Financial Services and Markets Bill [HL]

Lord Davies of Brixton Excerpts

2nd reading
Monday 8th June 2026 Lords Chamber

[Lord Davies of Brixton (Lab)]

There is a thought experiment, a century old, that I think should be made compulsory for every financial regulator, every market reformer and, frankly, every politician who has uttered the word “modernisation”. It comes from GK Chesterton, writing in 1929. He is writing about why he was a Catholic, but he makes a critical point that applies more generally. Imagine you come across a fence in the road and cannot immediately see why it is there. The modern, progressive, efficient temptation is to conclude that because you cannot see the purpose, there is no purpose, and to tear it down. Chesterton’s counterpoint is simple and devastating: do not touch it until you understand why it was put there, because someone at some point thought hard enough about this road to put a fence on it. Only when you know why are you entitled to remove it. This is Chesterton’s fence and I hope people will understand its relevance to this Bill.

The timeline of financial markets is littered with wreckage where it was decided that a fence was no longer required. We have experienced a cycle of financial disaster, followed by stronger regulation, followed by the growth of complacency, followed by demands to remove restrictions on markets, followed by injudicious deregulation, followed by yet another disaster. We are seeing this playing out in real time with, appropriately enough, ring-fencing. After 2008, the Vickers commission recommended that retail banking be ring-fenced from investment banking, rebuilding in modified form something close to the fence that had existed back before big bang in 1986. But within a decade, within living memory, pressure has built to weaken the rule. The fence looks costly and complicated. The arguments are familiar: the fence is inefficient and other jurisdictions do not have it, affecting our competitive position and putting London at a disadvantage.

These are precisely the arguments that preceded the events of 2008. The fence was built because we had just watched what happens without it. Now we have this Bill, and I am pleased to see that the Government are not unaware of the need to maintain consumer protection. The Explanatory Notes state the need to make changes

“without compromising on core consumer, prudential and market protections”.

They also state the aim of

“ensuring that consumers continue to have access to effective redress”.

I thank my noble friend the Minister for his clear statement in introducing this Bill, in reply to questions asked by me and other Members, that consumer rights will be protected. Nevertheless, while I trust my noble friend, our aim during the passage of the Bill will be to verify that these aims are achieved.

We must all be concerned, therefore, that not everything in this Bill has been welcomed by organisations representing consumers, not least the Consumers’ Association itself. Given its record of defending consumer rights, it is worth highlighting some of its concerns.

First, there are the changes to the Financial Ombudsman Service that will restrict consumers’ access to timely redress. To my mind, the proposals too closely mirror what the industry has proposed without providing the adequate supporting evidence to move in that direction. The Treasury’s own assessment of the FOS is that it functions well in the majority of cases. This is a poor basis for such a fundamental reform. Secondly, the Consumers’ Association has concerns that the Bill removes enforcement sanctions under the Consumer Credit Act 1974 without introducing equivalent replacements and shifts other protections from statute into Financial Conduct Authority rules, which have not yet received any consultation. A third problem is the new 10-year time limit on FOS complaints. It is totally unsuited to financial products, a large proportion of which are long term, typical of mortgages, life insurance and pensions. The concerns of the Consumers’ Association are far from trivial and will have to be addressed in Committee. I look forward to the debates.

The Government have been clear that the legislation is driven by an economic argument to foster growth in our world-leading financial sector, but there is also a compelling case, made clearly by my noble friend Lord Pitt-Watson, that effective consumer protection has an economic rationale as well. It is a sector that requires consumer confidence and trust. Financial services are unlike other markets: products are complex, time horizons are long, and the information gap between the provider and the consumer is substantial. In those circumstances, consumer protection is not an impediment to a well-functioning market but a key to that market functioning properly. Remove the fence without checking why it is there, and the likely result is not greater efficiency but the familiar cycle of mis-selling, scandal and declining consumer engagement with the very products that are supposed to serve their financial interests. A reform agenda framed around growth should therefore be cautious about weakening conditions that make sustainable growth in financial services possible.