My Lords, the financial services sector is one of the UK’s greatest economic success stories: we are the world’s largest net exporter of financial services, and it makes up around 20% of UK exports. The sector made 8% of UK GVA in 2025, totalling £224 billion. It plays a vital role in our economy, underpinning services that households and businesses rely on every day. It provides high-quality jobs throughout the country. It was in recognition of this that the Chancellor announced a significant set of reforms in her speech to the sector in Leeds.
I am very happy to take this Bill because I worked in the sector in the past. I was the CEO of an insurance technology firm offering protections to small businesses, and I have been on several boards of businesses in the financial services sector. While I no longer hold these roles, perhaps this is the right moment to declare my interests as set out in the ministerial register, in particular, a number of my investments in funds that are managed by FCA-regulated firms. In my role as Investment Minister, I see and hear first-hand just how far our financial services sector reaches and the extent to which our institutions, regulation and rule of law are respected overseas.
The Financial Services and Markets Bill will modernise how the sector is regulated, enable it to grow and lend more to businesses and make consumer protections fit for the digital age. It will achieve these objectives while maintaining high standards of regulation and oversight, ensuring that consumers and businesses continue to engage with the sector with confidence and that it will meet their needs. I am pleased that the Bill has been welcomed by a range of stakeholders operating across and alongside the sector. There is general recognition, as there was in an All-Peers meeting that I hosted last week, that it is a question of the balance we are trying to achieve.
My Lords, it is a pleasure to follow the Minister as we begin our deliberations on the Financial Services and Markets Bill. Like him, we believe that the financial services sector is one of Britain’s great success stories. It accounts for around 12% of GDP, supports 2.5 million jobs and contributes roughly £110 billion in tax each year. It is not simply a sector to be regulated; it is a national asset to be championed. We need the sector to grow because that will benefit us all.
Turning to the economy overall, we have unfortunately had a lengthy period of low growth following the financial crisis of 2007-08, and there is no sign of imminent recovery. Expectations are now for low UK growth in 2026. This continuing trend must be reversed. The Government’s rhetoric on the importance of growth must now be matched by serious action. Too often, warm words have been followed by policies that pull in the opposite direction. The Bill comes after a tidal wave of anti-growth measures, of which the Employment Rights Act is only the latest example.
It is our view that a major factor in our low rate of growth is overregulation, and that this is especially true of the financial services sector. Our Financial Services Regulation Committee agrees, and it is good to see the chair, my noble friend Lady Noakes, here today. Its excellent report, Growing pains: clarity and culture change required, which the Minister has already referenced, warned that
My Lords, I welcome this Bill and the growth in competitive objectives that inform it. I thank the many organisations that have provided us with briefings, especially the APPG on Investment Fraud and Fairer Financial Services. Its 70-page analysis deals with each part of the Bill in depth and reaches an important overall conclusion, which is that the case for protecting consumers within any reform of financial services is not merely a moral case, although the moral case is strong, it is an economic case, grounded in a clear-eyed analysis of how trust works, how it is destroyed and what happens to markets when it is lost. The report also notes that the Bill should not simply make complaint handling faster or more predictable for institutions; it should ensure that ordinary people can get the real issue investigated, decided, escalated where necessary and put right. It is not at all clear that the Bill does this or does this sufficiently.
A look at Part 2 illustrates the problem. It contains a number of significant reforms: Clause 5, for example, which concerns the appointment of the chair of the FOS scheme operator. Under this clause, the chair is appointed directly by the Treasury. This is a major structural shift that was not included in the original consultation. The clause also states that the terms of appointment must secure the chair’s independence from both HMT and the FCA. The ombudsman scheme occupies a unique position within our regulatory architecture. It must command the confidence of consumers while maintaining credibility with the industry. Independence is therefore essential: it is not merely a matter of statutory wording; it is also a matter of perception. Where appointments are made directly by the Government, questions inevitably arise about whether sufficient distance exists between Ministers and those exercising important quasi-judicial functions.
My Lords, before we move on to the Back Benches, I remind noble Lords that the advisory time limit is eight minutes. If we all stick within that, we can get everybody in, it is fair to everybody else and we will be able to finish at a reasonable time.
My Lords, this Bill is another example, I am afraid, of my past catching up with me. It is 27 years ago that I was asked to chair a Joint Select Committee of both Houses to scrutinise the draft Financial Services and Markets Bill that was introduced back then. The committee met for three months and published two reports. I believe the noble Lord, Lord Eatwell, is the only other member of the committee still in this House. That became the Financial Services and Markets Act 2000, and all the subsequent changes that have taken place, including in 2012, have been amendments to that Act. I also note my interests in this legislation as outlined in the register. I own shares in Banco Santander and Flagstone Group. Furthermore, I was chairman of Abbey National and then Santander UK from early 2002 until 2015.
It is worth recalling some of the factors that lay behind the need for the Bill back in 2000. The first, of course, was the decision by Chancellor Gordon Brown to remove banking supervision and regulation from the Bank of England and to transfer those responsibilities to the proposed Financial Services Authority. Secondly, this provided the opportunity to consolidate various financial regulatory bodies that had previously operated independently, including—and this is just the beginning of the list—the Building Societies Commission, the Securities and Investments Board, several self-regulating bodies and various ombudsman schemes. In fact, it is really quite astonishing to think back at how complicated and complex the arrangement was before the 2000 Act. Thirdly, there had been—as there always seem to be—problems with a number of financial institutions during the time I was Permanent Secretary, including the closure of BCCI, the collapse of Barings and some difficulties with smaller banks; before that, there had been the collapse of Barlow Clowes. So there were quite a lot of lessons to be learned, and the Bill aimed to put those into a comprehensive framework.
My Lords, I declare my interests as set out in the register. As with all my colleagues on these Benches—not that there seem to be many of them here today—my stipend, pension contributions, housing and working costs are provided by the Church Commissioners for England. As an issuer of bonds, something we started when I was chairing, it is a regulated body.
I welcome the intention behind the Bill to modernise our financial services and to support economic growth. However, our aim must be to enable economic opportunity for all communities. Amid what is still a cost of living crisis, we must measure economic success not only by the growth of the economy itself but by how it promotes the dignity of those most in need and protects individuals at times when the system fails. It is a large Bill, so I will focus on just a few main aspects: access to credit, credit unions, consumer protection, and access to wider banking services. These are probably the issues that are most appropriate for one who is a bishop, not a banker.
Access to fair and affordable credit is not simply a financial issue but a matter of dignity, equal opportunity and participation in community life. Deepening poverty across the UK is making it more difficult for people to break free from debt. Almost everybody needs to borrow money at some point in their life, yet too often it is those with the least who end up paying the most. They face a poverty premium; they have fewer options. Christians Against Poverty, a wonderful charity, has found that its clients are now borrowing money simply to pay for food, clothing, rent and utility bills. For many, credit has ceased to be a tool for flexibility; it has become a necessity for meeting basic needs, and that drives them deeper into debt.
My Lords, I thank the Minister for his excellent introduction to what is a complex and technical Bill. I will focus, as the Prime Minister’s Anti-Corruption Champion, on a part that may not be at the top of everyone’s agenda—it was not in the Minister’s top half. For those of us engaged in efforts to tackle the challenge of dirty money, it comprises an important and welcome proposal set out in Clause 14.
Tragically, over recent decades, Britain has become the destination of choice for too many wanting to hide or launder their dirty money. The National Crime Agency estimates that £100 billion is laundered into the UK annually. Academics estimate that, if you add this to the money lost through fraud, the cost of economic crime to the UK rises to £350 billion. That is more than five times what we spend on schools in England, or nearly six times the amount Britain currently spends on defence. It is huge and a loss that harms our economy, undermines trust in the integrity of the financial services sector, threatens our security and damages our public services.
However, the guilty criminals responsible for these crimes do not invent the schemes used to hide or launder their ill-gotten gains. They depend on the advice of professional enablers—accountants, lawyers, banks and company service providers—who devise the schemes and then enable, facilitate or collude with the economic crime. Most professionals work in both a lawful and an ethical manner but, sadly, there are some bad apples in the professions, who must be rooted out and punished. At present, the professionals are not adequately supervised and identified, and, too often, they are left free to pursue their highly profitable but immoral and, in some cases, unlawful practices.
My Lords, I begin by drawing attention to my interests listed in the register. The financial crisis of 2007 to 2009 left lasting scars on the UK financial system. The costs of that crisis have reverberated in the form of embedded risk aversion, particularly among financial services regulators.
Yet, risk aversion has its uses. Since the 2009 crisis, the financial services industry has been battered by further successive crises: Brexit, Covid and the wars in Ukraine and the Middle East. It is to the credit of the Bank of England and the financial services regulators that the industry has displayed a remarkable level of financial stability throughout these storms.
Yet there remains a persistent dissatisfaction with the performance of the regulators. The costs of compliance are excessive. A PwC study puts the sector’s annual compliance bill at nearly £35 billion—roughly 13% of total operating costs. Regulators are said to take excessive time over crucial decisions, such as authorisations. There is no consistent cost-benefit analysis of regulatory measures, despite the fact that the 2023 FSMA required the FCA and the PRA to establish cost-benefit panels. Regulatory decisions often create uncertainty, stifling innovation and discouraging investment.
The fact that the Bill addresses some of these concerns is certainly to be welcomed. The simplification of the senior managers regime and other administrative requirements should reduce costs. The new provisional licences should speed up effective authorisation. The changes to the relationship between the FOS and the FCA will perhaps reduce regulatory uncertainty, although it may have other effects, as the noble Lord, Lord Sharkey, suggested. Moreover, the increased flexibility provided to the FCA and the PRA in several sections of the Bill must be used with care, lest flexibility generates uncertainty.
My Lords, I declare my interests in that I hold shares in a number of listed financial services companies. It is a pleasure to follow the noble Lord, Lord Eatwell, who is one of the select group of noble Lords who regularly take part in the scrutiny of financial services legislation. I welcome the Minister to our club.
There is much in this Bill which is good. I welcome clauses dealing with the SMCR regime, how the FOS works and the transformer and insurance vehicles. In addition, the changes to ring-fencing are positive, but they do not go far enough to roll back this burdensome regime which cost billions to implement and run and is so flawed that not a single other country has adopted it.
There are, however, several areas of the Bill which I shall be looking to improve in Committee. I will focus my remarks today on just one area: Clause 17. Currently, the PRA and the FCA must have regard to the regulatory principles in Section 3B of FSMA in everything that they do. Clause 17 downgrades this, so that the principles are rendered impotent. If Clause 17 becomes law, the regulators will merely have to talk about the principles in the new five-year strategies that are required by Clause 16.
The regulatory principles were certainly due an overhaul. However, neutering them is a shockingly bad decision by the Government. It is not surprising that many in the financial services sector have criticised it. I will frame my remarks around the regulatory principle of proportionality, though what I say also applies to other elements of the principles. Proportionality requires burdens imposed to be proportionate to the benefits that are expected to result. This manifestly should be uppermost in the mind of the FCA and the PRA when they are designing new regulatory burdens or updating existing ones. The lack of proportionality in how the regulators currently operate is one of the key criticisms made by financial services firms. I do not doubt that the proportionality principle is relevant when the regulators develop their long-term strategies. Strategies, however, tend to be high-level abstractions; they are not blueprints for how regulation works in practice. It is the detail of the rules and guidance, rather than strategic statements, that determines how regulation impacts the financial services sector.
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As noble Lords would expect, this is a large, technical Bill, so I will briefly set out its purposes and why the Government have adopted the measures they have, and why we believe they strike that balance of promoting innovation and growth while managing and mitigating risk and, of course, protecting consumers.
Turning first to consumer protections and redress arrangements, Clause 1 and Schedule 1 repeal large parts of the remaining provisions of the Consumer Credit Act 1974 so that many of them can be recast into the rulebook of the Financial Conduct Authority, known as the FCA, continuing the changes introduced as part of the Financial Services Act 2012. The Consumer Credit Act was designed for the pre-digital age where everything was done on paper forms. It predates the smartphone by more than 30 years. Research shows that parts of the Consumer Credit Act can be harmful to potentially vulnerable customers, as lenders are often required to send complex communications that result in individuals feeling disempowered, confused and reluctant to seek help. This shows how bad regulation can harm consumers. The FCA is already responsible for making rules that protect consumers and has already made rules to replace some parts of the Consumer Credit Act. It has the expertise needed to perform this role and the powers needed appropriately to police compliance within the rules. Repealing more provisions of the Consumer Credit Act will ensure that it can make rules fit for the digital age.
Moving on, Clauses 4 to 12 reform the operation of the Financial Ombudsman Service, known as the FOS, to improve the consistency and predictability of its decision-making. At the moment, in a small but significant minority of cases, the FOS is acting as a quasi-regulator, by which I mean that rather than simply resolving individual complaints between consumers and firms as intended, its decisions have the effect of setting minimum standards for firms. This can lead to uncertain and inconsistent expectations and outcomes for consumers and firms, which undermines confidence. The Bill is reforming the “fair and reasonable” test as well, which guides FOS decision-making, introducing a mechanism to ensure greater coherence between the FOS and the FCA, and makes a number of other reforms to allow the FOS to successfully fulfil its original role as a quick and informal dispute resolution service.
Clauses 23 to 28 improve protections for consumers who purchase financial products through an “appointed representative”, for example, when purchasing insurance from a retailer acting on behalf of an authorised firm. The Bill will require the FCA to check that an authorised firm is up to the job of ensuring that its appointed representatives operate with high standards of conduct. When something goes wrong, the Bill will ensure that consumers of appointed representatives will be able to bring a complaint to the FOS, which is not always the case at the moment.
Now let me turn to the regulatory framework. I thank all Members of the House of Lords Financial Services Regulation Committee for their Growing Pains report that I read over the weekend. There is a strong alignment between the committee’s conclusions in the report and the Government’s perspective and actions. The Bill will consolidate the regulatory framework to deliver stronger co-ordination and clearer responsibilities.
Clause 13 and Schedule 2 will abolish the Payment Systems Regulator, known as the PSR, and consolidate its functions within the FCA. The PSR has been effective in driving competition and innovation among payments firms, but the current framework is too fragmented. The Bill will reduce the number of regulators that firms need to engage with.
The Bill also makes a number of reforms to support effective operation of the two largest financial services regulators, the Prudential Regulation Authority—PRA—and the FCA. The actions of the FCA and the PRA are absolutely critical to ensure that the UK has the right regulatory environment, as a key part of the Government’s financial services growth and competitiveness strategy. Clause 21 speeds up the regulators’ decision-making by reducing the statutory deadlines for determining a number of key applications, including authorising new firms. Clauses 29 and 30 create a new provisional licence regime, which will support innovative new firms by allowing them to begin operations on a temporary and limited basis while they apply for full authorisation.
The Bill also makes a number of changes to the internal operations of the regulators, to ensure that they are focused on their activities in the right places, and to support effective oversight and scrutiny of their work. The Government have looked at the wide variety of requirements currently applying to firms—some overlapping, some obscure and some simply of low value. Clause 16 requires the regulators to develop and publish long-term strategies. Clause 17 requires them to consider their existing eight regulatory principles when preparing or revising their long-term strategies, while removing the requirement to consider them every time they exercise one of their functions. Clause 18 removes a number of requirements on the regulators that are duplicative or impose a burden on them that is disproportionate to any transparency benefits that they bring.
Collectively, these changes are designed to ensure that government and Parliament can give clear direction to the regulators at a strategic level and support scrutiny of their broader approach in a way that is meaningful and impactful, rather than focusing on the minutiae or clogging up the regulators with process that adds no value. The Bill also supports the international competitiveness of our world-leading financial services sector, including through Clause 37, which enables the Treasury to create overseas recognition regimes to make business across borders easier without compromising consumer or financial protections.
I turn to the section relating to administrative burdens on firms. I have said the Bill ensures that the administrative burden that regulation puts on firms is proportionate, without compromising on core consumer, prudential and market protections. At the core of this objective are reforms to the senior managers and certification regime in Clauses 31 to 36. This regime holds senior leaders in financial services firms personally accountable for their actions. It is a vital regime that was introduced after the failures of the financial crisis, following the report of the 2012 Parliamentary Commission on Banking Standards. Many Members of the House were on that commission, including the noble Baroness, Lady Kramer, who I look forward to hearing from today. This regime has vastly improved the standards of governance and conduct across the financial services sector, and we have the noble Baroness and others to thank for that.
However, the way that the regime operates in 2026 results in significant regulatory burdens, costs and operational inflexibility. Following careful consideration, the Bill will reduce those burdens while retaining the core guardrails that the regime introduced. The Bill gives the FCA and PRA flexibility in how senior manager appointments are overseen and removes the certification regime which applies to roles below senior manager level. In its place, regulators will be able to make appropriate rules in their rulebooks.
Last week, I met many noble Lords, including the noble Lord, Lord Sharkey, the noble Baroness, Lady Bowles of Berkhamsted, and my noble friends Lord Davies of Brixton and Lord Pitt-Watson. They asked me for assurances that the Bill does not weaken the core protections of this regime. I am happy to give those reassurances. Firms will remain responsible for ensuring that those they appoint are fit and proper, and individuals will remain individually accountable for their decisions. This is not about deregulation but about ensuring that the rules operate in a more proportionate and targeted way.
I will now speak to the opportunities for credit unions. The Bill will enable credit unions to serve more people and communities, something I know will be strongly welcomed by many in this House. The Government are committed to supporting the growth of the mutual and co‑operative sector, recognising the important role that credit unions play in promoting financial inclusion and providing affordable credit.
Clause 2 expands the common bond requirements for credit unions. It enables credit unions to reflect modern arrangements in our living conditions, allowing them to admit relatives of existing members who live outside the same household and members of the same household who are not relatives. It enables credit unions to permit retirees to remain as fully qualifying members, and to join after retirement. It also enables credit unions to admit students as eligible members under the locality bond, even where they do not live or work in the same place as they study. This delivers on a long-standing ask of the credit union movement, which the Chancellor is proud to be able to deliver, and is part of the Government’s ambition to double the size of the co-operative sector.
On lending and investment, Clauses 39 and 40 update the statutory framework underpinning the ring-fencing regime. This regime requires major banks to separate their UK retail services from riskier investment banking activities. I pay tribute to the Parliamentary Commission on Banking Standards, whose work was instrumental in establishing this regime. I want to be clear: ring-fencing has played a central role in strengthening the resilience of the UK retail banking sector since the financial crisis, but it is also true that the wider prudential and resolution regime has developed significantly since then. In particular, the UK now has extensive resolution powers to protect depositors and taxpayers in the event of future failure. The UK is therefore now in a much stronger position to respond to banking failure than during the global financial crisis.
The 2022 independent Skeoch review concluded that ring-fencing should be retained but identified areas of rigidity and recommended better alignment with the resolution framework. At Mansion House last year, the Chancellor announced a further review of the ring-fencing regime, and last month the Government set out a package of reforms designed to support growth while maintaining financial stability. The Bill makes changes to deliver the outcomes. It clarifies that the regulator need not duplicate rules where protections are delivered elsewhere, and it updates the statutory purposes to reflect how banks could fail today. Overall, these changes create a more coherent and adaptable regime that supports a more efficient environment for banks to lend and invest in the UK economy, while upholding financial stability and protecting depositors.
The Bill will also enable the Treasury to update existing legislation to help small and medium-sized enterprises, known as SMEs, to access lending through a wider range of lenders. Legislation already requires certain banks designated by HM Treasury to share credit information about their SME customers—subject to consent—with designated credit reference agencies to encourage greater lending. Since that regime was introduced, the probability of SMEs establishing new borrowing relationships has increased by over 25%.
However, almost 70% of new lending to SMEs now comes from outside those core designated banks, including from newer challenger banks and fintechs. Clauses 41 to 43 allow the Treasury to expand the scheme to a wider variety of lenders. For the first time, the Government are also extending the scheme to support the provision of credit to the charity sector.
Clause 44 advances the Government’s ambition to make the UK the location of choice for specialist and complex insurance by enabling the PRA to set more appropriate funding requirements for specialist insurance undertakings, known as transformer vehicles. Clause 45 advances the Government’s ambition to establish a new, globally competitive captive insurance framework.
I turn to anti-money laundering. I have spoken about the importance of maintaining the UK’s pre-eminent global position as a global financial centre. However, being a financial hub means that we now face heightened vulnerability to illicit finance. Money laundering firms harm legitimate businesses by distorting competition, increasing costs and enabling organised crime. The UK has a robust set of anti-money laundering rules, but the supervision of those rules is not consistent. So, in October 2025, the Government announced their intention to reform the supervision framework, with the FCA becoming the supervisor of compliance with anti-money laundering and counterterrorism financing rules for professional service firms. The detailed implementation will be through secondary legislation.
Clause 14 will allow the FCA to take responsibility for supervising anti-money laundering and counterterrorism financing among these professions. This will mean more consistent and effective supervision and improved collaboration with law enforcement. Financial crime increasingly takes place via crypto assets, which are increasingly held outside the UK. Several pieces of legislation enable the Government to seize illicit crypto assets with a connection to the UK. However, these powers have not been working effectively. The Bill enables the Government to ensure that they work as intended and can be modified as criminal practices evolve.
Finally, Clause 3 gives the Government the power to act on access to banking services. The way people access banking services in the UK has changed significantly over recent years. More and more of us are banking online and banks are closing branches in response. The Government are committed to ensuring that those customers who need it retain sufficient access to essential banking services in person. Banking hubs play a critical role in this ambition, and we remain committed to supporting the financial services industry’s rollout of 350 banking hubs by the end of this Parliament.
Last month the Government launched an independent review into access to banking services led by Richard Lloyd, former Which? director and former board member of the FCA. This review is to better understand the impact of the current trajectory, including the scale of any detriment to consumers, particularly vulnerable groups. The Bill contains a power to take action on access to banking services, including implementing the outcomes of the review should the evidence demonstrate that this is necessary.
I have been able to touch only briefly on what is clearly a wide-ranging Bill; I look forward to discussing it all in more detail. This Bill will help the financial services sector to grow and lend more to businesses, and importantly, it will make consumer protections fit for the digital age. When I began my speech, I said that the Bill is a matter of balance. I hope noble Lords will agree that it achieves its modernising objectives while maintaining the UK’s high standards of regulation and oversight. I beg to move.
“the regulatory pendulum has swung too far towards elimination of all risk”.
That matters because an economy that seeks to eliminate all risk will, in the end, eliminate growth as well.
The consequences are already being felt. International firms are looking elsewhere. Businesses already operating here face costs that make the UK less attractive and less competitive. The CEO of Marsh McLennan told the committee that, from a regulatory perspective, the UK is at least six times more expensive than our next most expensive country. That is an extraordinary warning, and one the Government should take seriously. The question is whether this Bill measures up to what is required to meet the concerns of the committee and the wider needs of growth. I fear that, once implemented, the Bill will not lead to the step change required. As we take it through the House, a major perspective from which we will be judging it is its likely effect on growth.
However, in several respects the Bill is moving in the right direction. There is a broad consensus that reform is needed. The Treasury itself has acknowledged that the United Kingdom has been left with an overly complex system, and the National Audit Office has pointed to delays between problems being identified and regulatory action being taken. Industry has been saying the same thing. UK Finance has made it clear that the Consumer Credit Act 2006 is outdated and no longer reflects the protections needed in a modern digital market, and TheCityUK has called for a more coherent, streamlined post-Brexit framework.
We therefore welcome in principle the proposed changes to credit unions and the proposed transfer of the Payment Systems Regulator into the FCA. The changes outlined to the Financial Ombudsman Service are also positive, and we expect that this will bring some further clarity to its role and the regulatory landscape more widely. We also welcome measures designed to reduce approval timelines and to reform the senior managers and certification regimes.
Accordingly, the greatest problem with this Bill is not what is in it but what is missing from it. For example, it contains nothing on financial education—so key to improving our savings and investment culture and performance. More importantly, while this legislation removes significant amounts of old regulations, it hands extensive powers to the Treasury and to the regulators to design what comes next. Yet Parliament is being asked to approve that transfer of power without seeing in sufficient detail the regulatory framework that will replace what is being repealed. The incredibly broad powers in Clause 3, on in-person banking, are a good example. The repeal of a large volume of consumer credit architecture, with the expectation that much of what is removed from statute will later be recast into FCA rules, transfers responsibility for policy-making from Parliament to the FCA—that is another example. We believe that this is unwise.
Moreover, the obscure provisions in Clause 14 on anti-money laundering appear to give the FCA and PRA new powers to extend regulations and impose burdens on a number of professions not currently so regulated.
We are told by some that this is a deregulatory Bill, which is welcome, but deregulation ought not to mean removing rules from primary legislation and recreating them elsewhere, beyond proper parliamentary scrutiny. The test is not just whether the statute book looks thinner but whether the burden facing firms is actually reduced.
I am sure the Minister will point to the regulators’ growth and competitiveness objective, but the Financial Services Regulation Committee was clear that this objective has not yet translated sufficiently into policy or practice. Recent history does not give us confidence that a culture of risk aversion, delay and excessive caution will correct itself without stronger statutory direction, clearer accountability and more effective parliamentary oversight.
There is also a wider question about whether the regulatory framework being created will be fit for the future—the Minister touched on this. Financial services are changing at extraordinary speed, led by remodelling overseas, especially in the US. Digital assets are becoming more sophisticated and more integrated into mainstream finance. We are now discussing sovereign bonds on blockchains, digital settlement systems, tokenised assets and new payment technologies capable of transforming everyday transactions.
Yet industry is warning that the Government still lack a clear strategy for digital assets. As a result, firms face uncertainty, innovation is delayed and businesses connected to digital asset activity risk being debanked. I fear that other countries are moving faster in this area. The United Kingdom should be leading in this space; we have the legal system, the financial expertise, the history, the capital markets and the international reputation to do so.
We also need to have regard to the competitive interest of our UK firms. One very senior banker has warned me that the last-minute proposals on ring-fencing would be welcomed by his overseas competitors, since it would reduce his competitiveness. There is also concern from our huge insurance industry, where the UK is a true world leader, with 69% of income coming from overseas. It fears that downgrading the proportionality duty and confining its application to long-term strategies rather than regulatory decisions will make the UK a less attractive place to do business.
Before I close, I will ask some questions of the Minister. First, are present Ministers determined that the regulations made under this Bill will prove less onerous in practice than the architecture they replace? Secondly, what assessment have the Government made of the FCA’s operational readiness to take on the additional responsibilities conferred by the Bill? Thirdly, is the Minister confident that the measures in the Bill will materially reduce delays in authorisations and approvals, particularly for smaller firms, challengers and new entrants? The ability to stop the clock without an independent arbitrator undermines the targets. Fourthly, is the Minister confident that, following the adoption of the Bill, regulator behaviour will become more growth-focused?
There is a missed opportunity at the heart of the Bill. It contains measures that we welcome, as I have said. It moves in the right direction. It recognises, at least in part, that the current system is too complex, too slow and too burdensome. For that reason, we will approach the Bill constructively, and I look forward to working with the Minister on many of the details, not least given his background in the sector that we are discussing. I hope and believe that there are medium-scale issues on which we can reach agreement in this House, but there are two broad problems, as I see it.
The first is that this is a Bill that begins the process of reform but does not, on its own, meet the scale of the challenge. The test for the Bill is not simply whether it makes technical changes to the financial services framework, but whether it helps make the United Kingdom once again the most dynamic, competitive, innovative and attractive financial centre in the world. The second is that we are being asked to take a lot on trust, because of the remarkable degree of delegation in the Bill. We are required to trust that the regulators will deliver in a timely and effective way, that the Treasury will deliver the necessary framework and that Treasury Ministers will oversee the step change that we need. Looking to the past and to the volatility of current politics, can we really put so much trust in the proposals before us?
Clause 6 also contains significant reform proposals. It addresses time limits for complaints under the compulsory jurisdiction. It introduces a long-stop period of 10 years from the relevant act or omission, while preserving the possibility of alternative limits set through rules and allowing exceptions in specified circumstances. This is a process which, though critical, allows no meaningful parliamentary scrutiny. It is of course true that there is a strong case for providing greater certainty. Financial firms should not face indefinite exposure to complaints relating to events that occurred decades earlier. It is also true that financial misconduct can sometimes take years to emerge. Consumers may not discover that they have suffered detriment until long after the original transaction occurred. The challenge is one of balance. Parliamentary involvement will be helpful.
Still in Part 2, Clause 7 introduces one of the most consequential innovations in the Bill: the referral of matters from the FOS to the FCA. The ombudsman may also seek the FCA’s opinion of FCA rules where ambiguity exists. This proposed reform reflects the concern that individual complaints can sometimes raise wider questions affecting thousands of consumers and firms. The proposed reform also reflects long-standing industry criticism that the ombudsman has occasionally interpreted regulatory requirements differently from the regulator. In reality, however, it is hard to see this as a well-founded or convincing criticism of the current set-up.
The FOS resolves over 200,000 cases each year, upholding about 30%. We are told that the FOS is acting inconsistently and that it has strayed into becoming a quasi-regulator. If that were true—if this were really a systemic problem—the Government should be able to produce a substantial body of evidence. If it were true, there should be hundreds or even thousands of FOS decisions demonstrating this pattern. If such a list exists, HMT and the FCA have not published it—it is certainly not in the impact assessment. If such a list does not exist, the case for much of the reforms to the FOS rests on assertion rather than evidence. I invite the Minister to point us towards the specific FOS cases that justify the proposed sweeping reforms.
As things stand, the Government appear to be jumping to conclusions that will reduce access to the FOS, reducing access to free and impartial redress; introduce extra bureaucracy and costs; and, ultimately, damage confidence and trust in the financial services industry. We must guard against any risk that the ombudsman becomes subordinate to the regulator or loses the independence that has been central to its legitimacy. There is a strong case for removing Clause 7.
Clause 8 reforms the test used when determining complaints under the compulsory jurisdiction. This may well be the most controversial provision in Part 2. Historically, the ombudsman has determined complaints according to what is fair and reasonable in the circumstances. Critics have argued that this has sometimes allowed decisions to diverge from the regulatory rule book, creating uncertainty for firms that believed that they had complied with the FCA requirements.
We should ask ourselves whether strict alignment with regulatory rules could weaken consumer protection in cases where the rules themselves are incomplete, outdated or silent on emerging risks. The strength of the ombudsman system has been its ability to look beyond technical compliance and to consider fairness in a broader sense. If that flexibility is narrowed too far, some consumers may find that conduct that was plainly unfair nevertheless escapes effective remedy.
There are already voices, such as the Centre for Responsible Credit, calling for the removal of Clause 8. StepChange has said:
“The ‘fair and reasonable’ test was carefully designed by Parliament”,
requiring FOS to consider
“all the circumstances of the case”.
In contrast,
“FCA rules are often high level and permissive”.
StepChange believes that:
“The scope and flexibility of the test is essential for FOS to decide cases in a manner that is … fair”.
Shifting this to be based on compliance with FCA rules risks creating a tick-box exercise and weakening consumer protection. Martin Lewis has warned that:
“Restricting … access to free and fair redress is not a recipe for economic growth. Once consumers are warned about the erosion of their rights, it’s possible it will lead to disengagement from … financial services … and diminishing trust”.
On this issue, as on others in the Bill, Parliament must ensure that in pursuing regulatory certainty, we do not sacrifice fairness; that in pursuing efficiency, we do not diminish accountability; and that in strengthening regulatory co-ordination, we do not weaken the independence of the ombudsman. The UK’s financial services sector thrives not merely because it is competitive but because it is trusted. To be trusted, consumers must have confidence that when things go wrong, there is an independent, accessible and effective route to redress.
The Bill may not expressly repeal consumer protections or statutory rights; the concern is more subtle. Rights created by Parliament may be diminished in practice if access to redress depends on FCA rule compliance, FCA intent, FCA interpretation or Treasury-made conditions rather than independent interpretation of the underlying legal issue.
I close by quoting Which?:
“The proposed reforms to the FOS and the FCA appear to come at the expense of consumer protections. Any benefits arising from weaker consumer safeguards are likely to be temporary while longer term costs could be significant, particularly for vulnerable who rely most on access to redress and effective regulatory protections”.
I agree with that.
The committee agreed with the Government, and one of the significant issues that came up was that the appropriate approach to this legislation was that it should be principles based rather than rules based. Even then, the financial services industry was growing rapidly. The building societies were in the process of becoming banks, the banks were getting involved in the mortgage market, and a principles-based approach was seen as the most practical way to ensure that the regulatory process remained fresh and relevant as these changes progressed.
As explained in the Explanatory Notes, this approach involves a three-stage process, and it can make it look very complicated. Some of the issues we have already heard from the noble Baroness, Lady Neville-Rolfe, are the product of the way in which this was designed. It remains the case that Parliament sets the overall regulatory framework in primary legislation, including the regulator’s objectives. The second step is that the Treasury then sets the regulatory perimeter through secondary legislation, including specifying which activities are regulated and in what circumstances. The third step is that the PRA and the FCA operate as independent statutory bodies responsible for setting and enforcing the detailed rules for firms engaged in regulated activities.
Some of these issues about when and what should come to Parliament, what should be in delegated responsibilities and how far the regulators are allowed to set the rules are always going to overlap each other, and people will worry about them at various stages. But it is important to recognise, through the discussion and debates that will take place, that from the beginning this three-stage process has been in mind.
I believe the principles-based legislation has been effective for this fast-moving industry. However, achieving the right regulatory balance, as we have heard this afternoon already, is very challenging at any time. Sometimes, regulation becomes overly burdensome and the economy suffers. At other times, insufficient regulation can lead to consumer harm, detriment or the failure of firms. Lots of factors influence this balance, including external development, product innovation, the expectation of customers and the level of effective competition. Therefore, it is important to periodically review these various components of the principles-based approach, to assess their effectiveness and to determine whether any rebalancing is necessary.
I regard many of the changes proposed here as very sensible rebalancing of the factors involved. In the past, of course, rebalancing has happened on several occasions. Following the financial crisis, it became clear that banks’ capital requirements had been insufficient during the run-up to the crisis. It was demonstrated clearly in a subsequent FSA report into RBS. Banks had held too little capital against the complex products that they were dealing with, and many banks were overly reliant on the interbank market for funds, with lending overconcentrated in the real estate market. Subsequently, the FSA and the FCA rightly raised capital and liquidity requirements. The question is: did they change them by the right amount? Was it sufficient or was it excessive? At the time, of course, it was understandable—we had been through this very painful process—but the later evidence suggested to me that the response had been excessive. It contributed to a sharp reduction in bank lending to the private sector, particularly to SMEs. This in turn has had some substantial knock-on effects. Given the subsequent evidence, my view is that some rebalancing of the capital requirements is appropriate. The ring-fence banks should also be looked at to adjust the size of the ring fence around which they operate.
It is also important to recognise that the rapid growth of new products also led to underregulation of some products at times, leading to consumer detriment. Product details were not always clearly communicated to customers, as we would expect today, but this has to be seen against the huge success of the introduction of internet banking. It is also important to ensure that senior people working in the financial industry are fit and proper, but again the question is of balancing bureaucracy against—the question has been raised—a less onerous approach.
This is a dynamic system; getting the level of regulation right has to evolve over time, but it is never going to be a straightforward task. I regard this Bill as an important part of trying to move forward that rebalancing.
Debt fosters feelings of shame, fear and hopelessness, which often prevent families from then reaching out for support. Christians Against Poverty states that 46% of clients it surveyed had gone as far as considering ending their own life because of debt-related pressures. We cannot overlook the emotional toll of financial insecurity on real lives. The inaccessibility of credit for underserved communities creates a significant gap in financial policy, where these effects could be alleviated. As such, I strongly welcome measures in the Bill aimed at addressing the problem. These efforts must be sustained and targeted, and we must ensure that those facing the greatest barriers are not left behind.
I was first involved in setting up a credit union almost 40 years ago. It astonished me just how small the sector was in England. It has grown a bit since then: 2.16 million people in Great Britain are now members of a credit union, and we have a credit union for Church of England and other clergy. But Britain still compares poorly with other similar economies in what is, across many nations, a network of trusted, community-based saving and borrowing solutions, particularly for those communities least well served by conventional banking. Hence, I strongly welcome the measures in the Bill to promote the expansion of credit unions, including, critically, the broadening of common bonds to increase the number of people able to access this kind of credit.
This measure is particularly important for serving those in more deprived areas, where they may not previously have had access to banks or similar opportunities. While expanding credit unions will go a long way towards improving access for many customers, it remains the case that certain communities, such as migrants or individuals with less financial literacy, remain excluded from the credit opportunities offered by the mainstream banks. What might the Government consider doing further to improve transparency and accountability among mainstream lenders in how they serve marginalised groups alongside an expanded credit union sector?
I turn to financial protections. Increasing credit availability is an important step forward, but it must be met with adequate protections to prevent mis-selling or overborrowing and to ensure proper redress when things go wrong. While I understand that the proposed changes to the Financial Ombudsman Service are designed to streamline the process, I am concerned that stricter criteria there may make the whole process more inaccessible and less robust. Some proposals, such as stricter time limits on making complaints, may present barriers to certain consumers making claims in the first place, particularly when they discover the issue only after many years.
I also echo concerns expressed by the noble Lord, Lord Sharkey, on the proposed reforms to the Consumer Credit Act. While modernisation is clearly needed, the shift away from detailed legal protections towards regulator-led rules may, as others have said, reduce parliamentary scrutiny and weaken established routes to redress. It may also reduce certainty for consumers, making it less clear when they are entitled to redress and how they can secure it. Again, that is likely to have the greatest impact on those who are less financially literate and who may struggle to navigate complex financial systems alone.
Furthermore, existing protections, such as those offered by the consumer duty, do not provide protection to communities which are excluded from credit access in the first place. Without real efforts from mainstream providers to incorporate underserved groups in credit opportunities, those most in need of support will continue to fall through the cracks. Therefore, it is essential that protections evolve alongside access, ensuring that increased participation in financial services does not come at the expense of security. I will follow with interest the debate about how much ought to be in the Bill and how much can safely be left for later regulation. I welcome the Government’s proposed scheme to improve financial literacy in schools by 2028, but that is no replacement for adequate routes to redress, democratic accountability, and fair and equal access to credit for everyone who needs it.
Finally, while I suspect that, nowadays, many of us in your Lordships’ House access all our banking services electronically—I cannot remember when I last went into a bank or even rang one up—there are those in our communities who need access to in-person banking services beyond mere cash. Financial exclusion fosters real-world isolation. Many of the communities that the Church supports, such as elderly and disabled populations, face greater barriers to financial independence in an increasingly digital age. I am not sure that we are doing quite as much as we should in the Bill to ensure that in-person services, beyond cash, are available in both urban and rural settings.
The Bill presents an important opportunity, not only to modernise our financial system but to ensure that it serves the common good. We must reflect not only on how the Bill will enable growth but on how it might promote justice, equality of opportunity, and dignity for the communities that are the most in need. I look forward to engaging with its progress through your Lordships’ House.
Introducing a robust, efficient and effective supervisory scheme for vigilantly vetting the professionals should have a dramatic impact on the incidence of economic crime. Punish and get rid of the bad apples, and wrongdoers will lose their access to advice and support on how to hide or launder money. At present, 22 separate organisations supervise accountants and lawyers. Many of these bodies also act as advocates for their members and do not have effective systems in place separating their regulatory and advocacy functions.
There are a further three government bodies that supervise other relevant professionals. OPBAS, the body tasked with supervising the supervisors, recognises that the current system is inadequate. In its March 2026 report, it states that the supervisory bodies
“continue to perform poorly in their enforcement approach”,
and that some are not
“undertaking consistent, proportionate and sufficiently dissuasive disciplinary measures in circumstances where it would be warranted and justifiable”.
Statistics confirm this judgment. The Chartered Institute of Taxation found that 31% of firms it visited were not compliant with anti-money laundering regulation, yet only four were disciplined: three were fined and one was suspended. The Council for Licensed Conveyancers imposed no fines at all, despite finding that 62% of firms that it supervised were non-compliant. The Solicitors Regulation Authority cancelled the membership of just one professional body in 2023-24, and the fine imposed on Mishcon de Reya in 2022 for multiple breaches of the AML regulations was £232,500; it would have been £5.4 million had it been calculated by the rules used by the FCA. So, I strongly support the Government’s proposal to merge the supervisory bodies into one body that will operate within the FCA. This will create a simpler and more consistent framework that will be better placed to work with law enforcement agencies and will have access to data, allowing a joined-up approach across the professional disciplines.
However, I seek some assurances from the Minister to strengthen the effectiveness of the proposed change. To ensure that the FCA properly prioritises this work, will the Government ring-fence the funding the FCA will receive in fees from legal, accountancy and company service provider firms and ensure that those resources are used to fund its supervisory and enforcement duties on money laundering? Will the FCA maintain a register of supervised entities, as it does for financial institutions, so that companies providing unlawful services that are not registered can be identified? Will the Government ensure that data collected as part of the supervisory process can be shared with law enforcement agencies and that those agencies share their information with the supervisory arm of the FCA? Will the Government ensure that the FCA can access legally privileged documents from law firms, where that is required for regulatory purposes? Will the Government ensure that the FCA uses the enforcement powers in relation to professional services firms that it currently employs in relation to financial services firms? The threat of robust enforcement is always an effective deterrent to bad behaviour.
Finally, I am concerned that this excellent proposal will take time to implement, and I am worried about how effective supervision will be maintained during this period of transition. Will the Minister say what he proposes to do to ensure that the supervision of professionals is as robust as possible? I suggest that he gives OPBAS the power of public censure, so that it can name and shame those companies that deliberately fail to abide by the AML regulations, and the power to levy fines against supervisory bodies that fail to fulfil their obligations to remove supervisory responsibilities from those who fail to fulfil their duties. Will he consider creating a duty to ensure that the existing bodies co-operate with the FCA during the transition?
I welcome the proposal. I look forward to working with the Government to strengthen its effectiveness and to protect the supervision of professionals during the transition to the new scheme.
While I welcome these measures, I am concerned by the changes to ring-fencing. The claim in the Explanatory Notes that,
“updating the statutory framework underpinning the ring-fencing regime as part of a wider programme of ring-fencing reforms”,
sets alarm bells ringing. Updating may well be the origin of increased systemic risk. The protection of activities within the ring-fence must be a primary objective. Weakening the ring-fence in the name of financial innovation would be unacceptable.
Moreover, the claim that:
“These reforms will unlock more finance for the UK economy”,
sets alarm bells ringing even louder. When he sums up, could the Minister enlighten us about the content of the,
“wider programme of ring-fencing reforms”?
What exactly do the Government have in mind?
The Explanatory Notes claim that Bill,
“modernises how the financial services sector is regulated, supporting it to grow and to lend more to businesses”,
but overall, the Bill gives the impression of tidying up, rather than embedding greater financial commitment to investment and growth. Of course, the emphasis on investment and growth is surely correct. It is necessary for the economic well-being of the people of this country. In this vital respect, for many years the financial services industry has failed, and it is continuing to fail.
Since 2000, the share of financial services in GDP has grown by 50% from 6% to 9% of GDP. Over the same period, the share of investment in GDP has not grown at all and, indeed, has tended to decline and has been persistently lower than in other major industrial countries.
We have to reflect on the fact that the prosperity of the UK’s financial services sector is not solely a success of private enterprise; it is a success of a particular institutional framework in which public authorities and the market are deeply intertwined. The prosperity of the City of London depends upon the global prestige of English law and the public institutions that enforce it. Similarly, financial services depend on the public provision of a stable monetary framework and a respected code of financial regulation, ranging from the role of the Bank of England as lender of last resort and guardian of systemic stability to consumer protection and the prevention of financial crime.
Public provision defines the environment within which financial services prosper. In return, financial services should work in a way that serves society by funding the investment in innovation, productive capacity, research and skills that the country needs. That is the settlement between the public realm and financial services.
That settlement is not working. A new settlement is required but what might that look like? It should begin with a framework of financial institutions that are committed to the needed investment. I do not mean greater flows of funds into stocks, shares and bonds in secondary markets. Britain needs financial institutions that fund real investment, new research, new products and services, new infrastructure, new homes, new international competitive industries. The Government have made an attempt at this by creating the National Wealth Fund. However, that fund will invest only if a firm that seeks funds from it has already acquired private sector funding. In other words, an institution that exists because private markets have failed defers to those failing markets to guide its own investment decisions. That is just not good enough. The new settlement must not rely solely on government, regulators or even politicians. The financial services industry itself must play its part, building on current initiatives such as the Capital Markets Industry Taskforce, convened by the London Stock Exchange.
The Bill before us is not part of this new settlement to which I refer. It is worth while and sensible, but the task of building a financial services industry that truly serves our society needs to go a lot further.
The effect of Clause 17 is that the regulators no longer must consider how the detailed rules and guidance work in practice for the various firms that they regulate from a proportionality perspective. The regulators will be entitled to ignore representations about proportionality made during consultations. This downgrading not only directly affects how firms can engage with the regulators when rules or guidance are developed but impacts the accountability of the regulators, which is already problematic.
The regulators like to say that they are accountable both to the Treasury and Parliament. I have not yet found an example of how the Treasury has held the regulators to account. Focusing on strategic plans will not be enough. The regulators are masters of the art of wordsmithing documents to make them attack-proof. Parliamentary Select Committees try to grapple with holding the regulators to account, but it is an uphill battle—and this Bill makes that battle harder. The root of the problem is the FSMA model. As the noble Lord, Lord Burns, explained, under this model Parliament decides the principles of regulation and the regulators are left to get on with the detail of regulation. That worked well while we were in the EU. The quasi-democratic processes of the EU Parliament—in which the noble Baroness, Lady Bowles of Berkhamsted, played such a central role—meant that there was significant oversight of new directives and regulations.
Post Brexit, the previous Government decided to continue with the FSMA model when the huge body of retained EU law was repealed and replaced, so massive areas are now wholly delegated to the regulators. That is what the Financial Services and Markets Act 2023 enabled. It exposed a large accountability deficit. In partial mitigation, the 2023 Act ensured that the regulators’ consultations had to be sent to the Select Committees of each House of Parliament. That Act also paved the way for the creation of the Financial Services Regulation Committee in your Lordships’ House, which I currently chair.
Clause 17 not only excuses the regulators from having regard to the regulatory principles but repeals the need for the regulators to explain to the parliamentary committees how the regulatory principles apply to their draft regulations. This is a naked attempt to neutralise the work of the Select Committees of Parliament in holding the regulators to account. The FSMA model is a bureaucrats’ and politicians’ dream come true. The Treasury can always point to the regulators if something goes wrong—and the regulators are largely unaccountable. We must use this Bill to make the accountability of the regulators stronger and not, as it currently is, weaker. There will be much to discuss in Committee.