Financial Services and Markets Bill

Lord Northbrook Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Lord Northbrook (Con)]

My Lords, first, I declare an interest as a consultant to an FCA-regulated investment management firm. Overall, I strongly welcome this Bill, as do important UK financial institutions, including the Investment Association, UK Finance, TheCityUK and Linklaters’ Financial Regulation Group, to name but four.

Politically, the Bill seems to be generally supported by all major parties. I particularly welcome the provision to establish a regime to regulate stablecoins. I also like the idea of bringing in measures to allow regulators to reduce regulations in order to enable technological innovation in a sandbox. I also approve of the measure allowing regulators to make rules for entities deemed to pose systemic risks to the UK’s financial markets. As the Prime Minister said in his Back-Bench speech at Second Reading:

“Why does all this matter? It matters for three specific reasons. The first is jobs. The industry provides more than 1 million jobs, and not just in London and the south-east; two-thirds of those jobs are in places such as Southampton, Chester, Bournemouth, Glasgow, Belfast, Edinburgh and Leeds. It is incredibly important. Secondly, it is one of the most important industries for our economy in terms of contribution to our GDP and tax revenues, and it is something that we as a country are genuinely world-class at.”—[Official Report, Commons, 7/9/22; col. 292.]


I recognise that the City is now in a very different place from where it was in 2016. The consensus view is that the ship has now sailed on regulatory equivalence with Europe. However, the fact is that, since 2018, the volume of financial exports to the EU has fallen by 19% in cash terms. Some £1.3 trillion of UK assets have reportedly moved to the EU and there has been little progress on securing trade deals for our financial services around the world—although Switzerland was mentioned earlier.

Still, in 2021, exports of financial services to the EU were worth £20.1 billion—33% of all UK financial services exports. So is it wise just to repeal all the 200-plus pieces of retained EU law en bloc rather than identifying which are helpful and necessary? Also, the sector is disappointed that the Government have so far failed to finalise a memorandum of understanding on regulatory co-operation or negotiate with the EU for the mutual recognition of professional qualifications for our service sectors. In her winding-up speech, will the Minister tell us what impact she believes this Bill will have in securing these important agreements with the EU and boosting financial services exports more generally?

I move on to what has not been included in the Bill. I agree with my noble friend Lord Balfe: I feel that the Bill lacks ambition in its lack of support for the mutual and co-operative sector. Although Clause 63 contains some welcome and long-overdue provisions, such as enabling credit unions to offer a wider range of products, the Bill does little to address the outdated regulatory regime faced by credit unions, building societies and co-operative banks. We have seen numerous building societies threatened with demutualisation in recent years, while the number of mutual credit unions has plummeted by more than 20% since 2016. Unlike the USA—and many other European countries, as I understand it—the UK is uniquely lacking in co-operatively or mutually owned regional banks. That lack of diversity in the financial services sector has had bad consequences for financial inclusion and resilience, with many desperate families forced into the arms of unethical lenders.

Next, like the noble Lord, Lord Hunt of Kings Heath, and other noble Lords, I find it disappointing that the Bill fails fully to address the growing problem of financial fraud. Clause 62 only partially addresses the issue. It enhances protections for victims of authorised push payment fraud, which, according to the Labour Treasury Minister in the other place, quoting UK Finance figures, reached an all-time high of £1.3 billion in 2020. The Government in the other place promised a review without giving a timescale, but more immediate action is needed. The Bill ignores the fact that digital-savvy criminals are increasingly exploiting a range of financial institutions such as payment system operators, electronic money institutions and crypto asset firms to scam the public. According to UK Finance, in 2020, 45% of the £1.3 billion was payment card fraud, while 38% was authorised push payment and 16% was remote banking.

Last November, our House of Lords Fraud Act 2006 and Digital Fraud Committee released a report stating that the Government should introduce a new corporate criminal offence to ensure that big tech platforms and telecom companies tackle financial crime. While online platforms will face a duty of care to protect their users from fraud under the Online Safety Bill currently going through its stages in the other place, it does not cover telecoms and other related sectors:

“‘It’s a very good step but I do think that more needs to be done,’ said Sian McIntyre, a managing director at Barclays UK, including requiring tech companies to publish data on the nature and volume of scams on their platforms.”


I support other noble Lords’ views on the limitation of Treasury Select Committee scrutiny, general clarity on crypto regulation, regulators’ requirements to focus on international competitors, problems of buy now, pay later, and the opportunity to still have a cash option. In summary, I welcome the Bill and look forward to scrutinising it further in Committee.