Secondary International Competitiveness and Growth Objective (FSR Committee Report)

Lord Altrincham Excerpts

Wednesday 11th March 2026 Grand Committee

[Lord Altrincham (Con)]

I thank the Minister and my noble friend Lady Noakes for hosting this debate. I also thank the committee for the quite long inquiry it has done for us and for its report. The creation of the committee was an important outcome of the Financial Services and Markets Act, and this might be a moment to reflect on the importance of this committee in holding regulators to account, as well as its findings in this, its first report. It is particularly welcome that it uses its first report to look at the growth and competitiveness agenda because, if we remember, that was contentious during the passage of the Bill and, at the time, the regulators pushed back quite consistently. It is helpful for us to start with that aspect of the Act. Of course, things have changed because the Government themselves have made growth and competitiveness quite an important objective, so the Act fits with the Government’s own objective.

I greatly enjoyed reading the report, despite its enormous length. It attracted an exceptional cast of English characters—regulators, parliamentarians and civil servants—all of whom performed their role before the committee to perfection. In a way, the report reads like a play, each of these characters speaking their parts. We had the deputy governor of the Bank of England saying that the Bank would consult on MREL but that, on the whole, there should be only gradual change. The deputy governor for prudential regulation pointed out to the committee that it was unhelpful to compare the UK to other jurisdictions, that risk weightings did not affect credit into the economy and that the regulators’ overall risk position did not need to be changed but that there might be a need for a little— I had to check and it is at paragraph 338—“decluttering”. That is a lovely word from our central bank. That was the position of the regulators.

The committee heard from the former lord mayor, who said that we should look to Singapore. He reminded the committee that there were huge Asian markets. The former City Minister talked about the amount that regulation is preoccupied with net zero and diversity. The former Secretary to the Treasury talked about the FOS problem, which has not come up yet, but the City Minister at that time said that the FOS situation was going to be sorted out. It has not yet been sorted out, so we have a problem in car lending at the moment. So the regulators all said what might be expected and, from their feedback, you might expect no change.

The committee also heard from some quite senior bank executives. It heard a particularly good set of feedback from a retiring bank chairman, who had been a regulator himself. He said that the regulatory costs on banks were too high and that the cost of the ring-fence was too high. That was quite helpful feedback; he is retiring, so he says what he believes, and the ring-fence might be something that the committee will look at in the future.

The chief executive of the country’s largest building society pointed out that the leverage ratio restricts credit for him and for the amount of lending that it can do—no surprises there. The chairman of Aberdeen said that people should be investing more, perhaps with Aberdeen—perhaps there are no surprises there. The American insurance executive said, very helpfully, that the cost of regulation in the UK was higher than in any other of the hundred markets in which the company operated. That would obviously be disappointing for the regulators, but they had a friend because the executive from JP Morgan—a firm quite famous in London regulatory circles for the epic fiasco of the “London Whale” credit derivatives blow-up—said that the regulators were excellent and very professional. She had no problems with her regulators. More than that, in words surely her own, she said that the regulators could not be expected to look after the other 42,000 firms as well as they look after JP Morgan.

So we had very useful feedback and a good survey of where the regulation was a year ago. As we meet now, we might reflect on what has changed or what has happened since the publication of the report. To the credit of this committee, as well as the Government—but, for now, let us say that it is to the credit of this committee—quite a bit has changed. The MREL requirement was changed by September, in time for the letter from the Government to the noble Lord, Lord Forsyth, so there was change on MREL after all. The leverage ratio threshold—this is the amount of bank deposits when the threshold kicks in—moved from £50 billion to £70 billion in November. That directly addressed the question of the leverage ratio.

Then, as my noble friend Lady Noakes pointed out, the remarkable change is that the Bank cut the UK’s tier 1 capital ratio from 14% to 13%. This was the first cut since 2008 and it was an enormous change, because the Bank had not been very keen to do it and there was no hint that this was coming in any of the submissions that the committee heard. But the Bank’s tier 1 capital ratio was in fact changed.

As we meet now, it is remarkable to reflect that this committee, which was set up as required under the Financial Services Act to supervise the regulators, or rather to hold them to account, has raised issues on which there has been change. Some other issues have not been addressed yet; we mentioned the FOS, the car lending problem and the ring-fence problem, which, despite the Skeoch review, is still there and very expensive. Whether the ring-fence makes any difference is quite unknown; it is not even clear whether bail-inable capital in MREL makes any difference, but that is a discussion for another day.

Other issues are raised in the report, but the capital changes that the report has raised and then got changed mark an important moment and an achievement of this committee. That is to the credit of the committee and the Government. I thank the committee for its work, for the credit that extends into the UK economy following these changes, for looking into the cost of regulation and for holding powerful regulators to account.