Defence Funding

Debate between Lord Pitt-Watson and Lord Altrincham

Thursday 17th September 2026 Lords Chamber

[Lord Pitt-Watson (Lab)]

As I said, the 3% timing will be declared at the spending review. I do not want to do all the criticising of other parties, actually; I am trying to maintain a collegiate House. But I do remember, a couple of weeks ago, the right reverend Prelate the Bishop of Coventry talked about old people, who she said were of “immeasurable worth”. Everyone is of immeasurable worth. Of course we need to talk about big numbers for defence and welfare, but real people depend on welfare and those real people are of immeasurable worth. That should inform our debate.

[Lord Altrincham (Con)]

How should our adversaries interpret the Treasury’s defence stance?

[Lord Pitt-Watson (Lab)]

That the Government have an absolute commitment to the defence of this nation; that we already have the third-highest absolute expenditure among our allies; that we will honour our NATO commitment of 3.5% by 2035 and set a target for 3% on defence at the spending review; and that in 2025 we committed to the largest sustained increase in defence spending since the end of the Cold War. That is not bad.

Financial Services and Markets Bill [HL]

Debate between Lord Pitt-Watson and Lord Altrincham

Report stage
Wednesday 9th September 2026 Lords Chamber

[Lord Altrincham (Con)]

I thank the Minister for hosting this second day of Report with such grace. I will focus my remarks on Amendment 64, to which I added my name. I am very grateful to the noble Baroness, Lady Bowles of Berkhamsted, for bringing this important issue before the House again.

“Section 166 review” is the name given to FCA investigations. These investigations were originally quite rare, but dozens are now launched every year and they are paid for by the target firms. These investigations are expensive and time-consuming. They can have a rather arbitrary regulatory purpose and are somewhat unconstrained. This regulatory power can be exercised without a statutory threshold requiring the regulator first to demonstrate that the matter is sufficiently serious and that using this particular tool is proportionate.

We hear consistently from firms that Section 166 reviews are increasingly becoming the norm rather than the exception. Without a degree of restraint or oversight, these powers may create regulatory uncertainty. Our amendment would not prevent the regulators acting where there is a serious problem, nor would it remove Section 166 from their toolkit. It would simply mean that such a costly and burdensome power is used proportionately where it is genuinely warranted. I very much hope that the Minister will accept the amendment, but if the noble Baroness, Lady Bowles, decides to test the opinion of the House as she has indicated, we will support her.

[Lord Pitt-Watson (Lab)]

My Lords, this group raises two important but distinct questions: how the prudential framework should treat lending that supports employee ownership, co-operatives and mutuals; and when regulators should use skilled person reviews under Section 166 of FSMA. The Government have carefully considered the case made for each amendment, but do not believe that these changes should be made through legislation.

Amendments 63 and 66 seek to create a bespoke prudential framework for lending to co-operatives and mutuals, including through lower risk weights. The Government recognise the valuable contribution that co-operatives and mutuals make to the UK economy and are undertaking a multiyear programme of work to support the growth of the sector. This includes making amendments to the Building Societies Act 1986, which we debated last week, to align it with company law and give societies greater funding flexibility.

However, prudential capital requirements should reflect the underlying risk of a lending activity rather than the ownership structure of the lender. Prudential requirements are generally set by the Prudential Regulation Authority through its rules, rather than being prescribed in legislation. This allows the framework to respond to evolving risks and market developments, while operating within a statutory framework established by Parliament. The Prudential Regulation Authority has clear statutory objectives and is accountable to Parliament for the exercise of its functions. It is therefore the appropriate body to assess risk characteristics and determine the appropriate prudential treatment of different exposures. The Government therefore do not consider it appropriate to prescribe preferential prudential treatment for particular business models through legislation. Such decisions should remain matters for the independent Prudential Regulation Authority. For these reasons, I am unable to support these amendments.

Turning to Amendment 64 concerning Section 166 skilled person reviews, I agree that these reviews should be commissioned only where appropriate and proportionate. However, the Government are not persuaded that a further statutory threshold is necessary. As we discussed in Committee, regulators already consider the circumstances of the firm, the costs involved and the availability of alternative supervisory tools before commissioning a skilled person review. The FCA and the PRA have established supervisory processes for doing so. Requiring the regulators to satisfy an additional statutory test could delay supervisory action and make it harder to intervene before problems occur that could damage the interests of consumers or affect the functioning of markets.

I know that a concern has been raised about there being more and more Section 166 reviews. I reassure noble Lords that the FCA’s use of skilled person reviews has been broadly consistent over the past 10 years. In 2025-26, only 31 were commissioned, which is the second-lowest usage since 2016. I am happy to send the figures to Members if they are interested.

In their letters to me, which have been shared with interested Members and laid in the Library, both regulators set out details of their approach to delivering proportionality, with the FCA explaining how its approach to supervision is proportionate, risk based and targeted. They also commit to ongoing engagement with parliamentary committees on their approach. I hope that this reassures the noble Baroness about the process and proportionality of Section 166 reviews and therefore ask her not to press her amendments.

Financial Services and Markets Bill [HL]

Debate between Lord Pitt-Watson and Lord Altrincham

Report stage
Monday 7th September 2026 Lords Chamber

[Lord Pitt-Watson (Lab)]

My Lords, I will speak to the amendments in my name in this group. Before turning to the detail, I should briefly note that almost all these amendments were previously tabled by the Government in Committee, where, in light of concerns expressed about the way in which they were tabled, the Government agreed to bring them back on Report. The group contains a modest number of minor and technical amendments, which are not unusual for a Bill of this size. They do not alter the underlying policy of the Bill. Their purpose is to ensure the Bill is relevant and that the relevant provisions in FSMA operate clearly and consistently. I will try to be quite quick, therefore, in going through them all, so as not to tire your Lordships.

First, turning to Amendments 18, 21 and 23 to 25. These are minor technical corrections to Schedule 2 to the Bill, which, taken with Clause 13, abolishes the Payment Systems Regulator and gives broadly equivalent functions to the FCA. Amendment 18 removes the duplicative provision from new Section 131Z19. Amendment 21 corrects a cross-reference so that the Bill refers to the correct FCA payment system. Amendments 23 to 25 ensure that references to the chair of the PSR, which should be obsolete after the PSR is abolished, are deleted in the correct places.

I hope this is all making sense, but if noble Lords have a particular thing they want to talk about, please do indicate. Amendments 73 to 75 are, once again, minor and technical amendments.

Amendment 12, which relates to Clause 4, makes a consequential amendment. New paragraph 1B of Schedule 17 to FSMA, inserted by Clause 4, permits any function of the Financial Ombudsman to be performed by any member of staff.

Amendments 76 to 79 relate to Clause 33. As noble Lords will be aware, the Bill introduces a more flexible senior management approvals framework, including the ability for firms to apply for conditional or time-limited approval in specified circumstances. These are technical amendments to ensure that the framework operates consistently and in line with the original policy intent.

As regards Amendment 81, finally, when the Bill before us gains Royal Assent, there will already exist a number of overseas recognition regimes created under existing powers in FSMA 2023 to restate regimes inherited from the EU. This amendment enables the Treasury to make consolidating provision, which would restate the existing regimes within the new overseas recognition regime framework. This is essentially a tidying-up exercise.

In summary, this group of government amendments makes technical corrections to ensure the Bill works as intended. I hope noble Lords will join me in supporting them.

[Lord Altrincham (Con)]

I thank the Minister for bringing forward these already tabled amendments, assembled this evening in group 4, and declare my interest as a director of South Molton Street Capital. These amendments, as the Minister explained, remove duplication, correct drafting, make the provisions of the Bill work better together, and make the Bill intelligible, internally consistent and ultimately more workable in practice. Therefore, we support them.

--- Later in debate ---

[Lord Altrincham (Con)]

My Lords, we take a different view on the Financial Ombudsman Service. Our position is that the present FOS model now requires more fundamental reform. We propose that the Treasury should publish draft legislation to replace the FOS with a new financial adjudication service, alongside a dedicated financial services chamber within the First-tier Tribunal.

We accept the need for consumers and SMEs to have access to redress that is fast, expert and affordable. Our concern is that the FOS has evolved well beyond a simple dispute resolution function. Its decisions can shape market behaviour and influence how FCA rules are understood, without the same accountability as a regulator or the legal certainty created by binding precedent.

At the heart of that concern is the fair and reasonable test. A firm may comply with the law, FCA rules and its contractual obligations but still face uncertainty about whether the ombudsman will take a different view. We simply cannot have this situation if we want a regulatory landscape that is conducive to business confidence. We therefore understand the position taken by the noble Lord, Lord Sharkey, but we start from a different premise. Our position has not changed. We want a redress system that remains accessible to consumers but is also more predictable, legally certain and consistent.

[Lord Pitt-Watson (Lab)]

My Lords, I start with an apology to the noble Lord, Lord Sharkey, if I have failed to respond to him appropriately, but perhaps I can do so in the remarks that I will now make. In response to my noble friend Lord Davies, I am clear that treating customers fairly is one of the business principles of the FCA and is therefore one of the criteria by which a complaint will be able to be made to the FOS.

The FOS plays a vital role in the redress framework for financial services, ensuring that consumers have confidence that, if there is a complaint about a financial services provider, there is an independent, impartial service that can resolve that complaint and has the ability to put things right. That role will not be changing as a result of these reforms. However, the framework within which the FOS operates is not as consistent as it needs to be, and that is not good for consumers or financial services firms. That inconsistency is not surprising because the FOS’s fair and reasonable test was determined before the consumer duty came to the FCA.

The Government’s review of the FOS found that there is a small but possible minority of cases where that inconsistency in the framework could cause false determinations to have the effect of quasi-regulations by setting standards that may not be in line with FCA regulations. To be clear, these are all the FCA regulations. If noble Lords had been with me three months ago, they would have seen me writing letters to my predecessor confirming that that was indeed the case.

As far as the House of Lords is concerned, the Financial Services Regulation Committee stated in its report Growing Pains, that the FOS’s actions can,

“have regulatory impacts by creating precedents that the FCA requires firms to follow”—

again, a quasi-regulator. That is the background to why we are doing this.

Financial Services and Markets Bill [HL]

Debate between Lord Pitt-Watson and Lord Altrincham

Report stage
Monday 7th September 2026 Lords Chamber

[Lord Altrincham (Con)]

My Lords, notwithstanding the anomalies that have been discussed—there are significant anomalies in insurance in England as well—we have some concerns about this amendment. It would hand the Treasury very extensive powers to act through secondary legislation, including the ability to amend primary legislation. We have raised concerns consistently in Committee and on Report about the use of broad, delegated powers of this kind. The same concerns apply here. Regulations being subject to the affirmative procedure provides a degree of parliamentary scrutiny. However, it does not alter the fundamental point that Parliament will be delegating significant legislative discretion to the Treasury before the detailed regime on any transitional arrangements has been set out.

[Lord Pitt-Watson (Lab)]

My Lords, Amendment 16 would give the Treasury the power to extend regulation of claims management activity to Northern Ireland through secondary legislation. I am aware of the concerns relating to high insurance costs across the UK and would be supportive of action to tackle these where we can, but we should not rush to regulate without clear evidence.

The Government’s Motor Insurance Taskforce has examined the drivers of motor insurance costs, including claims-related costs and market practices. This work has not identified clear evidence that claims management companies are a primary driver of higher premiums in Northern Ireland. Moreover, any proposal in this area would also need careful engagement with the Department of Finance in Northern Ireland and proper consideration of the devolution implications. I therefore ask the noble Baroness to withdraw Amendment 16.

--- Later in debate ---

[Lord Altrincham (Con)]

My Lords, these amendments reflect a number of important concerns about the proposed transfer of anti-money laundering supervision to the FCA. We do not believe that each of these points requires legislative commitment. However, we have also been made aware of serious concerns from industry about how this transition is being communicated and how the new regime will work in practice.

These concerns include the governance arrangements following the transfer of the timetable and the transitional process, the maintenance of professional standards, proportionality, and the extent to which the FCA will retain specialist expertise needed to supervise highly technical sectors such as accountancy, legal services and trust and company service provision. There are also legitimate questions about the practical support available to firms, the likely cost of the new regime and whether smaller firms in particular will face disproportionate burdens.

This is why our Amendment 93, in my name and that of my noble friend Lady Neville-Rolfe, covers a transfer of AML supervision. Parliamentary and entire industry oversight of these changes will be vital in making sure that this new architecture works in the way the Minister wants.

The common thread running through our amendment and the other amendments in this group is therefore a sensible one. If the Government are going to centralise this responsibility within the FCA, they must demonstrate that the FCA is genuinely equipped to undertake it, and provide clarity to industry about how this process is going to be practically achieved. That means not simply having the formal regulatory powers, but having the right people, the right sectoral knowledge, appropriate transitional arrangements and a clear understanding of how supervision will operate across the country.

Industry is concerned about these questions, and those concerns should be taken seriously. I therefore hope the Minister can make a firm commitment today to provide considerably greater clarity about how this transfer will be implemented, how professional expertise, standards and proportionality will be maintained, and what firms should expect during transition.

[Lord Pitt-Watson (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Kramer, for tabling these amendments concerning the implementation of the reform of the UK’s anti-money laundering and counterterrorist financing supervisory regime. The points everyone is raising about the implementation of this needing to be well done are extremely important, as is the comment made by the noble Lord, Lord Altrincham, about parliamentary oversight of what is taking place here.

Amendments 26 and 27 concern support for firms and implementation planning. Amendment 26 would require the Treasury to publish and lay an assessment before Parliament, including a comparison between the education, guidance and compliance assistance currently available to firms and the support that will be provided by the FCA. The Government recognise the concern that professional services firms should continue to receive clear guidance, appropriate support and access to sector-specific expertise following the transition to the FCA.

Existing provisions in the money laundering regulations, which require supervisors to provide information about money laundering risks to supervised populations, will apply to the FCA in relation to its expanded responsibilities. The FCA already has significant experience of providing AML/CTF information and guidance to a large and diverse supervised population. For these reasons, the Government do not believe that a statutory assessment is necessary.

Amendment 27 would require the Treasury to publish a statutory timetable for implementation. While we do not believe such a requirement is necessary, the FCA has provided some additional clarity on the expected implementation timetables. The current expectation is that the first businesses will begin to be supervised by the FCA before the end of 2028. Further onboarding will take place in phases, with the broad aim that all firms within scope will be supervised by the FCA by mid-2030.

Implementation should proceed only when the necessary preparations are complete. This includes ensuring that appropriate systems and effective information-sharing arrangements are in place, supervisory staff are adequately trained, and sufficient clarity is provided to firms about the future regime. Retaining flexibility will allow the Government and the FCA to respond to stakeholder feedback and lessons arising during the transition.

Existing supervisors will continue to supervise firms, taking enforcement action where necessary and maintaining standards until the FCA assumes its new responsibility. The Office for Professional Body Anti-Money Laundering Supervision, OPBAS, will continue to oversee the existing professional body supervisors during that period. The FCA is already engaging with professional body supervisors and HMRC on information-sharing and data-sharing arrangements.

Amendment 28 concerns professional expertise. The Government fully recognise that effective supervision depends on supervisors understanding the sectors they regulate. Legal services providers, accountancy firms and trust and company service providers have different business models, risks and regulatory arrangements.

Of course, the FCA already supervises a large and diverse population, including many smaller firms, and has extensive experience applying a proportionate, risk-based approach across different business models and firm sizes. The FCA’s independent Smaller Business Practitioner Panel also provides direct insight into the perspectives and challenges facing smaller regulated firms.

This reform is not about applying a banking-style or one-size-fits-all supervisory model to professional services firms. The future regime will be proportionate and risk-based and establish a more consistent and effective framework, while recognising the different characteristics and risks of those sectors.

Amendment 29 is on supervisory fees. All businesses, particularly smaller firms and sole traders, want assurance that the future regime will remain proportionate and that firms will not be required to pay excessive supervisory fees. The FCA will consult on the design of its future fee model before assuming responsibility for these sectors. The Government expect fees to be proportionate and consistent with the FCA’s wider fee framework, where smaller firms generally face lower costs than larger firms. The detailed fee structure will depend on the final supervisory model and is therefore better developed through consultation.

Finally, Amendment 30—