Financial Services and Markets Bill [HL]

Baroness Hayman Excerpts

2nd reading
Monday 8th June 2026 Lords Chamber

[Baroness Hayman (CB)]

My Lords, unlike many noble Lords who will contribute to today’s debate, I have no direct experience of working in the financial services sector, although I suspect I might even apply for associate membership of the club of Members of your Lordships’ House who take part in this legislation that was mentioned by the noble Baroness, Lady Noakes. Like pretty well everyone in the country, I have had experience, not always happy experience, of being a customer of the financial services industry, sometimes because of my status as a politically exposed person, which seems to bleed into my daughters-in-law and all sorts of people, and sometimes simply wrestling with the challenges of communication and relationships with banks, insurers and others.

However, I have experience as a regulator, not in this area but in relation to health. Initially—this was decades ago—in the approval of clinical trials and then in the setting up of the Human Tissue Authority, which I chaired. I also sat on the Human Fertilisation and Embryology Authority and was for six years a member of the General Medical Council. Those experiences have made me a firm believer that clear, effective and proportionate regulation can not only protect patients and consumers but protect those who deliver those services and who are committed to their growth and their success.

The Bill gives us the opportunity to take stock of whether the current frameworks are protecting consumers and properly supporting the smooth functioning of our financial services industry, ensuring that it will remain attractive and able to continue growing and contributing positively well into the future. So, it will be a matter of finding the correct balance, as it so often is on so many issues in your Lordships’ House.

The area that I want to explore today is the sector’s ability to prepare for and respond to the systemic impacts of climate change and nature loss. We took a similar approach in the previous Financial Services and Markets Act 2023, which introduced important regulatory principles that aligned governance of the UK financial services sector with the UK’s climate and environmental goals. The challenges those provisions sought to address do not follow national borders, and the threats they pose are no longer distant or hypothetical concerns but are impacting actors within the financial system now.

The Climate Change Committee and the Bank of England both warn that these types of risks can have tipping points, which could have serious implications for the UK’s financial stability, our ability to avoid or manage sudden shocks to the market, and long-term economic resilience. Some aspects of the financial ecosystem are particularly vulnerable. For instance, we are already seeing the effects on the insurance markets of drought, flooding, coastal erosion from sea level rises and extreme weather. We have seen the problems that arise from that for mortgage lending, affordability for homeowners, and infrastructure and supply chains in the UK and globally. According to the Swiss Re Institute, the global “protection gap” between insured and uninsured losses from natural catastrophes rose to an estimated $424 billion in 2025, up $29 billion from 2024, with wildfires and flooding accounting for more than 50% of the increase.

However, there is anxiety that, within the Bill’s objectives to drive growth and increase competition and innovation for financial services, the proposed new system does not account for the risks faced right now, and that the solutions to adapt to them, which are then not put in place, have the potential to undermine the Government’s goals.

One area where progress is urgently needed is on the Government’s stated intention to deliver their manifesto pledge to mandate UK-related financial institutions, including banks, pension funds, insurers and FTSE 100 companies, in order to develop and implement transition plans in line with the Paris Agreement. There was a consultation last summer, but we have not seen any plans and can ill afford further delay. The Taskforce on Nature-related Financial Disclosures—a global voluntary framework designed to help businesses and financial institutions assess, report and act on their nature dependencies and impacts—also remains only voluntary, in contrast to the requirements for some funds under the Task Force on Climate-related Financial Disclosures, so it would be helpful to understand what steps the Government are taking to expand coverage and adoption of the TNFD.

Then, of course, there is the concern raised by the noble Baroness, Lady Noakes: that it appears that the FCA and PRA will no longer be required to have regard to some of their regulatory principles, including climate and environment obligations, in their day-to-day functioning and will instead be asked to set out how they are adhering to them in strategy documents. There is a concern that this could water down a useful and necessary steer, at a point where we need to be asking regulators to do all they can to safeguard financial services’ preparedness to deal with and adapt to climate change. I look forward to debating Clause 17 in some detail.

Finally, I and many others were encouraged by the Government’s previous commitment to bring forward statutory guidance that will offer pension schemes clarity on how they consider investments for savers in relation to systemic risks such as climate change. I would be grateful if the Minister reassured me that schemes will not have to wait too long to see the detail on when and how these plans will be brought forward. I close by stressing that the Bill is about making sure that the financial sector can capitalise on all the economic and investment opportunities at hand. That includes adapting to the impacts of climate change, which are already being felt.