Lord Stockwood (Lab)

My Lords, I thank everyone who has spoken in the debate for their valuable contribution. It has been an incredibly well-informed and courteous debate that, overall, recognised the balance that needs to be found to ensure that consumers are protected and risks are appropriately managed while avoiding an ever-increasing burden of regulation. Noble Lords have a range of views on where exactly that balance might be. In the time that I have, I will try to respond to as many of the points raised as possible. I will not be able to do justice to all the points raised today, but I have meetings scheduled with many people who have spoken. I reiterate that I am happy to meet anyone who would find it helpful to discuss any of the issues ahead of Committee. As I have said, the Financial Services and Markets Bill will modernise how the sector is regulated. It will help the sector grow and lend more to businesses, and it will make consumer protections fit for the digital age. It will achieve these objectives while maintaining high standards of regulation and oversight. I remind noble Lords that this is why, as I mentioned when I opened the debate, the financial services sector contributes 8% of total UK GVA—although I have been corrected that TheCityUK estimates that, when related to professional services, this rises to 11%. We can all agree it is a substantial part of the UK economy. The industry is a direct source of jobs and tax revenue, but it is, of course, much more than that. It is a key enabler of growth in other sectors, and it is the provider of payments, credit, insurance and investment services to households and businesses across the UK. A successful financial services sector is one that meets the needs of the broader economy and society at large, and that is what the Bill aims to deliver. Before I turn to some specifics, I will set out the Government’s position on some of the broader points raised in the debate. A number of Peers, including the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, asked whether it was appropriate to pass more responsibility to the regulators. FSMA 2000 gives the financial services regulators responsibility for making the detailed rules that apply to firms. The regulators operate within this regime set by the Government and Parliament, including a set of statutory objectives that they need to advance. As the noble Lord, Lord Burns, reminded us, this is a long-established approach and the Government believe that the regulators remain the most appropriate entities to make rules for the sector. Both the IMF and the OECD support the principle of regulators making rules independently from government. The delegation in this Bill is entirely in line with the approach that Parliament has repeatedly affirmed. The Government are in full agreement with the noble Lord, Lord Eatwell, when he notes that the success of the UK’s financial sectors depends in part on a highly respected system of regulation and strong, effective regulators. The noble Baronesses, Lady Neville-Rolfe and Lady Bowles, also asked about the Government’s use of delegated powers, especially the power related to the banking services in Clause 3. The Treasury has submitted to the DPRRC a full delegated powers memorandum, which sets out the justification for each power. On Clause 3 in particular, the Government are taking this power now to ensure that we can respond swiftly to the independent review of access to banking services once it concludes. The Government are committed to keeping all aspects of the power under review as the Bill progresses through Parliament and as the independent review completes its work. We expect to narrow this power once the review is concluded. On the matter of regulatory complexity, the Chancellor has been clear that the UK needs to regulate for growth and that regulation must be proportionate while adequately protecting consumers and ensuring we maintain the high standards we are known for around the world. This Bill targets unnecessary, burdensome regulation while maintaining those high standards, and we are focused on speeding up regulator decision-making and removing administrative burdens. The Government are committed to creating a regulatory environment that is proportionate and effective and supports growth. Good regulation also supports consumers. For example, the reform of the Consumer Credit Act is designed to ensure that consumers receive clearer and more useful information from lenders, empowering them to make better-informed choices on their finances. The government framework is prescriptive and outdated. The literacy trust has found that one in seven adults has literacy skills at or below the level expected of nine to 11 year-olds, yet Fairer Finance has found that the reading age required for credit card providers’ materials is that of 11 to 20 year-olds. It is obvious that a simpler, more flexible regime, one focused on outcomes rather than rigid prescription, will enable firms to produce clearer, more accessible financial information, better meeting the needs of the significant proportion of consumers with lower levels of literacy or numeracy. The FSA has the experience to design the system to deliver this and the powers it needs to enforce compliance. I have listened carefully to the concerns of the noble Baronesses, Lady Neville-Rolfe, Lady Noakes and Lady Gill, and others about changing the application of the regulators’ “have regards”, applying them to the long-term strategy rather than the day-to-day functions. It is vital that the regulators are subject to effective oversight and scrutiny so that Parliament can have confidence they are acting with the appropriate measures and achieving the outcomes required. Much like other areas of regulation that apply to firms, the reporting requirements on the regulator have developed over time and have sometimes laid on top of each other. What results is a detailed set of information, but there are also areas of overlap and duplication. To use a metaphor also used by the noble and learned Lord, Lord Thomas, at times it can be difficult to see the wood for the trees. The changes will require the regulator to set out the regulation and supervision clearly, making it easier for Parliament and stakeholders to understand, engage with and challenge them. The “have regards” will remain in legislation. This will support the work of the Government and Parliament to hold the regulators to account, cutting out dense piecemeal reporting to focus on the bigger picture. The reforms will reduce unnecessary and duplicative burdens on the regulators, allowing them to speed up and focus on what is important while maintaining the important information needed for meaningful scrutiny. For example, the Bill will require the FCA and the PRA to continue to report annually on how they are advancing their competitiveness and growth strategies. This will support the Treasury’s biannual performance reviews held with the CEOs and the regulators, introduced as part of the Government’s wider regulation action plan. I turn to reforms of the Financial Ombudsman Service—FOS. The Government are in full agreement with the noble Lord, Lord Sharkey, and my noble friend Lord Pitt-Watson about the importance of trust. It is essential that our regulatory system supports trust in the financial services sector and that people have confidence that they will be supported when things go wrong. I can give my noble friend Lord Pitt-Watson the reassurance he asked for: when the FOS considers whether the firms have met their obligations under FCA rules, this will include principle-based rules, including the consumer duty. The new arrangements introduced by the Bill will bring in greater co-ordination between the FCA and the FOS and will mean that widespread issues can be spotted and addressed more quickly and effectively. For example, if the FCA spots that large numbers of firms are letting down their customers in a certain way, it can make the regulatory intervention to nip that issue in the bud, rather than waiting until consumers lose out. I understand that some noble Lords have concerns about limiting claims to the FOS at 10 years. Concerns about potential long-term liabilities that are difficult to assess can hold back investment, making firms unwilling to invest or to serve certain consumer groups. However, historic complaints also pose significant practical challenges when we look at the lack of availability of relevant evidence on which to base a decision. The Government conducted a comprehensive cost-benefit analysis when designing this policy. Looking at recent history, only 11% of cases that are older than 10 years result in redress been paid, much lower than the overall rate. In order to assess these claims, the FOS has charged firms £18.1 million per year in case administration fees, while awarding only £600,000 to consumers, so the case fees are 30 times higher than the redress awarded. However, I appreciate the point that some financial products are long-term by design, such as life insurance. Issues with these products may not come to light within the 10-year cut-off. so I am happy to assure my noble friends Lord Pitt-Watson and Lord Davies of Brixton that Clause 6 enables the FCA to make exceptions to time limit these types of products. This is aimed exactly at ensuring that holders of long-term products continue to be protected. The noble Baroness, Lady Kramer, raised concerns that the Government are weakening the senior managers and certification regime. I assure noble Lords that this is not the case. These reforms are about improving how the regime operates in practice by removing unnecessary complexity to help increase efficiency and effectiveness while preserving the regime’s core focus on maintaining strong accountability standards. Firms will remain responsible for assessing the fitness and propriety of senior managers, and pre-approval by the regulators will still be required where regulators determine it necessary to advance their statutory objectives, targeting the regulators’ attention where it matters most. The regulators will continue to hold all senior individuals to account where standards fall short. Where there is any tension between reducing the regulatory burden and maintaining high standards of senior-level individual accountability, regulators will be expected to prioritise the latter in accordance with their statutory objectives. Senior managers will remain responsible and accountable for the areas of their business that they oversee, including where they fail to take responsible steps to prevent regulatory breaches, regardless of whether they are approved or appointed. My noble friends Lord Pitt-Watson and Lord Eatwell asked for assurances on the reforms to the ring-fencing regime. As I set out when I opened this debate, the independent review led by Sir Keith Skeoch in 2022 concluded that ring-fencing should be retained but recommended better alignment with the resolution framework. The Bill enables that alignment, meaning that the PRA will not need to duplicate efforts where protections are already delivered elsewhere, especially through the resolution regime. This fundamental safeguard—the separation of retail banking from riskier investment banking activities—is unchanged. The Government will set out the wider reform programme in the ring-fence review, which will be published and will go beyond the measures in the Bill today. It focuses in particular on enabling ring-fenced banks to support growth, including consulting on a new growth allowance and expanding the range of products and services that they can provide to support UK businesses and the real economy. My noble friend Lady Hodge asked a number of questions about the FCA’s new responsibilities for anti-money laundering, and I will try to answer them briefly. The Government are working closely with the FCA to ensure that it is ready and able to take on new responsibilities. On registration and legal privilege, the Treasury will shortly publish a response to the consultation on anti-money laundering supervision. This covers the FCA maintaining a register of supervised firms, access to legally privileged material and powers to ensure robust supervision during the transition period. A duty of co-operation between anti-money laundering supervisors already exists in the money laundering regulations. OPBAS also has a censure power and can recommend that the Treasury strips PBSs of their supervisory role. The Bill provides authority to HMT to make payments to the FCA for proprietary work, therefore the FCA’s AML-CTF supervisory activities will be fully funded by fees paid by the supervised population. This funding for start-up costs will be fully ring-fenced for these purposes, and the Government intend for the FCA’s AML-CTF supervisory activities to be funded on a cost-recovery basis through its fee charges to supervised firms, consistent with the existing funding model. I expect the FCA to consult separately on the detailed structure and operating of these fees. The noble Baronesses, Lady Young and Lady Hayman, and others raised sustainable finance. As they noted, the Government have clearly set out our ambition to position the UK as the leading hub for sustainable investment, leveraging our sustainable finance expertise to support transition and drive growth. The Government are working closely with the regulators to drive forward this ambition through work including the FCA’s recent consultation on aligning listed companies, sustainability disclosures with international standards, the launch of the Transition Finance Council and work to regulate ESG ratings. To answer the specific question of the noble Baroness, Lady Young, the Government consulted last year on how to implement our manifesto commitment to require financial services firms and listed companies to develop and implement credible transition plans. The Government are considering next steps and will respond to the consultation in due course. I make the general point that noble Lords should not conclude that if something does not appear in the Bill, that means that the Government are not doing anything about it. The Government have a much broader programme of financial services work sitting alongside the measures in this primary legislation. I acknowledge the thoughtful questions from the noble Lord, Lord Kamall, the noble Baronesses, Lady Young of Old Scone, and my noble friend Lady MacLeod about business and community finance. In the interests of time, I will write to them following the debate. I will be happy to meet the noble Lord, Lord Holmes, to discuss the issues he raised related to technology and innovation. Finally, the noble Baroness, Lady Morgan, raised the important issue of economic abuse. Tackling economic abuse is a priority for the Government and a key theme of the financial inclusion strategy. Ministers will be happy to write to the noble Baroness with details of how we are working with industry, regulators and specialist organisations to tackle economic abuse and help victim survivors to regain financial independence. I have rather breathlessly tried to answer as many questions as I can. I look forward to revisiting all these points in detail in Committee, and I beg to move.