Financial Services and Markets Bill [HL]

Lord Pitt-Watson Excerpts

Committee stage
Wednesday 1st July 2026 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, my amendment concerns the impact of prudential capital requirements on lending capacity, borrowing costs, competition and growth. Since my amendment was tabled, His Majesty’s Opposition have announced a new policy position in this area, which I shall speak to now.

Our new policy is straightforward. The statutory basis for post-financial crisis bank capital requirements should be amended so that UK regulators are required to take proper account of equivalent capital regimes in competitor jurisdictions, and to identify, justify and, where not justified, remove any UK-specific overcapitalisation relative to equivalent international regimes. We want to consider the position in competitor jurisdictions, to benchmark equivalent regimes, to publish detailed analysis and to explain clearly where the UK is imposing requirements above international standards or above those imposed by comparable financial centres. That seems a basic requirement of a serious competitiveness agenda, on which the UK is particularly reliant. The UK is the world’s largest net exporter of financial services, whereas comparable jurisdictions, such as the US, rely much more on their domestic markets. It is therefore imperative that we remain competitive on the world stage.

Capital requirements matter, but there is a cost. Capital held solely for statutory compliance is capital that cannot otherwise be used to support lending, investment, home ownership, business expansion or economic activity. The central question is therefore not whether banks should hold capital but whether the UK requires materially more capital than comparable jurisdictions without a clear and evidenced stability justification. If we do, we are placing the UK at a competitive disadvantage: we are constraining lending, increasing borrowing costs, making it harder for firms to access finance and weakening growth, and doing so in a way that may not be required by international standards or by the actual risk profile of the system.

The analysis behind our policy suggests that the UK capital framework may materially exceed international Basel III requirements and competitor regimes. It has been suggested that the resulting constraint on UK banks’ lending and financing capacity could amount to £250 billion across overlapping capital requirements and £200 billion across leverage ratio constraints. Of course, not every pound of capital released would automatically translate into new lending—we understand that. Some may be used for business investment, dividends, buybacks or balance-sheet strengthening. The key point remains that capital deployed productively in the economy is preferable to capital trapped by a regulatory framework that is more restrictive than it needs to be.

We appreciate that the Government recognise this issue and have moved a little on it already. They have made the bank resolution regime more flexible, allowing the Bank of England to reduce or remove MREL for some firms where the new FSCS recapitalisation mechanism can substitute for pre-positioned loss-absorbing resources. Our proposal is a step to unlocking a lot more capital. We already require the PRA, in some contexts, to have regard to the UK’s relative standing against competitor jurisdictions, but that duty is incomplete. It does not apply across the whole capital framework and, in particular, it does not fully capture Pillar 2A, the PRA buffer or systemic buffers. The FPC has produced useful comparative analysis, but there is not yet a binding requirement for regular, systematic benchmarking against competitor jurisdictions.

Our proposed review is also about transparency. If regulators believe that the UK should impose higher requirements than comparable regimes then Parliament, industry and the public should be able to see the analysis behind that decision. That is how we preserve independence while improving accountability.

The amendment is part of a wider argument. Prudential regulation must be understood not only through the lens of stability but through the lens of growth, lending, and competitiveness. A capital framework that is more demanding than necessary does not make the economy stronger. It may make it less dynamic, less competitive and less able to support households and businesses, especially SMEs and scale-ups. I speak from experience as a director at a responsible and careful challenger bank, where the UK capital rules were a significant constraint on what we could do. They also consumed a great deal of management and board time.

I would like the Government to accept that the UK should not impose capital requirements above equivalent international competitor regimes, especially if there is no financial stability justification for doing so. The first step is to undertake the necessary analysis. Ours is a serious and responsible policy. It preserves regulatory independence and protects financial stability but recognises that excessive or unjustified capital requirements carry real economic costs. If we want growth, competitiveness and banks to support businesses and homebuyers, then we need a capital framework that is robust but not overrestrictive. That is the balance that our policy seeks to strike. I look forward to the Minister’s response.

[Lord Pitt-Watson (Lab)]

My Lords, both the amendment and the speech by the noble Baroness, Lady Neville-Rolfe, were sensible in terms of making us think about bank capital requirements and whether we have got them right. As she says, the first step is undertaking proper analysis to be able to work out whether that happens. I noticed she caveated everything that they may not be right. They may be right, but they may not.

My worry is that that is a sensible position to take but it did not sound like the position being taken by the Leader of the Opposition when she made her speech last week saying that she was going to reduce bank capital requirements to release £450 billion in capital. Where did the calculation that hundreds of billions are sitting idly on bank balance sheets come from? Where do those hundreds of billions come from? If we are going to release £450 billion, what is the calculation in the reduction of bank capital requirements that sits behind that calculation? While I feel quite supportive of the issues that the noble Baroness was raising, we need to be sure—I hope she will agree—that we do not jump the gun on this.

[Baroness Kramer (LD)]

My Lords, the noble Lord, Lord Pitt-Watson, was rather generous in his comments. Sometimes it is important to speak truth to power. This is a lowest common denominator strategy. We have heard it before from the Conservatives, and it is repeated with enthusiasm today. I heard so many of these arguments back in the early 2000s. It contributed and was a fundamental part of the reasons why we ended up with such a major financial crash with huge financial and political consequences that echo through to this day. I could see the argument being made that we need to take proper care that we are looking at capital requirements and that we need to assess them and look at the consequences and do so on a regular basis. That is already part of the programme and certainly would always need to be part of it.

I notice that in line seven of the amendment the phrase is,

“while also considering financial stability”.

If ever there was a phrase lowering the significance of the primary objective with which we tasked the Bank of England, that phrase does it—merely a consideration of financial stability. I was afraid when the growth and productivity objectives were introduced as secondary objectives that quickly the attraction of the phrases would cause them to cannibalise the primary objective. This is a very good example of the way in which that, frankly, has been happening.

I have seen across so many of the measures in the Bill a step away from the precautionary principle—in this case, of looking for appropriate capital requirements, whether in equities or in MREL—to a notion that we deal with all this through a resolution regime. I am suspicious of resolution regimes and of after the fact ways of ensuring financial stability. I would much rather we did not have a bank failure that we must then attempt to remedy through the use of something like bail-in MREL, which I do not think will ever work. Frankly, MREL is held by insurance companies and pension funds, and we are never going to wreck them to save a major bank. I am very concerned about the change in approach that we are hearing today from the Conservative party.

Financial Services and Markets Bill [HL]

Lord Pitt-Watson Excerpts

Committee stage
Monday 29th June 2026 Grand Committee

[Lord Pitt-Watson (Lab)]

If I might talk on this point, I have huge sympathy with the overall direction of where people want to go on this. Climate risk is clearly relevant for any financial manager managing the assets—the cash—of any ordinary citizen, be they a vicar of the Church of England or simply a worker setting money aside, and that needs to be taken into account.

Even if you do not buy that argument, there are financial risks that go with climate that need to be recognised—for example, assets that will become stranded if we responded to the climate crisis, which should not be recognised as being valuable today. By the way, if I were to find an institution that is a mile ahead of the regulation in trying to make this take place, the Church of England pension fund is exemplary of what it is that we want to do.

As I look at this, I find it rather ironic that we are focusing on the FCA. In the past five years, if there is a financial regulator that has taken steps forward on this, it is the FCA rather than the others. I think—I have tried to check on the internet—the UK now has the highest number of transition plans by companies, and the highest standard of transition plans by companies, of any country in the world. I want to celebrate the companies doing that and the senior appointments that the FCA put in place to make these sorts of things happen.

It might be a good idea for us to scratch our heads about those regulators that, even where there are clear rules on reporting on financially material matters, are finding it difficult to see them enforced. We might want to raise those sorts of issues as well as additional reporting. If it is additional reporting, as the noble Baroness, Lady Penn, said, let us be sure that we know that the extra reporting is bringing about some good.

In Amendment 80, and perhaps in some other amendments, there is a question about parliamentary oversight. Does the Minister consider that parliamentary oversight might be kept under review so that we know that we have a financial services industry that is properly responding to the risk of climate change, and might perhaps do some other things as well?

[Baroness Kramer (LD)]

I shall be exceedingly brief because the position of my party has been so well-voiced by my noble friends Lady Northover and Lady Sheehan, and there is a great deal more to say in the clause stand part debate in today’s fourth group. My party has made it very clear that it has a deep commitment to the climate, nature and sustainability agenda. I am conscious that it has become quite fashionable in financial circles to say that this agenda should not be the concern of the Bank of England or of any of the regulators. Perhaps the noble Lord, Lord Pitt-Watson, can indicate to me where in the five-year strategy of the FCA he can find any reference to it, because I cannot.

[Lord Pitt-Watson (Lab)]

For five years, there has been a director of ESG at the Financial Conduct Authority who has specifically taken responsibility for ensuring that, where relevant, it is embedded in what the FCA is doing. Most of the feedback I get from the FCA and financial practitioners suggests that he is called Sacha Sadan, and that he had a senior role in financial services beforehand and has had considerable success in being able to do that. Is it perfect? No, I am sure it is absolutely not perfect. We have a long way to go, but I want to do something that says, “Let us celebrate some success when we have it”.

[Baroness Kramer (LD)]

I always join in celebrating success but, from our perspective, this is a pivot moment away from what has been the practice and emphasis over the past several years. Indeed, as the noble Baroness, Lady Hayman, said, there was consensus across the parties, with perhaps different strategies, but this appears to be a time when much of this has changed, or is about to change or is changing. I have to say that it makes absolutely no sense. Climate risk is so obviously a financial and economic stability risk, as indeed is the loss of nature and the issue of sustainable growth; surely “sustainable” belongs in growth programmes that we put in front of us.

I am also very conscious that the City and others, which have tended to have very short-term perspectives—typically the next quarter’s results—have voiced opposition to the inclusion of climate and nature in the financial regulators’ remit and that it should have the significance it has had to date, and I am very afraid that the Government are now responding to that particular set of views. Moving these regulatory principles from the Bill—from primary legislation—into a “have regard” for the five-year strategy strikes me as an acquiescence with those voices we are hearing from the City. To me, there is some confirmation in not finding a firm strand in the FCA’s own five-year strategy; that is its forward look, not its historic look backwards.

In a few minutes the Conservative Party will speak, and it will make its own position clear, but I understand that Kemi Badenoch has now said that her party, if in government, would scrap the Climate Change Act. That is a very significant change. I know it is motivated by fear of Reform, but it really has an impact on the overall discourse and the cross-party commitment we have had up to this point.

I agree with the right reverend Prelate the Bishop of Manchester—I think it was him, although I may have attributed this to the wrong person—that this is a very strange week in which to downgrade the significance of climate change. I happened to be in conversation with my daughter in the midst of last week’s heat. When I described what we were doing, she said, “I guess the universe has heard the intention and it’s decided to bite back”. I think it must have been the noble Baroness, Lady Bennett, who made the remark; I am so sorry not to have recognised that.

I think that both Labour and the Conservatives hope that by Third Reading, we will have forgotten the extreme heat and they can reassert a much more convenient and easy agenda of pretending that climate change is no longer an issue of urgency. It has now dropped down the scale and there are other issues of much greater urgency on which we must focus, and this one can be largely set aside. But I and my party continue to look at it as a series of risks that will cause extraordinary pain to ordinary people in Britain, both relentlessly and increasingly—and not just to people in the UK but to far more vulnerable countries across the globe.

The Bank of England and the financial sector have crucial and powerful tools in their hands. Those tools are vital if we are to redesign our world to limit nature loss and climate change, and to ensure that we grow sustainably in the future. As the Bill is now structured, it takes away from those tools and will encourage their being regarded as secondary or tertiary instruments, to be used only when it does not irritate certain voices in the City of London. That is not appropriate for the legislation we pass today.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I will speak briefly in general across this set of amendments and specifically to Amendment 141 in my name, supported by the noble Baroness, Lady Altmann.

In the general remarks, I say to the noble Lord, Lord Holmes, that I am excited and thrilled by his amendments in this group and I support every one of them—I would even open champagne; I am that pleased. I say to my noble friend Lady Tyler that I totally support the amendments that she has introduced here. I share with both of them the perception that financial inclusion is absolutely at the core of the requirement that we must place on our financial services sector and on the regulators that deal with it.

To pick up on a point that my noble friend Lady Tyler made, the consumer duty does not deal with financial inclusion, and that is exactly right. The consumer duty is very much a protection against mis-selling. It is not a duty of care, which could indeed have required that gaps left in the market are filled and the regulator take steps to fill them; the regulator was absolutely determined not to have that responsibility when this House attempted to make it address the issue, and the Government of the day were also very determined that the regulator should not play that role. We cannot look to the regulator to be a key player in financial inclusion.

In the five-year strategy of the FCA—I really have read that document—there is reference to financial inclusion; in fact, it is in big, black, bold letters. The problem is that what it anticipates as the role that it will play is to try to address how low financial capability holds people back from accessing financial services and how it could support them in managing their financial life. That is important and it matters, but the reality is that for many people who are excluded, the way to give them support is not to try to get them digital—it would be brilliant if you could but that is not the reality—but to deal with those people as they are in the world that they live in. There is absolutely no reference in this five-year strategy that you could in any way interpret as related to what has become the Richard Lloyd review—to things such as banking hubs. It is focused solely on the individual, whereas issues that we have addressed in previous groups have also been about the financial exclusion of small businesses from financial services. There is no reference to any of that.

I have had so many conversations with the FCA over the years, and it has said things like, “Yes, if we had a set of community banks, that would be absolutely brilliant; CDFIs are absolutely wonderful—not our job. If they appear, we will make sure that we regulate them appropriately, but it is not our job to fill that gap and we resolutely hold to that position”. That clarity needs to be here in this debate. I will not repeat what has been said because it was so well said by the three previous speakers, but I very much hope that the Minister will pay serious attention to this issue. From things that he has said in the past, I hope that he takes it to heart. It very much belongs in a very central way in primary legislation.

The issue I am raising is perhaps not an obvious one to raise in the context of this Bill, but it is in scope. It is dear to my heart, but I think it is widely supported. I am using this opportunity to deal with an issue that, frankly, the Government should have dealt with without any problem. It is child trust funds and the ability of young adults with learning difficulties to access those funds that sit in in their name. My party leader, Ed Davey, who, as I think all in this Committee know, has a son with very severe learning difficulties, has written of his eight-month battle to access the child trust fund put in place and invested in for the benefit of his severely disabled son, who is now 18. The fund should be easily accessible when a child turns 18, but, as the Davey family found out the hard way, this is not true for children with learning or other disabilities who lack the capacity to fill in the forms themselves.

The process of applying to the Court of Protection for a deputyship order is Kafkaesque, consumes endless time and places such a burden and cost that many parents give up altogether. The many steps, and my goodness there are many, include obtaining written permission from three different relatives to demonstrate that you are unlikely to abuse the funds that you will access, and obtaining various doctors’ assessments—well, perhaps that is fair—but then the courts kick in. The Court of Protection charges £412 for a deputyship order. It requires you to obtain insurance against misuse, and the Davey family found that that cost £48. Then comes the Office of the Public Guardian, which charges £100 for its assessment, and it then levies an annual supervision charge of £320. If you add this up, it basically becomes £1,000 to be able to access a child trust fund for your severely disabled child.

What is really extraordinary is that most child trust funds do not have a lot of money in them. I think the average amount is £2,000. You would have to spend 50% of it to be able to access that fund for your child. The people accessing it are parents whom the DWP already relies on to deal with a variety of much more significant pots of money to support that child. I use the Davey family not to ask for any kind of sympathy, but here is an MP whose wife is a lawyer, and they cannot work their way through this maze. How are people without those kinds of expertise going to work their way through this system?

Unfortunately, there is a new legal offering from specialists who will, for a significant sum, offer to negotiate the way through for you. That is a practice that none of us wants to encourage. There are a few child trust fund managers who handle the process a bit better and have been helping some of the people whose funds they manage to minimise the process, but it is a lottery in terms of finding that you have taken out your child trust fund with an entity that takes that approach. Charities estimate that 80,000 to 123,000 young adults are essentially locked out of their child trust funds.

I tried to look for what response the Government have been making to the overtures of the charities and other civic society groups that have been out there trying to speak for these youngsters. Two things came to my attention. The only response I could find from the Department of Justice was that it has now digitised the application form and provided a guide.

My amendment would force the FCA to simplify the whole process for CTFs paying out under £5,000 in any one year. It is formulated around an amendment put before the House in 2021—I am pretty sure that is the correct year—by the noble Lord, Lord Young of Cookham, who is really skilled in developing, designing and presenting the appropriate amendments. In speaking to that amendment, the noble Lord, Lord Blunkett, who was the Minister when child trust funds were put in place, made it very clear that no one had thought of this particular set of problems and that that was why the system was designed in a way that set up this obstacle course. It was not intentional or planned; it was simply a failure to recognise what could happen and has in fact happened.

I say this to the Minister: all the arguments we hear in support of the Bill are about deregulation; here is a piece of deregulation that I think no one could argue with, and which I would definitely and clearly support, as would my party and, I suspect, many others. If the Minister cannot control this himself, could he please go away and berate his colleagues? These youngsters need to be able to access their funds. We are talking about small pots. Simply digitising the 106 sections of the application form is not the answer.

[Lord Pitt-Watson (Lab)]

My Lords, if I might add to this debate, I begin by noting the huge cross-party agreement we have on lots of the issues the Bill raises, most particularly on this issue of ensuring access to financial services for everyone. That is what is behind so many of the amendments here. It is also the issue that was raised in the debate about affordable credit by the noble Baroness, Lady Kramer, and the right reverend Prelate the Bishop of Manchester, and at Second Reading by the noble Baroness, Lady Hyde, and the noble Lord, Lord Kamall. We all, from all parties, want to know that such services are available to everyone. The question is simply how we can make sure that that takes place and that the industry that has to be there to deliver it buys in to making sure that those services take place. We need to be sure that our actions as rule-makers are helpful in that regard.

At Second Reading, I heard a number of speeches about excessive regulation, all doubtless intending to encourage financial services to do their job better. But there is an issue with regulation and how much of it there is. If there is any concern about this amendment, that is absolutely not its objective. Critically, we need financial services to be available to everyone; the question is whether, by regulating them, that gets us to where we want to be. Maybe it will, but we might argue that, unless we have persuaded those whom we wish to influence that they will strive to improve performance in this regard, the danger is that it might just be another regulation. Whatever we ask the FCA to report, we need to first take a step back and think through how this will affect performance on the ground. It is the finance industry that has to deliver this, and we need to be working in partnership with it—with the industry, customers, potential customers, the Government and regulators, moving ahead together. There are also initiatives, some of which might work, and which, if they had real momentum, with everyone behind them, might start to deliver the sort of things we want.

As many noble Lords know, I have done quite a lot of work with the financial services industry in Scotland. Its industry body, Scottish Financial Enterprise, has laid out as its objective that it intends to

“have a financial services system that allows every citizen and business of Scotland to connect and access appropriate services”.

Wow. Is that not exactly what we are trying to get to happen? But who is following up to make sure that that statement, that vision is realised? It feels to me that we need a new settlement, and institutions to see that such a settlement is delivered.

--- Later in debate ---

[Baroness Bowles of Berkhamsted (LD)]

My Lords, this is the third of the trio. Clause 18 is a deletion clause, the final clause in the trio that removes consideration of the regulatory principles from the context of actual rule-making. It strips out the guidance duties, reporting duties and consultation hooks that once gave Parliament visibility into how the regulators applied their objectives and principles. Let us look at what is being systematically dismantled here. There is some overlap here with some of the things that the noble Baroness, Lady Noakes, has addressed.

Clauses 18(1) and (2) delete the FCA’s and PRA’s guidance about their objectives—the very provisions which, as the Explanatory Notes admit, required the regulators to explain how they advanced those objectives. It is not a question that they still have to explain now; that has gone. Clauses 18(3) and (4) remove the explanations required on directions on consolidated supervision and authorised decisions. Clause 18(7) removes the FCA’s obligation to notify, consult or explain when issuing guidance relating to its objectives. Clauses 18(9) and (10) delete large parts of the FCA’s and PRA’s annual reporting requirements, one of the most sensible and accessible ways for Parliament to understand how objectives were dealt with in practice and would ideally be built upon. Clauses 18(12) to (14) remove linkages to other Acts of Parliament, including the auditor engagement duties that once provided an additional source of supervisory insight.

What is left? Guidance? Gone. Explanations? Gone. Participation? Gone. Annual reporting? Gone. Audit? Gone. These were the exact mechanisms through which Parliament and others scrutinised how the regulators applied their objectives and principles. Clause 18 removes them all. It is the inevitable consequence of the Clause 16 and 17 shift: the practical reality of decoupling principles from operational effectiveness and removing Parliament’s line of sight. It leaves us with no checks and absolutely no balances. For these reasons, I oppose Clause 18 standing part of the Bill.

[Lord Pitt-Watson (Lab)]

My Lords, I will speak to Amendments 93 and 94. I have not audited a bank or sat on a bank board, but I was a member of the Sharman committee that looked at the problems with auditing following the global financial crisis. I sat on the board of one of the big four auditors, chairing its public interest committee, and I talked to a number of partners who audited the banks.

I think that we agree that audit is absolutely a foundation stone for the integrity of the capital markets. For those who are interested, it was part of the settlement following the collapse of the City of Glasgow Bank in 1878 that we would have audits of limited liability banks. It is particularly critical where entities are highly geared or where there is a considerable element of judgment in determining their value. If we look at the banks, they are hugely geared. People like to talk about the common equity tier 1 ratio, but if we look at the gearing that most companies use, it is the equity versus the liabilities. For a typical bank, equity is about 6%: on the back of that, you can borrow £94 and lend £100. That means that, if you have overvalued your assets by 3% and undervalued your liabilities by 3%, you end up with no equity whatever.

This is a really sensitive calculation and, historically, it would have been made with a degree of prudence and conservatism. Prudence and conservatism have now gone as guiding principles, and valuations are done neutrally. For example, this would allow a bank to declare a profit on a zero-interest credit card, on the grounds that it can bring forward the profits it thinks it will make in future. The noble Baroness, Lady Bowles, has been great in raising these issues for some time.

There are of course huge temptations to optimism. Indeed, it is surely testament to the professionalism of our bankers, and the independent agents we employ to monitor and control bank behaviour, that banks have not got into greater trouble. There are four such agents: the independent non-executive directors; the auditors; the investors and the regulators. Many more resources are devoted to auditing banks than to regulating them, and vastly more than fund managers devote to their role as stewards. The auditors have inside knowledge and huge expertise, and it is precisely that insight, given independently, that regulators need in order to play their role.

I think that that was recognised by the noble Baroness, Lady Noakes, when she suggested that the PRA “may” ask to speak to the auditors. The problem is that the auditors have a delicate job: they are referees. The report is done for the investors, but they need the trust of the audited entity. Indeed, they are, in effect, appointed by the audited entity, and they even sometimes describe the audited entity as a client. They are unlikely to go to the regulator without having profound concerns.

Regulators may find it helpful to call in the auditors because of problems that are visible to them: the known knowns. Under those circumstances, this amendment would of course work. However, what the regulator really needs to know is the unknown knowns: something that is known by the auditor, who has gone inside, but not known by the regulator. That is why it makes sense to mandate that the regulator “must” talk to the auditor to hear their concerns, to pick up potential emerging problems before they become critical, and to understand how the auditor judged the numbers to be true and fair.

The audit is the foundation of the integrity of our capital markets. For auditors to have material knowledge of a bank’s position that is relevant to the stability of the system and for that not to be known by the regulator seems to be completely perverse and potentially very dangerous. With that perspective, I wonder whether the noble Baroness, Lady Noakes, might be content with Clause 18, on audit reporting, to remain as it stands.

Financial Services and Markets Bill [HL]

Lord Pitt-Watson Excerpts

2nd reading
Monday 8th June 2026 Lords Chamber

[Lord Pitt-Watson (Lab)]

My Lords, my professional background before I joined the House was as a finance practitioner. I still work pro bono with consumer organisations, including some who have a view on the Bill. Most relevant to what I will say is that I am a fellow at Cambridge, where I teach a course focused on how we create a purposeful finance industry that, like all good market institutions, prospers when it serves the outside world.

To help build such a purposeful industry should be the goal of this legislation. It is a profoundly important goal, partly because, as the noble Baroness, Lady Neville-Rolfe, said, this is the jewel in the UK’s economic crown. But it is more than that: we need a successful finance industry if we are going to solve the critical problems of the country and the world: growth, prosperity, looking after people in old age and, as the noble Baroness, Lady Hayman, was saying, addressing the growing climate challenge.

There is no successful finance industry without effective regulation. However, as the House of Lords Financial Services Regulation Committee noted, we do not have a blueprint for what the best regulation looks like, and we have made big mistakes in the past. The global financial crisis took place despite the then existing regulation; some might even argue that, in some ways, it happened because of the nature of that regulation.

I wonder whether the whole House might agree on a starting point: that we are trying to get a finance industry that will fulfil its purpose well in serving the outside world. That means keeping our money safe, helping us transact, allowing us to share risk, and, critically, allowing us to take our money from point A, where it is, to point B, where it is needed and can create growth and prosperity. But for that to happen, we need an industry that is trustworthy and trusted to carry out these purposes. Otherwise, people will not save or borrow.

That all seems pretty straightforward, but there is a problem which we should recognise. People do not express trust in the finance industry. According to FCA surveys, in 2024 only 36% of people felt that

“most financial firms are honest and transparent in the way they treat them”;

27% felt the opposite. Some years ago, the Bank of England asked British people to find one word to describe the finance industry. Do noble Lords know which word they chose? It was “corrupt”. The finance industry accounts for about 9% of GDP—the figure from the Minister was 8%, and 12% from the opposition Benches—and it is responsible for 42% of corporate fines that have been issued. The Local Government Ombudsman gets 22,000 complaints a year; the Financial Ombudsman gets 216,000. I could go on and on. This issue needs to be resolved.

Malfeasance is not the most concerning issue; it is productivity. On the best academic evidence we have, there is little evidence that the cost of getting money from point A to point B has fallen by very much, even over 100 years. No other major industry has such a poor productivity record over such a period. At the same time, 1.3 million British people do not have a bank account. According to the FT a couple of weeks ago, British bank lending to SMEs is the lowest percentage of GDP it has been this century. There are big gaps in our finance system.

These problems occur despite, or maybe even because of, the great amount of regulation we have. Robin Ellison was a pensions partner in one of the big law firms and has now retired. He reckoned that, in 1990, we had 3,000 pages of pensions regulation; a couple of years back, it had risen to 165,000.

We must be sure that we are not encouraging a world where finance practitioners spend their time thinking about how to get around the regulation. It is euphemistically called regulatory arbitrage, and it creates a game of whack-a-mole: there is a rule, and someone finds their way around it; we whack that, and they find their way around it again—and we end up with a burdensome and expanding rule book. As the noble Lord, Lord Eatwell, said, we need a new settlement.

But in that settlement, regulation is just one piece of the ecosystem. There are also institutions, markets, incentives, ethics, professionalism and technologies, all of which are changing rapidly day to day. Getting the regulation right means that it needs to fit into this much larger system. I would have that as a background—a background on which I hope we might agree—and I think that has implications.

I applaud many parts of the Bill—for example, the encouragement of credit unions and thinking about how we can get credit to the people who need it fairly—but one concern, which it might be helpful to clarify, is that as we change the rules by which the Financial Ombudsman Service adjudicates, we need, as the noble Lord, Lord Burns said, to keep them principles based. Why is that? Because these are dynamic markets and we are trying to minimise regulatory arbitrage. Maybe it could be made clear from the outset that, when reference is made to the Financial Ombudsman Service adjudicating only on breaches of the FCA rules, those rules include the principles of business and the code of conduct.

There are many other comments that one might make, but I think they are best addressed in Committee. For now, my key point is that in any effective market economy, success should be contingent on serving customers well. There is a deficit of trust in the financial services industry. Regulation should align consumer, producer and society. My broader point for this House is that, in debating the Bill, it might be helpful to express a consensus, shared with industry and with consumer groups, that we want a finance industry that is there effectively to fulfil its proper purposes to the world. I look forward to our coming discussions.