Financial Services and Markets Bill [HL]

Report (1st Day) (Continued)

20:15:00

Amendment 16

Moved by

16: After Clause 12, insert the following new Clause— “Claims management services: Northern Ireland(1) The Treasury may by regulations made by statutory instrument make provision for claims management services provided in, from or into Northern Ireland to be regulated under the Financial Services and Markets Act 2000 on a basis equivalent to claims management services provided in, from or into Great Britain.(2) Regulations under this section may amend primary legislation, assimilated direct principal EU legislation or subordinate legislation, including—(a) the Financial Services and Markets Act 2000,(b) the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, and(c) Part 2 of the Financial Guidance and Claims Act 2018.(3) Regulations under this section may make consequential, supplementary, incidental, transitional, transitory or saving provision.(4) Before making regulations under this section, the Treasury must consult—(a) the Financial Conduct Authority,(b) the scheme operator of the ombudsman scheme under Part 16 of the Financial Services and Markets Act 2000,(c) the Department of Finance in Northern Ireland, and(d) such other persons as the Treasury considers appropriate.(5) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.(6) In this section, “claims management services” has the meaning given by section 419A of the Financial Services and Markets Act 2000.”

Baroness Hoey (Non-Afl)My Lords, this amendment follows on from the amendment tabled in Committee by the noble Lord, Lord Hunt of Wirral. I am bringing the House’s attention to a growing and deeply concerning problem in Northern Ireland’s insurance market. The market is shrinking in insurer capacity, it is becoming less competitive, and it is leaving consumers and businesses facing higher premiums and fewer choices. It is an issue that the British Insurance Brokers’ Association has been highlighting for some time, and about which it has been getting in touch with noble Lords and Members in the other place.

The evidence suggests that the root cause is claims inflation driven by various factors that are within the power of government and regulators to address. Let me be clear to noble Lords, especially to the Minister: I am not calling for a new, immediate regulatory regime without proper consultation. Rather, the amendment would provide the Treasury with a targeted enabling power, subject to consultation and affirmative parliamentary approval, to extend FCA regulation of claims management companies to Northern Ireland. They are, of course, currently regulated in Great Britain by the FCA.

I will give a brief backdrop to the amendment, which paints a very stark picture. In home insurance, brokers in Northern Ireland now have access to just six markets, down from 11 in 2020. In motor insurance, the number of available providers has fallen from more than 15 to just eight over the same period. As competition has reduced, premiums in Northern Ireland have continued to rise, even as prices in Great Britain have begun to stabilise or fall. In motor insurance, Northern Ireland consumers are being affected by premiums increasing year on year, and they are already paying much higher premiums compared with the rest of the UK. Of course, as noble Lords will know, access to public transport in Northern Ireland’s extensive rural areas is very limited.

Therefore, there is no regulation of claims management companies in Northern Ireland. This has led to many of them exercising poor practices, which in turn leads to inflated claims settlements and therefore higher premiums for consumers and businesses. As fewer insurers have a physical claims-handling presence in Northern Ireland, so the prevalence of CMCs has become more apparent. The number of CMCs has grown rapidly. We estimate that there are probably twice the number operating than a year ago, suggesting that it is a very lucrative enterprise. Adverts appear everywhere, pointing people to them if they have a car accident, et cetera. Of course, in GB, since the regulation came in, the number of CMCs operating has halved since 2019.

Another reason for the growth of CMCs is their attraction of higher personal injury awards in Northern Ireland, which makes it a lot more lucrative for them. The difference between Northern Ireland and England and Wales is striking. For whiplash, for example, in England and Wales a compensation of around £1,500 would be paid. In Northern Ireland, it could be up to £15,000 with psychological claims added on. Obviously, those higher awards feed directly into higher insurance premiums for consumers and businesses alike. In some cases, we see clear conflicts of interest. Vehicle hire, legal services and CMCs are brought together under the same commercial structure, creating clear conflicts of interest, with some CMCs operating various companies under different names but with the same overall ownership. Ultimately, these additional costs are paid by consumers through higher premiums.

As we all know, insurance is not a luxury; it is essential. It must be accessible and affordable for all. It is very unfair that we in Northern Ireland are paying a higher premium compared to those in Great Britain.

The consequences of no regulation at all of CMCs are becoming increasingly clear. Major insurers have already withdrawn from Northern Ireland and new entrants are refusing to come. Some insurers are refusing to insure young drivers at any cost, and some insurers are refusing to cover certain postcodes where there is a high prevalence of CMCs and perhaps more perceived evidence of collusion. One insurer has reportedly reduced its Northern Ireland motor business by 75% and customers of a major broker have seen their premiums rise by 45% between 2023 and 2026. All this, of course, could lead to market failure.

Northern Ireland consumers deserve access to affordable, fair and competitive insurances. To achieve that, we will need co-ordinated action from the Northern Ireland Executive, the Treasury, Westminster, regulators and industry alike. We have to work together to make this happen. Everyone agrees that there is a problem and now we have to fix it. The issue has become quite a political hot potato in Northern Ireland, because the Department of Justice, the Department of Finance, the Department for the Economy and the Department for Infrastructure have all been examining it.

The FCA is aware of the problem but powerless to protect consumers. The Treasury is aware of the problem. MPs and MLAs continue to hear from frustrated constituents, yet despite all this—and, I hope, an agreement between the Opposition Front Bench and the Liberal Democrat Front Bench—nothing has actually changed and there is no regulation. While responsibilities pass from one department, committee, regulator and jurisdiction to another, premiums remain higher, choice remains limited and opportunities are denied to people who can least afford it.

The solution does not require years of further review or consultation; it requires action. Primary legislation is needed and the Bill is the perfect vehicle to deliver it. The amendment is practical, proportionate and targeted. It seeks to address what may become a market failure and create the conditions for a more competitive, affordable and accessible insurance market in Northern Ireland.

This is not a party-political amendment; it simply seeks to ensure fairness in Northern Ireland for consumers and to stop the rip-off merchants operating in this field. I hope that the Government will engage constructively with the amendment and work with us before the Bill goes back to the other place so that we can get the regulation needed.

The Bill is all about regulation. This is in the one place in the United Kingdom where we do not have that regulation. We have the ability to make it happen and I hope that the Minister will have some positive things to say. I beg to move.

Lord Weir of Ballyholme (DUP)My Lords, I support the amendment in the name of the noble Baroness, Lady Hoey. It is well thought through, balanced and modest. The House will be relieved that, for once, neither I nor the noble Baroness, Lady Hoey, are even mentioning the Northern Ireland protocol or the Windsor Framework as part of this, albeit that that may be to our shame. The amendment is about trying to tackle a genuine problem for consumers. It is very much within the keeping of the Bill. Part of the purpose of the Bill is not necessarily to increase regulation but to have better and smarter regulation. This proposal very much fits in with that.

The amendment is cautious in its nature, because it would not compel the Government to take immediate action. It would give the power to the Treasury. Indeed, before any next steps could be taken there would need to be consultation, discussion and agreement with the devolved institutions and the respective departments. It would not be acted on by government but would have to be brought forward through the affirmative procedure. The amendment would take this in a sensible approach, one step at a time.

Ultimately, the amendment is to deal with a very real problem. Any of us who has been involved politically in Northern Ireland know that, during canvassing for every election, people will raise the issue of the higher rates of insurance. I am sure there will be agreement across the Chamber about this. Even as recently as the last general election, a number of candidates from different parties said that that was something that had to be tackled.

The noble Baroness, Lady Hoey, highlighted that part of the issue is that this has tended to fall between the cracks. It is not under the exact remit of any one particular department. Whatever the long-term issue is, it has become exacerbated in recent years, particularly since the end of Covid. In the last few years, we have seen shrinking choice. The number of insurance brokers and insurance companies has reduced for home and motor insurance. This has led to a vicious cycle of increasing premiums which, of itself, has meant more dependence on the role of CMCs. The direct impact of CMCs has been to raise overall premiums in Northern Ireland perhaps by around 30%.

As indicated by the proposer of this amendment, it is not purely the CMCs that have led to these increases, but they have played a very significant role. When part of the industry is unregulated, unaccountable and unchecked, it is no wonder that, for some, this has become almost a licence to print money. How this has then filtered down to the consumer has had a major impact. Any of us in Northern Ireland is used to the annual exercise, when we renew either our house insurance or our motor insurance, of our brokers quote us an exorbitantly increased level of cost. Generally speaking, we then try to probe that by asking them to explore whether there are any other options. At best, they will come back with something slightly less than what they originally quoted, but the prices go up and up for everyone. It is particularly acute for first-time motorists, for example. They face a situation either of exorbitant motor insurance costs or, in some cases, of simply not being quoted at all. This is something which can be tackled. We have offered a very practical way forward through this amendment. The Government and, in particular, the new Prime Minister have put at the heart of the agenda the cost of living, not simply in a general sense but for every postcode in the country. If we are looking for something that can deliver on this promise then this is quite low-hanging fruit. I urge the Government either to accept the amendment or to find some formula, through discussions, in which its spirit can be brought forward so that we can actually start to tackle this problem once and for all. The amendment offers a solution by way of the Government intervening through the Treasury—or, at the very least, the sheer threat of the power may well lead to CMCs reducing back their costs. I hope that it may lead to good behaviour on their part. I urge the Government to give this very serious consideration. I look forward to the Minister’s response.

Lord Empey (UUP)My Lords, taking up the last point from the noble Lord, Lord Weir, the Prime Minister, on his recent visits and tour of the UK, has emphasised that the primary focus of the Government is to help people with the cost of living. Because our population in Northern Ireland is spread out more than it is in Great Britain, there is much heavier reliance on motor vehicles to get around. This has a huge impact not only on farmers but on people who are resident in rural areas.

At one point a number of years ago, as Minister for Enterprise, I had responsibility for consumer protection. I have no recollection that financial matters of this nature were incorporated in the devolution settlement, so I believe that the Treasury has a key role to play. It seems odd that we in Northern Ireland have a sector that is unregulated. It is the only part of the United Kingdom where it is unregulated. People need to grasp that there is a different legal framework for dealing with claims for damages under insurance. For instance, the noble Baroness, Lady Hoey, referred to a list of settlements that should be reached, whereas we have a thing called the green book, which allows for much greater flexibility and has resulted in much higher claims.

The noble Baroness quoted one example, for soft tissue injury, but that is only one. It does spread out, and of course that is not the only potential claim. There could be other mental health claims arising from the situation. So the Minister should perhaps reflect on this. If he is not content with this amendment, cautious though it might be, he could table something at Third Reading.

20:30:00

The fundamental point is that we have here an opportunity to help with the cost of living. As brokers are advising, insurers and market-makers are withdrawing from the Province because the economics of the claim system do not pay. An insurance company, like any other business, has to make a profit, but claims may be exorbitant and the management of them expensive. Quite often, claims through these companies result in the amount of time that the vehicle is on the road expanding, with the car hire charges expanding in parallel. That is a source of very significant profit. They have their own garages in some cases, and obviously their own hire cars. That all goes on the bill of the insurer—and then ends up with the consumer.

The Government have an opportunity to take a practical step forward to help people with the cost of living by extending a regulatory regime that exists in other parts of the United Kingdom. There are no legal or other risks attached. There is no cost to the Government—quite the opposite. I therefore urge the Minister to seriously consider the points that have been made. I would like to think that he could bring forward some proposals by Third Reading.

Lord Hunt of Wirral (Con)I support the noble Baroness, Lady Hoey, and the noble Lords, Lord Weir of Ballyholme and Lord Empey. In doing so, I declare my interest as past chairman of the British Insurance Brokers’ Association and a practising solicitor in the City of London.

We have campaigned within the broking community for proper regulation of claims management companies for a very long time. Therefore, BIBA was particularly disappointed that this Bill did not address the problem, which is urgent. Average motor claims costs in Northern Ireland have tracked more than 30% higher than in England and Wales since 2021. The figures given by the noble Baroness bear that out. There is a need to do something about this problem. I agree with noble Lords who have spoken that this is a great opportunity for the Government to put right the anomaly. Claims management companies add between 15% and 30% to a total claim by taking a percentage out of compensation that does not reach the claimant. We must keep reminding ourselves of that.

This amendment would be a practical, targeted correction alongside the Bill’s wider focus on consumer protection, redress and better regulation.

Lord Altrincham (Con)My Lords, notwithstanding the anomalies that have been discussed—there are significant anomalies in insurance in England as well—we have some concerns about this amendment. It would hand the Treasury very extensive powers to act through secondary legislation, including the ability to amend primary legislation. We have raised concerns consistently in Committee and on Report about the use of broad, delegated powers of this kind. The same concerns apply here. Regulations being subject to the affirmative procedure provides a degree of parliamentary scrutiny. However, it does not alter the fundamental point that Parliament will be delegating significant legislative discretion to the Treasury before the detailed regime on any transitional arrangements has been set out.

Lord Pitt-Watson (Lab)My Lords, Amendment 16 would give the Treasury the power to extend regulation of claims management activity to Northern Ireland through secondary legislation. I am aware of the concerns relating to high insurance costs across the UK and would be supportive of action to tackle these where we can, but we should not rush to regulate without clear evidence. The Government’s Motor Insurance Taskforce has examined the drivers of motor insurance costs, including claims-related costs and market practices. This work has not identified clear evidence that claims management companies are a primary driver of higher premiums in Northern Ireland. Moreover, any proposal in this area would also need careful engagement with the Department of Finance in Northern Ireland and proper consideration of the devolution implications. I therefore ask the noble Baroness to withdraw Amendment 16.

Baroness Hoey (Non-Afl)My Lords, there I was thinking that we had a Minister who was going to be much more reassuring, but, in fact, that was a very negative response. All the things he said have already happened and could be happening in more detail if the Government were to move forward with this. It really is a missed opportunity for the Government and it is not going to go away; it will have to come back in a different form.

I had not realised until recently—probably like many people here tonight—how appalling this situation is. I do not know where the Minister got his facts and figures; perhaps from the Treasury, but certainly not from the people who know what is going on in Northern Ireland. There is obviously no point putting this to a vote tonight, but I hope that, following this, the Minister will meet a group of us who understand this a bit more and will make it clear to him that perhaps, sometimes, he might be given the wrong advice. I beg leave to withdraw my amendment.

Amendment 16 withdrawn.

Amendment 17

Moved by

17: After Clause 13, insert the following new Clause— “Reimbursement of fraud: liability of technology companies(1) The FCA must make rules providing that, where a person is to be reimbursed in respect of losses arising from an authorised push payment fraud, the cost of that reimbursement is to be borne, in whole or in part, by any relevant technology company on whose service the fraud was initiated, facilitated or communicated.(2) Rules under subsection (1) must provide for—(a) the apportionment of the cost of reimbursement between relevant technology companies and payment service providers, by reference to the extent to which each contributed to the fraud occurring,(b) a process by which a payment service provider that has reimbursed a victim may recover the apportioned cost from a relevant technology company, and(c) the information that a relevant technology company must provide to the FCA and to payment service providers for the purposes of the rules.(3) In making rules under this section, the FCA must have regard to the principle that the cost of reimbursing victims of fraud should fall, so far as is reasonable, on the persons best able to prevent the fraud.(4) In this section—“authorised push payment fraud” means a transfer of funds executed by a payment service provider on the instruction of a payer, where the payer was deceived into giving that instruction;“relevant technology company” means a person who provides— (a) a user-to-user service or a search service within the meaning of the Online Safety Act 2023,(b) an electronic communications service, or(c) any other online service by means of which an authorised push payment fraud may be initiated, facilitated or communicated.”Member’s explanatory statement This new Clause would require the FCA to make rules placing liability for the cost of reimbursing victims of authorised push payment fraud, in whole or in part, on the technology companies on whose platforms the fraud originates, rather than solely on payment service providers, and to apportion that cost according to who is best able to prevent the fraud.

Baroness Kramer (LD)My Lords, let me address Amendment 17 in my name, which is also signed by the noble Lord, Lord Vaux, which I very much appreciate. It addresses authorised push payment fraud and would require the tech companies whose platforms are host to this fraud to share in the reimbursement of losses to the victims of such fraud.

At present, victims of APP fraud are reimbursed up to £85,000, half by the bank sending the payment and half by the bank receiving the payment. This is under rules set by the Payment Systems Regulator. The rules and the cost of reimbursement have had a positive effect, in that banks have set up a much more effective regime to alert people to the possibility of fraud. Many of us have seen that in transactions that we do and the warnings that we receive. However, APP fraud continues to grow relentlessly and, on the most recent figures, is up by 19% in the last year, reaching £576 million in the UK. Payment fraud altogether in the UK has reached £1.3 billion a year. It is essentially 40% of all serious crime.

Some 66% of these scams—that is what they are—originate on online tech platforms. These platforms made £430 million in revenue last year from advertising these scams. I find that outrageous. Surely these platforms should be picking up at least part of the cost of reimbursement, instead of the cost falling wholly on the banks while the tech companies pocket the advertising revenue. I do not think that the tech companies will ever stop scams and take them seriously until it starts costing them money.

I cannot understand why the Government are rejecting my amendment. Are they so afraid of the tech companies and Trump that they cannot provide this protection to ordinary consumers who are being defrauded on such a scale? But I also had a eureka moment in understanding why the FCA has not acted. It came from an absolutely chance conversation. Neither the FCA nor Ofcom is apparently sure which one of them should take the initiative in trying to deal with tech companies and this form of fraud.

Regulatory courtesy has led to inaction. Frankly, when I look at the number of victims and the size of the losses, this is completely unacceptable. This amendment breaks that conundrum, and I would expect the Government to attempt to break that conundrum and ensure that action takes place.

On other amendments in this group, I support Amendments 19 and 20. I know they will be spoken to eloquently, but I admit to not fully understanding the issues in Amendments 95 and 97. But I will listen carefully.

I beg to move.

Lord Vaux of Harrowden (CB)My Lords, I have added my name in support of Amendment 17, which the noble Baroness, Lady Kramer has already explained, I have also tabled Amendment 19. Both amendments relate to the continuing problem of fraud. As noble Lords are probably aware, the last Financial Services and Markets Act led to the introduction of the compulsory reimbursement for APP fraud losses by the banks, split 50:50 between the paying bank and the receiving bank.

This has had two effects. First, it has increased reimbursement to victims; but also, importantly, by imposing the financial costs of fraud on to the banks, it has given them a strong incentive to take steps to protect their customers from fraud, and they have done so. There are some valid concerns about how this might change victims’ behaviour—the question of moral hazard—and I hope the FCA will keep that under review; but it is fair to say that the requirements to reimburse customers in respect of fraud has generally been seen to be successful.

The logic for pushing the obligation on to the banks is that almost every fraud has to be cashed out through the banking system at some point in the chain. It is also true, however, that very little fraud arises from the banks themselves. As we have just heard, most APP fraud starts online or on a telecoms service—around 66% online and 17% from telecoms. Once again, I will namecheck Meta, from whose platforms the greatest amount of such fraud originates. Surely, it would be better to try to prevent fraud where it originates than to just reimburse it. Despite various voluntary charters, this is not improving at all. Your Lordships’ Fraud Act 2006 and Digital Fraud Committee, of which I was a member, recognised this in its report four years ago. We said:

“Until all fraud-enabling industries fear significant financial, legal and reputational risk for their failure to prevent fraud, they will not act”.

We were rightthey have not acted. The Government's most recent fraud strategy also recognised this. It says:

“if industry partnership and market incentives alone remain insufficient to drive improvements, the Government will take legislative action within this Parliament”.

There have been no improvements. It is time to legislate.

I am sure the Minister is going to explain that the Online Safety Act is going to deal with all this, and it does help, but only to a certain extent. It is quite limited on what is covered and where in relation to fraud, primarily paid-for advertising, which is only a small area from where fraud originates. Amendment 17 would make the tech companies directly liable for their share of the cost of the fraud arising on their platforms. This Bill gives us the perfect opportunity to take the legislative action the Government have themselves committed to: to make the tech and telco companies take their responsibilities to their customers seriously without further delay. It is four years, as I said, since the committee reached its conclusion on this. So, I urge noble Lords to support the noble Baroness, Lady Kramer, if she decides to press Amendment 17, as I hope she will do.

My Amendment 19 is very simple. During the passage of the last Financial Services and Markets Bill, the then Government agreed to ensure that the Payment Systems Regulator should prepare a report every six months that sets out how the payment services providers are performing in relation to paying out and receiving fraudulent payments, as well as their reimbursement performance. Since the compulsory reimbursement scheme started, that reporting has stopped, but the reports were very helpful—not only in relation to reimbursement performance under the then voluntary scheme, but also in identifying and publicising which of the payment providers were the riskiest. It led to some being closed down because their performance in identifying and preventing fraud was so poor.

20:45:00

The amendment would simply require the FCA, into which the PSR has now been subsumed, to continue with that valuable reporting, including, where reasonably possible, identifying where the fraud originated—for example, which tech platforms, as we have just been talking about. This would allow us to take targeted action against those platforms that are doing least to protect consumers from fraud. The amendment would introduce no new obligations or work; it just requires the FCA to continue to do what was previously agreed and was being done by the PSR. I hope the Minister can provide some reassurance that this important reporting will continue.

Lord Howard of Rising (Con)My Lords, my Amendment 95 raises the issue of non-compete legislation. When this was raised in Committee, the Minister undertook to respond. His response was to refer to a 2025 working paper, but action is needed. Could I urge the Minister to pursue this and not to allow the report just to sit?

In Committee, the Minister commented that he was not an expert on employment law. That may be the case, but the ability to maintain confidentiality of important and expensive systems is vital in the financial services industry. Algorithms and sophisticated and complex computer systems are an essential part of today’s top-level financial service companies. They must be able to maintain the confidentiality of their systems.

Non-compete agreements are an essential part of this. Whether the Bill we are debating today is the right place for this is uncertain, but it must be dealt with if we wish to retain Great Britain’s predominant place in the industry—something that I hope the Minister favours. Even if non-compete is not precisely within his remit, he should certainly make it his business, in the interest of his department. I urge the Minister not to allow the 2025 report just to sit in a pending tray.

Baroness Bennett of Manor Castle (GP)My Lords, I speak to Amendment 97, which appears in this group in my name. I commend the noble Baroness, Lady Kramer, and the noble Lord, Lord Vaux, for providing us with powerful arguments, particularly for Amendment 17. I echo the noble Lord’s comments as, if the noble Baroness wishes to put this to the vote, the Green Party will certainly support it. We need to see the tech companies being made to pay for the huge profits they are collecting while continuing to allow illegality to operate in their spaces. However, I will primarily speak to Amendment 97. I begin by acknowledging the work of Joshua Tjeransen, who is my King’s College London intern. He has identified this issue for me and done a great deal of work on this amendment. This amendment is about a different sort of fraud from that covered by the amendment from the noble Baroness, Lady Kramer; it is about ransomware. I am sure noble Lords have come across many cases of this; it is a great concern to businesspeople, individuals and institutions, particularly the NHS. It is where a computer system or database is locked and access is prevented. The ransomware takes it over, and companies are told, “Pay up or you will never get this back”.

It is worth thinking about the circumstances of this. Very often, payment is demanded in cryptocurrency. People are told, “If you don’t do this in the next hour, the figure will double and double again” and so on, through alerts appearing on someone’s computer screen. These are tremendously frightening, difficult, challenging circumstances to face.

The figures we have for this come from Report Fraud. In the year from April 2025, 323 UK organisations reported such an attack. More than half of them were small and medium-sized enterprises, and the average loss was £270,000, which for SMEs is a huge sum of money. I said “reported” because it is generally acknowledged by experts in the field that there is a real issue of stigma here. Companies and organisations do not want to admit that they have fallen victim to such a fraud, and it is generally agreed that those figures are the tip of the iceberg. The accepted advice from law enforcement is “Don’t pay”, but it is generally acknowledged, although it is very hard to put figures on it, that a lot of people are paying right now, and this must be very lucrative for some very nasty criminals.

I come to the amendment, which would insert a new clause that would place a duty on the Financial Conduct Authority to make rules within 12 months of Royal Assent prohibiting the firms it regulates from

“making, offering, authorising or facilitating a ransom payment”

and would prevent the insuring or indemnifying of anyone against such a ransom payment. Firms would have to notify the FCA within 72 hours of becoming aware of a ransom demand. The only exception provided is where the payment is needed to prevent an imminent risk to life or serious injury, and then only with the prior approval of the Secretary of State. It covers authorised persons and firms supervised by the FCA under the Payment Services Regulations and the Electronic Money Regulations.

I think it is worth going back over how we have got to the point where we still do not have any action. In January 2025, the Home Office consulted on three proposed measures on ransomware: a targeted ban on ransom payments by public sector bodies and operators of critical national infrastructure; a payment prevention regime under which other organisations would have to notify the Government before paying; and mandatory incident reporting. The response was reported on 22 July 2025 and recorded 72% support for a targeted ban. There was an announcement that all public sector bodies and CNI operators would be banned from paying, and there would be a notification requirement. On 14 October 2025, answering a Question from the noble Lord, Lord Fox, on the Jaguar Land Rover attack, the noble Lord, Lord Leong, told the House:

“The Home Office is progressing a new package of measures to protect UK businesses, and we will update the House accordingly ”.—[ Official Report , 14/10/25; col. 169.] In December 2025, the Security Minister said that the ban remained a priority and would progress—noble Lords know the dreaded phrase—when parliamentary time allowed. You might think that there would be coverage of this in the Cyber Security and Resilience (Network and Information Systems) Bill, but my understanding is that there is no coverage of such issues.

Why does this amendment work? Why can we do this through the Financial Services and Markets Bill? Nearly every payment will pass through a financial company. If there is any kind of scale to this at all, whoever the victim is, the money will go through a firm that the FCA supervises. A rule on these firms therefore reaches most payments made from the UK, not just payments by financial firms themselves. I think the amendment is elegant. It would not create a new offence or a general ban on businesses as the Public Bill Office said that that would be outside the scope of the Bill. Instead, it would place a duty on the FCA to create the rules within 12 months. This is a step forward in dealing with a critical issue that is affecting businesses and organisations right now and on which the Government have promised to act. It follows the Government’s own design.

I am not expecting the Minister to accept the amendment, and I am not going to put this to a vote because we have not had the time or capacity to work through the detail of exactly how this is written, but none the less I hope that we will hear from the Minister that there is going to be significant progress in this area very soon. I am really hoping not to hear the phrase “when parliamentary time allows” because the Government have done the consultation on this and have promised to act. We need to see protection in this fraud capital of the world—the UK—for firms. If ransoms cannot be paid, it will not be in the interests of criminals to put the effort in to try to get ransoms.

Baroness Neville-Rolfe (Con)My Lords, we are concerned about the scale of fraud, and in particular by the continued growth of authorised push payment fraud and other forms of online economic crime. The Government and the banks have made progress, but the truth is that it is hard to keep up with the scammers, and the sums at stake are significant, as the noble Baroness, Lady Kramer, has explained. I therefore strongly welcome the proposal from the noble Lord, Lord Vaux, for an annual report.

My noble friend Lord Howard of Rising is right to be concerned about the future protection of commercially sensitive information as part of a competitive UK sector. I am glad he has brought his amendment back, and I hope the Minister will be able to provide an assurance that this will be addressed.

The amendments in this group raise important questions about transparency, monitoring and the practical steps that firms can take to identify scams earlier, warn consumers, share information more effectively and pay compensation where that is appropriate. Indeed, there has been considerable progress since the APP reimbursement regime was introduced in 2024. I always remember my card being used in Korea to buy £2,500 worth of Louis Vuitton luggage. That would not happen today, as banking procedures and scrutiny are so much better.

However, the proposal from the noble Baroness, Lady Kramer, is a difficult one, as it is not clear what the technology companies could do to stop fraud systematically. They are not passing money on in the same way as the banks do. That may have been what the noble Lord, Lord Stockwood, was getting at in Committee when he responded to this amendment at that stage. New regulations of this kind could also have a chilling effect on the supply of online services in the UK, so more analysis is needed before the FCA introduces new rules. We believe this is an area where the Government and the regulators should be prepared to make progress, but we also understand the constraints.

It is also important that people learn to avoid scams with simple procedures such as face ID, and to take care over what they buy online. This should be an important part of education, and indeed Ofcom, working with the FCA and the tech companies, should be able to make more progress here. I very much look forward to the Minister’s response on this important area and how he thinks we can best address this problem.

Lord Pitt-Watson (Lab)My Lords, before I respond, I must start with a correction. In the third debate, I said that commercial credit data-sharing schemes improve bank referrals and strengthen personal lending. However, the CCDS and the bank referral scheme are different schemes. To correct the record, I meant that the Government are improving competition and supply through enhancements to commercial credit data sharing in this Bill and working with industry to strengthen bank referral arrangements. Both these schemes help to improve lending to SMEs. I apologise for that; I was speed-reading my way through my responses. I will try to be more careful in future.

I am grateful to the noble Baronesses and noble Lords for tabling these amendments and to all noble Lords who have contributed to this debate. On Amendment 17, fraud causes profound financial and emotional harm. As noble Lords know, this Government take the issue of fraud very seriously and are dedicated to protecting UK citizens. As my noble friend Lord Stockwood explained in Committee, the Online Safety Act requires tech companies to take proactive steps to prevent fraudulent content. The Government remain committed to ensuring that Ofcom makes full use of its powers to undertake fast and decisive action against illegal online harms, including fraud. At the request of the Secretary of State, Ofcom will share an annual update on its enforcement strategy for online safety with Parliament.

In July, Ofcom published the fraudulent advertising code consultation, proposing more than 40 new measures to tackle online fraud on the UK’s biggest digital services. Among these measures, Ofcom proposes the mandatory verification of financial services advertisers. This will support legitimate financial promotions from FCA-authorised firms while cracking down on illegal financial promotions such as scam investments and crypto ads.

21:00:00

Ofcom also proposed that the largest services will have to introduce new ad libraries that ensure all paid-for advertisements are publicly traceable. This will support experts and law enforcement to quickly detect and report suspected scam ads that UK users may find online. It seems clear to me that we must let Ofcom get on with this job. Martin Lewis and the consumer group Which? have said that timely implementation will be key.

I now turn to Amendment 19, tabled by the noble Lord, Lord Vaux, on the publication of authorised push payment fraud performance data. This amendment was also debated in Committee. The Government agree that transparency over firms’ performance in preventing authorised push payment fraud is important. The Payment Systems Regulator previously published data on the performance of individual payment service providers, including on where fraud originated. However, the Government do not consider that a specific annual reporting requirement needs to be set in legislation. Following the consolidation of the Payment Systems Regulator, the FCA will have the powers and flexibility to determine the most appropriate approach to the publication of fraud performance data, adopting reporting to developments, available data and the wider authorised push payment fraud framework.

Amendment 20, tabled by the noble Lord, Lord Holmes, was also discussed in Committee—

Lord Vaux of Harrowden (CB)I am terribly sorry to interrupt the Minister, but perhaps he could explain why the FCA has stopped the reports that the PSR was previously providing.

Lord Pitt-Watson (Lab)I am unable to answer the noble Lord’s question; might I write to him with an answer?

Amendment 20 was discussed in Committee and the Government’s position remains unchanged. As set out in Committee, a range of measures is already in place and further work is under way across government, regulators and industry. This includes firms using increasingly sophisticated fraud detection systems, confirmation of payee checks, work to improve data sharing between payment service providers and steps to ensure that fraud prevention is built into the design of future retail payments infrastructure.

Turning now to Amendment 95, concerning the protection of intellectual property, I agree that weak protections can be a drag on competitiveness. On non-compete clauses, in particular, there are no provisions in the Employment Rights Act 2025 that would affect the use of non-compete clauses by financial services firms. The Government published a working paper on options for reform of non-compete clauses in employment contracts at Budget 2025. We are currently reviewing responses and will respond to the working paper in due course. The focus of the paper was on options for reform of non-compete clauses in employment contracts. It does not consider reform to intellectual property law or other means to protect confidential information. The Government understand that a well-designed, balanced intellectual property system offers confidence for business investors and consumers to contribute to growing our economy.

Turning finally to Amendment 97 in the name of the noble Baroness, Lady Bennett, I recognise the continued threat posed to the UK by ransomware criminals. Following public consultation last year, this Government are already taking forward work through the Home Office to break the business model of ransomware and provide law enforcement with the information it needs to understand, investigate and disrupt ransomware activity. This includes proposals for a targeted ban on ransomware payments and mandatory reporting for businesses above a certain size. Taken together, the Government consider that the objectives of these amendments are already addressed through the existing framework and work that is under way and do not believe that further statutory requirements are needed. With that in mind, I ask noble Lords not to press their amendments.

Baroness Bennett of Manor Castle (GP)Before the Minister sits down, can I ask for a potential timeframe on when the noble Lord expects to see progress on that work in the Home Office?

Lord Pitt-Watson (Lab)Again, if the noble Baroness will accept it, I will write to her on that. I do not know the timetable offhand.

Baroness Kramer (LD)My Lords, the online platforms know exactly what they have to do to stop online fraud; they are just choosing not to do it. The Government say that the answer will come from Ofcom, but that has certainly not worried the platforms one iota. The platforms will take notice only when they have to pay out to reimburse people who have been victims of those fraud scams. That is why Amendment 17 matters, and that is why I am going to test the opinion of the House.

5|21:06|26|119|Division on Amendment 17|Amendment 17 disagreed.||0|0

21:16:00

Schedule 2Payment systems regulation

Amendment 18

Moved by

18: Schedule 2, page 78, leave out lines 27 to 30 Member’s explanatory statement This amendment would remove a subsection which duplicates section 131Z19 of the Financial Services and Markets Act 2000 (inserted by paragraph 18 of Schedule 2).

Amendment 18 agreed.

Amendments 19 and 20 not moved.

Amendment 21

Moved by

21: Schedule 2, page 83, line 5, leave out “131Z12, 131Z13 or 131Z14” and insert “131Z13, 131Z14 or 131Z15” Member’s explanatory statement This amendment would correct a cross-reference.

Amendment 21 agreed.

Amendment 22

Moved by

22: Schedule 2, page 85, line 13, at end insert “, and (ii) in its application as a secondary objective, the objective set out in section 30J(1) of the Bank of England Act 1998 (payment systems etc: innovation).”Member’s explanatory statement This amendment is consequential on the amendment in the name of Lord Pitt-Watson that inserts a new clause after clause 22 relating to the Bank of England’s functions relating to payment systems and service providers.

Lord Pitt-Watson (Lab)In moving my Amendment 22, I will also speak to government Amendments 58 and 59. Amendment 22 is developed from our discussions in Committee.

Payment systems are essential national infrastructure. They allow households to pay bills, businesses to trade and financial institutions to transfer funds securely. As technology changes how we pay, those systems must continue to evolve, becoming more efficient and capable of supporting new services while remaining trusted and resilient. The Bank of England has a critical responsibility to protect and enhance UK financial stability. The Bank is also working with the Government and other authorities to support safe innovation in payments and digital finance. The Bank has welcomed this measure and will reinforce that work while preserving the primacy of financial stability.

Amendment 58 places the Bank’s role in facilitating innovation on a clear statutory footing. When exercising certain key functions for recognised payment systems, recognised digital settlement asset service providers, and in-scope service providers, the Bank must, so far as is reasonably possible, facilitate innovation with a view to improving the quality, functionality and economy of those systems and related services. The objective is expressly secondary and does not require the Bank to facilitate innovation where doing so would undermine its primary financial stability objective. This change will also bring the regulation of systemic payment systems and digital settlement assets into closer alignment with the Bank’s supervision of other financial market infrastructure. The Bank already has a secondary innovation objective for central counterparties and central securities depositories. Providing a comparable objective for payment systems and digital settlement assets provides the Bank with a clear and consistent statutory framework.

Amendment 58 also ensures that the Bank can be held accountable under its new objective. It enables the Treasury to make recommendations about aspects of the Government’s economic policy for the Bank to have regard to when considering how to advance its financial stability and secondary innovation objective in relation to payment systems. Those recommendations must be published and laid before Parliament. The Bank must explain the action it has taken, or its reasons for not acting, and provide updates where required. The Bank’s annual reports must now also explain how it has advanced the secondary innovation objective and engaged with interested stakeholders.

Amendment 59 reinforces that accountability by requiring the Bank to publish a stand-alone annual report on both secondary innovation objectives. The report must explain how objectives have been embedded in the Bank’s operations, processes and decisions, and how it has advanced them with respect to relevant functions. This will give Parliament and industry clear sight of how the objectives operate in practice.

Amendment 22 is consequential. It ensures that the mechanism already in the Bill for co-ordination between the Financial Conduct Authority, the Prudential Regulation Authority and the Bank with respect to relevant payment functions makes appropriate reference to regulator objectives, which would now include the Bank’s secondary innovation objective.

In summary, these amendments together place the Bank’s role in facilitating safe innovation on a clear statutory footing, while preserving financial stability as its primary objective. They also provide stronger and more transparent accountability for how the Bank applies the objectives in practice. I hope that noble Lords will join me in supporting these amendments.

Baroness Kramer (LD)My Lords, I have a couple of very brief comments. I am comfortable with the amendments that the Minister has just described, but I have one note of caution. The drive for innovation, which we all think is a good thing, in many ways also increasingly exposes the UK to a loss of monetary sovereignty, particularly where that innovation has to be brought in from overseas, and gives overseas companies far greater control of the payments systems in the UK. That is one of the ongoing fears that we have had. Scott Bessent has been quite open in saying tariffs are very old-fashioned in controlling western economies’ and that stablecoin is the way to do it.

I am therefore cautious when I hear this drive for innovation without some counter-warning and counter-consideration of the monetary sovereignty impacts. I never hear those words used, nor are they captured in any way in anything that I hear around regulation. So often, the move into digital assets—which is, in essence, what this is all about—is about plumbing and pipelines; it does not recognise the political implications. We have seen this in many other areas, such as where we have given away food security and energy security. We need to be very careful that we do not give away security in the financial services and payments sector.

Baroness Neville-Rolfe (Con)My Lords, we welcome these amendments and the movement from the Government on this important issue. I look forward to the Bank of England’s first report on its innovation objective and hope that it will help to drive much-needed growth in the economy. I am sure that the reports will also be useful to our specialist parliamentary committees.

Amendment 22 agreed.

Amendments 23 to 25

Moved by

23: Schedule 2, page 93, line 6, at end insert— “(aa) in paragraph 2(3), omit“, (ca)”;”Member’s explanatory statement This amendment would remove a cross-reference to the paragraph omitted by paragraph 58(a) of Schedule 2.

24: Schedule 2, page 93, line 7, leave out “2(3)” and insert “3(7)” Member’s explanatory statement This amendment would correct a cross-reference.

25: Schedule 2, page 93, line 10, at end insert— “(ca) in paragraph 5(a), for“, (c) or (ca)”substitute“or (c)”;”Member’s explanatory statement This amendment would remove a cross-reference to the paragraph omitted by paragraph 58(a) of Schedule 2.

Amendments 23 to 25 agreed.

Amendment 26

Moved by

26: After Clause 14, insert the following new Clause— “Anti-money laundering: provision of support to professional services firms(1) Within three months of the day on which this Act is passed, the Treasury must publish an assessment of the arrangements that will be made to provide education, guidance and compliance support to professional services firms subject to anti-money laundering supervision by the FCA.(2) The assessment must include a comparison between—(a) the education, guidance and compliance support currently provided by professional body supervisors, and(b) the support that will be provided by the FCA.(3) The Treasury must lay the assessment before Parliament.”Member’s explanatory statement This amendment seeks to require the Government to explain how education, guidance and bespoke compliance support currently provided by professional body supervisors will be maintained following the transfer of anti-money laundering supervisory functions to the FCA.

Baroness Kramer (LD)My Lords, I am afraid that all the amendments in this group are mine. Amendment 29 has also been signed by the noble Lord, Lord Vaux, for which I am most grateful. I will be brief as the hour is late.

In this Bill, the Government will transfer all supervision of professional service firms in respect of anti-money laundering and counterterrorism financing from the current professional bodies to the FCA. Members of this House have received representation from a wide range of professional groups which are, frankly, utterly dismayed. They recognise that the FCA is trying to respond to their needs and issues, but it seems to have very little idea how to fund or resource the complex guidance and education required as part of that supervisory and monitoring process. It seems, as far as I can understand, that the FCA now says that it would like the professional bodies themselves to continue to provide all that work but, in essence, on an unpaid basis. That is not realistic.

The FCA has produced a high-level road map, but I hear universally that it is very short of information and low on timing details. I can agree that the current system has historically suffered from fragmentation, but I am not sure that we needed a remedy on the scale of the changes that are in the Bill. The fragmentation issue was being dealt with reasonably effectively by OPBAS—the Office for Professional Body Anti-Money Laundering Supervision—that had been created to sit above the professional bodies to provide co-ordination standards and make them effective. Where OPBAS had a weakness was in its communication with enforcement agencies, but this issue could have been remedied without the radical change on the scale represented in the Bill.

My amendments require an assessment of this transition process, particularly on issues such as education guidance and compliance support, timetables, regional coverage and supervisory fees. There is real concern now that with an additional layer of supervision brought into the picture, fees are going to increase very significantly. My amendment would also require the FCA to have regard to having the appropriate expertise on hand to provide that support and guidance—that is significant expertise ranging from accounting to taxation. It has not really taken on these issues historically.

I will not be pressing this issue because the FCA is trying to find ways to make this system work. I honestly do not think that the FCA would have wished this upon itself; nor would the professional bodies have wished it upon themselves. It really is important that the Government understand that they need to think much more carefully when they introduce radical change when, frankly, much more modest and targeted change would have served the purpose better.

Lord Vaux of Harrowden (CB)My Lords, I support the noble Baroness, Lady Kramer, on her Amendment 29, to which I have added my name. The noble Baroness has already explained with her usual clarity the concerns that lie behind this group of amendments so I will try not to repeat what she said.

The changes proposed by the Bill to the AML supervisory regime will move the AML elements of supervision from the relevant professional body to the FCA. This means that firms will now have to deal with two separate regulators rather than one: the FCA for AML and the professional body for everything else. It seems inevitable that this will have cost impacts for those firms even if, as the FCA argues, the regulatory rules themselves will not change. That is likely to be especially true for smaller firms.

The impact assessment that accompanies the Bill on this section is, frankly, almost laughably poor, relying almost entirely on the statement that the AML rules themselves will not change. It does not address, in any meaningful way, the question of moving from one supervisor to two. It must, therefore, be sensible to carry out an assessment of what the impact of the changes will be on firms and to ensure that the costs remain proportionate to the benefits that the FCA and the Government argue will accrue, before going ahead with the changes. That is what Amendment 29 is looking to achieve.

The Government are commendably keen to reduce the regulatory burden on businesses, so I look forward to hearing what the Minister has to say on this. Does he agree that there is likely to be an increase in costs to firms from having to deal with two supervisors rather than one? How will he ensure that that is proportionate to any benefits that will arise?

21:30:00

Lord Altrincham (Con)My Lords, these amendments reflect a number of important concerns about the proposed transfer of anti-money laundering supervision to the FCA. We do not believe that each of these points requires legislative commitment. However, we have also been made aware of serious concerns from industry about how this transition is being communicated and how the new regime will work in practice.

These concerns include the governance arrangements following the transfer of the timetable and the transitional process, the maintenance of professional standards, proportionality, and the extent to which the FCA will retain specialist expertise needed to supervise highly technical sectors such as accountancy, legal services and trust and company service provision. There are also legitimate questions about the practical support available to firms, the likely cost of the new regime and whether smaller firms in particular will face disproportionate burdens.

This is why our Amendment 93, in my name and that of my noble friend Lady Neville-Rolfe, covers a transfer of AML supervision. Parliamentary and entire industry oversight of these changes will be vital in making sure that this new architecture works in the way the Minister wants.

The common thread running through our amendment and the other amendments in this group is therefore a sensible one. If the Government are going to centralise this responsibility within the FCA, they must demonstrate that the FCA is genuinely equipped to undertake it, and provide clarity to industry about how this process is going to be practically achieved. That means not simply having the formal regulatory powers, but having the right people, the right sectoral knowledge, appropriate transitional arrangements and a clear understanding of how supervision will operate across the country. Industry is concerned about these questions, and those concerns should be taken seriously. I therefore hope the Minister can make a firm commitment today to provide considerably greater clarity about how this transfer will be implemented, how professional expertise, standards and proportionality will be maintained, and what firms should expect during transition.

Lord Pitt-Watson (Lab)My Lords, I am grateful to the noble Baroness, Lady Kramer, for tabling these amendments concerning the implementation of the reform of the UK’s anti-money laundering and counterterrorist financing supervisory regime. The points everyone is raising about the implementation of this needing to be well done are extremely important, as is the comment made by the noble Lord, Lord Altrincham, about parliamentary oversight of what is taking place here.

Amendments 26 and 27 concern support for firms and implementation planning. Amendment 26 would require the Treasury to publish and lay an assessment before Parliament, including a comparison between the education, guidance and compliance assistance currently available to firms and the support that will be provided by the FCA. The Government recognise the concern that professional services firms should continue to receive clear guidance, appropriate support and access to sector-specific expertise following the transition to the FCA.

Existing provisions in the money laundering regulations, which require supervisors to provide information about money laundering risks to supervised populations, will apply to the FCA in relation to its expanded responsibilities. The FCA already has significant experience of providing AML/CTF information and guidance to a large and diverse supervised population. For these reasons, the Government do not believe that a statutory assessment is necessary.

Amendment 27 would require the Treasury to publish a statutory timetable for implementation. While we do not believe such a requirement is necessary, the FCA has provided some additional clarity on the expected implementation timetables. The current expectation is that the first businesses will begin to be supervised by the FCA before the end of 2028. Further onboarding will take place in phases, with the broad aim that all firms within scope will be supervised by the FCA by mid-2030.

Implementation should proceed only when the necessary preparations are complete. This includes ensuring that appropriate systems and effective information-sharing arrangements are in place, supervisory staff are adequately trained, and sufficient clarity is provided to firms about the future regime. Retaining flexibility will allow the Government and the FCA to respond to stakeholder feedback and lessons arising during the transition.

Existing supervisors will continue to supervise firms, taking enforcement action where necessary and maintaining standards until the FCA assumes its new responsibility. The Office for Professional Body Anti-Money Laundering Supervision, OPBAS, will continue to oversee the existing professional body supervisors during that period. The FCA is already engaging with professional body supervisors and HMRC on information-sharing and data-sharing arrangements. Amendment 28 concerns professional expertise. The Government fully recognise that effective supervision depends on supervisors understanding the sectors they regulate. Legal services providers, accountancy firms and trust and company service providers have different business models, risks and regulatory arrangements.

Of course, the FCA already supervises a large and diverse population, including many smaller firms, and has extensive experience applying a proportionate, risk-based approach across different business models and firm sizes. The FCA’s independent Smaller Business Practitioner Panel also provides direct insight into the perspectives and challenges facing smaller regulated firms.

This reform is not about applying a banking-style or one-size-fits-all supervisory model to professional services firms. The future regime will be proportionate and risk-based and establish a more consistent and effective framework, while recognising the different characteristics and risks of those sectors.

Amendment 29 is on supervisory fees. All businesses, particularly smaller firms and sole traders, want assurance that the future regime will remain proportionate and that firms will not be required to pay excessive supervisory fees. The FCA will consult on the design of its future fee model before assuming responsibility for these sectors. The Government expect fees to be proportionate and consistent with the FCA’s wider fee framework, where smaller firms generally face lower costs than larger firms. The detailed fee structure will depend on the final supervisory model and is therefore better developed through consultation.

Finally, Amendment 30—

Lord Russell of Liverpool (CB)My Lords, I apologise for interrupting. The Minister has not answered the question of what assessment the Government have made of the cost impact on firms of moving from a single supervisor to dealing with two, particularly for small firms.

Lord Pitt-Watson (Lab)I am not aware of an individual calculation that has been done for that. I do not think that there will be a materially greater cost once the move is made. The key issue that we are trying to address here is that, right now, we have 23 regulators of AML, and that job needs to be done in a more co-ordinated and consistent fashion. If I have information on that, I would be delighted to write to the noble Lord on those costs.

Finally, Amendment 30 addresses the FCA’s capacity to undertake effective AML/CTF supervision across all parts of the United Kingdom. Amendment 30 would require the FCA to report on its capacity to supervise firms throughout the UK. The FCA already operates across the United Kingdom through its offices in London, Leeds and Edinburgh and anticipates having a significant presence for the new AML regime outside London. This provides a strong foundation for maintaining regional coverage, preserving local knowledge and ensuring that jurisdiction-specific issues continue to inform supervision and implementation planning. This will also help with ensuring that regional risks and jurisdiction-specific considerations are understood and addressed, while maintaining a consistent approach across the United Kingdom.

I recognise the objectives behind these amendmentscareful implementation, appropriate support, maintenance of expertise, proportionate fees and sufficient FCA capacity. The Government understand why these assurances are being sought. However, additional statutory reports, assessments and fixed requirements are not necessary. These matters are being addressed through implementation planning, capability building, stakeholder engagement, consultation and parliamentary scrutiny of the necessary secondary legislation. The Government will continue to work closely with Parliament, industry, existing supervisors and the FCA. Our aim is to deliver a more consistent, effective and co-ordinated AML/CTF supervisory framework, while ensuring that firms receive proportionate supervision and appropriate support. I therefore ask the noble Baroness, Lady Kramer, to withdraw her amendment.

Baroness Kramer (LD)I withdraw the amendment.

Amendment 26 withdrawn.

Amendments 27 to 30 not moved.

Clause 16FCA and PRA long-term strategies and recommendations

Amendment 31

Moved by

31: Clause 16, page 18, line 38, at end insert— “(ba) the competitiveness and growth objective (see section 1EB), and”Member's explanatory statement This amendment would clarify that the strategic priorities set out by the FCA in a long-term strategy under new section 1JZA of the Financial Services and Markets Act 2000 must include strategic priorities in relation to the competitiveness and growth objective.

Lord Pitt-Watson (Lab)My Lords, growth is the top priority for the Government, and the financial services sector is key to delivering this. As my noble friend Lord Stockwood set out in Committee, the Government always intended that the FCA’s long-term strategy would set out its priorities for advancing its international competitiveness and growth objectives. The noble Baroness, Lady Noakes, rightly questioned if our legislative drafting was clear and, after further consideration, the Government have tabled this amendment to ensure that the law is clear on this point. I thank the noble Baroness for bringing this matter to our attention.

I turn to Amendments 32 and 33 which would place detailed statutory requirements on the content of the FCA’s and PRA’s long-term strategies, including requiring descriptions of future regulatory initiatives, indicative timelines and assessments of potential trade-offs. The Government agree that this is an important part of Parliament’s role in scrutinising the work of the regulators. I welcome the commitments made by Nikhil Rathi, the CEO of the FCA, in a letter he sent to me on 2 September, which has been shared with the Lords Financial Services Regulation Committee, the Opposition Front Bench and interested Peers. The letter made a commitment to pro-actively engage relevant parliamentary committees on their priorities before settling future strategies. Katharine Braddick, the new CEO of the PRA, also made commitments in her letter of 3 September to engage its stakeholders and Parliament in the development of its strategy. As I committed to earlier in today’s debate, I am placing these letters in the Library.

Much of the information that the noble Baroness seeks is, or should be, already available through existing channels, including the Regulatory Initiatives Grid, which is updated regularly and is specifically designed to provide firms and stakeholders with forward-looking information on forthcoming regulatory activity. The FCA also publishes and will continue to publish an annual work programme that details what it will deliver in the coming year against the strategic priorities in its current strategy.

The purpose of the long-term strategy is different. It is intended to set out the regulator’s strategic direction and priorities over a five-year period, rather than to operate as a detailed business plan. As the FCA sets out in its letter, the strategy is intended to provide greater clarity and predictability about its priorities, and to provide a strong basis on which Parliament and others can hold it to account for its performance against those priorities. The Government therefore do not consider that these additional statutory requirements are necessary.

I now turn to Amendment 68, which seeks to create new statutory offices for regulatory evaluation within the FCA and the Bank of England. I recognise the concerns expressed during Committee about ensuring that Parliament has access to meaningful information about the performance of the financial regulators. It is a point well made. This amendment would go further than this. It would establish permanent statutory bodies with dedicated directors, governance arrangements and reporting requirements, introducing additional costs on the regulators. As we discussed in Committee, there already exists a range of mechanisms to provide this information. This proposal could potentially duplicate these arrangements, and the Government do not agree that more institutional machinery will necessarily lead to better scrutiny.

21:45:00

We discussed in Committee the importance of the FSMA model. Parliament has enshrined the principle of regulatory independence into primary legislation through the Financial Services and Markets Act 2000. The Government continue to believe that this is the model that best serves the UK’s long-term interests. However, I recognise the challenges that noble Lords have raised, especially the challenge that, as new activities become regulated, the breadth of delegation grows. The responsibility of our regulators has continued to grow over time. It is appropriate that parliamentary accountability mechanisms are kept under review to ensure that they are in step with the work of the regulators.

The Government therefore welcome and encourage engagement between the regulators and the parliamentary committees. We also welcome the commitment from the FCA and the PRA to provide Parliament with further information and other assistance that is needed for it to fulfil its role. This includes more written updates, additional context in the PRA’s annual reports and in-person sessions—for which I welcome the PRA’s offer of external members of the Prudential Regulation Committee also appearing before committees on a more regular basis. The noble Baroness, Lady Noakes, is keen that her committee has the ability to scrutinise the PRA and FCA before regulation is finalised. That is a very proper objective. I enjoyed hosting the FCA’s recent drop-in session on measures in the Bill that relate to it. That was a great example of live scrutiny and of gaps being found in action. However, I urge the committee and the regulators to work together to agree a sensible model for ongoing scrutiny and engagement. I therefore respectfully ask the noble Baroness not to press her amendment.

Amendments 51, 54 and 56 seek to amend Clause 18 or remove it in its entirety. The reforms in Clause 18 form a core part of the Government’s approach to improving the regulatory framework by striking a better balance between ensuring that only those accountability mechanisms which are appropriate and valuable are retained while not overloading the regulators with administrative requirements which fail to provide commensurate benefits. The Government have targeted only a limited subset of lower-value requirements. The broader accountability framework remains in place, with very significant reporting and transparency requirements. The Bill also introduces new accountability measures, including long-term strategies and reporting on competitiveness and growth.

Amendment 51 would restore a number of requirements which, following careful consideration and engagement with stakeholders, the Government continue to believe do not need to be prescribed in statute. In Committee, noble Lords expressed differing views on the value of these requirements. That underlines the case for allowing regulators greater flexibility rather than imposing increasingly prescriptive reporting obligations.

Amendment 54 would require regulators to produce further explanations of how they have applied regulatory principles and statutory duties. This would reintroduce process-focused reporting requirements that the Government are seeking to streamline. Our approach is to focus accountability on outcomes and performance rather than requiring ever more detailed reports on internal methodologies. The Government agree with the importance of Parliament being able to hold the regulators to account.

Through this Bill, the Government are introducing new requirements to support more effective scrutiny—including through the new long-term strategies. In these, the regulators will need to set out for the first time in one place their long-term priorities and approach for advancing their objectives. This is intended to help Parliament better to understand the regulator’s priorities and how they are translating their objectives into action and results, helping Parliament to carry out its vital scrutiny.

Parliament will continue to have significant powers to scrutinise the regulators through existing accountability mechanisms. The regulators will continue to notify relevant parliamentary committees on relevant consultations to set out how the proposal advances their objectives. In response to concerns raised in Committee, through government Amendments 37, 47, 48 and 49 these notifications will continue to set out how the regulator has had regard to the two proportionality regulatory principles.

We agree that Parliament has a vital role to play in scrutinising the work of the regulators, and that effective parliamentary scrutiny is an essential element of our regulatory framework. Parliament, government and the regulators must all work together to ensure that we have a regulatory environment that is effective and proportionate. The Government have heard the strength of feeling across the House and welcome the commitments that we have had from the regulators to work to ensure that Parliament has the information that it needs to fulfil its role. I am confident that the Government, Parliament and the regulator have a shared ambition and commitment that we can work on together to make reality. For those reasons, the Government do not consider that further legislative amendments are needed, and I ask the noble Baroness not to press her amendment. I beg to move.

Baroness Bowles of Berkhamsted (LD)My Lords, it is late, so I shall be relatively brief and not revisit the issues that we looked at in Committee. When I tabled these amendments, I still hoped that there would be some agreement reached on restoring the information hooks that Parliament has relied on until now for oversight, and to suggest a minimum set of reporting requirements in the current void of the strategy report. But it has been made clear by the Minister now, and in discussions between the Minister and the noble Baroness, Lady Noakes, as chair of the Select Committee, that the Government will not accept any statutory requirements. If that is the case, the committee will have to draw that information in itself, and the letters from the regulators offer the promise that they will co-operate in that. I suggest that we should take that opportunity to be able to do more things in real time, rather than long after decisions are made.

Obviously, it is for the committee to decide what written and oral information it wants and when, but one way to address the gap would be a triennial cycle of structured meetings with regulators. Each session could explicitly track developments in consultations and rule-making, including the work of the statutory panels, with an additional cycle of other matters. A suitable timing could be late February, when you could do an operational alignment review of draft business plans, budgets and cost-benefit analysis variances before they are locked in for the financial year. In mid-June, a session could be focused on the secondary competitiveness and growth objective, tracking live authorisation times, licensing, service-level agreements and regulatory overlap arising from current consultations and rule-making activity. In October, one could do a post-Recess review of rule-making, “Dear CEO” letters and summer-period backlogs ahead of the autumn Budget. Those are just examples of how you can get matters to fit in with the other fiscal events.

Adopting that kind of timetable would give Parliament timely visibility. We could avoid boilerplate reporting and ensure accountability, even though we lose the statutory hooks. But I think that neither the regulators nor the Government really appreciated the message that crossing out all these previous statutory things indicated, and it seemed as if Parliament had been totally ignored as a stakeholder and as a party that should have been consulted.

I hope that we can recover and come through this, probably with more reporting in the end that is pulled in at our request. I do not see that this as something that we have to negotiate; this is something where Parliament can ask, and we expect that the regulators will comply. Now that sounds aggressive, but I actually think that it will be able to be negotiated relatively reasonably, at least if it is anything like the experience that I have had elsewhere.

Baroness Noakes (Con)My Lords, this is the first time I have spoken on Report, so I need to declare my interests as shown in the register, namely, that I hold shares in listed financial services companies, which may well be affected by the content of this Bill.

I start by thanking the Government for tabling Amendment 31, which is in fact identical to an amendment that I tabled in Committee. The Minister, the noble Lord, Lord Stockwood, who is in his place, said then that he could not accept my amendment because the Government were

“looking into this point to determine if this is fully clear within the drafting of the clause ”.—[ Official Report , 24/6/26; col. GC 333.] That was nonsense, and I feel sorry for Ministers who are told by their officials to say these sorts of things. It was clear that the drafting of the Bill was wrong, and that my amendment put it right. I am very glad that the Government have now caught up with me.

The rest of the amendments in this group deal with the knotty issue of accountability of the regulators. The noble Baroness, Lady Bowles of Berkhamsted, has tabled several amendments to try and improve what is in the Bill and reverse some of the changes in the Bill that will undoubtedly weaken the accountability arrangements. Of course, I support those amendments. But accountability means much more than plans and reports, which is what the noble Baroness’s amendments tend to focus on. Some of us put forward various ideas in Committee about how we could improve accountability—the point being that we are looking to get a step change in the accountability arrangements.

This all comes back to the FSMA model, which my noble friend Lady Neville-Rolfe spoke about in the first group. I support the FSMA model in principle, but it is under increasing strain, as has been mentioned already today. It was first invented long before Brexit, when swathes of financial regulation were drawn up in the EU and scrutinised in detail via the EU Parliament. When FSMA 2023 paved the way for this additional delegation to the regulators of all of those EU competences, it was partially offset— only partially—by strengthening the role of Parliament. When the regulators use their powers to create rules and guidance, they now have to send that into the parliamentary committees, including the Financial Services Regulation Committee, which, as has already been said, I currently chair.

I am clear that holding the regulators to account for how they are using their powers—that is, real-time accountability rather than the ex-post accountability that annual reports deal with—is an uphill battle for very many reasons, not least an imbalance between the scale of resources devoted to parliamentary committees compared with the vast resources that are deployed within our financial system regulators. As we know, this Bill creates yet more areas of delegated powers to the regulators—consumer credit, which we debated earlier today, but also the payment systems which the Minister spoke to a few moments ago. This, again, is why we need to strengthen the accountability arrangements rather than weaken them, as the Bill currently does.

The Government have partially recognised that the Bill went too far and have tabled amendments on proportionality, which we will debate on our next Report day. The balance, however, has still shifted away too far from Parliament being able to operate effective accountability mechanisms. That is why I tabled Amendment 68, and I thank my noble friend Lord Bridges of Headley, the noble Baroness, Lady Bowles of Berkhamsted, and the noble Lord, Lord Vaux of Harrowden, for adding their names to it.

22:00:00

Amendment 68 proposes that both the Bank of England and the FCA set up an office of regulatory evaluation, which would be independent within their organisations and tasked with reviewing and reporting on the full range of their regulatory actions. This could produce much wider-ranging work than parliamentary committees can and, if it were done well, would very much enhance the way in which parliamentary accountability works. Offices of regulatory evaluation exist in many international regulatory bodies; the Bank of England also set one up about a decade ago, although it did relatively little and is now being disbanded.

I thank the Minister for acknowledging the concerns about effective accountability that were expressed throughout Committee, but he has said that he will resist my amendment. Instead, he wants the regulators to work with the parliamentary committees, including the Financial Services Regulation Committee, to try to improve accountability.

The Minister has already referred to the letters that the Treasury orchestrated from the FCA and the PRA, which set out how they see parliamentary accountability. They do not say very much more than that the regulators take parliamentary accountability seriously. I note that there has been no equivalent letter from the Bank of England about its non-PRA regulatory activities. Many of the regulators’ suggestions do not seem to address the core concerns of wanting to increase the effectiveness of real-time scrutiny of what the regulators are doing.

The FCA’s letter declared itself open to views on how best to improve parliamentary scrutiny, but the PRA’s letter did not go quite that far. In conversations with the Minister, he asked me, as chairman of the Financial Services Regulation Committee, to try to take something forward with the FCA to see whether we can strengthen parliamentary accountability in ways that do not involve structural changes—such as that suggested in Amendment 68. The Minister would have heard that one of my fellow committee members has already applied her mind to some creative ways in which that might take place; they would, of course, have to include not only the FCA but all the other regulatory bodies operating in the financial services space. I am sceptical about whether such engagement will do more than improve things at the margin but, in the spirit of being constructive, I am prepared to give it a go through the Financial Services Regulation Committee. On that basis, I shall not move my amendment.

I predict that, when we in Parliament consider the next financial services Bill—as we do every few years—we will return to accountability. We may well not get a step change in how we hold the regulators to account until there has been a major regulatory failure that the regulators do not manage to talk themselves out of. Then, hindsight on accountability will be a wonderful thing.

Lord Bridges of Headley (Con)My Lords, I declare my interest as an adviser to and shareholder in Banco Santander. Your Lordships will be pleased to know that I will speak very briefly on Amendment 68. My noble friend Lady Noakes just covered the waterfront incredibly well, in her exemplary manner, and made all the key points.

I will briefly say this. The first leg of this amendment, about the FCA’s office for regulatory evaluation, is an extremely measured and well-constructed proposal from my noble friend, but I propose to set up something different: an office for financial regulatory accountability that stands outside all the regulators and looks at financial services regulation, consultations and proposals in the round. It would therefore provide an independent source for Parliament and everyone else to look at the impact of those actions, so that they could be analysed and, critically, the regulators and supervisors could be held to account.

Many said to me that they felt this office would become a back-seat driver for the regulators and supervisors, and that we would, essentially, have someone second-guessing their actions, potentially undermining the operational independence that they have been given. This proposal from my noble friend overcomes that very well. While I am very pleased that the Minister is making constructive noises about the need for greater accountability and scrutiny, I am somewhat disappointed that it seems that this proposal, which builds, as far as I can see, on the work of the cost-benefit panels within the FCA, would help Parliament hold the FCA to account with much greater independent analysis. When he sums up, I would like the Minister to give us a bit more argument about why this is a bad idea. I turn to the second leg of this amendment, which relates to the Bank of England and the office for regulatory evaluation. It is rather sad that, at 10.05 pm, about 15 of us are debating one of the most important institutions in this country, how it is held to account and the means by which it evaluates its performance. This speaks volumes about how we in Parliament potentially need to up our game in how we hold the Bank of England to account. That criticism may be aimed at all of us rather than at the Government.

The independent evaluation office within the Bank performs, and has performed, a critical role. When you look back to see what various chairmen of the court have said about it, many of them have gone on the record over the past decade praising its work and saying that it provides valuable input to the court by analysing what the Bank is up to and making sure that the Bank is internally held to account. So when the Financial Times reported several weeks ago that the Bank of England was dismantling the IEO, I have to say that alarm bells started to ring.

When the Minister sums up, perhaps he can answer some simple questions. I realise that he is speaking on behalf of the Treasury, not the Bank of England, but what I am trying to understand is, first, what is the problem that this decision to dismantle the IEO is trying to solve? What is it that the Bank is trying to achieve? What is the progress it is trying to make by abolishing and dismantling the IEO, in particular given that so many chairmen of the court have spoken in favour of it?

The second point builds on what my noble friend Lady Noakes said. When the IEO is abolished and these external independent analysts are brought in, how many reviews does the court expect to commission? As my noble friend pointed out, the IEO has published only a relatively small handful of reviews. Is it going to be more or less? Next, if the court chooses the subjects, how will we ensure that the uncomfortable issues that the Bank needs to confront will be confronted? Finally, does the Minister think that this move will increase the accountability and scrutiny of the Bank? That is my litmus test: will it make sure that the Bank’s performance is held even more to account?

There are questions to answer here. I very much welcome what the Minister said about his wish to increase accountability and scrutiny. I think that we are disagreeing here on the means by which to do so, so I look forward to his answers.

Baroness Neville-Rolfe (Con)My Lords, I begin by paying tribute to my noble friend Lady Noakes, to the Financial Services Regulation Committee, including the noble Baroness, Lady Bowles, and the noble Lord, Lord Vaux, and to my noble friend Lord Bridges of Headley for their persistent pursuit of a very simple but important principle. As regulators gain more power and their remit expands, so too should the scope and effectiveness of the oversight to which they are subject.

My noble friend Lady Noakes powerfully articulated the concern that the FSMA model has been stretched too far and that even our expert parliamentary committees are struggling with the volume and complexity of oversight. We need stronger, not weaker, democratic accountability, which is why we saw value in the office of regulatory evaluation and/or my noble friend Lord Bridges’s original model tabled in Committee. We also share his concern about the dismantling of the Bank of England’s IEO.

This is an area where the Opposition will continue to develop our thinking for future legislation and would welcome engagement. We are not comfortable with a system whose reaction seems to be to delegate every new or persistent problem to our regulators. We are very pleased that my noble friend Lady Noakes will continue to work with the Treasury and the regulators on improving parliamentary oversight through the relevant committees, and we look forward to working with her and others across the House, including the noble Baroness, Lady Bowles. What she has proposed represents a practical compromise that would allow us to move on. However, a positive response to Amendment 93 on first use of the new powers would also be important.

One practical way in which the accountability gap could be narrowed a little—and, indeed, trust in the FCA improved—would be to strengthen the remit of the cost-benefit analysis panels, which already sit within the regulators. Their remit could extend beyond rule changes to include guidance and enforcement activity. They could be given the ability to request an assessment of changes that the regulator has judged to be immaterial. This would strengthen internal challenge, improve confidence in the regulatory process and provide Parliament with more useful and more independent information. I have not brought back yet another amendment on this proposal, but I hope the Minister can commit to looking seriously at it as a follow-up to this useful debate. I welcome the Government’s amendment on competitiveness and growth. I am only sorry that the name of the Financial Services Regulation Committee does not seem to have made its way into the statute.

Lord Pitt-Watson (Lab)My Lords, I will not take up too much time because I responded to many of the points at the beginning of the debate. On the Independent Evaluation Office at the Bank of England, the Bank is committed to independent evaluation. It is strengthening the independence of the reviews that it commissions by moving to a model where it commissions external independent experts to lead the reviews.

I echo the noble Baroness, Lady Neville-Rolfe, in thanking the noble Baroness, Lady Noakes—and the noble Baroness, Lady Bowles, I should add—because we have a commitment from the FCA. If you want to be cynical about it, it may not be as fulsome a commitment as we might want, but it says that accountability, scrutiny and proportionality are central and it wants to support effective parliamentary scrutiny, which I think is where we are all coming from. I thank the noble Baroness and her committee for picking up the baton on this because we must all—Parliament and regulators, with the help of the Government where we can help—work together to have a regulatory environment that is effective and proportionate.

With that in mind, the Government do not think that at this stage further legislative amendments are helpful. I beg to move Amendment 31.

Amendment 31 agreed.

Amendments 32 and 33 not moved.

Consideration on Report adjourned.

House adjourned at 10.14 pm.