Financial Services and Markets Bill [HL]

Baroness Northover Excerpts

2nd reading
Monday 8th June 2026 Lords Chamber

[Baroness Northover (LD)]

My Lords, my focus here will be on climate change and, in particular, whether the climate risk to the financial system is adequately addressed—or addressed at all—in the new arrangements the Government are putting forward in the Bill. With the potential consequences of that, it is worth standing back on this.

We all know that, at the least, the complacency about the subprime market in the US resulted in the 2007-08 financial crash—something few were paying attention to. That crash had global effects. The City of London, and therefore the UK economy, were particularly badly affected. I recall the panic of ordinary people who feared their savings would be lost and queued to draw them out, with widespread retail bank failures on the cards. Strenuous and expensive efforts were made to prop up the banks to protect customers. The UK Treasury injected almost £140 billion into failing banks at the peak of the 2008 financial crisis. The Government provided a further £1 trillion in financial guarantees and liquidity backstops to stabilise the financial system. We need to remember that, and we especially need to remember the consequences: austerity for years, living standards frozen and people feeling left behind.

Many have argued that this contributed to Brexit as people thought that coming out of the EU would improve their financial position. As was predicted at the time, and has now been borne out, far from improving things, this actually led to major damage in the UK economy. Then came the expenditure on the pandemic, and the cost to the UK economy grew. People’s living standards have not improved for two decades. It is therefore not surprising that we now see moves to the populist right and left for simple and immediate answers. Economic challenges have their social and political effects, as we have seen before. Therefore, this Bill matters.

The Government are right to seek growth in the economy, and the financial sector is rightly identified as a potential source of growth. Clearly, where regulation is serving no purpose and is obstructing that growth or is out of date, it makes sense to reform it. However, we need to be acutely aware of the huge economic, political and social costs that have resulted from lax regulation and regulators not properly focused on real threats. That is what we need to guard against, and the noble Baroness, Lady Noakes, has decimated the proposals to reduce parliamentary engagement and the removal of regulations into various strategies.

Let me come to my focus here. Just as we have a new landscape in crypto, for example, we need to be aware of climate change as a current and future risk to the financial sector, over both the short and the long term. Clause 17 removes whole swathes of protection, to be replaced by as yet undefined strategies. The FCA has been given huge new responsibilities when we know that regulators have a poor track record in monitoring areas already under their responsibility, let alone horizon-scanning for new risks.

The deletions in the Bill take out regard for climate change, the need to focus on sustainable growth and the need to be compliant with the Climate Change Act, as the noble Baroness, Lady Hayman, mentioned. Yet, as the noble Baroness, Lady Young, said, the UK remains well positioned to capitalise on its reputation as a hub for sustainable finance. I would go further, however: we need now to be acutely aware of climate risk; therefore, we should be strengthening, not weakening, the rules here.

I hope that everyone has read, at the very least, the summary of the recent report produced by the Adaptation Committee of the Climate Change Committee, chaired by our colleague, the noble Baroness, Lady Brown of Cambridge. The world is currently on a path to be around 2 degrees above pre-industrial levels by 2050. We will not return to pre-industrial levels. Our aim has to be to stop further escalation in global heating, but also to seek to adapt to what is already our new climate. There will be parts of the world where this is far more acute than in the UK, but the financial sector is global, with implications going back to our own economy, society and politics. It is a global threat even beyond subprime markets.

The priority risks in the UK alone are intensifying heat, a growing flood risk, rising droughts and wildfire risk. The risk to the insurance industry is obvious. The Adaptation Committee report points out that flood-related insurance claims are rising; home insurers have paid out more in claims than they received in premiums for the five years to 2024. They conclude that by 2050, under 2 degrees centigrade of global warming, many homes and businesses may not be able to access insurance at all. This threatens the viability of the property market, the economy and the sustainability of communities. As the report states:

“A large insurance protection gap means many homes and businesses cannot access insurance due to lack of coverage or high premiums. It also puts stress on the financial sector, as banks face higher default rates on mortgages and business loans, and on public finances through disaster support needs”.


The 2039 end date for the Flood Re reinsurance scheme is also creating uncertainty in the property insurance market, which is having an effect on the housing market—as happened with subprime mortgages. As the report states, actions by financial institutions

“are needed to ensure that physical climate risks don’t disrupt the financial system. The actions will support the maintenance of essential financial services across the economy”.

The UK is home to the biggest share of international bank lending and borrowing. It is the largest market for international debt issuance and the world’s largest specialty insurance market, as well as the fourth-largest insurance market overall. One can see parallels with what happened leading up to the 2008 financial crash. The current risk to the housing market and to the insurance industry is clear. Therefore, it is vital that climate risk is included in the Bill, rather than excluded even from regulation. This is one challenge which, unfortunately, we can be absolutely sure will persist for many years to come—way beyond the life of this legislation—and therefore must be enshrined within this Bill.

Financial Services and Markets Bill [HL]

Baroness Northover Excerpts

Committee stage
Monday 29th June 2026 Grand Committee

Moved by

[Baroness Northover]

80: Clause 17, page 21, line 34, leave out subsections (2) to (11) and insert—
“(2) In section 3B (regulatory principles to be applied to both regulators), in subsection (1), at end insert—“(i) the need to consider climate risk;(j) the desirability of sustainable growth in the economy of the United Kingdom in the medium or long term.””

[Baroness Northover (LD)]

My Lords, in moving Amendment 80 I shall also speak to Amendment 103. My name is also on Amendment 140, and I have no doubt that the noble Baroness, Lady Hayman, will expertly present that. I also support the other amendments in this group.

We experienced, of course, the most extraordinary heatwave last week, made so much more intense because our climate has already changed. It is now anticipated that we will never return to pre-industrial levels, yet, we have gone backwards on climate change and climate risk in this Bill. The Government may say that they have not, and that they want to ensure that the regulators are flexible in how they can tackle this challenge, but Clause 17 strips out all sorts of accountability arrangements in a number of areas. My noble friend Lady Bowles rightly argues that it simply should not stand part of the Bill.

The noble Baroness, Lady Noakes, said on day one in Committee that she concluded that in the Financial Services Act 2023, we failed to understand what the lack of EU oversight, as passed into UK law,

“meant for democratic oversight of what the regulators do with the powers that they acquire. We also failed to appreciate the scale of the task of holding the regulators to account.””.—[Official Report, 22/6/26; cols. GC 193-4.]

This has to be a major cause for concern to us across the broad range of powers we are passing to the regulators, especially as we do not even know what new rules will be drawn up for them. As my noble friend Lady Bowles said, again on the first day of Committee:

“Our system is not to delegate unconstrained power to regulators. Parliament sets the framework, regulators operate within it and, when necessary, the court interprets.””.—[Official Report, 22/6/26; col. GC 197.]


I know there will be a number of objections to what Clause 17 seeks to do, but in this group, we focus on the steps backwards that this represents in terms of climate risk, climate change and nature loss. I am extremely grateful to my noble friend Lady Kramer, who directed me towards the relevant page in an absolutely enormous tome which details the Financial Services and Markets Act 2000, with all the subsequent amendments, so that I could see exactly what Clause 17 does. If you simply read the Bill or the Explanatory Notes, you would never quite know what was being deleted. Knocking out the regulatory principles eliminates the explicit reference to the desirability of sustainable growth in the UK economy in the medium to long term, and the need to contribute to achieving compliance with the Climate Change Act 2008, on net-zero emissions, and with Section 5 of the Environment Act, on environmental targets.

I am sure the Minister will say that when the rules are drawn up, or when the regulators work out their strategies, they are bound to look at climate risk, for example. But as the earlier debates on this Bill have shown, we are removing protections that were in place and handing them to the regulator, when regulators are so often found lacking. That is why I put down Amendment 80, and I am very grateful to the right reverend Prelate the Bishop of Manchester and the noble Baroness, Lady Griffin, for their support on this amendment.

Our concern here is to reinsert the desirability of sustainable growth in the economy of the UK in the medium and long term, something we managed to get into the 2023 Act. Of course we should be doing this. These are the industries of the future, and that is what we need to do if we are not to drive climate change further, but we have added climate risk. As I mentioned at Second Reading, we know that a lax attitude to regulation helped to bring about the financial crash of 2008 with all its economic, political and social consequences; so, it is all very well saying that of course the regulators will do this, but we know that that is not necessarily so. Climate change is a current and future risk to the financial sector over both the short and long term. Therefore, we should be strengthening, not weakening, the regulations here.

This comes across very clearly from the report of the Adaptation Committee of the Climate Change Committee. The priority risks in the UK are intensifying heat, growing flood risk and rising drought and wildfire risk. The risk to the insurance industry is obvious. There is a report in today’s Times on subsidence and the likely increase in its incidence. It points out that the summer of 2025 was

“Britain’s hottest on record and also its most expensive for homeowners: insurance companies paid out £307 million for subsidence claims over the year, the highest ever amount, according to the Association of British Insurers”’

Moreover, many insurers are now becoming so risk-averse that they no longer cover subsidence, so that leaves the poor home owners on the hook. The Adaptation Committee points out that flood-related insurance claims are rising and that home insurers have paid out more in claims than they received in premiums for the five years to 2024. It notes that this will put stress on the financial sector as banks face higher default rates on mortgages and business loans, and this will then affect the housing market, just as happened with subprime mortgages. As the report states:

“Actions by FIs are needed to ensure that physical climate risks don’t disrupt the financial system”.


Therefore, it becomes vital that we ask the regulators to assess for climate risk. This should be in the Bill as this issue, sadly, is not going to go away.

For this reason, in Amendment 103—I thank the noble Baroness, Lady Griffin, for her support— we propose that the regulators make annual reports to the Treasury on how they have upheld their climate risk and environmental principles. The reports must explain what action they have taken to ensure that climate risk is embedded in their operations, processes and decision-making, and what rules and guidance they have therefore promulgated. The way this is done takes as its template the proposals in Clause 20. Moreover, it should not be just a matter of “having regard” to these issues; it should be informing their day-to-day work, due to the negative impacts already being witnessed on price stability, financial stability, market functioning and growth.

As I have said, I also support the other amendments in the group—which will be fully explained by others—to ensure that UK-related financial institutions develop and implement credible transition plans, as well as those in the name of my noble friend Lady Sheehan. I beg to move.

[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.

--- Later in debate ---

[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.

[Baroness Northover (LD)]

I too thank everybody who has contributed to this debate. It is concerning, as my noble friend Lady Kramer anticipated, to hear the Conservative contribution, given the obvious risk to the financial sector of climate change and the devastating effects of ignoring risk, which led to the 2008 financial crash.

That said, the Minister will have heard the concern about Clause 17. I note that he has given a speech saying that the Government are doing this, that and the other in all sorts of different areas, and therefore this is not needed, which is a very familiar argument. I think he is about to discover, if he stops reading his note, that this area will come back on Report, because there is widespread concern right across the House about climate change, climate risk and nature loss. We will come back to this on Report. In the meantime, I beg leave to withdraw the amendment.

Amendment 80 withdrawn.

Financial Services and Markets Bill [HL]

Baroness Northover Excerpts

Report stage
Wednesday 9th September 2026 Lords Chamber

Moved by

[Baroness Northover]

34: Clause 17, page 21, line 34, leave out subsections (2) to (11) and insert—
“(2) In section 3B (regulatory principles to be applied to both regulators), after subsection (1)(h) insert—“(i) the need to consider financial stability risks associated with climate change.””

[The Senior Deputy Speaker (Lord Ponsonby of Shulbrede) (Non-Afl)]

My Lords, by reason of pre-emption, if Amendment 34 is agreed to I will not be able to call Amendments 35, 36, 37, 38, 39, 40, 43, 44, 45, 46, 48, 49 and 50.

[Baroness Northover (LD)]

My Lords, in moving Amendment 34 I will speak to Amendments 55, 65 and 91. I will speak briefly. I thank noble Lords for their support and that of Peers for the Planet. There can be no doubt of the climate challenges we face after another summer of drought, wildfires and loss of life. Underlying all these amendments is concern about the vulnerability of the financial system and the huge consequences of that. We saw the results of ignoring weaknesses in the financial crash of 2008 and its aftermath. The adaptation committee of the Climate Change Committee emphasises the risks in the UK of intensifying heat, floods and wildfires. We need to ensure that these risks are addressed in the financial system.

Clause 17 removes whole swathes of protection, to be replaced by as yet undefined strategies. The FCA is to be given huge new responsibilities, when we know that regulators have a poor track record in monitoring areas under their responsibility, let alone in horizon scanning for new risks. The deletion in the Bill takes out regard for climate change as well as the need to focus on sustainable growth and to be compliant with the Climate Change Act.

Amendment 34 addresses climate risk. It would replace Clause 17’s amendments to the regulators’ general duties with a single new duty requiring both regulators to consider the financial stability risks associated with climate change. I am grateful to the noble Baroness, Lady Hayman, and the right reverend Prelate the Bishop of Manchester for their support. There have been extensive discussions about the sweeping away of the duties in this clause, and this amendment seeks at the very least to ensure that climate risk must be addressed.

Amendment 55 would require annual reports by the FCA and the PRA to include consideration of climate-related financial stability risks. This way, we can see exactly how climate risk is being factored in.

Amendment 65, which is led by the noble Baroness, Lady Hayman, seeks to enable the Government to set out how and when they intend to implement their manifesto commitment to mandate UK-regulated financial institutions to develop and implement credible transition plans.

Amendment 91 is relevant to climate risk in the housing sector. It would require the Treasury to report on the case for clearer standards for mortgage products that are described as green. We need to develop measures that will drive higher environmental standards in the housing market, including ensuring that measures are taken to improve a property’s resilience to climate risk.

I am encouraged by what I have heard informally about the Minister’s sympathy in relation to this group. I am led to believe that he fully gets the potential risk to the financial sector and thence to the whole of the economy and society. What is always best in this House is if people come together and find a positive way forward, where the Government see the case and help to draft suitable changes to legislation to move things forward. I hope that is what we will see here. I therefore look forward to hearing how the Minister proposes to address these risks.

[Baroness Hayman (CB)]

My Lords, I am pleased to follow the noble Baroness, Lady Northover, and will speak to her amendments and my own on this subject in a moment. But first I express my gratitude for the time and effort that the Minister, his colleagues and all the Bill team have put into addressing these issues and attempting to reach exactly the sort of conclusion the noble Baroness referred to.

Perhaps I could first say a few words about the other amendments in this group. I have a great deal of sympathy for Amendments 90 and 97A on forest risk commodities as, over the last five years, we have not made progress in this area. I hope very much that the Minister will be able to give at least a glimmer of hope that this kicking of the can down the road will not continue. I also make clear my support for Amendment 91 from the noble Baroness, Lady Northover, which seeks further clarity from the Government on the issue of green mortgages, which will become even more important as the effects of climate change on the housing market become even more apparent than they are now.

I have Amendment 65, on the timetable for transition plans. We discussed this at length in Committee, but I think that this summer made us all think about our future plans, whether it was to plant more hibiscus and fewer hydrangeas in our gardens, or how to make our homes more habitable with shutters or air conditioning. This summer’s extreme weather has had some very serious impacts, with 2,877 heat-related deaths estimated in May and June alone, 1,000 wildfires raging and disruption and dangers to our transport system causing knock-on impacts to productivity and daily lives. I recognise that transition plans need to be part of a wider programme of action, but if we wait until we have every duck in a row and every avenue explored, we will be leaving a very dangerous gap in progress in this area. I hope that the Government, who recognised in their manifesto the importance of these plans, can give us some sense today of the timetable they see for implementation.

I turn to the amendments dealing with the major and, for many of us, the most concerning issue: the downgrading of the regulatory principles that the FCA and PRA should have with regard to the exercise of their functions contained in Clause 17. The noble Baroness, Lady Northover, has made very clear the arguments—I will not rehearse them—about the risk to financial stability that we already see in the housing and insurance markets, which could go far wider. That is precisely why we fought for and gained, in 2023, the climate and nature provisions that are contained in FSMA 2023. They ensured that these considerations would be taken into account across the regulators’ work and day-to-day functioning, not simply something to be looked at every five years with a retrospective assessment of what had happened and a strategic statement about what might happen next, as is proposed in the current Bill.

The Government have recognised the concern about Clause 17 and have changed their approach to proportionality by putting forward amendments to ensure that it is reflected in the regulators’ annual reporting and day-to-day operations. The issues of climate and nature risk to our financial systems and their viability for the future are just as important, hence my amendment seeking similar treatment for climate and nature risks as for the proportionality regulatory principle and my support for Amendment 34 from the noble Baroness, Lady Northover. The Minister and his officials have, I know, thought very carefully about these issues when we have discussed them since Committee. I hope that today he will be able to recognise their centrality to the future stability of our financial systems and the role that the FCA and the PRA need to play.

--- Later in debate ---

[Baroness Northover (LD)]

My Lords, I thank the Minister for his very encouraging reply. I think that we are in agreement that there could not be a more important area. No one paid attention to the subprime market, then we had the 2008 crash. The economic and social costs are still with us a generation later, with incomes stalled and politics driven left and right, causing further economic and social damage. We know the risks of not paying attention to the risk to financial stability. I am afraid I do not accept what the noble Baroness, Lady Neville-Rolfe, says, and I regret the loss of cross-party agreement in this area.

But of course, beyond those risks, what is even more important is to address climate change and nature loss, and the Minister acknowledged that. It is an existential crisis, and we increasingly see the reality of that. I noted with interest his history, and I remember the commitment that Mark Carney made—how he said that he thought others were doing this and addressing this, then realised that that was not the case and that he needed to address this. He led the move, particularly at Glasgow and in the financial sector, in the way that the Minister has just described.

I am encouraged by what the Minister has said that he will bring forward at Third Reading, and I trust what the noble Baroness, Lady Hayman, said in relation to the conversations that she has had with the Minister and about his commitment. He has made this commitment for Third Reading, and I look forward to seeing how that is to be delivered. He is clearly very much involved in this. Therefore, I take what he says at face value and look forward to seeing that. On that basis, I withdraw my amendment.

Amendment 34 withdrawn.