Financial Services and Markets Bill [HL]

Lord Howard of Rising Excerpts

2nd reading
Monday 8th June 2026 Lords Chamber

[Lord Howard of Rising (Con)]

My Lords, I declare an interest as a holder of listed shares and a director of a listed investment trust.

There is much to be commended in this proposed legislation. Any reduction in regulation and the consequential benefit on the wealth of the nation is to be applauded. I am, however, concerned about the proposed power which will enable new regulations to be introduced without scrutiny. Although introduced with the best intentions, regulations can do more harm than good—partly recognised by having the Bill in front of us today. It is not always possible to foresee the full consequences of regulation. Generally speaking, the more markets are left to themselves, the better off we all are.

An example of regulations having a negative effect is the Basel II agreement. This ruled that personal mortgages were safer than other types of lending and therefore banks would need a lower capital requirement for lending for house purchases. I will not waste your Lordships’ time with the full story—caravans in trailer parks being classed as houses and so on—but this was ultimately a major contributor to the 2008 financial crisis, brought about by a change in regulations. Because of the crisis, regulation in Great Britain was made for pension funds to invest a higher proportion of their funds into safer gilt-edged securities. The gilts gave a lower return than other types of investment. To compensate, pension funds used their gilt-edged securities as collateral to buy more gilt-edged securities to give an overall larger return—little risk as both instruments were Government-backed. Unfortunately, it slipped their minds that interest rates can go up as well as down and rising interest rates would result in losses. Interest rates did go up. Even the Bank of England’s own pension fund was caught out, as interest rates rose and its pension fund faced large losses.

With one regulation on top of another, it is not always possible to see the knock-on effect of regulations. I urge your Lordships, when taking this Bill forward, to have clearly in mind the inability of anyone to fully know what benefits or what collateral damage may result from new regulations. While flexibility may be desirable, it is very important not to delegate too much power without the ability for rule-making bodies to be questioned independently and firmly. It will not do everything, but it may put a brake on rules which impede or hamper the development and success of our financial services industry and reduce risk.