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.