Financial Services and Markets Bill [HL]

Debate between Lord Vaux of Harrowden and Baroness Lawlor

Committee stage
Wednesday 8th July 2026 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, it has been an unusual experience to have had a debate with two sides to it on the Bill; the Minister must be pleased about that. I am afraid that I sit firmly on the fence—indeed, on the ring-fence. I am in two minds on this issue. Ring-fencing requirements were put in place after the financial crisis for very good reasons. You can argue that they went too far and that, to some extent, they have been overtaken by other regulations and that they perhaps overburden and create some restrictions on the banks. But, in the Bill, the Government recognise that.

On the other side of the equation, the economy and the banking system are currently facing a whole range of threats, which are arguably greater than have been faced at any time since the financial crisis in 2008. We have the private credit situation and the impacts of AI, to name just a few. Is it really the right time to remove ring-fencing entirely?

I am also not entirely convinced by the argument that removing ring-fencing would have that much impact on domestic lending. Domestic lending is inside the ring-fence. In fact, you could argue that it would have the opposite effect, as banks could then use deposits for more risky non-lending activities. Therefore, I confess that I find that argument unconvincing.

I am open-minded, but I am more minded to support the government proposals to loosen the ring-fencing rules and introduce some flexibility to them. I do not think I am ready to support complete removal at this stage. However, I am drawn to Amendment 159, which requires a consultation and assessment to take place before the proposed changes can be made.

[Baroness Lawlor (Con)]

My Lords, I am delighted to have the debate, and I am very grateful to the noble Lord, Lord Pitt-Watson, for raising questions which have encouraged debate, but I support my noble friend Lady Neville-Rolfe’s opposition to Clause 39 standing part of the Bill. I also support her Amendment 160A about ring-fencing.

Clause 39 gives the Treasury powers to loosen the ring-fencing scheme. It has been anticipated, as others have said in this debate, by a number of announcements and reports, not least the Skeoch report—I hope I have pronounced it rightly, in the Celtic way—and the announcements this year by the Treasury itself. All of these point to and address a real problem. The question before us today is whether the Government’s solution in their Clauses 39 and 40 is sufficient to deal with the problems raised by reviews and announcements going back to the 1 March 2022 independent review of the working of the scheme.

I have a concern. The clause may seem to be the answer to some of the serious questions raised in that review and other concerns, and allow for the mitigation of problems arising from the ring-fencing regime—to allow for “proportionate” changes, to use a word which continues to recur throughout the assessments of how the scheme is working. However, in essence, it protracts the dominance of the regime and the regulators in what should be business decisions under good law, which is the spirit of the common law. It is a law which is permissive of risk-taking rather than prohibitive of the spirit of enterprise, or looking over the shoulder to the precautionary principle.

Officials and regulators can be very intelligent, competent and talented people, but it is not part of their skill set to drive through an entrepreneurial idea from the drawing board to production, sale, expanding their markets, developing a business, taking risk, and hiring and training people—which is an additional cost—while all the time keeping on top of the services sector, one of the fastest growing sectors in the UK and a jewel in the crown. Enabling officials to decide which activities should or should not be prohibited, and under which circumstances, does not tackle the fundamental problem to which the ring-fenced regime has given rise: the artificial and contrived structure. We are dealing with a structural problem—an artificially separated structure.

This structure inhibits the financial services sector from functioning in the best possible way, as an enabling hub for the whole UK economy, to allow small businesses, in particular, to grow and credit to flow. It is unlikely to remedy what we are dealing with, the fundamental problem of risk aversion imposed by ring-fencing law on businesses and the endemic risk aversion in the operation of the law.

Financial Services and Markets Bill [HL]

Debate between Lord Vaux of Harrowden and Baroness Lawlor

Committee stage
Monday 6th July 2026 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, I will be very brief. I am sympathetic to ensuring that the overseas recognition regulations are as pragmatic and seamless as they can be to enable easier international competition. But I have quite a lot of sympathy with the comments of the noble Baroness, Lady Noakes, about giving these powers exclusively to the Treasury.

I want to ask one question of the Minister. New Section 408A(2) sets out a list of areas that

“the Treasury must have regard to the importance of”

when making regulations. As an aside, that is quite odd wording; normally it is “have regard to”. I am still not sure I understand what difference

“must have regard to the importance of”

makes to the meaning. Maybe the Minister might explain that. New Section 408(1) does something similar but in a slightly different way. It seems that one area is missing from the lists of “have regards”: the question of economic crime, particularly anti-money laundering and the transparency of ownership in the relevant jurisdictions. Can the Minister say whether he agrees that those are important and explain why they might be missing from the list?

I will just finish with something I should have said earlier today, given that I think we are finishing early and the Minister is going to get some of his evening back: I wish him a happy birthday.

[Baroness Lawlor (Con)]

I endorse the concern of the noble Baroness, Lady Noakes, about the political pressure that the Treasury will be under to recognise certain countries. Without adequate scrutiny, wider advice and deep analysis, the problem of overleveraging in some banking systems, despite them appearing perfectly respectable, would expose the UK and its financial sector to the dangers of debt and contamination.

I therefore have doubts about the economic implications of the Treasury making these calls on account of political reasons. We see this all the time, whether on international agreements—I sit on that committee—or on European affairs, whose committee I previously sat on. There is constant pressure by Governments to sign treaties that are rather bad for the UK and its various sectors, including financial services. I would have concerns if there were no adequate scrutiny and no proper advice taken on whether such recognition is a good thing for our systems.