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.

Financial Services and Markets Bill [HL]

Baroness Hayman Excerpts

Committee stage
Monday 29th June 2026 Grand Committee

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise to speak to Amendments 83B and 86A, which appear in my name. It is a pleasure to follow the noble Baroness, Lady Northover, and to agree with a great deal of what she said. It is almost as if in the past week or so, the planet itself has been speaking to us and sending us a message that should direct the Committee’s deliberations on this Bill.

I will restrict myself to my two amendments, in the interests of time. I have been asked to table them by people who are gravely concerned about issues of corruption, dirty money, the “London laundromat” and associated security concerns. These are issues on which I do a considerable amount of work, and that is why I have this focus on this group.

These amendments are related. They seek to add both climate risk and the laundering of criminal gains causing environmental harms to the regulatory principles to which the FCA and PRA must have regard. I can pretty well hear the concerns about to be expressed some time soon about “have regard” amendments, but surely these are things that we have to think about. We have to make sure that we direct the regulators to think about climate and the laundering of criminal proceeds through the City and associated institutions.

I note that the Financial Action Task Force recognises environmental crimes as predicate offences for money laundering. The European Union has strengthened its criminal law framework through the environmental crime directive, requiring member states to publish a national strategy on combating environmental criminal offences by 2027.

Looking around the world, in 2018 the United States Treasury sanctioned the Zhao Wei transnational crime organisation and listed wildlife trafficking as one of the many illicit activities undertaken by the network. In Zambia, the economic and financial crimes division of the high court recently forfeited to the state a vast array of assets associated with a major illegal logging operation. Diplomatic momentum for a fourth protocol under the UN Convention Against Transnational Organized Crime to address crimes against the environment is also advancing, with the support of the UK.

As a global financial centre, the UK has a particular responsibility to ensure that it is not supporting financial and environmental crimes globally and it should play an important role in achieving a stronger global approach. Evidently, however, although environmental crimes are recognised as serious at present, without an explicit recognition of this in the regulatory principles, the FCA and the PRA will not be equipped or directed to respond with the necessary action.

It is important to stress that this is also very much a security issue. There is clear evidence that environmental crime is not only associated with financial and organised crime but with terrorist and armed groups as well. For instance, the proscribed terrorist group al-Shabaab has historically benefited from the illicit charcoal trade in Somalia, with state actors also being complicit. More generally, Interpol has found that the proceeds of environmental crime have become the largest source of income for non-state armed groups and terrorist organisations. Without sufficient regulatory framework, the UK could be contributing to these very dangerous, deadly, human rights-abusing forces around the world.

So much of what is happening in the world is criminal. Between 2013 and 2019, about 69% of tropical forest agro-conversion was conducted in violation of national laws and regulations. This, of course, is also associated with human rights abuses. Perhaps this is sometimes less considered, but Interpol says that illegal mining generates up to $48 billion annually, frequently breaching environmental regulations and contributing again to deforestation, pollution, biodiversity loss and harm to local communities.

I have already mentioned illegal wildlife products. Interpol found that the black market for those is worth up to $20 billion annually, and up to 100 rangers are killed by poachers each year while protecting wildlife and habitats. It might seem a very long way from the City of London to the ranger desperately trying to protect the wildlife population in a national park in Africa, but those two things are linked. We bear responsibility here. I urge the Government to consider these amendments in order to put this back into the directions for the FCA and the PRA.

[Baroness Hayman (CB)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Bennett, and to say that I broadly support the action that she is suggesting in Amendment 83B. Organised environmental crime, including illegal deforestation and wildlife crime, is increasingly acknowledged as a major source of illicit finance and money laundering. It is therefore important that the FCA and the PRA have the ability properly to take account of these risks within their existing anti-money laundering framework. I hope that we will get a positive response from the Government on that.

This group of amendments deals with the gaping hole, frankly, in the Bill on nature and climate considerations. I was going to speak more broadly about the importance of taking these into account—I may still do so in our stand part debate on Clause 17—but the noble Baroness, Lay Northover, did the Committee a great service in setting out very clearly, in her opening speech, the issues that we need to address with some urgency.

--- Later in debate ---

[Lord Stockwood (Lab)]

We believe that the “have regards” give them the current position, which is that they should consult on the nature considerations. As my noble friend Lord Pitt-Watson mentioned, there is a substantial amount of work going on. There is room for improvement in the governance of that process, but we believe that the next five-year plan should be the place to review that even further.

Amendment 140 would require the FCA and the PRA to make rules mandating transition plans aligned with the Paris Agreement. The Government have committed to mandate UK-regulated financial institutions and large companies to develop and implement credible transition plans that align with the 1.5 degrees goal of the Paris Agreement, and we remain committed to that. We are reviewing responses to the Government’s consultation on the topic from a wide range of respondents and we will set out those next steps in due course.

I make it clear that we are mindful that firms do not approach transition planning in isolation, as this is closely linked to how firms identify, assess and manage climate-related risks. Any requirements must reflect this and sit within a coherent sustainability reporting framework. This policy is not confined to financial services alone; it must be done across the wider corporate landscape. We are therefore considering transition plan requirements alongside the wider modernising corporate reporting programme and discussions on what role the UK sustainability reporting standards should play in our corporate reporting framework. This amendment would risk pre-empting carefully considered and co-ordinated plans following our consultation, so I am afraid that I cannot agree with the noble Baroness, Lady Hayman, that the Bill is the right route forward to deliver this final commitment.

[Baroness Hayman (CB)]

I hear what the noble Lord says, but that terrible leaden phrase “in due course” was used. He says that there is a way of looking at this in the context of many other issues. Can he give me a little bit of comfort? We are one year into the consultation. Will we have another consultation that takes in all the wider issues that he discussed? How long is this grass?

[Lord Stockwood (Lab)]

I cannot pre-empt the timing of that report, but I will come back to the noble Baroness and have a follow-up meeting to get the specific details. I do not want to give her the wrong information today. This is important to this Government, as set out in the wider consultation and actions that we are taking. I might have to have a separate meeting to get a specific answer to that.

On Amendment 142, it is important that nature-related risks are properly understood and managed, given the material risks that they can pose to the financial system and wider economy, and we have already made significant progress in this area. As I mentioned, the Government have now finalised the UK sustainability reporting standards, and the FCA has consulted on aligning listed company disclosures with this framework. These standards, based on the International Sustainability Standards Board’s well-established global baseline of sustainability disclosures, require companies to disclose material sustainability-related risks, including nature-related risks where relevant. The Government recognise the important work of the Taskforce on Nature-related Financial Disclosures in this area and we welcome ISSB’s decision to advance further work on nature-related disclosures, building on TNFD’s recommendations. We will continue to ensure that the UK framework evolves in line with international best practice and we therefore do not support this amendment.

Amendment 172, on deforestation, seeks to require the Government to lay regulations on deforestation and undertake the review envisaged in Section 79 of the Financial Services and Markets Act 2023. I reassure the noble Baroness that the Government remain committed to this work. Just last week, the Government announced their intention to bring forward new rules to tackle deforestation. Later this year, we will consult on the proposed approach to bring in a due diligence framework in regulations under primary legislation, including the Environment Act 2021. We aim to require GB businesses using forest risk commodities to carry out appropriate due diligence, with secondary legislation delivered as soon as possible.

Action on deforestation must be co-ordinated across government to be effective. Therefore, the government commitment already made in the Financial Services and Markets Act 2023 is the right one. HMT will publish the deforestation-linked finance review within nine months of the Environment Act regulations being made, rather than laid. I do not accept that this can be speeded up, but I assure noble Lords that the Government will undertake this review. This approach will support coherent regulation across the UK, protect the internal market and support export-led growth. For these reasons, we do not support bringing forward these timelines.

Amendments 83B and 86A are related to climate risk and the financial gains from environment-linked criminal activity. I reassure noble Lords that, as set out in relation to Amendment 103, regulators are already required to take into account and monitor climate risk, including through the requirement that they have related to the UK’s net-zero and environmental targets, where relevant to their functions. This has already resulted in significant regulatory action.

Additionally, financial crime and money laundering, whether related to environmental crimes or not, is illegal and something that financial regulators, and this Government, already take extremely seriously. The FCA has a broad remit to tackle financial crime under its market integrity objective and requires authorised firms to take steps to ensure they are not used to further financial crime. The FCA has robust powers to supervise these controls and take action against firms which do not put adequate financial crime controls in place.

The Chancellor also announced on 21 October 2025 that the FCA will become the supervisor for professional services firms’ anti-money laundering and counterterrorist financing work. This will replace the existing complex system, involving 22 private sector bodies, and recognises the FCA’s effectiveness in tackling financial crime. Clauses 14 and 48 make necessary changes to primary legislation to enable this reform.

I hope this response clarifies why we believe the current framework is the right one. This has been an engaging debate. We have heard a range of views, and I hope I have convinced the Committee that the Government’s approach is the right one, and that we are making significant progress against our commitments, but that we should not rush to action. I ask the noble Baroness to withdraw her amendment.