Financial Services and Markets Bill [HL]

Lord Wilson of Sedgefield Excerpts

Committee stage
Monday 29th June 2026 Grand Committee

[Baroness Noakes (Con)]

My Lords, we now come on to a bit of a ragbag group of amendments, which I should probably have split into more than one group. In moving Amendment 89, I shall also speak to Amendments 92, 93, 94, 96 and 98.

I will start with the FCA’s guidance. At present, the FCA has a power under Section 139A of FSMA to give guidance on, for example, the operation of specific parts of FSMA or its rules. Section 1K says that the guidance must—that is, must—

“include guidance about how it intends to advance its operational objectives … in relation to different categories of authorised person or regulated activity”,

and, inter alia, it has to consult on that guidance. What does this Bill do? Predictably, it eviscerates the provisions. Clause 18(2) removes Section 1K from FSMA, and Clause 18(8) takes all the substance out of Section 139A. This is part of the insidious pattern of this Bill, removing information that regulated persons might find useful—removing guidance about how a regulator would advance its objectives—and removing the requirement to consult on what is left of Section 139A. This is a Bill solely for the regulators’ convenience, regardless of the needs of those subject to regulation. Similarly, Section 2L of FSMA currently requires the PRA to consult those it regulates about how its general policies and practices are consistent with its general duties, and Clause 18(3) removes this. My Amendments 89 and 92 would remove these retrograde provisions from the Bill.

Amendments 96 and 98 are rather different. They concern statutory references to the Financial Services Regulation Committee, and I thank my noble friend Lady Neville-Rolfe and the noble Lord, Lord Vaux of Harrowden, for adding their names. The current FSMA wording about parliamentary committees derives from the 2023 Act, which, as initially drafted, referenced only the Treasury Select Committee in the other place, but that was amended during the passage of the Act to encompass any committee of your Lordships’ House set up to deal with financial services regulation or indeed any Joint Committee of both Houses. Following the passing of the Act, your Lordships’ House decided to set up the Financial Services Regulation Committee, to which I, like others, have referred several times in this Committee. Amendments 96 and 98 merely amend the 2023 wording inserted into FSMA to reflect the fact that your Lordships’ House now has a specific committee which should be referred to in legislation.

When the Bank Resolution (Recapitalisation) Act was passed last year, we managed to get it amended to incorporate a specific reference to the Financial Services Regulation Committee, and I am a bit disappointed that the Treasury, which agreed to those amendments last year, has already forgotten that the FSMA wording is out of date and needs to be amended. I therefore hope that Amendments 96 and 98 are non-controversial and that the Government will accept them. I should explain for those noble Lords who did not take part in the passage of the Bank Resolution (Recapitalisation) Act that the references in the amendments to the Chairman of Committees are in fact references to the Deputy Lord Speaker—when that role was created, it encompassed the function of the Chairman of Committees, but that nomenclature remains in statute. That is the Committee’s fun fact of the day.

My remaining two amendments in this group, Amendments 93 and 94, are pretty arcane for those who have not audited a bank or sat on a bank or insurer’s board. For my sins, I have done both. Following the Parliamentary Commission on Banking Standards, FSMA was amended to require meetings at least annually between the regulators and the auditors of PRA-regulated persons. This was definitely overkill, and I am pleased that the Government have decided to delete most of Section 339B of FSMA, through Clause 18(11). They have, however, retained the requirement for the PRA to do those meetings, even if it no longer has to report on them; my Amendment 93 would remove Section 339B in its entirety. This does not mean that the PRA will never meet the auditors of the bodies it regulates: it used to meet the auditors before Clause 339B was enacted in 2013 and can continue to do so if the clause is eliminated, but it would remove the obligation on the PRA to do so. Clause 339B has in fact spawned a small industry of the PRA thinking up questions to ask the auditors to report on. The auditors then go away and write a report, usually asking their client to produce a lot of information first, and then the auditors ask the client for a fat fee. It is not value-added activity. We should leave meeting auditors to the regulator’s discretion.

In a similar vein, my Amendment 94 would amend Section 340 of FSMA, which requires the PRA to make rules about auditor co-operation. It has a similar provision for the FCA, but that merely empowers the FCA to do so. My amendment is unlike most “may”/“must” amendments in your Lordships’ House. We normally seek to replace “may” with “must”. My Amendment 94 does the reverse, so that the PRA “may” make rules if it chooses to do so, and hence aligns with the FCA by giving discretion to the PRA, which is also what my Amendment 93 aims to do. I beg to move.

[Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)]

My Lords, before we continue the debate, we have started group 6 and we have one more complete group to do. We are going to finish at 8.45 pm and I would hate to think that we would finish mid-group, but I am in your Lordships’ hands as to whether we do that.

[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.

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[Baroness Noakes (Con)]

My Lords, I thank all noble Lords who have taken part in this debate. Clause 18, guidance, consultation and whether regulators can be trusted is unfinished business as far as this Committee is concerned. I look forward to getting the answers on questions that have been put, but my instinct is that the Government’s approach is going too far in favour of letting the regulators determine what their interactions will be with the regulated community. On the one hand, there are independent regulators which need forms of oversight, and this Bill is just chipping away all the time at those points at which there can be some interaction between those charged with the oversight of them. By constantly removing these points at which there can be some intervention, we end up with a weaker situation overall. I will need to think very carefully about what we do about Clause 18 in general when we get to Report. I think it is part of the issues that we have been developing. Clauses 16, 17 and 18 are all part of one picture that we need a more satisfactory answer to.

Turning to the auditors. I was not trying to stop auditor meetings—

[Lord Wilson of Sedgefield (Lab)]

I mentioned at the beginning of this afternoon that when an amendment is being pressed, noble Lords have to be short. The withdrawal of amendments is starting to take longer and longer, which eats into the time for the other groups.

[Baroness Noakes (Con)]

I hear what the noble Lord has said. I think it is important that we have the opportunity to comment before withdrawing amendments. It is not simply a case of getting up and saying, “I withdraw”.

[Lord Wilson of Sedgefield (Lab)]

I just say to the noble Baroness that it is clear in paragraph 8.82 of the Companion that noble Lords should

“be brief and need not respond to all the points made during the debate”.

[Baroness Noakes (Con)]

My Lords, I had no intention of responding to all points made in the debate. There are a number of different amendments in this group. They could have been degrouped into four or five separate groups, and we could have had a short winding-up on each one of them. We have effectively four groups here, so we are going to be talking about all of them.

On auditors, I was not trying to suggest that auditor meetings should not take place: of course, there is value in those meetings, which have taken place for decades. They were not invented when FSMA was being drafted; they were already part of the thing. The amendments are not that important; I was simply trying to give the PRA the same flexibility that the FCA has.

On the nomenclature in the Act and the Financial Services Regulation Committee, I give notice that I will return to that matter in Committee. My committee will think that it is important that, now that it exists, it is reflected in statute. I beg leave to withdraw my amendment.

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[Baroness Noakes (Con)]

My Lords, I will speak also to Amendments 100 and 102 in this group. I thank my noble friend Lady Neville-Rolfe for adding her name to Amendments 99 and 102, and I thank the noble Lord, Lord Vaux of Harrowden, for adding his name to Amendments 99 and 100. My noble friend Lord Hunt of Wirral is unable to be with us today, as he is on our Front Bench in the Chamber dealing with the Steel Industry (Nationalisation) Bill, so I shall also speak briefly to his Amendment 101.

Amendment 99 concerns the secondary competitiveness and growth objective, which applies to both the FCA and the PRA. When it was introduced in the 2023 Act, it was no secret that the regulators were less than enthusiastic. Our regulators have always been heavily involved with the international financial institution community. They often act as chairmen, as is currently the case with the Governor of the Bank of England and the Financial Stability Board. They are members of as many committees as they can get on, and they are completely embedded in the international standards infrastructure. It was unsurprising, therefore, when they managed to convince the Treasury that it should make the secondary competitive and growth objective subject to alignment with international standards.

During the passage of the 2023 Act, I tried to get this watered down, because I had a real concern that the PRA and the FCA would hide behind international standards when making rules, in a way that does not optimise UK competitiveness and growth. International standards are a good thing, but only if all the major countries implement them. In fact, there is a history of patchy adoption—not least by the United States of America, which is, of course, one of our main competitors in financial services. Unfortunately, the Treasury supported the regulators and kept alignment in the 2023 Act.

I return to this theme with Amendment 99, which would change the words of the competitiveness and growth objective so that the regulators must consider international standards only, rather than automatically aligning with them. We have had three years of experience of the operation of the Act. It is time, I believe, that we made growth and competitiveness an unambiguous part of the regulators’ objectives.

In the past three years, we have seen the continuation of US exceptionalism. It has not implemented Basel III, and we have to remember that it never implemented Basel II. To be fair to the PRA, it has found reasons to follow what other countries are doing to delay certain aspects of Basel III and has performed contortions to justify implementing other aspects in a way that does not fully hit smaller UK banks, but the fact is that other countries are implementing Basel III in ways that suit them, and it would be more honest if our own regulators were given that freedom.

Another problem area in bank capital is the requirement to hold MREL, the minimum requirement for eligible liabilities. This started as a European requirement that went way beyond the international rules for total loss-absorbing capital for global systemically important banks. The UK has just three G-SIBs out of 29. Unfortunately, the UK sets MREL for many more banks than three. This is not set by the PRA, which might have a problem justifying it by reference to international standards, because the international standards are clearly less than the European model which we are sticking to. It is in fact set by the Bank of England, which does not have a competitiveness and growth objective. This shows what happens when regulation is detached from the interests of the UK economy.

I turn to the FCA. When the Financial Services Regulation Committee looked at stablecoins, we asked the FCA about its work on stablecoins aligning with the secondary competitiveness and growth objective. The director of payments and digital assets at the FCA was keen to tell us what the FCA did on committees at IOSCO, how it helped to draft the FSB’s paper on stablecoins and how it brought together regulators and standard-setting bodies in London. Although the executive director for payments said that the FCA was trying to find solutions right for the UK, it is clear that the instincts of the regulators’ staff is to look to international standards bodies rather than to think about what is best for UK competitiveness and growth. I do not think that the secondary objective’s potential will be maximised while the comfort blanket of international standards is reinforced by the FSMA requirement to align with them.

Amendment 100 is much more straightforward and I hope that it is uncontentious. I fully support Clause 20’s requirement for the regulators to report annually on the secondary objective. The two initial reports required by the 2023 Act make it clear that the competitiveness and growth objective is not a finite event but a continuing challenge. This was also one of the key findings of the first report by the Financial Services Regulation Committee. My amendment would merely require the Treasury to lay the annual reports before Parliament. It is customary to lay key accountability documents before Parliament. If this is not a key accountability document, I do not know what is. I hope that the Minister can accept this amendment.

I was going to go on to Amendment 101 in the name of my noble friend Lord Hunt of Wirral, in anticipation of his absence, but I see that he is with us, so I will not speak to his amendment but will conclude with my final amendment in this group, Amendment 102.

[Lord Wilson of Sedgefield (Lab)]

I am afraid that the noble Lord, Lord Hunt of Wirral, was not here at the start as he came into the Room two minutes late, so the noble Baroness may go ahead.

[Baroness Noakes (Con)]

I thank the noble Lord for telling me about my noble friend’s disqualification from speaking; I will now speak to his Amendment 101. I find that it would be a useful addition to Clause 20, by imposing some modest requirements such as making the reports comparable with previous reports and covering things such as the cumulative cost of regulation and an explanation of how proportionality has been applied, including for SMEs. I do not think that any part of this amendment should be controversial, and I hope that the Minister will be able to accept it.

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[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise briefly to speak against all of these amendments, but the noble Lord, Lord Bridges, has asked an interesting question here: are we making this legislation for the City or for the country? My question to the Minister, therefore, is: does aligning with international standards mean that we can actually set higher standards? That is certainly what I would like us to do in terms of money laundering and the other issues that I raised earlier, but I think that the assumption in this amendment is that we might set lower standards.

One of the things that aligning with international standards would do is improve our international standing in this uncertain geopolitical age. Undercutting standards would be severely damaging to our international standing in the world. That is a much broader question than just the City.

I will cover all these amendments collectively. It is no secret that throughout all the previous financial services Bills I have worked on, I have opposed competitiveness and growth objectives. I am sure the noble Lord, Lord Vaux, will be delighted to know that it was his earlier contribution to the clause stand part debate that helped me to see clearly that what we are doing here is singling out the growth and competitiveness objectives from everything else. One of the ways in which noble Lords tried to deal with that in earlier groups was by adding crucial issues such as climate. The other way of approaching the problem, which I may well be tempted to do on Report, is by proposing that Clause 20 does not stand part.

It is important to raise the issue again now, given that just this week the Bank for International Settlements has spoken about the financial risk associated with big tech’s AI spending spree—in its terminology—which could lead to a prolonged investment bust that could have significant impacts on financial markets and the global economy. It produced the figure that the five biggest hyperscalers expect to invest more than $1 trillion from 2025 to the end of 2026. We are in a position of risk, so I believe we should look at growth and competitiveness again.

Amendments 102 and 104 seek to extend further than the Government have gone on the growth and competitiveness agendas. That is an extraordinarily bad and extremely risky idea. I am happy to carry forward that idea and keep saying it on Report.

[Lord Wilson of Sedgefield (Lab)]

My Lords, we have come to the end of the time available for Grand Committee today. Although it is unusual, I beg to move that the debate on this amendment be adjourned. We will return to this debate on the next day in Committee. Only those noble Lords present at the start of this group can speak when the group resumes. I have asked the clerk to circulate a list of those present in the usual channels.

Debate on Amendment 99 adjourned.