Financial Services and Markets Bill [HL]

Lord Davies of Brixton Excerpts

Committee stage
Monday 22nd June 2026 Grand Committee

[Lord Ranger of Northwood (Con)]

My Lords, I will make my first contribution to this Bill. This is also one of my first in Committee, so I beg noble Lords’ forgiveness for any errors I will make. I do not have vast experience in the banking sector, but I have spent almost 25 years in technology, during which I worked with a number of firms in the banking sector.

I support the comments from my Front-Bench colleague, my noble friend Lady Neville-Rolfe, and from the noble Lord, Lord Blackwell, on the impact of this broad-ranging Bill. Later, I will comment more on the technology aspect, but at this point I highlight that, as we move forward, a degree of regulatory burden is continuing to build, especially for the future of banking around fintech, innovators, start-ups and scale-ups, a world I have worked in significantly. I look at this Bill through that lens, seeking to understand what we are doing around the posture we are requesting from these new future banking institutions, as they see different requirements from different regulators based on a loose—or, sometimes, as in the case of this Bill, unclear—focus. I say that because we are hearing that from the industry.

The past couple of years have required significant consultation on start-ups and scale-ups, particularly in the area of digital assets. Regulators have undertaken extensive questioning of the industry, but there seems to be some gap between parliamentary oversight and regulatory direction. That has been fed back and has resulted in ad hoc approaches to intervention with regulators from parliamentarians, industry bodies and even parliamentary groups—I co-chair the APPG on Digital Markets and Digital Money—in order to provide a certain level of input about what the industry, particularly the digital asset industry and digital start-up banks, may be considering. There is a huge opportunity in this Bill to understand how we would like to set out frameworks and risk management for the future, but there is also considerable risk—as was mentioned by my noble friend Lady Neville-Rolfe—around where we lose oversight and potential control at this critical time.

[Lord Davies of Brixton (Lab)]

I will speak just briefly. I find myself in the unusual situation of agreeing with the noble Baroness, Lady Noakes, on the role and functioning of the Financial Services Regulation Committee, of which I am a member. The committee was created to undertake a particular task, and what is in the Bill makes that task virtually impossible. We very much hope that the Minister will listen to what the committee has said on this subject.

[The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)]

I thank noble Lords for the opportunity to set out the Government’s position on this important set of issues and for the constructive nature of the debate so far. Before we start, my interests are set out in the ministerial register. I invest in a number of funds that are regulated by the FCA.

I start by addressing why Clause 1 and Schedule 1 should stand part of the Bill. The case for reform is straightforward. The Consumer Credit Act—the CCA—is more than 50 years old and was enacted long before the creation of the FCA. It no longer delivers as it should for today’s consumers, who engage with modern products in an increasingly digital world. It too often results in people being sent lengthy, complex documents that they do not read, do not understand and cannot use with confidence. It is important to say that one in seven adults has literacy skills at or below those expected of a 9 to 11 year-old and 34% of adults have poor or low levels of numeracy involving financial concepts, yet the CCA regime means that some of the information provided on credit cards requires a far higher reading age.

Debt advice charities have criticised the way in which the CCA requirements often result in borrowers being sent arrears notices even when they have agreed a repayment plan, causing confusion and alarm. To address the point raised by the noble Baroness in her amendments, this demonstrates that it is not just the content of the arrears notices that is the problem but the inflexible legislative triggers that mean they must be sent even when there is no clear purpose and they cause more harm than good. There are many more examples of where the CCA results in poor outcomes for consumers and anachronistic procedures for lenders.

That is why this Bill continues the work that began in 2012 of repealing this outdated legislation so that it can be replaced with updated rules that better meet the needs of consumers and are fit for the digital age. The Government strongly believe that those replacement rules should, in the main, reside in the FCA rulebook, not in primary legislation. The FCA has extensive experience in developing firm-facing rules for retail markets, including mortgages, insurance and investments. Its rule-making approach is underpinned by consultation and consumer testing so that protections remain robust, proportionate and relevant. The FCA’s new rules for buy now, pay later, which come into force next month, demonstrate what a modern, FCA rules-based regime can deliver for consumers.

I have heard the concerns of some noble Lords that the Bill does not set out how the repealed provisions of the CCA should be replaced and that this has been left to the FCA to determine at a future time. While I appreciate that concern, this is entirely consistent with the model of regulation established in the Financial Services and Markets Act 2000. These provisions sit in the CCA only because this model of regulation did not exist in 1974. Parliament has already vested the FCA with significant responsibilities in this space, objectives that include a primary consumer protection objective, powers to allow it to fulfil its role and a comprehensive system of transparency, governance and oversight.

Parliament will have a key role in scrutinising the FCA as it makes these replacement rules. The FCA is required to advance its objectives through its rules, including its consumer protection objective. The FCA is required to consult, to conduct a cost-benefit analysis on rule changes and to submit copies of those consultations to the relevant parliamentary committees. They include the Financial Services Regulation Committee, ably chaired by the noble Baroness, Lady Noakes.

The FCA has a comprehensive set of enforcement powers that will help it to ensure compliance with its rules and to act decisively where firms are failing to comply. As well as ensuring that an expert body with the right objectives, powers and resources can fulfil this function, this approach ensures that the rules can adapt as needed in the future to stay current and respond to future trends.

The noble Baroness, Lady Neville-Rolfe, asked when Parliament will see the replacement rules and how the transition period might work. The FCA will set out the detail of the new rules through its normal rule-making process. Repeal of legislation will be commenced only once the relevant FCA rules are in place. The Bill contains a power for HMT to allow for an orderly transition. In practice, Parliament, consumer groups and stakeholders will see the FCA rules at consultation stage before the new regime takes effect. I am aware that some noble Lords have tabled amendments to strengthen parliamentary scrutiny further. The Government believe that the current arrangements work effectively, but I look forward to debating them in more detail later. CCA reform is an important opportunity to create a clearer, more flexible and more accessible framework that better reflects today’s consumer credit landscape.

The noble Baroness asked what rights and protections will remain in legislation. Where rights and protections require legislation to work, they will remain in legislation. Criminal offences will remain, so canvassing to minors and doorstep selling will remain in legislation, along with other key protections such as Section 75.

The noble Baroness, Lady Neville-Rolfe, also asked about the impact on smaller firms, as the FCA replaces parts of the Consumer Credit Act. I can assure her that the aim of the reform is to create a more proportionate set of regulations for all firms, including smaller lenders. Everyone will benefit from this modernised regime.

I hope I have provided the Committee with some assurances that the CCA reforms are vital. I ask the noble Baroness, Lady Neville-Rolfe, to withdraw her amendment.

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[Baroness Kramer (LD)]

My Lords—

[Lord Davies of Brixton (Lab)]

Sorry. Were you winding?

[Baroness Kramer (LD)]

Yes.

[Lord Davies of Brixton (Lab)]

I just wanted to say that I have a lot to say on the Financial Ombudsman Service but I shall save it all for group 6.

[Baroness Altmann (Non-Afl)]

My Lords, first, I declare an interest, which perhaps I should have done at the beginning. I am a director of a pension company that is regulated by the FCA. I apologise for not having declared that earlier.

I will reflect on an issue that could arise because the Financial Ombudsman Service is in charge of complaints about pensions. We know that many people who are taking out pensions products may have problems that do not become apparent to them for six or 10 years or beyond. Perhaps we could consider an amendment that would carve out the extent to which the Financial Ombudsman Service deals with a pension complaint in relation to this element of the Bill.

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[The Lord Bishop of Manchester]

My Lords, it is a great honour to follow the noble Baroness., Lady Tyler. As I listened to her speech, I was crossing off most of the things that I was going to say, because she said them much more eloquently than I could have, and I am thankful for that. We need to be able to provide everybody with the best possible services, locally available. As the noble Baroness said, when people are at their most vulnerable, at the most crucial moments of their lives and taking the big decisions, being face to face makes all the difference.

I gather that an article in the Spectator says that Bishops do not mention the word Jesus enough when we are speaking in your Lordships’ House—well, I have just covered that one, for Hansard’s benefit. In my theology, when God had something really important to do, He did not send an email or text message or put writing in the sky. He sent a person, in Jesus Christ, to meet other human beings face to face. We lose face-to-face services at our peril.

Occasionally, yes, I am involved with the closing of a church. But very few churches, certainly Anglican ones, have been closed in England over the past 40 or 50 years, because we recognise the importance of providing face-to-face encounters for people to meet other people. While I appreciate that we do not want to overregulate, I feel that, as I said at Second Reading, making face-to-face banking services available to people when that is what they need, because they have a big decision and are feeling vulnerable, gains priority over the convenience of the banks. They might pass some small costs on to the rest of us, and it might affect the bonuses that some bankers get and the shareholders’ dividends at the end of the day, but that is a price to pay for seeing that everybody is included in the banking world.

[Lord Davies of Brixton (Lab)]

I shall speak to Amendment 23 in the name of my noble friend Lord Sikka. He very much regrets not being able to be here, but I hope that the Minister will still respond to the point that it raises.

The key issue is that there is a public service element in banking. It goes beyond commercialism; it is reasonable to ask that the review which is taking place should consider that issue, and specifically whether it requires an amendment to the Bill to effectively pre-empt the issue and say that villages, towns and districts need some form of banking services. I think there could well be broad agreement on that—the issue is that banks are competitive commercial organisations and so are not going to do it. They will do it only if there is some sort of collective scheme, funded by a levy, that provides good services for people where they live. I very much enjoyed the contribution of the right reverend Prelate, and indeed churches have closed down far less frequently than banks and post offices. I hope my noble friend will respond positively to that point on the public service element.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I speak for the first time in Committee on my third Financial Services and Markets Bill. I reflect on the curious circumstances in which we find ourselves and offer reassurances to those who do not like Clause 3 in particular. Surely under the new regime, which we expect to see in a month or so, we are unlikely to see the Bill in anything like its current form given that it aims overall to deliver the so-called Leeds reforms of Chancellor Reeves. Those intend to give the financial sector a boost of growth, at an inevitable cost to the real economy—a boost to London and the tax havens at a cost to the rest of the country—and to reduce the regulations which were brought in as protections for all our security after the last financial crash. However, there is still a point in all of us going through the Bill in detail as we are doing now, because we are also making bids for what a future Government will look like.

On that basis, I will speak in particular to Amendment 22, in the name of the noble Baroness, Lady Tyler, and Amendment 23, in the name of the noble Lord, Lord Sikka. We are expressing very important issues, as the right reverend Prelate put so well. He was speaking about religion but also about humanity and human need, which these amendments particularly address. Your Lordships do not need to listen to me with my radical voice; reading around this, I found an article in March from the Civil Service Pensioners Alliance. It quoted figures which state that about 53 bank branches close each month, and pointed out that this was forcing older people in particular into digital exclusion, stripping away their independence and leaving them highly vulnerable to scams. No one has yet brought that up, but speaking to local persons in a local branch can be an important prevention against scams, and there is also the premium on having to pay more for things because you are poor.

Picking up the point made by the noble Baroness, Lady Tyler, the pensioners alliance talks about circumstances of bereavement or the need for a power of attorney, which are circumstances that can happen to any of us. They will continue to happen, and technology cannot make them disappear. On that, I take issue with a couple of points made by the noble Baroness, Lady Noakes. The noble Baroness said that we can get rid of branches when cash users drop to an insignificant number. First, we should not be treating anyone in our society as insignificant, but more broadly, that assumes that we are heading—both as individuals and collectively—only in one direction. You may, at a certain age, be able to cope very well with digital banking and be perfectly comfortable with it, but that is not to say that later in life you might not want to use a different system. You might not be able to see the screen of your phone or manipulate its buttons, or you might not be able to hear on the telephone anymore. At that point, cash being available is an absolutely crucial thing.

Finally, I will pick up a point from the noble Baroness, Lady Noakes, which the right reverend Prelate also discussed. It is not the case that customers have to pay for the provision of these services. I point out that the big four UK lenders made £14 billion total profit in the first quarter of this year, and their profits last year were £46 billion. The financial sector depends on government support to survive. That is a licence, and we can comment on the conditions under which that licence is held. If this legislation goes forward, surely we can add a provision on local banking services—having a person to speak to when you really need it. Whatever future legislation comes in, there clearly needs to be action in this area.

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Moved by

[Lord Davies of Brixton]

31: Clause 6, page 5, line 10, leave out from the second “the” to end of line 16 and insert “end of the period of ten years beginning with the act or omission to which the complaint relates, determined in accordance with the rules (which may provide for different times in relation to different cases).
(1B) Among other things, rules made under sub-paragraph 13(1) must provide in specified circumstances for the applicable time limit to end at a later time where—(a) in the opinion of the Financial Ombudsman, the failure to comply with that time limit was due to exceptional circumstances;(b) the complainant only became aware (or ought reasonably to have become aware) of material facts or detriment to them relating to the act or omission complained of after the expiry of that time limit.”Member’s explanatory statement
This amendment amends Clause 6 to ensure that the ten-year longstop is the default position for Financial Ombudsman complaints, in line with the preferred option in the Impact Assessment and as opposed to the six-year provision in current FCA rules (DISP 2.8).

[Lord Davies of Brixton (Lab)]

This extensive group of amendments is focused on the role and functioning of the Financial Ombudsman Service—the FOS. We have already had a taste of that debate with group 2, but I am concerned that there is not going to be enough time for me in my 15 minutes—perhaps the Whip is already thinking that I should get on with it—and I will not be able to finish it all. I have said that I will take the opportunity, if I have not been able to ask my noble friend the Minister all the questions that I want within my allotted time, to ask further questions when we get to Clause 8 stand part.

This group of amendments deals with three issues: time limits for taking cases to FOS, the proposed system for the referral of issues to the FCA and, significantly, the changes to the “fair and reasonable” test. This is a lot to deal with, and in fact it is about the interaction between these three different changes. They might appear separate, but their overall impact has led to real concern that the interests of consumers are not being given sufficient attention.

I must pay tribute to the support that I have received from the All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services, of which I am vice-chair, as well as Which? Money and Fairer Finance. They have all expressed concerns that consumers’ interests are being adversely affected, and those concerns most definitely need to be addressed.

Starting with Clause 6 and my Amendment 31, I am concerned about the changes to the 10-year longstop on complaints to the Financial Ombudsman Service. The case for some kind of time limit is not unreasonable in itself. Firms do not wish to face indefinite exposure to complaints about events that happened decades earlier, and I understand why the Treasury wants certainty on that point. But Clause 6, as drafted, creates a hard structural barrier that applies regardless of when the consumer could reasonably have known they had grounds to complain. That is the flaw. It is not that a longstop exists; it is that it takes no account of discoverability. That matters most for long-term products such as pensions and mortgages, areas where I have personal and professional experience and where consumers often do not find out for years, sometimes decades, that they have been poorly advised or missold something.

The Explanatory Notes accompanying the Bill suggest that allowing complaints years later creates problems with data retention. I do not think that holds up. The appropriate rule, rule 9.5.2 in the FCA’s Conduct of Business Sourcebook, sets out the record-keeping requirements for firms that give personal recommendations on certain pension-related transactions. The rule as it stands requires firms to retain their records that were the basis of a personal recommendation indefinitely in cases of pension transfers, pension conversions, pension opt-outs and FSAVCs—which, for those who are not up on the jargon, are free-standing additional voluntary contributions. For other types of advice, COBS sets shorter retention periods, but these four pension categories are singled out precisely because of the long-term nature of the harm that can arise and, originally, because of the personal pensions misselling scandal of the late 1980s and early 1990s, a scandal that is too often forgotten but that led to £13 billion being paid in compensation.

The practical significance for the Clause 6 argument is that the justification for 10 years does not stand up. Firms advising on pension decisions are already legally required to hold the records, so the 10-year rule does not serve that data problem. The “indefinitely” formulation is worth noting. Most compliance obligations come with a defined shelf life, so the fact that the FCA made an exception here reflects a considered regulatory judgment that pension transfer advice is different from other forms of pensions advice. The consequences can take many years to materialise, and records need to be available when the problems are eventually seen.

Of course, I am most familiar with the issue in relation to pensions, but it is not just about pensions: endowment mortgages are a good past example where problems that arose for which compensation had to be paid were found outside the 10-year period. For the very products most exposed to long-delayed discovery of harm, firms already have the data that they need to defend themselves—they have to have the information that is being required.

It is worth asking how this is being played out against real cases. I believe, and I would be interested in a response from the Minister on this, that if a strict 10-year limit without proper exceptions had been in place during the PPI scandal, it would have blocked the mass redress exercise altogether. The worst mis-selling happened between 1998 and 2005, but public awareness did not peak until after 2011.

This was not a case of deliberate concealment; it was total misunderstanding and wishful thinking on the part of the people being sold to, but compensation was still due. A rigid longstop could well have disqualified millions of older claims in law before most of the consumers involved would have known that they were affected. I would be grateful if the Minister could say how these new arrangements will affect such cases and, as I mentioned, endowment insurances, appropriate personal pensions and the discretionary commission scandal in car finance, which is more recent.

As it stands, Clause 6 gives the FCA a power to create exceptions to the 10-year limit, but the legislation does not say what those exceptions must be at a minimum, so there is no statutory obligation on the regulator to build in protection for the consumers most likely to need it.

My amendment goes further than that in the name of the noble Lord, Lord Sharkey, by writing two specific circumstances into primary legislation itself, rather than leaving them to be worked out later in the FCA rules. First, it is just cases where the consumer faced exceptional circumstances, such as serious ill health or other incapacity, so people will know that they have a special claim in those circumstances. Secondly, there are cases where the consumer could not reasonably have known about the financial detriment within the 10-year window. These could be exercised on a discretionary basis, but my argument essentially is that those cases should be laid down in statute. It does not preclude the possibility of other exceptions being made, but for consumers it is a question of trust, and that trust requires consumers to know that those exceptions will be available. Putting these exceptions in the Bill removes the ambiguity, gives firms the certainty that they are after and makes sure that deserving consumers are not shut out of redress by an accident of drafting rather than a deliberate policy choice.

On Clause 8 and the powers of the ombudsman, I want there to be a proper debate about what is actually being changed here, and I look forward to guidance from my noble friend the Minister. The question underneath this debate is a simple one. What is the ombudsman for, and why do we have one, instead of just relying on the courts for people to get good tests? For the FOS, the “fair and reasonable” test is not something that has been put in and invented by the FOS itself; it comes from Section 228 of the Financial Services and Markets Act 2000 and provides that:

“A complaint is to be determined by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case”.


What the test displaces is important. The court applies the law strictly: the relevant statute, regulations, contract terms and case law. That is what the courts do. The ombudsman is not bound to decide a case the way a court would. That is the whole point of having the ombudsman—it is not a court that is able to take a view as to what in the overall circumstances is fair and reasonable.

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[Baroness Kramer (LD)]

For absolute clarification, “fair and reasonable” must be interpreted by the FOS as a standard that is met if there is compliance with FCA rules. I just want to understand because we can then go back historically and see where FCA rules might not have been perceived as fair and reasonable. It is interesting.

[Lord Davies of Brixton (Lab)]

To pursue that, are we being misled by the use of the word “rules” here? There is guidance as well as rules. The principles are not rules, but the principles have to be followed, and they include things such as treating the customer properly. Is that right? There are some general principles within what the FCA lays down—

[Baroness Kramer (LD)]

I am not sure that is what the legislation says; I think it says “rules”.

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[Lord Stockwood (Lab)]

I will take the opportunity to write because this definitely needs clarification. The note that I have says that in cases where the omission being complained about is governed by FCA rules, if the firm has met its obligations under those rules, the FOS will be required to find that it acted fairly and reasonably. All the FCA’s handbook is relevant here, including the principles for businesses and, therefore, the consumer duty. There will be coherence between those determinations but only when the FOS believes that the fair test has not been met can it challenge the FCA. I will write to noble Lords because this is an important point that needs a definitive answer. I apologise for that.

On Amendments 37, 42 and 43, as I have set out, the reforms to the FOS’s fair and reasonable test are designed to preserve the FOS’s existing discretion in areas not covered by FCA rules. The Bill specifies the matters that the FOS must take into account when making determinations, taking this out of FCA rules and making it subject to parliamentary oversight. The matters listed include the law, relevant guidance, codes of practice and further materials published by the FCA or other regulators. This provides greater clarity around how the FOS makes its decisions. As I explained earlier, the Government’s view is that where there are relevant FCA rules, there are benefits from ensuring that FOS decisions are consistent with them. I will write to clarify further in case I have created confusion in this conversation.

On Amendments 38 and 41, the Government recognise the important role the FOS plays within the wider financial services regulatory environment. The reforms included in the Bill are about making sure that the FOS and the FCA are able to carry out their respective roles effectively, co-operating where necessary but maintaining their separate responsibilities. These amendments would go further and require the FCA to become involved in the determination of individual complaints. This is a role that the FCA is not designed or equipped to undertake. It is, and should continue to be, the role of the FOS as the independent, impartial dispute resolution service.

Turning to Amendments 39 and 40, the Government’s review of the FOS concluded that the “fair and reasonable” test works well in the majority of cases to enable a quick and fair resolution of complaints. Removing the “fair and reasonable test”, as proposed by these amendments would undermine the FOS’s quick and informal role and put in its place a more legalistic approach based on strict adherence to the FCA’s rules. This could introduce additional costs and delays, and reduce the FOS’s effectiveness as an accessible and simple alternative to the courts.

I turn to Clause 7 and the new referral mechanism, which will require the FOS to seek a view from the FCA where it considers that a matter relating to a complaint may indicate ambiguity in the FCA’s rules or have wider implications for consumers and firms. As well as enabling the FOS to make decisions that are consistent with FCA rules, the referral process will ensure that systemic questions and issues are identified at an early stage and the FCA can consider whether a regulatory or supervisory intervention may be appropriate, rather than continuing to consider each individual complaint separately. Alongside the new reporting requirements provided for in Clause 9, this will improve understanding of the FCA’s rules and the standards expected of firms, in turn improving confidence in financial services and ultimately reducing the number of consumers who experience poor treatment, which all noble Lords will agree is preferable to providing redress after the fact.

Given the important role that the FOS plays, this is a clearly a matter of huge interest, and there is a range of views on exactly what the best system would look like. Notwithstanding that, I will write on the specific things that I might have caused confusion about.

I have listened carefully to the representations. The Government’s view is that the reforms set out in the Bill strike an appropriate balance, improving the clarity and consistency of redress arrangements while allowing the FOS to continue to make fact-specific decisions on individual complaints. They ensure that both the FOS and the FCA are equipped to fulfil their respective roles and responsibilities so that consumers can have confidence in the key financial services on which they rely, and so that firms understand what is expected of them and can act on it. I therefore ask the noble Lord to withdraw the amendment.

[Lord Davies of Brixton (Lab)]

As one always says in this situation, I will read what the Minister said with care. I have to admit that I was a little disappointed on the “fair and reasonable” test, but on close analysis it may prove to be better. In particular, I hope I will have a copy of the letter. It is clear that the rules include the principles, such as:

“A firm must observe proper standards of market conduct”.


Is it the ombudsman who would decide what was the proper standard of market conduct, or is that one of the issues that will have to be referred to the FCA? I am not expecting an answer now, particularly as—

[Baroness Kramer (LD)]

I have a question for the noble Lord, Lord Davies. My understanding of the principles is that they sit at the top, and the rules are derived from them. But this is a focus on the rules, so it is only as derived. I do not know, and we will get an answer.

[Lord Davies of Brixton (Lab)]

That is what the Minister will need to make clear in the letter. I urge him to make that point clear. Who decides whether the principles have been followed—or is that one of the issues that have to be referred to the FCA under Clause 7?

On time limits, I am disappointed that the Minister did not address the specific cases that I addressed. Some figures were provided—I will start a war on people providing figures in this sort of debate, because they whistle past your ear and it is very difficult to make a quick assessment. The problem is the counterfactual: if the existing system did not exist, would those same figures apply? The Minister has effectively said that, under this change of rules, some people who previously would have received compensation will not do so. That is absolutely clear from the Minister’s statement, and that is reasonable because the providers will save an even larger sum of money. But of course that is under the existing system. We have to think about what those figures would be under the new system.

Again, I hope the Minister will write to me about the specific examples, which could be large sums of compensation—in the case of inappropriate personal pensions, £13 billion was paid in compensation. Would that have been possible under the revised rules? I say that because £13 billion is quite a figure to miss out on for ordinary policyholders. I beg leave to withdraw the amendment.

Amendment 31 withdrawn.