Financial Services and Markets Bill [Lords]

Noah Law Excerpts

Tuesday 10th November 2026 Commons Chamber

[Mark Garnier]

The point of ringfencing at the time was to separate the retail banks from the wholesale and investment banks. If the hon. Lady remembers, the Liikanen reforms sought to cage the tigers and ringfence the investment banks into units, whereas our reforms looked to put a fence around the deer park to look after the retail banks. The problem is that this creates a cliff edge as customers get past a certain turnover—I think they go from being in the retail bank to being in the wholesale bank when they get to £5 million of turnover. The only bank that has changed that is Barclays; it has set that limit at £100 million, which makes the retail bank much more open, and arguably could make it slightly more vulnerable.

Of course we do not want the big banks to fail—although, having said that, we have to have an element of risk within the banking system. It is important that we keep that. However, we have a number of systems that have come in later and that other countries have looked at, such as the bail-in bonds and the MREL regime. Returning to the competitiveness point, we now find ourselves with a ringfencing regime that creates extra costs and administrative burdens for banks that other countries do not have. We also have a system that can protect consumers, the bail-in bonds, whereby we have regulatory capital that can potentially be converted from bonds into equity to solve that problem.

[Noah Law (St Austell and Newquay) (Lab)]

I am sure that many Members of this House would entertain the idea of taking a targeted look at the way in which ringfencing regulation is implemented and agree that, where it is helpful, there should be much more of a free flow of information and discussions with clients across universal banks. However, can the hon. Gentleman categorically rule out the complete abolition of ringfencing that he has suggested, if only for the sake of consumers who do not want to see their retail money swirling around in an investment bank?

[Mark Garnier]

The hon. Gentleman raises a number of points. We are getting deep into the debate, but the very quick answer to his question is no, I cannot rule out getting rid of the ringfencing regime. It has already been made public that the policy of a future Conservative Government will be to do so. That is the debate we will be having in Committee, and I am sure the hon. Gentleman will be delighted to join us in Committee, where we can get into the debate in depth. It is great to see so many Members across the House putting themselves forward with their enthusiasm to get involved in the debate—my right hon. Friend the Member for Beverley and Holderness (Graham Stuart) will have found a friend.

My second point—of a number of points, although I am conscious that I am taking up a lot of time—is that we would like the Government to go further on bank capital requirements. UK banks, building societies and PRA-designated investment firms are required to maintain minimum levels of capital in proportion to their risk-weighted assets. That is to help ensure that firms remain resilient and to reduce the impact of failure. Clearly, no responsible Government would abolish capital requirements, but we need to question whether banks should be required to hold capital beyond what is genuinely needed for resilience. This is an important point.

We should acknowledge that the Bank of England has eased bank capital requirements in recent years, specifically at the end of 2025, when it revised down the benchmark for tier 1 capital from 14% of risk-weighted assets to 13%. However, it is worth remembering that the Parliamentary Commission on Banking Standards recommended 11%, so that benchmark is higher than we originally asked for. We believe that the current level is still too high. The most recent stress test carried out by the Bank of England found that

“all banks remained above their set capital minima at the low-point of the scenario. No individual bank was required to strengthen its capital position as a result of the test.”

From memory, it was a one-in-250-year event that the banks were being stress tested on. The system has to allow an element of risk—when I was on the banking commission, we made it very clear how important that was. We made it clear that it was okay for a bank to fail, but it was not okay for banks to bring down the entire system.

The important point is that there has to be an element of risk in the system, but that is not what has been delivered, meaning that the potential lending and financing capacity of our banking sector is significantly reduced—to the tune of about £450 billion each year, we reckon. That is an awful lot of money that is not going into the economy. UK Finance has advised me that each percentage point of the tier 1 capital stack potentially represents about £600 billion in liquidity, so 2% above the recommendation of the Parliamentary Commission on Banking Standards represents about £1.2 trillion. Leverage that up under the banks and we are potentially talking about £12 trillion that is not in circulation because of over-interpretation of the rules. But we do not want to get ahead of ourselves; we reckon that £450 billion is not in circulation because of that over-enthusiasm on the tier 1 stack. That is money that could be used more productively. It could be invested in our communities or in businesses, but it remains stuck on banks’ balance sheets.

While the Bill does not contain any specific measures dealing with bank capital requirements, we believe that it is a perfect opportunity to make the necessary changes—specifically, to reform the parameters within which the Financial Policy Committee and the PRA operate. As such, we will be putting forward changes in areas where we believe the Government may be encouraged to take some advice from the Opposition.

As we have heard, the Financial Ombudsman Service plays an incredibly important role in the UK financial services sector. It provides redress for consumers and small and medium-sized enterprises against FCA and PRA-regulated firms outside of the court system, and crucially, it provides a service that is low-cost and accessible for consumers. However, over the years, the FOS has gone beyond being a dispute resolution mechanism and has become a quasi-regulator. This is creating significant costs for firms, with research from TheCityUK suggesting that the cost of regulatory compliance across the financial sector now exceeds £34 billion. Importantly, firms are also being retrospectively penalised, despite having followed the law on the day of an occurrence that was subsequently deemed to be problematic.

The Bill makes some positive changes in this area, which we welcome. It narrows the fair and reasonable test so that there is no longer a presumption of guilt, and creates a 10-year complaint deadline. Those positive changes will help prevent the FOS from acting beyond its remit. However, again, we do not believe that they go far enough, and there are a number of issues that we will raise during our debates in Committee.

Madam Deputy Speaker, you will be pleased that this brings me to my final point.

--- Later in debate ---

[Noah Law (St Austell and Newquay) (Lab)]

I warmly welcome the Bill and its goal of creating a more transparent financial services sector that can continue to play a key role in creating growth and prosperity for the whole of the UK. I refer the House to my entry in the Register of Members’ Financial Interests.

Having spent a decade in investment banking and financial advisory work, I have some understanding of both the potential of our financial services and the reforms that they need. The proposed reforms to credit unions are extremely positive. By virtue of being owned by their members, credit unions are uniquely incentivised to put surplus profits into providing better services, rates and returns for their members—something that, as a Co-operative Member, I am delighted to support. I am delighted to support the efforts of my hon. Friend the Member for Peterborough (Andrew Pakes) in this space too.

The Bill will make it easier for credit unions to accept new members. It removes unnecessary administrative blocks and provides greater support, allowing more people to join credit unions, which are rooted in their communities and committed to delivering for them. Expanding access to credit unions also means access to more affordable lending, which gives those in the most dire financial circumstances access to credit at reasonable rates, instead of leaving them at the mercy of predatory lenders. Credit unions encourage saving, responsible borrowing, and investment in our communities and local economies. The reforms in this Bill will make accessing them easier than ever. As my hon. Friend the Member for Harrow West (Gareth Thomas) pointed out, we eagerly await the response to the review of fair access to banking and capital markets.

More widely, I am glad to see the industry support the aims of this Bill and the support for the better regulatory strategy, accountability, deadlines and the proposed improvements to the senior managers and certification regime. By requiring the FCA and the PRA to report annually on their efforts towards competitiveness and growth, we ensure that the Government, regulators and the industry pull together in one direction for the financial sustainability of our country.

Additionally, by improving the way in which regulators make decisions, we can improve the confidence of investors in our financial services. The reduction in the statutory period of authorisations and variations of permission from six to four months, and the period for incomplete applications being reduced from 12 to 10 months, ensures a smoother system for firms and leaves a lot less up in the air. Delays in regulatory decisions can be hugely costly for firms, and can even mean postponing fund launches and major investment decisions, and affect firms’ ability to grow, innovate and compete internationally. A simple regulatory system provides greater clarity for firms, better transparency for the public and the Treasury, and benefits us all. I welcome the Bill’s allowing the Treasury to introduce secondary legislation to amend specified determination periods, once again demonstrating the Government’s willingness to work closely with Britain’s most valuable and prosperous of industries.

I am very grateful to the Chancellor for his acknowledgment that we have asked the sector to do its bit to contribute to sound and prudent public finances— I would argue that that prudence, to quote the right hon. Member for Beverley and Holderness (Graham Stuart), who is no longer in this place, “dwarfs” short-term fiscal interventions—and it directly contributes to sound and prudent finances in an otherwise globally turbulent macroeconomic environment, after the public did their bit to safeguard the sector through its most challenging of times. Consequently, we in this House must also give due care and attention to this incredibly valuable sector. I do believe that the Chancellor has shown that, even when those difficult decisions have to be made, this need not be a zero-sum game.

I would like to think this Bill can be just one of many stepping stones as part of an ongoing effort throughout this Parliament to ensure a healthy level of risk taking in this most expert of financial markets that we have in the UK. In that regard, I welcome the targeted reviews of ringfencing requirements alongside the Bank of England’s own review of capital requirements to promote thriving banking and capital markets—public, private and, of course, mutual.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

I call the shadow Minister.