Financial Services and Markets Bill [HL]

Baroness Noakes Excerpts

2nd reading
Monday 8th June 2026 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I declare my interests in that I hold shares in a number of listed financial services companies. It is a pleasure to follow the noble Lord, Lord Eatwell, who is one of the select group of noble Lords who regularly take part in the scrutiny of financial services legislation. I welcome the Minister to our club.

There is much in this Bill which is good. I welcome clauses dealing with the SMCR regime, how the FOS works and the transformer and insurance vehicles. In addition, the changes to ring-fencing are positive, but they do not go far enough to roll back this burdensome regime which cost billions to implement and run and is so flawed that not a single other country has adopted it.

There are, however, several areas of the Bill which I shall be looking to improve in Committee. I will focus my remarks today on just one area: Clause 17. Currently, the PRA and the FCA must have regard to the regulatory principles in Section 3B of FSMA in everything that they do. Clause 17 downgrades this, so that the principles are rendered impotent. If Clause 17 becomes law, the regulators will merely have to talk about the principles in the new five-year strategies that are required by Clause 16.

The regulatory principles were certainly due an overhaul. However, neutering them is a shockingly bad decision by the Government. It is not surprising that many in the financial services sector have criticised it. I will frame my remarks around the regulatory principle of proportionality, though what I say also applies to other elements of the principles. Proportionality requires burdens imposed to be proportionate to the benefits that are expected to result. This manifestly should be uppermost in the mind of the FCA and the PRA when they are designing new regulatory burdens or updating existing ones. The lack of proportionality in how the regulators currently operate is one of the key criticisms made by financial services firms. I do not doubt that the proportionality principle is relevant when the regulators develop their long-term strategies. Strategies, however, tend to be high-level abstractions; they are not blueprints for how regulation works in practice. It is the detail of the rules and guidance, rather than strategic statements, that determines how regulation impacts the financial services sector.

The effect of Clause 17 is that the regulators no longer must consider how the detailed rules and guidance work in practice for the various firms that they regulate from a proportionality perspective. The regulators will be entitled to ignore representations about proportionality made during consultations. This downgrading not only directly affects how firms can engage with the regulators when rules or guidance are developed but impacts the accountability of the regulators, which is already problematic.

The regulators like to say that they are accountable both to the Treasury and Parliament. I have not yet found an example of how the Treasury has held the regulators to account. Focusing on strategic plans will not be enough. The regulators are masters of the art of wordsmithing documents to make them attack-proof. Parliamentary Select Committees try to grapple with holding the regulators to account, but it is an uphill battle—and this Bill makes that battle harder. The root of the problem is the FSMA model. As the noble Lord, Lord Burns, explained, under this model Parliament decides the principles of regulation and the regulators are left to get on with the detail of regulation. That worked well while we were in the EU. The quasi-democratic processes of the EU Parliament—in which the noble Baroness, Lady Bowles of Berkhamsted, played such a central role—meant that there was significant oversight of new directives and regulations.

Post Brexit, the previous Government decided to continue with the FSMA model when the huge body of retained EU law was repealed and replaced, so massive areas are now wholly delegated to the regulators. That is what the Financial Services and Markets Act 2023 enabled. It exposed a large accountability deficit. In partial mitigation, the 2023 Act ensured that the regulators’ consultations had to be sent to the Select Committees of each House of Parliament. That Act also paved the way for the creation of the Financial Services Regulation Committee in your Lordships’ House, which I currently chair.

Clause 17 not only excuses the regulators from having regard to the regulatory principles but repeals the need for the regulators to explain to the parliamentary committees how the regulatory principles apply to their draft regulations. This is a naked attempt to neutralise the work of the Select Committees of Parliament in holding the regulators to account. The FSMA model is a bureaucrats’ and politicians’ dream come true. The Treasury can always point to the regulators if something goes wrong—and the regulators are largely unaccountable. We must use this Bill to make the accountability of the regulators stronger and not, as it currently is, weaker. There will be much to discuss in Committee.