Financial Services and Markets Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

Committee stage
Wednesday 24th June 2026 Grand Committee

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I shall speak to my Amendment 48. It addresses a simple but important point: the quality of regulation depends on the quality of consultation. At present, consultation periods vary unpredictably. Some run for many weeks; others, even on significant policy shifts, have been compressed into days. That inconsistency makes a system difficult for firms to plan around, inaccessible for consumer groups and individuals, and challenging for Parliament to scrutinise. I am a serial responder to consultations—I have been for over 20 years, not just on financial services—and I have experienced this difficulty myself.

The Lords Financial Services Regulation Committee, on which I serve, along with several other Members who are present in this Committee, heard extensive evidence on this. In our report Growing Pains, we concluded that the FCA and PRA need a better understanding of the lived experience of regulated firms in coping with consultations, policy statements, “Dear CEO” letters and the plethora of regulatory tools now used. That is a polite way of saying that the system is overloaded and fragmented.

My amendment would introduce proportionate, predictable windows: four to six weeks for minor changes and six to eight weeks for material ones. I seem to recall that, in Brussels, the time allowed was two months and for more complicated things an extension was available of three months. It would also be in line with that, so not out of line with international thinking. The amendment also sets out the factors that regulators must consider when deciding whether a proposal is minor or material. That embeds proportionality but without rigidity. I envisage that there could be, again, the opportunity for extensions in difficult cases. The FCA quite often does that, but usually quite late, after you have had a panic. Crucially, regulators may depart from these windows in exceptional circumstances, as I have said, but they must explain why. That is transparency, not constraint. It ensures that urgency can be accommodated but not used as a blanket justification for compressed consultation.

Predictable consultation matters because it is the only point where Parliament, industry, consumer groups, individuals and civil society generally can influence policy and rule-making. If windows are unpredictable or too short, smaller firms and resource-constrained consumer bodies are effectively excluded. Trade associations cannot consult their members, but their responses are important, as we know that many firms are reluctant to respond directly, for fear of being seen as criticising regulators and suffering supervisory consequences.

The various advisory panels have their place, of course, but they are not a substitute for open consultation. They rely on the knowledge of individuals, not the pooled experience of the market or the public. Industry has asked for this amendment, which tells us something important: the current system is not working as it should. Consultation should not be a matter of luck or timing; it should be predictable, fair and transparent. This amendment would support better engagement and better outcomes. It is a modest but essential part of the culture change that the Lords committee called for, and I hope that the Government will look on it favourably.

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In conclusion, I should also say that I support Amendments 72 and 76 in the name of the noble Baroness, Lady Bowles of Berkhamsted.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will speak to Amendments 72 and 75 and to my opposition to Clause 16 standing part of the Bill. I also support the other amendments in this group and their intentions: I think we could talk quite a lot longer about them all.

My Amendments 72 and 75 would require the regulators’ long-term strategies to include a review of their rulebooks, with the aim of identifying outdated or unnecessary requirements. That is a sensible and uncontroversial idea. No one disputes that the regulatory rulebook should be kept under review or that unnecessary or duplicative requirements should not be removed. Indeed, the FCA’s own handbook review consultation acknowledges that parts of the rulebook are outdated, unclear or internally inconsistent. I hope that this review idea can be taken up.

However, these amendments presently sit within Clause 16, which is where the problem lies. Clause 16 creates a statutory duty for the FCA and the PRA to produce long-term strategies. In principle, that is not objectionable; regulators have produced strategy documents before, and it is entirely proper that Ministers should be able to input as long as it is transparent, but there are other problems that have been elaborated on by the noble Baroness, Lady Noakes, which I do not need to repeat. In practice, however, Clause 16 is the delegation engine for Clause 17. It is part of a process of downgrading the day-to-day requirements, the regulatory principles on rule-making, into a commentary in a five-year strategy document. This is a profound change in the constitutional architecture of financial regulation. What were once operational regulatory principles, enforceable by judicial review—even if that route is rarely pursued—become strategic aspirations, influenced by Ministers, unchallengeable by others and reviewed only every five years. The long-term strategy is being used as a vehicle to downgrade regulatory principles and apply them in a minimalist, non-operational way—just talk, no walk. If Clause 16 is to remain, it must be made significantly better and not simply operate as a Trojan horse.

The key thing about regulatory principles is how to make them sensibly relate to operational matters— I say sensibly because that has not happened. That is the problem. It may work for some of them to be dealt with more thematically and rather more regularly than five-year intervals, but others need consideration at the rule-making and supervisory level. While Ministers are meant to stay clear of day-to-day operational interference, like the noble Baroness, Lady Noakes, I query whether Clause 16 overly restricts ministerial input. FSMA 2000 has always had a difficult settlement to keep government away from day-to-day decisions, but—as the financial crisis showed—it is inescapable that the buck stops with government. Clause 16 does not strike the right balance there.

My Amendments 72 and 75 point to rulebook review. As I said in a previous group, and as noted by the Lords Financial Services Regulation Committee, it is effectively the regulators’ system that is cluttered, fragmented and difficult to navigate. It is a lot harder to navigate than a few regulatory principles that the regulators complain about, but which are the only way to challenge that regulatory clutter. In the Lords committee report, a central finding was that culture change, not structural tinkering, is what is needed. Regulators must be clearer, more predictable and more proportionate in how they exercise their powers. The Clause 16 regulatory strategy does not deliver that; it substitutes what were enforceable operational requirements about proportionality with unenforceable talk.

It rather looks as though the regulators will avoid having to step up to the mark. They did not much like the committee’s report or its suggestions of culture change, and, as we will discuss when we get to Clause 17, in the words of one City commentator, it looks like the regulators have done a job on Parliament. Clause 16 is not about transparency, nor is it new in suggesting a strategy document. It is just a vehicle to diminish the accountability and effectiveness of the regulatory principles, and I oppose it.

[Lord Vaux of Harrowden (CB)]

I have added my name to three of the amendments tabled by the noble Baroness, Lady Noakes, in this group. To be honest, I am not quite sure why I did not add my name to her other two; I should have done, so I apologise. The noble Baroness has already explained those with her usual clarity, so I will try hard not to repeat what she said.

Briefly, on Amendment 70, I was going to say that I assumed that the omission from the FCA’s strategic priorities of its secondary objective was an oversight. The noble Baroness, Lady Noakes, has kindly shared with me an email she has received from the Minister that effectively confirms that, and that it will be sorted out at a later stage. Can I very gently say to the Minister that when he writes to noble Lords, it should be copied to all who have signed an amendment? On Amendments 73 and 76, I will listen with interest as to why the Treasury should be able to make recommendations to the FCA and the PRA only in relation to the long-term strategies—that is, every five years. I suspect that the Treasury will come to regret that restriction.

I have also added my support to Amendments 72 and 75 in the name of the noble Baroness, Lady Bowles, both of which would require the FCA and PRA to carry out a review of their regulations as part of the five-year strategy process, with a view to eliminating any unnecessary regulations. Rulebooks have a habit of growing—being added to—and scope has a tendency to creep, so a five-year spring clean must be a good thing and would be a good discipline that I would wholeheartedly support. I finish by saying that I share the reservations that have already been raised about the whole of Clause 16.

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[Lord Stockwood (Lab)]

I will write to the noble Baroness to clarify that.

[Baroness Bowles of Berkhamsted (LD)]

I do not understand what happens when the strategy is right but the rules are wrong. What happens then? That does happen. We have, as I have called it before, the example that keeps on giving: when the FCA got the motor finance rules wrong. What happens then, when there is no way to correct that? The strategy, to treat customers fairly, might be right, but the rules produce something that is patently unfair. How can that be changed? There is nothing to measure against that now —the principles have gone.

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[Baroness Bowles of Berkhamsted (LD)]

I am sorry, but if you change something in primary legislation and rub out what is happening in existing processes, you have changed it. You cannot change something at a higher level than primary legislation.

[Lord Stockwood (Lab)]

We will have to come back to these points at a later date. This is a broader conversation on oversight, and points have been made on this subject outside the Room. I hope noble Lords will allow me to come back to these points, as I think this will come up in further debates both during and after Committee.

Turning to Amendments 72 and 75, the Government agree that regulation should be proportionate and support the objectives behind these amendments. Indeed, the Bill forms part of the Government’s broader effort to reduce the burden of regulation on businesses, ensuring that the UK has a regulatory environment that supports growth while maintaining high standards. The Government have made a commitment to cutting the administrative burden of regulation by 25% by the end of this Parliament. The financial services regulators are actively contributing to this agenda. For example, the PRA is implementing new insurance reporting requirements that will cut paperwork by one-third, contributing to savings for firms of £66 million per year, and the FCA has proposed removing some transaction reporting that would save firms over £100 million per year.

However, the Government do not think it would be appropriate to impose a requirement that every long-term strategy must include a full review of all regulations and a plan for eliminating them. A universal rule review exercise each time a strategy is prepared or revised would not be proportionate and would reduce the regulator’s capacity to focus on other priorities. There are existing requirements in FSMA which require the regulators to keep their rules under review and to publish statements on policy and on their approaches to reviewing the rules. The Government consider that this is a proportionate approach.

Amendments 71 and 74 seek to require the FCA and the PRA, when preparing and revising their long-term strategies, to consult persons they consider would be affected, including those they regulate. I understand the intention behind these amendments. If the regulators are to produce long-term strategies that are meaningful and credible, it is clearly important that they are informed by engagement with those who are affected by them. The Government have a clear expectation that the regulator’s strategies will be informed by that engagement.

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[Baroness Bowles of Berkhamsted (LD)]

On that point, it seems to me that nothing is being done to challenge the burden of regulation on firms—instead, the obligations on the regulator are being reduced. When you reduce the obligations on the regulator—for example, to be proportionate—the corollary of that is that they are unrestricted in the way that they can then increase the burdens on firms. That may not be the talk, but that is the consequence of the legal construct that we are now looking at.

[Lord Stockwood (Lab)]

There is a broad philosophical point being made about trusting the FCA and the regulators. Again, we will come back to this in further debates. It is a view that I understand, and we need to develop this through the process of the debate, but it is definitely not the intention to give them free rein to make laws randomly. I think we will have to come back to that later in Committee, if that is okay.

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[Lord Stockwood (Lab)]

That is correct.

[Baroness Bowles of Berkhamsted (LD)]

Why not?

[Lord Stockwood (Lab)]

The sense is that it creates an administrative burden. We are trying to cut down on regulation as part of trying to accelerate growth, and we believe that that is the right balance.