satisfactorily.

These amendments need to be seriously considered. For the want of certainty and for ensuring that litigation does not result if we do nothing, I ask my noble friend the Minister on Amendments 4, 5 or 6, as I have in the past and will do on forthcoming amendments: if not this Financial Services Bill, which financial services Bill? If not now, when?

Financial Services Bill

Debate between Lord Holmes of Richmond and Baroness Bowles of Berkhamsted

Committee stage
Monday 8th March 2021 Grand Committee

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I was not sure where the debate on short selling would go. I am broadly satisfied with the present rules that prohibit naked short selling and require that a short seller has identified where they will obtain the shares when delivery is required. There is a little bit of wriggle room in the identifying, which was very hard fought for by the UK when the EU regulation was being negotiated. Some would like it more relaxed so that there is a looser understanding of how the shares will be found; others would like to ban short selling altogether. I am not convinced that any significant change is needed in that area but, having negotiated the current compromise, I am both biased and happy for someone else to gather the scars on their back.

As the noble Baroness said, there has been additional interest in short selling because of the developments around GameStop and AMC shares, with some retail investors deliberately seeking to put a short squeeze on to hedge funds with large short positions. The shares became heavily promoted on internet sites and social media, and no doubt there are individuals who made poor decisions about investing as a consequence. Eventually, brokers took steps to curtail retail access, and therefore activity, which stopped extreme movements, but that also calls into question rights of retail access and whether there will be discouragement of things such as commission-free retail trading.

In the UK—and, indeed, the EU—we do not have such large net short positions as tend to be found in the US. That may well be due in part to the more restrictive requirements on the identification of where one is going to get the shares from, and stricter disclosure requirements. Retail access is not so well developed here, either.

I do not know whether the Treasury Select Committee has taken any evidence on this—it seems taken up by the Gloster review—but the chair of ESMA appeared before the corresponding committee in the European Parliament on 23 February. In that appearance, there was a suggestion that other things around the subject may need looking at—such as market abuse and best execution, which would be under MiFID II—rather than short selling.

The FCA website has a six-line generic statement, put up on 29 January, about “recent share trading issues”, warning about potential loss of money, that losses are unlikely to be covered by the Financial Services Compensation Scheme, and that broking firms are not obliged to offer trading facilities to clients, which covers the point about withdrawal of service. It tweeted a similar warning.

Here I should probably draw attention to my specific interest as a director of the London Stock Exchange. I know that a close eye has been kept on the situation, looking at additional analysis, possible additional monitoring and scenarios that could arise within our markets, and having discussions with the FCA, but that is all work in progress.

A lot of people seem to consider short selling fundamentally evil, but it is really just like ordering a book from a bookseller, paying for it, and getting it later when the seller has purchased it from the publisher. That is okay if you know there is a book and a publisher and you have not already been told that it is sold out. It is not okay when there is no book, and so on. That is the distinction between naked short selling, when you do not know whether the book is there, and having identified that you can actually get your hands on the book to fulfil the order. Broadly speaking, I am not sure that a huge overhaul of short selling needs to be looked at. If all these things are to be looked at, it probably needs to go beyond what is in the short selling regulation and look at how execution has to happen as well.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in day five of Committee of the Financial Services Bill. In doing so, I declare my interests as set out in the register.

I was keen to speak to the amendment in the name of my noble friend Lady McIntosh of Pickering—and have put my name to it—mainly because of the reasons set out by my noble friend and the noble Baroness, Lady Bowles. That is, given the position we are now in with financial services, it seems opportune to review this practice. In saying that, I agree with the noble Baroness, Lady Bowles, that it makes sense to see this as part of a wider review of a number of other market practices. Indeed, it reflects an earlier amendment that I put forward on day one on the opportune moment to review all our financial services regulations and regulators’ rules, given that our situation is so fundamentally different from what it was a matter of weeks ago.

On short selling, it is important to understand the difference between different markets, as the noble Baroness, Lady Bowles, eloquently set out. It is important for that to be understood, not least as a number of people’s understanding of short selling will have been informed by the earlier situation with GameStop on the exchange in the United States and the excellent film “The Big Short”—excellent unless you happen to be on the wrong end of that practice. However, it is different in different jurisdictions. Which jurisdictions would the Minister look at in considering potential better practices around the world? Would she also see this as a positive, opportune step to take as part of a wider review of all financial services regulations and the rules of our regulators?