Financial Services and Markets Bill [HL]

Debate between Baroness Bowles of Berkhamsted and Lord Holmes of Richmond

Committee stage
Monday 6th July 2026 Grand Committee

[Lord Holmes of Richmond (Con)]

My Lords, I support Amendments 142A and 142C from my colleagues, the noble Lords, Lord Hunt and Lord Ashcombe. As has been said, this can be summed up in one word: proportionality. We have debated these themes on previous days in Committee and they are still as strong as they were when we mentioned them on day one. To “proportionality” I would add “specificity” and “applicability” because, without making this critical distinction—though difficult in some of the marginal cases—we are effectively saying that rules apply across the piece, which inevitably means increased burdens, increased costs, a lack of specificity, inapplicability, and holding firms and the UK economy back.

As the noble Lord, Lord Hunt, rightly said, we have the at least odd situation right now where pet insurance is treated the same as marine or aviation insurance. I can see only one potential case where this would be appropriate: if many people were petting flying fish. As I do not believe we have an increase in flying fish petting, I believe that proportionality, specificity and applicability would be achieved by embracing the principles set out in Amendments 142A and 142C.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I broadly support Amendment 142A, and I thank the noble Lord, Lord Hunt, for bringing it forward. I also think that the amendment in the name of the noble Lord, Lord Ashcombe, or something similar would obviously be needed as some kind of companion to it.

Whatever the FCA may have been intended to be, it is now proudly and explicitly a consumer protection body. For much of its work that is good, but some noble Lords will know that it has taken me and others four years to get incorrect cost disclosure descriptions for listed investment companies corrected, simply because consumers like the incorrect versions. Indeed, that saga led to a telling exchange at a meeting of the Financial Services Regulation Committee. The FCA chair insisted that consumer views always took priority, and I replied, “If you ask whether one and one makes two or three, and the consumer says, ‘I like three—it’s a bigger number’, is that what you use?” There was no denial. That is the scale of the problem: a regulatory culture where consumer preference for something factually incorrect overrides market integrity. It is a mindset that has already cost billions in potential investment in productive assets.

That was where it touched consumers; now let us move on to look at the wholesale areas. The trouble is that that mindset gets pasted across too. We do not need to debate whether the FCA went overboard in demanding that wholesale businesses had to proactively prove that they do no consumer harm in transactions that never touched consumers. The admission is there in consultation CP26/23 at paragraph 1.3, acknowledging overreach, as well as acknowledging

“unnecessary cost, complexity and uncertainty, without clear benefits for retail consumers”.

However, having finally identified the cancer, the regulator is merely applying a sticking plaster. All that is being offered is the mildest semantic tweak to guidance—effectively, a guide to guidance. It has no legal effect. It allows the regulator to continue its current trajectory with a slight adjustment to its vocabulary. We all know that this change was extracted only after heavy nudging by the Chancellor and intense parliamentary scrutiny. It is hardly being done with good grace and provides no guarantee of permanence.

The fact is, we must deal with the FCA as it is, not as it might have been. Since the advent of the consumer duty, the retail-first culture is irreversibly embedded into the psyche of staff, and in many instances it is the reason why they joined the regulator in the first place.

Perhaps one of the most telling things is to look at what is said about other regulators. On the Monetary Authority of Singapore, which I found a very enlightened body on my visit there some years ago, the comment is, “Although MAS is a unitary regulator, it splits its internal policy divisions strictly by target market rather than by trying to govern everything under an overarching outcomes-based code like the UK’s consumer duty”, and, “It works because the wholesale division, answerable to the MAS leadership, is judged primarily on market liquidity, innovation and international competitiveness. There is zero risk of a consumer advocacy group hijacking a wholesale policy consultation”. I wonder where they were thinking about. A ring-fenced, structurally separate wholesale unit within our regulator’s architecture must live up to that standard.

Some may argue that all wholesale activity impacts retail eventually, and I agree, but there is a massive, fundamental difference between regulating wholesale markets for the integrity of the system, which protects everyone, and regulating as if they are a high-street retail shopfloor. The former ensures safety, the latter ensures paralysis. For any noble Lord worried about this structural change, nothing being suggested would remove liability for wrongs or harms to consumers, should that occur. Let us be clear: this amendment is not an attempt to escape oversight; it is an attempt to ensure that oversight is competent, technically accurate and focused on the reality of the market being regulated. Let nobody forget that MiFID and other legislation already provides a rigorous framework governing transparency, best execution and conflicts of interest. This is no soft ride: this amendment is a necessary structural correction, and I support it.

Financial Services and Markets Bill [HL]

Debate between Baroness Bowles of Berkhamsted and Lord Holmes of Richmond

Committee stage
Wednesday 1st July 2026 Grand Committee

[Lord Holmes of Richmond (Con)]

You might get a better response.

[Baroness Bowles of Berkhamsted (LD)]

Shortly after my proposal first surfaced, I was contacted by people involved in the Australian royal commission on financial services, because they had noted that I had reached the same conclusion as them: that it was too big a job for Parliament to do by itself, given everything else that national Parliaments have to do.

Australia introduced two-yearly reviews, and it is not the only country to have an independent review. A similar arrangement now exists in New Zealand, and in the US all regulators come under powerful scrutiny by the Government Accountability Office. One advantage of my proposal is that it follows a path we understand from Section 1S reviews, and it could be done quickly—maybe as an interim solution, for example, until an office such as that proposed by the noble Lord, Lord Bridges, could be formed. By having regular reviews, oversight of progress would also be possible. After her review, Dame Elizabeth Gloster told the Treasury Committee that we are left to “hope” that the regulator “implements” regulations. Hope is not a system.

Why did I propose this? It was the point at which the Government were looking at the post-Brexit future financial framework. As has already been rehearsed in this Committee, this Parliament does not have the structure and focus that was available in the EU Parliament. Having been chair of the ECON committee dealing with all the post-financial crisis legislation, I can safely say that I know what it takes and that it is not easy. That is another reason why I do not recommend a continuous process.

There will be more to it in the UK, because many issues arise from the execution of supervision post rule-making. Brexit created the first need, which we eventually tried to patch with a new committee. Your Lordships heard from members of that committee and in the report of the Industry and Regulators Committee, Who Regulates the Regulator?, that now the overwhelming conclusion is that significant independent review is needed.

Now we have a new, second need due to the changes in this Bill, which remove the “have regards” away from operational effectiveness and into a five-year strategy. How is that to be monitored? Is there any intention at all for follow-through? The changes make the already difficult acquisition of information even harder. Several things that the Minister has said in his replies ring alarm bells and show the absolute need for scrutiny. We need it because financial services regulation and supervision is too important to allow issues to creep up—all the more so in a higher-risk environment. LCF-type regulator risk needs even more guarding against.

The Minister has said that proportionality will now be tested only at the strategic level. Let us be clear: testing proportionality at only the strategic level is barely a nudge. Rule-level and supervisory-level proportionality is the real test, but that has been put out of reach of accountability, as there is nothing to measure against. Indeed, they are not even looking at it apart from every five years. From that, it is pretty clear that substantial follow-ups on the five-year strategy are necessary. The Minister says that annual reports and remit letters provide accountability. Some substantial upgrading and interrogation of those is needed. What actionable event flows from an annual report? It is judge, jury and public relations all in one place. Does the Minister genuinely believe that an example here and there constitutes accountability?

The Minister argues that principles remain central, yet they are being moved into a document that cannot be enforced by the courts and cannot be used to test a specific rule or supervisory action. They are applied every five years, when the future cannot really be seen. This is not lip service; it is just print service, and as my noble friend Lady Kramer has shown us from the current version of the five-year report, there is little substance. Will we get something detailed for every category and size of financial market business?

The Government’s rhetoric suggests that reducing the burden of accountability will unleash a more dynamic and agile regulator, but that does not demonstrate the stability that is a prerequisite for competitiveness. Stability is the best friend of a competitive financial sector. Whether you cite centuries of institutional experience or the second law of thermodynamics, left to their own devices, systems corrupt or tend to disorder. Someone has to be on their case. But the Government are making the regulators far more insulated from the procedures that keep them on their toes. Avoiding the burden of accountability today is like banking a much larger, more expensive crisis for tomorrow. Additional periodic or permanent oversight has become even more necessary. I beg to move.