Financial Services and Markets Bill [HL]

Lord Massey of Hampstead Excerpts

Committee stage
Monday 6th July 2026 Grand Committee

Moved by

[Lord Massey of Hampstead]

144A: After Clause 28, insert the following new Clause—
“Appointed representatives: impact assessment(1) Before any provision of this Act relating to the appointed representatives regime comes into force, the FCA must conduct and publish an impact assessment of the effect of those provisions on—(a) the number of principal firms choosing to maintain appointed representative relationships,(b) the total number of appointed representatives operating in the United Kingdom,(c) consumer access to regulated financial advice, with particular reference to consumers with modest investable assets who may be dependent on appointed representatives as their primary source of regulated financial advice, and(d) the viability of smaller principal firms for whom the costs of compliance with the new senior manager function requirement for appointed representative oversight may be disproportionate relative to the revenue derived from appointed representative relationships.(2) The impact assessment required under subsection (1) must—(a) have regard to the existing contraction of the appointed representatives population,(b) include a quantitative assessment of the likely further reduction in appointed representative numbers attributable to the provisions of this Act, and(c) assess the consequent effect on the availability and accessibility of regulated financial advice to retail consumers.(3) If the impact assessment concludes that the provisions of this Act are likely to result in a material reduction in consumer access to regulated financial advice, the FCA must publish proposals for mitigating measures before those provisions come into force.”Member’s explanatory statement
This amendment calls for an impact assessment to ensure that the measures in this Act do not lead to a large drop in the number of appointed representatives who often provide services to smaller clients thereby promoting financial inclusion.

[Lord Massey of Hampstead (Con)]

My Lords, I should again declare my interest as chairman of Canaccord Genuity Wealth Management, as set out in the register of interests, although I should also state that Canaccord has no appointed representatives, which is the subject of this amendment.

I do not oppose these reforms in principle, although we should recognise that in Clauses 24 to 28 and in other measures we are adding significantly to the regulatory burden of member firms. It can certainly be argued that there is a case for greater oversight of appointed reps, as too many principal firms have historically taken a light-touch approach to supervising the firms acting in their name. Where that has gone wrong, consumers have borne the cost. However, regulation of this kind is always a question of balance, and my purpose in moving this amendment is to ask whether the Bill has struck that balance correctly.

By way of background, this part of the financial sector, affecting mostly retail clients, is surprisingly large, and its fortunes bear directly on financial inclusion, a subject on which the Committee shares a common concern, mindful, as we all are, of the advice gap. The numbers are meaningful. There are approximately 34,000 appointed representatives, according to the FCA, and they generate £11.1 billion in regulated revenue and a further £27 billion in non-regulated financial services revenue, so some £38 billion in total is running through this part of the market. The number of appointed reps fell by 12% in the 3.5 years from 2022 to 2025, but there was a more pronounced fall in the numbers of principal firms—that is, those that appoint representatives. That population has fallen by 26% over the same period, so we are seeing quite a decline in participation in this space.

Why does that matter? Appointed reps are overwhelmingly small firms, often sole traders, regionally based, who work closely with smaller clients. They cannot afford the administrative and compliance burdens of larger firms, hence the need to operate under their regulatory umbrella. They are a significant channel through which smaller clients can access the markets and receive highly personalised service and advice. I am not sure we want this part of the business to be under threat of more serious decline as an unintended consequence of some provisions in the Bill.

Clause 24 introduces a new discretionary FCA gateway before a firm may act as a principal at all. Principal firms will now have to seek specific approval to have appointed reps, and if they enter the business—this is an important point—the FCA can remove their permission at its discretion for vague reasons. Alongside that, the FCA will gain the power to create a bespoke senior management function specifically for AR oversight, layering on a new form of personal regulatory liability to firms taking on ARs. ARs will now be brought into scope of SMCR and will therefore be subject to misconduct rules, so principal firms will have to carry out fit-and-proper tests on ARs, as they do now for their own employees. Furthermore, the compulsory jurisdiction of the FOS is now extended to ARs, which means that principal firms will be held responsible for complaints against ARs in most circumstances. These are significant new duties that represent potential liability risk and a lot of additional cost to principal firms.

We should bear in mind that some of these principal firms are not large organisations, and they may find these new exposures quite onerous, which in turn might render the economic risk-reward of having ARs less attractive. Overall, the clear direction of travel here is to have fewer but larger principal firms. Indeed, this might be the FCA’s agenda for this part of the business.

Amendment 144A calls for the FCA to look before it leaps. It calls for an assessment of the impact of the new rules on the number of principal firms, the number of appointed reps and, most importantly, consumer access to advice, particularly for those on modest means, and the viability of smaller principal firms.

I am not necessarily asking the Government to reverse course, but these measures represent a significant increase in regulatory burden and there is no getting away from that. I am asking for the regulator to measure the impact of what it is doing before the provisions take effect, and to bring forward mitigating proposals if the impact on consumer access turns out to be material. Given that the FCA’s own data already show a firm population in genuine retreat and the implications for the advice gap, this seems to be a modest, proportionate and uncontroversial request. I beg to move.

[Baroness Lawlor (Con)]

My Lords, I will say a few words in support of my noble friend Lord Massey’s amendment. We should not forget that many of these small firms coming into the market are to be valued in Britain’s highly competitive industry—until there was too much regulation, perhaps—and we rely on them. They are what distinguishes the UK’s financial services historically. From the 16th century on, the growth of financial services and the City of London depended on small people coming together to provide for a niche in the market that people wanted.

If we continue to put too much burden on these small firms, they will not emerge. We have heard from my noble friend Lord Massey how important they are, sometimes locally. They are small firms which meet a need, so it is a very good idea to have an impact assessment of what the costs will be for ARs before the law comes into operation, for the competitiveness of the UK’s sector.

--- Later in debate ---

[Lord Stockwood (Lab)]

My Lords, I am grateful to the noble Lord for raising the importance of ensuring that measures to make the appointed representatives regime safer do not undermine the benefits provided by that regime. This amendment would require the FCA to publish an impact assessment before the measures can take effect.

I am happy to assure noble Lords that the measures have already been assessed as part of the impact assessment completed for the Bill. That concluded that the measures for appointed representatives should result in a net benefit of £108 million over the next 10 years. Before implementation, the FCA will also need to publish proposals for new rules, including on the approach to bringing appointed representatives within the senior managers and certification regime. FSMA already requires the FCA to publish a cost-benefit analysis when it proposes new rules; this analysis may be scrutinised by the independent cost-benefit analysis panel to ensure that it accurately captures the costs and benefits that are likely to result.

I also want to provide some reassurance on the introduction of the senior management function within principal firms responsible for overseeing appointed representatives. The FCA will have the flexibility to apply the senior management function in a proportionate way; it will not be obliged to require this of every principal firm, and may judge that it is not proportionate for smaller principal firms.

The Government share the objective of ensuring that we have a safer regime that does not undermine the benefits provided by appointed representatives. That is why the approach to implementation is designed to minimise disruption and cost to firms, and will be subject to further consultation and cost-benefit analysis by the FCA. I therefore ask the noble Lord to withdraw his amendment.

[Lord Massey of Hampstead (Con)]

I thank the Minister for his response and take reassurance that some of the measures that I raised have been dealt with already by the FCA, as it has—hopefully—assessed the impact of these quite significant changes, which, as I mentioned at the beginning, do add to regulation, rather than taking away from regulation. I also thank my noble friends for supporting this amendment. I beg leave to withdraw the amendment.

Amendment 144A withdrawn.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I am always in favour of trying to provide streamlining, and this amendment offers a common-sense approach to that. However, an issue that I want to take up with the noble Baroness, Lady Neville-Rolfe, is that the focus of the FCA should always be on new hires, not previous ones. The ongoing fit and proper process is crucial, particularly if we are going to have lighter-touch regulation as people move from one position to another, but that ongoing process is critical. Perhaps the Minister could expand on that because I am not quite clear about how all the various changes in FCA rules change what has been an annual review process but now gives more flexibility in what that means.

I shall give some examples. I am not sure that when Sir Fred Goodwin—he was not “Sir” then, obviously—was appointed as chief executive of RBS anyone recognised that he was going to get caught up in what I think most people would describe as an addiction to completely irrational acquisitions, which eventually led to the collapse of a major bank. I am not sure that when Jes Staley was hired to be CEO of Barclays people were aware of the significance of his extensive involvement with Epstein. I am not sure that when the Reverend Paul Flowers was approved as chairman of the Co-operative Bank people were conscious that he was potentially someone who would become seriously addicted to and affected by a number of drugs, notably crystal meth. In other words, there is an ongoing process that is critical; it should not be only a one-time process. I hope that will be absorbed into the thinking if this amendment moves forward. The ongoing process is vital. Fit and proper is not a one-time-only process.

[Lord Massey of Hampstead (Con)]

My Lords, I rise quickly to support this amendment, which is exactly the sort of streamlining amendment we are looking to achieve in this Bill. I politely take issue with the remarks of the noble Baroness, Lady Kramer, on people such as Fred Goodwin, Jes Staley or the Reverend Flowers. The FCA would not have picked up those problems; they all emerged much later. We should give credit to member firms for being able to judge who they should be hiring. If they are already licensed, why would notification not be sufficient?

[Lord Stockwood (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Neville-Rolfe, for tabling this amendment. The Government agree that the regime should operate more proportionately where that can be done without undermining accountability—in fact, that is what the Bill aims to do. The core objective of these reforms is to reduce unnecessary regulatory and administrative burdens for firms, while preserving the accountability standards that underpin the regime. The changes will help to deliver the Government’s and the regulators’ ambition to reduce burdens from this regime by 50%, while retaining its core benefits.

As set out in the impact assessment for the Bill, the reforms to this regime alone are expected to reduce administrative burdens on the sector almost £600 million over 10 years. The Bill is already speeding up the target for the regulators to make these decisions. As I said in the debate last Wednesday, in Q4 of 2025-26, 50% of senior manager cases were determined within 19 days and over 99% were determined within the new target of two months.

The Bill moves to a more flexible system, led by regulators. Rather than requiring pre-approval for all senior managers, it allows the FCA and PRA to decide which senior management functions require approval and which can simply be notified to the regulators. The regulators will not take this decision without direction. Schedule 3 sets out the factors the regulators may use when designing the notification approach. These include whether an individual has previously been approved for a different role. The detailed operation of the new framework will be taken forward by the regulators through their rules, which are already subject to the statutory consultation and parliamentary scrutiny mechanisms. The regulators already operate a proportionate application process for individuals applying for a similar senior manager function to the one they are already approved for, including when within the same group. This usually allows for a faster and more targeted assessment.

I note the question from the noble Baroness, Lady Kramer. I will pick that up with the FCA. The continued accreditation assessment of senior managers needs to be something that is reported back on; she makes an important point about that.

Finally, I assure the noble Baroness, Lady Neville-Rolfe, that the Government will continue to engage closely with the regulators as they implement these changes, to ensure that the regime operates as intended and delivers a more proportionate approach in practice. I therefore ask her to withdraw the amendment.