Pension Fund Clearing Obligation Exemption (Amendment) Regulations 2025

Debate between Lord Wilson of Sedgefield and Baroness Neville-Rolfe

Thursday 5th June 2025 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, I thank the Minister for bringing this important debate before the Grand Committee today. While technical in nature, the debate strikes at the very heart of our pensions system. It concerns the management of risk, the generation of returns for pension schemes and the financial security of our country. Derivatives play a crucial role in the operation of pension funds. They allow for efficient exposure to asset classes without necessitating the purchase of the underlying assets. They enable tactical asset allocation decisions to be executed more swiftly and cost-effectively than physical rebalancing and, through leverage, they offer the ability to increase market exposure without tying up significant amounts of capital. I know all of this from my experience as a trustee of the Tesco pension fund some years ago. Above all, derivatives are essential because pension funds face long-term liabilities that are highly sensitive to changes in interest rates, to inflation and to currency fluctuations.

These instruments are vital in managing such risks, especially in an uncertain and volatile world. Interest rate swaps hedge against fluctuations in interest rates that affect the valuation of liabilities. Inflation swaps protect against unexpected shifts in inflation, which is especially relevant where pensions are index-linked. Currency forwards and options manage foreign exchange risk where assets or liabilities are denominated in non-sterling currencies. It is the management of risk more than anything else that justifies their inclusion in the portfolio strategies of pension funds and, as the noble Lord, Lord Davies of Brixton, said, the level of risk is materially increased by this regulation. He also rightly referred to the Pension Schemes Bill, which has only just been published. I am afraid that due to other commitments, I have not yet had time to study it.

Since the European Market Infrastructure Regulation was introduced in 2012, pension funds have been granted an exemption from the central clearing obligation, recognising their unique challenge in meeting margin requirements as central counterparties. Pension funds operate on a long-term, illiquid investment model, and this fundamentally mismatches the short-term, high-frequency liquidity demands of CCPs, particularly under stressed market conditions.

Will the Minister outline the contingency plans in place should the absence of mandatory clearing suddenly appear to increase the risk of counterparty defaults?

I have to say that the exemption from these insurance-type arrangements of a CCP carries its own risks. The Government bear a heavy responsibility to maintain confidence in a financial system upon which livelihoods depend. The government review mentioned by the Minister concluded that removing the exemption could impair the ability of pension funds to invest in productive assets. That must be weighed carefully against the imperative of effective risk management. Can the Minister clarify how bilateral arrangements will be monitored for resilience, given that derivatives are no longer subject to central clearing? He talked about keeping this under review, which I think was helpful.

Our financial markets are deeply embedded in the global system. Can the Minister explain how this move aligns with international financial regulatory frameworks and, indeed, with the EU and US, which have slightly different rules from the UK? Furthermore, has the Minister assessed the potential reputational impact on the UK’s standing in international markets, particularly in the context of post-G20 commitments to mandatory central clearing, which the Minister referred to? Finally, will the Minister publish the underlying risk analysis or cost benefit assessment that supports the decisions to go for an indefinite extension period? Without such transparency, it is difficult to understand how the Government have reached their conclusion and indeed why they have chosen this policy path.

The current impact assessment states that the measure

“mitigates the risk of disruption to the market”

that might occur if pension funds were required to restructure their investment strategies “at short notice”. This would be ahead of the exemptions expiring, which happens to be 18 June—the week after next. However, this is a narrow, short-term cost analysis. I am interested in the wider picture of longer-term cost versus the benefits of alternative systems, so I very much look forward to the Minister’s response on whether he is willing to publish his cost-benefit assessment or, perhaps, to say bit more about the detail.

I urge the Minister to engage deeply with the concerns raised and to provide reassurance that the Government’s decision rests on a sound and transparent evidential foundation. We are dealing with an important subject and a risk that, as I am sure we all agree, needs to be properly managed in the interests of UK plc.

[Lord Wilson of Sedgefield (Lab)]

I thank the noble Baroness, Lady Neville-Rolfe, and my noble friend Lord Davies of Brixton for their contributions and questions. First, to answer them both, one thing that the Government are after is growth, obviously, but the other thing is financial stability; both of their contributions referred to that. This is a key priority for the Government. However, the evidence on whether removing the exemption would generate direct financial stability benefits was mixed. For example, some responses to the call for evidence noted that removing the exemption could make stress events worse by increasing liquidity pressures on pension funds. In contrast, the Government found strong evidence that pension funds would need to hold more cash and reduce investment in productive assets if the exemption were removed.

On the other issues, such as how the underlying risk will change and how we will keep that under review, the statutory instrument provides long-term clarity for market participants, which is very important in terms of the policy position. This will help with long-term planning of investment strategies by pension funds to meet their future liabilities. As I have noted, the Government will keep this policy under review in co-ordination with the UK regulatory authorities. If there are changes to market dynamics or wider government reforms that have a material impact on the value of mandatory central clearing for pension funds, the Government may reassess this issue.

On the increased burden on pension funds, this policy maintains the status quo. Removing the exemption would have placed more strain on pension funds. This gives assurance to the pension markets around the long-term consistency in our policy approach.

Finally, on the international market, our market is different from those of the EU and the United States as far as pensions are concerned. The response to the call for evidence indicated that the UK defined benefit market is structurally different from that of other jurisdictions, such as the US and the European Union, so it is appropriate that we take a different decision on this issue. The Government are committed to maintaining our high standards of regulation and financial services, including adhering to relevant international standards, where appropriate. In the US, pension schemes tend to be of shorter duration. There is also a larger and more diverse corporate bond market, which can be used for hedging; this means that the derivatives are used less there than they are in the UK.

I hope that these answers are what noble Lords are looking for.

[Baroness Neville-Rolfe (Con)]

That is very helpful—particularly on the international side. One does need to look at this in an international context; nowadays, we are so aware of the ups and downs of global markets. However, the Minister did not answer the question about the impact assessment. It may be that he does not have an answer today, but this is something that I am often concerned about because I think that good cost-benefit analysis is vital to good government. I made the point that the cost-benefit analysis that we got was a rather short-term thing; it would be very helpful to have a response on that.

[Lord Wilson of Sedgefield (Lab)]

Basically, what we are doing is maintaining the status quo. Things have been like this for several years now; we are just ensuring that the status quo continues into the future. We will review it if we need to, such as if the dynamics in the market change, but what we are offering is consistency for the industry. That is an important aspect of this statutory instrument.

Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025

Debate between Lord Wilson of Sedgefield and Baroness Neville-Rolfe

Thursday 5th June 2025 Grand Committee

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

My Lords, financial services fulfil a vital role for people and businesses across the UK and the Government are committed to ensuring high standards of customer protection. These regulations form part of this commitment by strengthening protections for customers, including consumers, businesses and charities, when their bank accounts or other payment services are terminated by their provider.

While decisions to terminate services are generally commercial decisions, customers must be treated fairly. Noble Lords will be aware that concerns have been raised in this area over recent years. This has included concerns about services being terminated on the basis of customers’ lawful beliefs and political opinions. The Government are clear that customers should not see services terminated due to lawful freedom of expression. There are already laws that prohibit providers discriminating against UK consumers on these grounds. However, in other areas existing legislation does not always provide appropriate protection and is not sufficiently clear.

Currently, payments legislation contains no obligation on providers to explain why they are terminating payment services, making it difficult for customers to understand the reasons for terminations, rectify issues or know whether to bring a complaint against their provider’s decision. Furthermore, the current requirement that providers must give customers at least two months’ notice does not always provide customers sufficient time to manage the impacts of a termination and, where needed, find an alternative provider. These regulations make changes to address these issues.

Specifically, the regulations will amend the Payment Services Regulations 2017 to require providers to give customers a longer notice period of at least 90 days before terminating a payment services contract and a sufficiently detailed and specific explanation so the customer understands why it is being terminated. Providers must also advise the customer of how to complain to their provider and of any right they have to complain to the Financial Ombudsman Service. The regulations also clarify ambiguities in legislation to ensure that these new protections are applied consistently. There are some exceptions to the new requirements, mainly so that providers can continue to meet other legal requirements.

Lastly, the regulations make equivalent changes to the Payment Accounts Regulations 2015 so that people who apply for and use basic bank accounts will benefit from the new rules. These changes will increase transparency for customers, ensuring that they understand providers’ decisions and have more time and information to make a complaint or find an alternative provider. The changes will take effect from 28 April 2026 and apply to the termination of payment services contracts that are concluded for an indefinite period and entered into on or after that date.

I know that the Secondary Legislation Scrutiny Committee raised this measure as an instrument of interest in its 25th report, published on 15 May. I am grateful for the consideration the Committee has given this legislation, and I shall respond to the points it raised.

First, the Government acknowledge that there have been concerns about customers being debanked on the basis of their lawful beliefs and political opinions, and that this formed part of what initially led to a review of legislation in this area. Since coming into office, this Government have taken a fresh look at the issue from a broader perspective. As I said earlier, providers are already prohibited from discriminating against UK consumers based on their lawful beliefs and political opinions, but there are shortcomings in wider legislation that governs how providers terminate payment services contracts. The Government are therefore taking a wider approach to strengthen legislation and to enhance fairness and transparency for all customers more generally.

Secondly, regarding the length of the 90-day notice period and the implementation period for the instrument, the Government’s approach is based on extensive engagement. We have sought to balance strengthening the protections for customers with minimising the burdens on firms.

In conclusion, these regulations would make important changes to ensure that customers are treated fairly, while respecting providers’ rights to make commercial decisions. I hope that the Grand Committee will endorse these reforms. I look forward to the debate and beg to move.

[Baroness Neville-Rolfe (Con)]

My Lords, I welcome the opportunity to speak on this statutory instrument in this brief debate. We note that these regulations build on previous legislation and arise from a consultation that began under the previous Conservative Government in July 2023.

I agree with the Minister that the extension of the minimum notice period for contract termination from two months to 90 days is a prudent and welcome measure. Even more significant is the requirement for payment service providers to provide detailed and specific reasons for termination, thereby enhancing transparency and fairness and discouraging needless debanking; we all saw the unfortunate effect of Coutts’ closure of Nigel Farage’s account. Additionally, informing customers of their right to complain to the Financial Ombudsman Service is a useful safeguard.

I have two problems with these regulations. First, I am concerned by the wide-ranging exemptions to the new rules—“exceptions” is probably the right word. These include the anti-money laundering requirements and the suspicion of serious crime, as well as the possible commission of a public order or harassment offence. These are substantial exceptions that could be the subject of unfair debanking, with the accused unable to know what it is claimed he or she has done wrong. I therefore welcome the change in the threshold from “reasonable belief” to “reasonable grounds to suspect” for serious crime exceptions following consultation, but I wonder whether this is enough.

I should add that small and medium-sized businesses are not exempted from the new requirements. What targeted support or guidance will be provided to help these providers manage the increased compliance burden? These measures could cause problems for businesses already under pressure from NICs and the prospect of new regulation. We all want fairness but the net cost to businesses is £6.4 million a year, by the normally prudent Treasury estimates. This means a net present value of minus £55.4 million.

In the light of this, how do the Government plan to monitor and evaluate these regulations over time to ensure that the extended notice periods and disclosure obligations generally lead to better outcomes for consumers, rather than creating additional administrative burdens for the suppliers of financial services? Can the Government also clarify how conflicts between these termination requirements and other legal obligations on payment service providers will be managed, especially where other laws might take precedence? What mechanisms will be in place to resolve such conflicts fairly and transparently?

Secondly, the main problem for consumers of payment services is not being able to secure a bank account at all. I know this from my own family’s experience of being denied banking, reducing the scope for moving to a different, more competitive bank. This is on grounds such as being a publicly exposed person, which is our experience; selling arms, which it seems wrong to exclude given our growing defence needs; or ungrounded fear by the provider of money laundering. What is the Government’s position on this difficult area of securing a bank account?

I look forward to the Minister’s response and to continued engagement with the Government and regulators to ensure that these important reforms deliver tangible and lasting benefits for payment service users.

[Lord Wilson of Sedgefield (Lab)]

I thank the noble Baroness for her speech and those questions. These are important regulations which clarify the situation we have lived under over the last few years, as far as this issue is concerned.

On the several points and questions she has raised, I will answer the last one first, which was about access to banking services. The Government recognise the vital role that financial services provide; that is why we have introduced these new rules. The Government are focused on account closures as a priority. We continue to monitor wider access to bank account provision but recognise this is largely a commercial matter. Some 120 banking hubs have opened; another 200-plus will be opened in the next few years. That is not the limit or the target; it could go beyond that, but it depends on what LINK, which provide them, wants to do. It is, obviously, an ongoing issue. We want to ensure everybody has access to them.

On the new requirements that the noble Baroness suggested, there are important public policy reasons for the exemptions, which are necessary to enable payment service providers to continue to discharge other legal obligations or manage complex scenarios—for example, in relation to financial crime.

On the question of whether we will publish guidance, the Financial Conduct Authority, as the relevant regulator, will update the guidance to reflect the legislative changes. The Government have worked closely with industry, law enforcement and regulatory partners to ensure that expectations of payment service providers are clear.

With that, I think I have covered all the questions. I conclude by saying that the Government are committed to ensuring high standards of customer protection and financial inclusion across the financial services sector. These regulations make important changes but address long-standing concerns about protection given to customers when their bank accounts or other payment services are terminated by their providers. This increased amount of notice and transparency will make it easier for customers to understand and manage the impact of their provider’s decisions, and to make a complaint or find an alternative provider where necessary. The changes will help deliver fairer outcomes and support the Government’s ambitions to deliver for working people. I hope the Committee will join me in supporting the regulations.

[Baroness Neville-Rolfe (Con)]

My Lords, I was a little disappointed about the response on two points. One is on this business of small and medium-sized businesses. The Minister rightly referred to the FCA as the body that is responsible for guidance. It is supposed to care about small businesses and growth, following the letter that the Chancellor wrote to them. The Minister mentioned that there are more small and new businesses in the pipeline; that is good news. Small business spectacles are important, both for financial service providers and, indeed, for unfortunate customers who are trying to get bank accounts.

That was the second point: perhaps it was not possible as I did not give notice of the question, which is not the subject of these regulations, but he did not inform us as to what the latest is on helping people to open a bank account. His objective is the same as mine: to make sure that everybody can do that. He may know from discussion with other parliamentarians that the publicly exposed person issue has been a big one, and there are other issues. I would be interested to be referred to an update on how we are getting on on getting people to open bank accounts. It is important, in societies, for people to have bank accounts and not to be excluded. It is a great pity that it is so difficult, if you are a publicly exposed person, to move banks. That seems unfortunate.

[Lord Wilson of Sedgefield (Lab)]

I think these regulations help clarify all that. As far as small and medium-sized businesses are concerned, the Treasury Select Committee published figures in 2024 on the termination of business accounts in 2023. They were sourced from eight UK banks. The Treasury estimates that, on average, around 64% of business accounts were terminated due to suspicious activity or financial crime, due diligence or fraud, 10% were terminated because of dormancy and less than 1% for political exposure or other issues. We can all amplify the politically exposed people, and we know it is important, but the vast majority of closures and issues that we have are with financial crime and due diligence.

On the other question, we all want everyone who wants to have a bank account to have one. The decision to provide banking services is generally a commercial one by providers. I have already mentioned that 120 to 150, I think, banking hubs have been opened already, and a lot more will be opened. It is not a target. Once we get there, we can probably open more, but that has to be in consultation with the industry. The Government want to ensure that customers are treated fairly when providers decide to withdraw those services. We are focused on account terminations as a priority, given the material impact that a loss of banking services could have on a business already in operation. More widely, the Government continue to monitor evidence in relation to accessing banking services and welcome the FCA’s work in this area.

[Baroness Neville-Rolfe (Con)]

My Lords, I am reassured. It is good to have the figure for politically exposed debanking of 1%, although the significance depends on the total figure for the number of cases. It is more about when people are trying to get bank accounts. I think that the Farage event has led to a degree of understanding that it is important not to debank people who are already customers. What I think is less well understood is how when people who are, for example, politically exposed try to get a bank account, they have difficulties. I hope the regulators such as the FCA think about this because we want to try to make sure that people can have proper bank accounts. If there is any more material on that side of things, I give notice that I would be very interested in it, though I appreciate that I sprung this question on the Minister today although it is not the subject of the regulations.

[Lord Wilson of Sedgefield (Lab)]

I think increasing the time period from 60 days to 90 days and banks now having to write to the customer to say, “These are the reasons why we have this issue with your bank account” and, where it is appropriate and where they can, having to say that they can refer it to the ombudsman all helps. Obviously, this will be kept under review, but I think it is an important improvement on where we were in previous regulations.

Devolved Authorities: Use of Resources

Debate between Lord Wilson of Sedgefield and Baroness Neville-Rolfe

Wednesday 23rd April 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, achieving value for money ought to be a priority for any Government, whether national, regional or local, especially a Government committed to growth. So I come back to the point mentioned by the noble Lord, Lord Foulkes of Cumnock: do the Government consider that the SNP Scottish Government’s actions on trans rights represented a good use of taxpayers’ money?

[Lord Wilson of Sedgefield (Lab)]

I appreciate the question that the noble Baroness has asked, but I think that the one thing that should focus our minds, besides the outcome of what the Supreme Court said, is what the Scottish Government should do, and we all should be doing, in the best interests of all the Scottish people. That must be to secure growth to make sure that the support that we have for our cities, our people and the NHS is for all the people in Scotland. It would be great to see the Scottish Government and the UK Government work closely together to ensure that that happens.

Child Trust Fund Accounts

Debate between Lord Wilson of Sedgefield and Baroness Neville-Rolfe

Wednesday 19th March 2025 Lords Chamber

[Lord Wilson of Sedgefield (Lab)]

We are working across departments and with all the providers to try to ensure that access is gained for people who have child trust funds. I am not quite sure what kind of relationship and communication we have with friendly societies, but I will make sure that someone writes to the noble Lord to let him know.

[Baroness Neville-Rolfe (Con)]

My Lords, I too very much welcome the noble Lord, Lord Wilson of Sedgefield, to his place. There is a problem, as he said, so can he say whether he has formally consulted, or intends to, the financial institutions or the child trust fund providers on the feasibility of simplifying the process for young people accessing their funds? What steps might he take to ensure that they are more aware of the child trust fund accounts—perhaps using social media and so on—so that we communicate this opportunity for people to pick up these funds, which are not being claimed, as the noble Lord, Lord Blunkett, explained?

[Lord Wilson of Sedgefield (Lab)]

As of 5 April 2024, some 2.5 million child trust funds accounts and 670,000 mature child trust fund accounts had not been claimed. The Government recognise the importance of ensuring that we marry up young people with those accounts. HMRC is working very closely with opinion-formers and stakeholders to try to ensure that this group is reached. This includes, for example, working closely with UCAS, joining with younger influencers who discuss personal finances online, and using traditional media and HMRC’s own social media channels to target young people to ensure that they know the trust funds exist.