Financial Services and Markets Bill [HL]

Lord Altrincham Excerpts

Committee stage
Wednesday 8th July 2026 Grand Committee

My various amendments would, in effect, require the PRA to take non-UK ownership and control into account when considering the rules that it sets up on these shared services, so that it can, in a crisis, ensure the effective provision of intragroup services to a ring-fenced bank—in other words, so that the retail bank can continue to function without severe disruption. It is relatively minor and quite technical, but it is potentially rather important. I hope the Government will take it away and look at it.

[Lord Altrincham (Con)]

My Lords, I speak briefly to Amendments 155 to 158 and 160 in the name of the noble Baroness, Lady Kramer, and hope that she will forgive me as a former banker with cultural contamination, perhaps. I notice a lot of quite warm language about banking in this debate, with references to the casino and the rest of it.

The concern behind these amendments is that a ring-fenced bank may depend on services, systems or facilities provided by other entities within its wider group. Those entities may be based outside the United Kingdom or supervised primarily by an overseas regulator. I very much hear what the noble Baroness says, but the PRA does look at intragroup services in protecting UK domestic businesses.

We of course have our own amendments on ring-fencing, which we have just discussed. However, as we have said before, our approach to this Bill is that it will regulate in the immediate term and, therefore, our wider policy ambitions can sit alongside proper scrutiny of the provisions before us. Even where we take a different long-term view of the future of ring-fencing, it is still right to test whether the regime, while it remains in place, operates properly and consistently. That said, I have some concerns about the effect of these amendments, even if they were to impose additional safeguards or burdens specifically on foreign-owned banks, as they could place those banks at a competitive disadvantage. That matters because foreign-owned banks contribute to competition in the UK market. If additional requirements make it harder or less attractive for them to operate here, the results could be less competition for deposits here and, ultimately, worse outcomes for consumers.

International supervisory co-operation has also been significantly strengthened since the financial crisis. Crisis management groups, co-operation agreements and regulator-to-regulator engagement are now central parts of the framework. Recent experience has shown that this co-operation can work in practice, including during the failures of Silicon Valley Bank, as referenced by the Minister, and perhaps also in the case of Credit Suisse, where co-ordination between overseas regulators and UK authorities helped to maintain continuity and manage risk. I just note that Credit Suisse was the fifth-largest bank by balance sheet in the UK at the time. I would therefore be grateful if the Minister could explain how the PRA currently assesses overseas group structures and whether he believes that any gap exists in its present powers. In particular, does the PRA already satisfy itself that critical services provided from outside the United Kingdom will remain available in stress or resolution?

We may differ from the noble Baroness on the broader future of ring-fencing, but the questions that she raises are important. My concern is that the proposed solution may be unnecessary and may risk reducing competition by placing foreign-owned banks at a disadvantage. I look forward to the Minister’s response.

[Lord Stockwood (Lab)]

My Lords, Amendments 155 to 158 and 160 all relate to Clause 40. As I set out in the previous debate, Clause 40 makes the ring-fencing regime more flexible and proportionate by allowing the PRA to take account of protections already delivered elsewhere in the prudential and resolution framework, when considering whether ring-fencing rules are required. The clause is intended to reduce unnecessary duplication, while maintaining the core protections and purposes of the ring-fencing regime. We have already debated this, and it was clear that there were a wide range of views.

The noble Baroness’s amendments focus principally on shared services arrangements, operational continuity and cross-border group structures. The Government recognise the importance of these issues and we have spoken to a couple of outside parties on this topic. Ensuring the continuity of critical services and managing operational dependencies are important objectives of the ring-fencing regime.

However, I am not persuaded that these amendments are the right route forward. They would introduce detailed statutory tests governing when the PRA may rely on protections delivered elsewhere in the prudential and resolution framework, particularly for shared services arrangements involving cross-border or non-consolidated groups. Their practical effect would be to make it harder for the PRA to rely on equivalent protections elsewhere in the framework, increasing the likelihood of additional ring-fencing rules, greater complexity and additional compliance burdens, even where the PRA considered that the relevant outcomes were already being achieved.

In contrast, Clause 40 is intended to make the regime more flexible, streamlined and proportionate by reducing unnecessary duplication while maintaining core protections. It does not allow the PRA simply to assume that protections provided elsewhere in the framework are sufficient. The PRA may rely on those protections only where it considers that there is sufficient provision to achieve the relevant ring-fencing purposes and ensure the effective provision of services and facilities to ring-fenced banks.

For example, the noble Baroness, Lady Kramer, asked whether the OCIR framework can be replaced by the PRA’s rule 9.1. This is a matter for the PRA, but it has indicated that it intends to consider these issues through consultation. Where the PRA does not consider that sufficient provision exists, including in relation to shared services arrangements or cross-border groups, it must act, including through making ring-fencing rules where necessary. The clause therefore preserves key protections.

If further details are required, I am more than happy to follow up before Report, but, for those reasons, I ask the noble Baroness to withdraw her amendment.

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[Lord Ashcombe (Con)]

My Lords, I remind the House of my interest as an employee of Marsh, an FCA-regulated firm. I wish to speak in support of this amendment in the name of the noble Baroness, Lady Bowles, but before doing so, I would like to pick up briefly on something I said earlier this week about regulatory clarity. I talked about how firms need clear definitions so that they can plan investment with confidence. That principle matters across the Bill, for not just client definitions, but for how we approach emerging markets and new structures.

Amendment 162 is a good example of that. The amendment addresses tax clarity on insurance-linked securities. These are important instruments. They attract capital into insurance, help firms manage catastrophic risk and have become a serious part of global risk management practice. Since being created in the 1990s, the global market has grown to about £136 billion, making up close to 20% of the insurance/reinsurance industry. According to Swiss Re, one of the world’s leading providers of reinsurance, insurance and other forms of insurance-based risk transfer, 2025 was the busiest year in its history of this market.

The London insurance market is phenomenally well placed to lead here. We are larger than our five closest competitors combined. However, we need to be honest: our ILS regime has been somewhat underwhelming at best. That is not because we lack expertise or capital—we do not—but because the regulatory approach has been disproportionate and the legislation inflexible. Firms simply cannot transact deals here as efficiently as they can in Bermuda or other jurisdictions.

To the Government and the PRA’s credit, they have listened. This Bill moves us in the right direction: it gives the PRA flexibility on fully funded definitions, allows multiple contracts in protected cell companies and there is a consultation pipeline on further simplification. That is good. However, there is one thing that the Bill has not addressed, and, as mentioned by the noble Baroness, Lady Bowles, that is tax clarity. When the ILS regime was created in 2017, there was a broad anti-avoidance clause. That is fair enough, but a decade on, I think that HMRC and the Treasury should be comfortable that these are not tax avoidance structures, but are risk transfer vehicles.

Right now, firms have guidance from HMRC, but it is not legally binding. Therefore, every transaction requires a tax lawyer’s opinion every single time, as the noble Baroness mentioned. That cost, that time, that friction is the difference between doing a deal and doing it somewhere else. This amendment asks for something straightforward: a clear and legally underpinned directive that HMRC will presume that ILS vehicles are not being used to secure a tax advantage. That is not asking for exemption from anti-avoidance rules; it is asking for clarity so that legitimate risk transfer does not get caught up in unnecessary caution. That clarity matters because it removes the last barrier to this market. We have the regulation sorted and we have the expertise; what we really need is tax certainty.

This is about positioning London correctly in a competitive global market. It is about letting the PRA’s sensible reforms work, and it is about giving firms the clarity they need to invest with confidence in the United Kingdom.

[Lord Altrincham (Con)]

My Lords, I will speak to Amendment 162 in the name of the noble Baroness, Lady Bowles—perhaps from the Liberal Democrat risk-transfer derivative desk. This amendment raises what seems to be a sensible and practical point about certainty in the treatment of insurance-linked securities and related risk-transformation arrangements. Insurance-linked securities can play an important role in allowing insurance risk to be transferred into capital markets. Catastrophe bonds and similar structures can help insurers and reinsurers manage exposure to major risks, including natural catastrophes, while providing investors with a different form of capital markets instrument.

The United Kingdom has quite rightly sought to develop itself as a competitive centre for these structures, but for that to happen, firms and investors need clarity, as my noble friend just explained. As I understand it, the amendment would require the Treasury, after consulting HMRC, to publish guidance clarifying the tax treatment of these arrangements. It would also provide that where an arrangement falls within that guidance and complies with the relevant regulatory authorisation and supervision requirements, it should be treated as a bona fide commercial insurance and capital markets transaction, rather than as one entered into for tax avoidance purposes. It does not appear to be an attempt to protect fraud, misrepresentation or non-disclosure. HMRC would still be able to challenge arrangements where the conditions are not met or where there has been improper conduct, but it would give legitimate market participants greater certainty where they are using properly regulated structures for genuine commercial purposes. That certainty matters: if the UK wants to attract insurance-linked securities business, investors and firms need to understand the tax position in advance. Uncertainty can deter activity, reduce confidence and make other jurisdictions more attractive.

I would therefore welcome clarity from the Minister on this point. Do the Government accept that greater tax certainty would help to support the development of the UK insurance-linked securities market? Are they aware of the concerns that uncertainty about HMRC treatment may be limiting the attractiveness of the UK regime? Will they consider whether further Treasury or HMRC guidance is needed to ensure that properly regulated ILS vehicles are treated consistently as genuine commercial arrangements. This seems to me to be a practical amendment aimed at supporting competitiveness and certainty in a specialist but important part of the financial services market. I look forward to the Minister’s response.

[Lord Stockwood (Lab)]

My Lords, risk transformation is a key element of the UK’s insurance market, and the growth of this market is critical to the Government’s objective of making the UK the location of choice for specialist and complex insurance. The Government’s reforms in Clause 44 aim to support this market by increasing the attractiveness of the UK for establishing the legal vehicles used to undertake risk transformation. I am glad to hear the noble Baroness, Lady Bowles, and the noble Lord, Lord Ashcombe, broadly welcome these reforms.

The Government recognise the role that the bespoke tax regime for transformer vehicles plays in ensuring that the UK is competitive in this area. We also recognise, as does this amendment, the role that robust anti-avoidance measures and clear guidance have in ensuring a well-functioning regime for transformer vehicles. These anti-avoidance requirements are set out in the bespoke tax regulations for transformer vehicles, the Risk Transformation (Tax) Regulations 2017. HMRC has worked extensively with industry to produce guidance on how anti-avoidance measures apply to transformer vehicles.

I appreciate that some people consider that this guidance could be clearer, but it is important that any guidance does not constrain the Government’s ability to apply anti-avoidance rules. It must be aligned with the broader approach taken by HMRC to anti-avoidance. The current guidance allows HMRC the flexibility effectively to pursue instances where vehicles are established for the purposes of avoiding tax. It is important that we preserve that ability. I therefore ask the noble Baroness to withdraw her amendment.

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[Baroness Kramer (LD)]

That was very good too. I meant Amendment 164E, which is headed,

“Shared digital identity and compliance utilities”.

I come from a party that is always very concerned about identity cards, whether they are digital or traditional, old-fashioned cards, and what they do to privacy and independence, so I have those caveats constantly in the back of my mind. It seems to me, however, that a series of fundamental questions are raised by the noble Lord, Lord Holmes, in subsection (2), where he talks about the various specifications, the governance arrangements, the very straightforward things such as whether utilities are to be publicly or privately owned, under public specifications or operated as industry utilities. There are issues of data, access to digital ledgers, privacy, data protection and how to cope with the transition period, which will be very complex and very different for different individuals. Some people will transition completely almost in the blink of an eye, and others will be very late adopters. That creates a whole set of issues around financial inclusion and exclusion. I hope very much that we will get the discussion that we need, particularly around subsection (2), which then sits as a foundation to all the other issues that are raised. These are issues that engage the regulator, of course, but many of them are above the regulatory pay grade, and we need to be engaged on those issues here in this Committee.

[Lord Altrincham (Con)]

My Lords, this group is a snapshot, in a sense, of where we are now in digital regulation for financial services in the UK, as discussed by my noble friend Lord Holmes. This group somewhat dovetails with the amendments that we discussed in the previous group, which sought to probe the Government’s strategy for digital assets, tokenisation, access to banking and payment services and consumer redress. However, I am concerned that this package rather jumps the gun. The issue is more profound than the absence of individual regulatory provisions.

As my noble friends Lady Neville-Rolfe and Lord Ranger of Northwood, and the noble Baroness, Lady Kramer, said, we do not yet have the basic architecture in place, and we do not yet have a clear digital assets strategy. We do not yet have a settled framework of engagement with the industry, and we do not have a proper industry forum through which the Government, regulators and market participants can work through these questions in a structured way. That matters because this is a fast-moving area: if we legislate too quickly, or in too much detail, without proper consultation and industry engagement, we risk creating a framework that is either obsolete before it is implemented, or misaligned with how the market is actually developing.

The point that we have been making throughout these debates is that the Government need to move from ambition, the Digital Markets Taskforce and their initiatives to strategy. It is not enough to say that the UK should be a global centre for digital assets or tokenisation: we need to know what that means in practice, who is responsible for delivering it, how the regulators are working together, what definitions will be used, and what sort of regime firms can expect. At present, the problem is not only a lack of regulation: in some respects, the problem is the way the regulatory system is operating, those overlaps between the Treasury, the FCA, the PRA, the Bank of England and other bodies. There are sometimes different emphases, different attitudes and different levels of appetite toward digital assets and tokenised finance. That creates uncertainty for firms.

Industry does not need more rules; it needs clarity, a coherent regulatory perimeter, regulators that are aligned with one another and confidence that the UK is developing a framework that supports responsible innovation, rather than simply adding new layers of process and permission. This is why we need to be careful before layering further statutory requirements on top of a system which has not yet been properly clarified. That said, the principle raised by my noble friend about looking to world leaders for inspiration is a good one. This is something we should be paying attention to if we wish to remain internationally competitive.

In addition, the principle for higher regulatory neutrality between traditional and tokenised assets is a sensible one. If two instruments have the same economic substance and risk profile, there is a strong case for treating them consistently. But before that principle can operate effectively, the Government and the regulators need to define clearly what counts as an additional asset—a tokenised security, a crypto asset, a stablecoin or a form of digital market infrastructure. That is why the industry forum proposed in the previous group seems so important. We need a better mechanism for engagement before we decide the detailed architecture, and we need to hear from banks, payment firms, digital asset businesses, market infrastructure providers, asset managers, lawyers, technologists and consumer representatives. Without that, we risk legislating for a market as we imagine it, rather than for a market as it is developing.

In summary, my noble friend Lord Holmes raises important issues and many of the ideas in this group may well form part of the future architecture for digital finance. The first task is to sort out the foundations. We need strategy, clarity, co-ordination and proper industry engagement before we start building further layers of regulations. For those reasons, I welcome the debate and the questions raised by these amendments. The Government must first address the more fundamental uncertainty at the heart of the UK’s approach to digital assets and tokenised finance.

[Lord Stockwood (Lab)]

My Lords, I am grateful to the noble Lord, Lord Holmes of Richmond, for tabling these amendments and for his contributions to this and the previous debate. I will not rehash the arguments I made previously. We believe that we have a strategy, and we believe that that has been executed. These amendments cover a wide range of issues. The noble Lord asked me to respond to all of them; I will try to do so but, if I miss any, we can follow up afterwards.

The amendments include proposals on shared digital identity, AML utilities, prudential treatment for tokenised assets, an additional digital financial markets sandbox, education and use-case libraries, issuer governance, common token and data standards, model contractual clauses, custody and bridge infrastructure, issuer pathways and payment rail neutrality. The Government agree that the development of tokenised markets depends on proportionate regulation, legal certainty and effective payment and settlement infrastructure. These are all important issues, and the Government are already taking extensive action to drive forward this agenda, which I set out in the last debate.

On Amendments 164E to 164H, the Government recognise the importance of trusted digital identity, effective AML processes, proportionate prudential treatment, testing environments and education. I am happy to assure noble Lords that these matters are already being progressed through existing frameworks, including the UK digital identity and attributes trust framework, guidance on the use of digital verification services under the money laundering regulations, the digital securities sandbox and wider government and regulator work on tokenisation and market digitalisation.

The Government also recognise the importance of market understanding. However, I have concerns about requiring in legislation for the FCA to maintain a detailed use-case library or to prescribe particular commercial models for the development of digital financial markets. The role of the Government and the regulators is to establish clear and proportionate frameworks that support innovation while protecting consumers, market integrity and financial stability. The development of specific use cases and business models is a matter for industry, operating within those frameworks. The wholesale digital markets champion, whom I mentioned previously, can look at these issues if this is raised with him.

Across all these areas, the Government’s approach has been to support innovation through enabling frameworks rather than prescribing particular models in legislation. The Government believe that it is preferable to continue building on these flexible frameworks rather than putting in place detailed statutory requirements.

Amendments 164J, 164K, 164L, 164N and 164P focus on the infrastructure needed to support tokenised markets. The Government recognise the importance of legal certainty, interoperability, custody arrangements and clear issuer pathways for tokenised financial instruments. These are precisely the issues currently being considered by the Government and regulators, including through a joint call for input published by the FCA and the Bank of England earlier this year on the future of tokenisation in UK wholesale financial markets. The regulators have made clear that this work will inform a joint road map of reforms developed in partnership with industry.

The digital securities sandbox was also specifically designed to provide that flexibility, allowing government, regulators and industry to test how legislative and regulatory frameworks may need to evolve before making more permanent changes.

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[Baroness Dacres of Lewisham (Lab)]

My Lords, I fear that Amendment 172C strays beyond the purpose of the Bill, which is concerned with improving the regulation of financial services and markets. It is not, in my view, the appropriate vehicle for reopening broader questions about the role and governance of the City of London Corporation. This amendment takes us into a rather different debate—it asks us to examine the role and function of the City of London Corporation—whereas the purpose of the Bill is to strengthen the UK’s financial regulatory framework, ensuring that it is effective, proportionate and capable of supporting growth, investment and innovation, while maintaining high standards. Our focus should remain on achieving those objectives.

It is important to be clear about the respective roles of the organisations involved. The City of London Corporation is not a financial regulator. It does not authorise firms, supervise markets or enforce regulatory rules. Those responsibilities rest with the Financial Conduct Authority, the Prudential Regulation Authority and the Bank of England, all of which are independently accountable to Parliament.

The City corporation performs a different, but none the less valuable, function. It acts as a convenor of expertise, an advocate for one of the United Kingdom’s most important industries and a champion of the UK as a global financial centre. Through its international engagement, it promotes inward investment, supports exports of financial and professional services, and works with industry to help maintain the UK’s reputation for high standards and innovation.

I question whether the amendment has demonstrated that there is a genuine accountability gap requiring statutory review. Before Parliament creates a new review mechanism, we should be satisfied that there is evidence of a problem that the existing arrangements have failed to address. I have not yet heard that case made. The City corporation is already subject to established governance and oversight arrangements, while the regulators are independently accountable to Parliament.

At a time when the Government are rightly seeking to promote economic growth and strengthen the United Kingdom’s competitiveness as a leading international financial centre, I am concerned that this amendment risks creating uncertainty without identifying a clear public benefit. Our efforts should be directed towards ensuring that regulators can carry out their duties effectively, while organisations such as the City of London Corporation continue to play their distinct role in supporting the wider success of the UK’s financial and professional services. For those reasons, I believe our attention should remain firmly on the purpose of the Bill: strengthening the United Kingdom’s financial regulatory framework. I cannot support Amendment 172C.

[Lord Altrincham (Con)]

My Lords, I shall speak briefly to Amendment 172C in the name of the noble Baroness, Lady Bennett of Manor Castle, on the promotional role of the corporation and the survey views of local residents. Let me also say how interesting the speeches of the noble Baronesses, Lady Bi and Lady Dacres of Lewisham, and the noble Lord, Lord Pitt-Watson, were on this.

I have some concerns about whether this amendment is necessary, proportionate or properly directed at the issues before us in this Bill. If the concern is about the regulation of financial services and markets, Parliament should scrutinise the regulators and the Government. Indeed, much of our debate on this Bill has been precisely about that: how we ensure that the regulators are accountable, transparent, proportionate and properly focused on growth and competitiveness.

The City of London Corporation, however, is not a financial services regulator and does not set prudential rules. I am therefore not persuaded that a statutory review of the City of London Corporation’s role is the right mechanism in this Bill. At a time when we are trying to strengthen the competitiveness of the United Kingdom, attract global capital, support innovation and ensure that financial services remain one of our national strengths, we should be cautious before creating unnecessary uncertainty around one of the institutions that help to promote that sector internationally. I think the noble Baroness would recognise that as one of its roles.

There is also a question of evidence. Has there been a regulatory failure caused by the City corporation? Has there been a financial stability concern arising from its role? Has there been evidence that its activities have distorted the regulatory process in a way that existing scrutiny mechanisms cannot address? Without that evidence, I am cautious about launching a statutory review through the Bill.

Nor do I think that the Bill is the right vehicle for a wider constitutional debate about the governance of the City of London Corporation. This Bill is about financial services regulation, market infrastructure, consumer protection, competitiveness and the regulatory framework. The governance of the corporation is a broader issue, and one that would need to be considered separately if Parliament wished to do so. That is not to say that scrutiny is unimportant, but we should focus scrutiny where regulatory power actually sits. In this Bill, that means the FCA, the PRA, the Bank of England and the Treasury. Those are the bodies whose powers are being expanded or adjusted, and those are the bodies that Parliament should be most concerned to hold to account. For those reasons, I do not support this amendment.