Financial Services and Markets Bill [HL]

Lord Holmes of Richmond Excerpts

Committee stage
Monday 29th June 2026 Grand Committee

Moved by

[Lord Holmes of Richmond]

81: Clause 17, page 21, line 34, leave out subsection (2) to (11) and insert—
“(2) In Section 3B(1) (regulatory principles to be applied by both regulators), in paragraph (b), for the words from “considered” to the end of that paragraph substitute “taking into consideration the nature of the service or product being delivered, the nature of risk to the consumer, whether the cost of implementation is proportionate to that level of risk and whether the burden or restriction enhances UK international competitiveness;””Member's explanatory statement
This amendment seeks to amend the existing regulatory principle for the FCA and PRA and require that the nature of, and risk to, the consumer and the service or product being delivered must be considered when imposing a new burden or restriction.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to open on this second group of amendments, to move Amendment 81, which is in my name, and to speak to Amendment 87. I thank the noble Baroness, Lady Altmann, and my noble friend Lord Hunt of Wirral for variously co-signing the amendments.

We ask a lot of our financial regulators—not least in recent times, with international competitiveness and the growth objective, and with the Chancellor calling all regulators, including financial regulators, into No. 11 to seek their commitments as to what they will do to advance the Government’s stated growth objective. My Amendments 81 and 87 seek to assist the regulator in bringing some clarity to how to approach these matters.

Amendment 81 looks to the nature of the financial product and of the risk to the consumer, and how the proposed regulatory intervention sits against those factors and the need to promote international competitiveness. It is entirely possible for our financial regulators to balance their objectives and to do right by consumers and by growth, but they need to consider those objectives alongside one another rather, than having a broad-brush, non-specific approach.

This brings me to Amendment 87, which seeks to put in the Bill the nature of the response the regulators could make in their supervisory activity and interventions. It sets out the difference between retail consumers and professional market participants, not least in wholesale markets. I have no doubt that the regulators are well aware of the different levels of knowledge and experience of people who participate in financial products and financial markets, be they retail, professional, or operators in wholesale markets. But it is potentially helpful to set this out in the Bill in order to assist and support the regulators in what they seek to achieve through this approach: to drive the effectiveness of their regulatory activity, to sharpen their supervisory activities and, not least, to have that sense of dialogue—always where appropriate—rather than reaching for more severe interventions at that stage.

I support the other amendments in this group and look forward to noble Lords’ contributions and to the Minister’s response. I beg to move.

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[Lord Stockwood (Lab)]

It goes without saying that there are many things on which I do not agree with the Labour Government of 2006, but we will leave that for another day. We believe that this is already covered. I do not want to allow the noble Baroness’s expertise to be undermined by my relative inexpertise, so let me come back in writing on that. The advice I am getting is that we believe that it is already covered, but let me come back in writing before our meeting next week.

[Lord Holmes of Richmond (Con)]

I paused there in case somebody else wanted to make another point—I did not want to jump in. I thank all noble Lords who participated in this excellent, informed and important debate. I would never seek to offer a Minister of the Crown advice, but, having said that, when the noble Baronesses, Lady Bowles and Lady Noakes, speak on these matters, it is worth paying attention, reflecting, reading Hansard and reflecting again.

I thank the noble Baroness, Lady Noakes, for all the work she has done as chair of the FSR committee. It has produced excellent reports that always cut to the heart of an issue. At a time when, as she rightly identifies, more and more is coming before Parliament as regulation which, on the Floor of the House, we have so little role in which to play or influence to bring to bear, the role of her committee is even more significant and important.

My noble friend Lady Neville-Rolfe summed up with her usual brevity and precision. This is all about proportionality and common sense. The only tiny addition I would bring to that is specificity. In essence, all the amendments in this group have been tabled for the same reason that we debated these subjects on previous committee days. Strategies and frameworks are important, but events do not happen in strategies and frameworks. Events happen: they impact individuals and businesses, particularly small businesses, minute by minute, hour by hour—or, to quote a phrase apropos of nothing in particular, events happen on a day-to-day basis. All the amendments in this group are significant and worthy of reflection.

In conclusion, I apologise profusely to the noble Baroness, Lady Kramer, for causing her to feel queasy. I can only hope that my financial inclusion amendment in the next group can act as an effective antiemetic. For now, I thank all noble Lords who participated in this important debate and beg leave to withdraw Amendment 81.

Amendment 81 withdrawn.

--- Later in debate ---

These amendments are, I believe, modest, proportionate and constructive. They ask only that this country keeps a clear and honest annual account of how well—or how badly—our financial system serves those who are most at risk of being left behind. I beg to move.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Tyler. I had the equal pleasure of serving alongside her during her excellent chairing of the Financial Exclusion Committee.

As the noble Baroness rightly identified, since we published our report, financial exclusion—or a lack of financial inclusion—has persisted. She rightly identified the Government’s financial inclusion strategy. There are a number of good things in it, but I ask the Minister: why was it so light on the potential role that fintech, as well as broader technologies, could play in addressing some of the elements of financial exclusion? It was largely silent on those issues.

I shall speak to Amendment 104 and all the other amendments in my name in this group. Similarly, I suggest having a financial inclusion objective and detailed reporting requirements therein. We have the Financial Inclusion Commission, which has some excellent members, but financial exclusion persists.

It is right to have our financial services regulator further empowered to be the lightning rod and the focus for this whole question of financial inclusion. To talk about the principles again, the Government are keen on growth, but financial inclusion does not run counter to that growth or the international competitiveness objective. Financial inclusion is essential to it: enabling people to have financial services and be financially included is likely to increase digital inclusion and social inclusion, as employees become self-employed and the employed become economically active. I ask the Minister: are these things—enabling and empowering financial inclusion—not what any Government should be about?

I suggest a financial inclusion unit for the FCA, so that it can be a powerhouse for innovation and research and a real regulator and driving force for financial inclusion. When the Minister comes to respond, can he identify how financial inclusion has changed in the almost two years of the current Government? Is it not time for greater focus and effort on this most significant of issues?

In many ways, the most significant issue when it comes to financial services is enabling and, in reality, empowering everybody to have a fair go, and to become active and enabled in our economy and our society. Amendment 161 builds on this, but in the specific context of broadening data-sharing requirements—always on a consenting and empowering basis—to look again at what we can do with new technologies. Let us look at other sources of data such as rental history, which can be so helpful in enabling financial inclusion—but currently are far from happening, never mind becoming the norm—to support those millions of individuals. Where is innovation when it comes to financial inclusion? Does the Minister not agree that these amendments would enable the Government to have a human lead on these technologies, with a far greater chance of much greater financial inclusion for all citizens?

My final amendment goes to KYC, or what passes for it. In many ways, you can see this within financial inclusion, where all too often, in whichever context one considers it, “know your customer” means almost completely the reverse or nothing of the sort. Does the Minister not agree that it is time to look again to innovation and the technologies that can be deployed to give us effective KYC and AML? Or does he believe that, because one is able to put a gas bill in paper form in front of a financial services business, it shows just what an upstanding citizen you must be and gives all that is required on KYC and AML? It is so gravely in need of transformation. We have the tools and technologies to achieve this, which would also add to significant financial inclusion. I look forward to the Minister’s response.

[Lord Davies of Brixton (Lab)]

This is an important and interesting debate. I want to draw attention to and base my remarks on Amendment 95, which refers specifically to the poverty premium in insurance. This is a theme that runs across financial services. It perhaps does not get the attention it deserves, because one of the main reasons for financial exclusion is of course poverty, and poverty is clearly an issue where the Government have a clear and central responsibility.

In practice, the approach taken by the FCA has been to use the obligation for the consumer duty as the primary vehicle for dealing with the poverty premium. The FCA has directly linked the consumer duty to the poverty premium, with the argument that firms are required to deliver good outcomes for retail customers and ensure that products and services offer fair value. The FCA has not itself specifically tackled the poverty premium head on; in effect it has passed the responsibility to providers.

The most obvious manifestation of the poverty premium arises with premium finance, whereby people have to pay premiums by instalments over the year instead of paying a lump sum at the beginning of the year. The terms on which they are financed have been open to significant criticism. People think they are paying the contributions monthly but, in practice, someone lends them the money to pay the initial contribution and they repay that loan over the year. There is a widespread lack of understanding that, in fact, they have two contracts: the insurance contract and the loan contract. The terms of that loan contract have been called into question. Figures from the FCA suggest that about four-fifths of customers in financial difficulty use premium finance and that, in 2024, 60% of motor insurance customers and 41% of home insurance customers paid by instalments because they could not afford to pay annually. There is probably a series of people who fail to do the sums and just pay monthly because that looks easier.

The FCA has found that the cost of premium finance has fallen since 2022, and made it clear to firms that they are under a clear requirement to ensure that fair value is offered. There is a technical problem here in that, as well as the financial issues, with some forms of insurance there is an underwriting issue. It is possible to argue that someone who pays monthly is not in the same underwriting position as someone who pays yearly. It is very difficult to pin down that aspect of the issue. The FCA accepts that this poverty premium exists and believes that some of the premium finance provides a poor product. It has accepted that

“financial regulation cannot tackle financial exclusion or the related ‘poverty premium’ alone. We must work together across government, regulators, industry and consumer groups”

to deal with it.

The Financial Inclusion Strategy published in November refers to the issue, and we now have the FCA’s 2026 insurance priorities, which include expanding access to insurance as a central priority and emphasise the importance of helping vulnerable groups. However, the campaigning group Fair by Design has argued that the FCA is not doing enough to deal with these issues. It points out that the FCA has said that it has the tools to deal with this but, in practice, is just leaving it to the individual companies to act responsibly.