Financial Services and Markets Bill [HL]

Report

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Northern Ireland and Scottish l egislative c onsent sought . Relevant documents : 2nd and 8th Reports from the Delegated Powers Committee

Clause 1Consumer credit

Amendment 1

Moved by

1: Leave out Clause 1 Member’s explanatory statement This amendment, along with another in the name of Baroness Neville-Rolfe, seeks to allow for a debate on the Government’s intentions around a new regime to be laid down in the regulatory rule book in place of that established by the Consumer Credit Act 1974 and associated legislation, and how they will ensure parliamentary and industry oversight of such a regime.

Baroness Neville-Rolfe (Con)My Lords, I am honoured to open our discussions on Report on the Financial Services and Markets Bill, which we support in general but seek to improve. I congratulate the Minister on his new position and thank him for his engagement. I also thank the noble Lord, Lord Stockwood, whom I am glad to see in his place, and other noble Lords for their constructive approach in six expert Committee sessions. Despite the scale of the Bill and the complexity of the subject, we also ran to time—to the satisfaction, I hope, of the noble Lord, Lord Wilson of Sedgefield. As it is the first day on Report, I declare my registered interest in Meta and Amazon.

This is a large group of amendments, reflecting the anxiety of many of us over the excessive use of delegated powers and the uncertainty this creates in the modernisation of consumer credit law—a move we support. I am moving Amendment 1 to Clause 1, but I intend to focus my remarks on the final amendments in this group: Amendment 93 and Amendments 100 to 103, in my name and that of my noble friend Lord Altrincham, whom I also thank for his work on this Bill.

I hope these amendments might provide a compromise. They address one of the most serious concerns that we and noble Lords across the House have raised about the approach taken in the Bill: the question of how we preserve meaningful parliamentary oversight as increasingly significant powers are transferred away from primary legislation and into the regulatory model established by the Financial Services and Markets Act 2000. That Act was passed when we were still in the European Union, with scrutiny of new areas of regulation in the European Parliament and at ECON, the committee chaired by the noble Baroness, Lady Bowles. Post-Brexit, there is a democratic gap and therefore a huge task for the Treasury Committee in the Commons and the Financial Services Regulation Committee in your Lordships’ House, which is so well chaired by my noble friend Lady Noakes.

We recognise that there are considerable advantages to the FSMA modelgreater regulatory flexibility can allow the framework to respond quickly to changing markets, new technologies and innovation. In areas such as consumer credit, the industry itself has argued that moving away from parts of the Consumer Credit Act 1974 could make the regime simpler and less costly to operate. However, flexibility must not come at the expense of accountability. The effect of the Bill is to place considerable trust in the Treasury and, ultimately, the regulators to use their new powers proportionately, effectively and with sufficient clarity for both consumers and industry. Yet we simply do not know what the regulatory landscape will look like once these provisions have been commenced.

These amendments propose a simple and practical safeguardbefore the relevant powers are brought into force, the Treasury would publish and lay before Parliament a report explaining how it expects them to be used. The requirement would apply both where the new areas of regulation are being transferred to the FCA, the PRA or the Bank of England, and where the Bill creates significant new powers. This includes: consumer credit regulation, currently provided for under the Consumer Credit Act 1974; payment systems; anti-money laundering supervision transferring from existing professional and industry bodies; the powers relating to overseas recognition regimes; and the new powers under Clause 46 concerning crypto assets. As will be apparent, many of these powers are presently in primary legislation. There is a further problem with the excessive powers on access to banking in Clause 3, but we will come on to discuss a different solution to that in group 2.

The transparency that would be achieved by our proposed approach would benefit not only Parliament but consumers and industry. Greater clarity before commencement should mean better scrutiny, greater certainty and better regulation. I hope the Minister will recognise these amendments for what they are: a constructive, workable and proportionate compromise on an issue that has plagued our discussions on the Bill because of the sheer scale of change envisaged. They preserve the flexibility that the Government say they need while introducing a modest but meaningful mechanism of parliamentary accountability.

I would be grateful if the Minister could set out what assurance the Government can give that Parliament will receive this kind of information before these significant powers are brought into effect. If we do not receive sufficient comfort from the Government, I reserve the right to test the opinion of the House on Amendment 93 and its consequentials on Wednesday. Finally, I thank other noble Lords for their amendments in this group and look forward to hearing from them. I beg to move.

Baroness Bowles of Berkhamsted (LD)My Lords, I will speak to my non-diminution Amendments 2 and 3, and to Amendments 4 and 5, which stem from them. In Committee, the Government made it clear that they wish to remove tail risk for firms—a theme running through the changes to the CCA and FOS. I agree that issues such as font sizes and business practices need updating—I would certainly prefer not to have to agree instantly to a garbled recitation of terms and conditions over the phone just to access basic service contracts—but the Consumer Credit Act is fundamentally about protecting consumers from bad corporate behaviour. Aside from the much-cited font issue, tail risk usually arises from bad behaviour that simply takes a long time to surface. There is no justifiable reason for remedy to disappear.

Although I see the attractions of using the FCA framework, I do not accept that there should be a time limit after which bad behaviour is insulated from rectification, or that protections requiring judicial remedy might fall away—over which there is no current certainty. That is the purpose of my non-diminution amendments: to allow modernisation, but not at the cost of significant consumer rights.

A long-standing defect in the CCA illustrates the pointthe Act was drafted in 1974, before securitisation existed. As a result, consumer credit has been sold on in ways that mean that the statutory definition, and thus obligations, of the lender no longer apply. This was a happenstance of financial evolution, not intentional design, yet it seriously degrades a regulated product and directly created the modern mortgage prisoner problem that my noble friend Lord Sharkey has brought to this House more than once. One can foresee the same happening with student loans once they are sold off.

The solution is straightforward. Whenever any right stemming from lending or credit is exercised, including the setting, levying or collecting of interest, the corresponding obligations must travel with that right. That must hold even where responsibilities are split across multiple entities under securitisation structures that currently allow each actor to claim it is not the statutory lender. This is entirely consistent with the CCA’s original assignment provisions, and we have precedent, because the MCOB rules already require obligations to follow the exercise of rights in mortgage services.

This principle works. We explained it to the previous Minister and officials before the summer, providing copies of my first amendment and documentary explanation. I recognise there have been changes on the Government’s side, but it is regrettable that there has been no engagement since, especially as collaborative working on good ideas was a stated commitment of the new Prime Minister.

Some may askwho loses? The answer is that no one suffers unjustified loss. When a regulated consumer product is transferred, the protections attached to it must remain intact rather than be severed, whether by design or accident. For consumer credit, this simply maintains existing rights or, in the case of mortgage prisoners, restores them prospectively. But they had those rights when they took the mortgages out.

Taking the same principle to student loans, once sold into the private financial system, they must carry with them the standards of respectable financial products. Borrowers must be protected from predatory interest rates and, under international accounting rules, when projected non-repayment exceeds 50%, the entire corpus of loans, not just the unpaid part, is pulled on to national debt metrics. Allowing predatory interest rates simply deepens that problem.

This is the logic behind this family of amendments. I urge the Minister to engage constructively as the Bill progresses. As he will know, when I have a principled solution in my sights, it does not go away, because it rests on my conscience, as it should on his.

Lord Sharkey (LD)My Lords, I will speak to Amendment 5 in this group. Structurally, the amendment follows the approach used by my noble friend Lady Bowles in her previous amendment, and I am very grateful to her for the help and support in drafting. My amendment has a simple purpose, which is to bring relief to mortgage prisoners. As many of your Lordships will know, mortgage prisoners are people who are stuck with their existing mortgage holders—who are not active lenders—on very high interest rates and who cannot access a better deal, such as the normal market fixed-rate deals. As a result, mortgage prisoners continue to pay interest at around four percentage points over the normal market fixed-term rates. This costs them hundreds, and even thousands, of pounds extra per year.

According to the UK Mortgage Prisoners action group, there were originally around 195,000 mortgage prisoners. This number is declining slowly due to death, reaching the end of term and repossessions. The largest group of mortgage prisoners are former Northern Rock customers. After nationalisation in 2007, these mortgages were placed in a Government-owned company run by UK Asset Resolution—UKAR. When returning these mortgages to the private sector, the Conservative Government could have sold them to active lenders, which would have offered the prisoners a fair market deal. The Government did not do that. Instead, they sold the mortgages to non-active lenders and vulture funds; the consequences we continue to see.

It is not as though the Government were not warned about the problem this would cause. The risk to customers was clearly identified. In January 2016, the noble Lord, Lord McFall, wrote to the Treasury and UKAR, warning them that:

“Many of … those affected by these sales, will be mortgage prisoners and will be unable to switch lenders”.

He told the Government that the customers affected by the sales should be protected, offered a fair deal and given access to fixed rates. He warned that:

“Given the prospect of rising interest rates it is important that all mortgage customers are given the opportunity to achieve certainty over their payments by accessing a fixed rate”.

He told the Government that he was,

“concerned that some customers affected by these mortgages sales … will not be offered reasonable fixed mortgage rates”.

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UKAR responded by saying that returning these mortgages to the private sector would mean that

“the option to be offered new deals, extra lending and fixed rates should become available”.

This requirement was not written into the contract when the mortgages were sold to the vulture fund Cerberus, despite UKAR telling the BBC “Panorama” programme that Cerberus had the ability to lend to former Northern Rock customers and that UKAR believed Cerberus intended to do so. These terms were not written into the contract of sale. The mortgage prisoners were left unprotected by UKAR’s incompetence, naivety and neglect.

Martin Lewis commented that the Conservative Government had

“sold these loans to professional debt buyers that don’t offer mortgages, and left these people with these types of mortgages that have been too expensive and crippled their finances and destroyed their wellbeing”.

He also said that

“Mortgage prisoners have been left paying obscene interest rates for over a decade, through no fault of their own”.

This is still the case, despite repeated attempts to bring relief, and despite open and acknowledgement of the suffering caused. In 2021, for example, Labour, Cross-Bench and Lib Dem Peers passed an amendment to FSMA 2000 to cap rates for mortgage prisoners. Conservative MPs removed that amendment, which is why, through no fault of their own, mortgage prisoners remain prisoners. Their hardships continue. There have been suicides, attempts at suicide, homes repossessed and uncertainty about the future, especially for those with expiring interest-only mortgages. We now have an opportunity to provide some relief going forward.

The amendment before us addresses the three failures that together created mortgage prisoners. The first is that statutory rights did not travel with the loan; this would be fixed by subsection (2) of the new clause proposed in the amendment. The second failure is that SPVs and inactive lenders have continued with predatory pricing, which would be fixed by subsection (3). The third failure is that SPVs claimed that they were not the creditor; subsection (4) would fix this. Subsection (3) would also place a limit, to be determined by reference to a market proxy determined by the FCA, on interest rates, fee structures or other pricing terms. All this is prospective; none of it is retrospective. It is time that the mortgage prisoner problem had some real help, and this amendment sets out how to do that for the future.

The Lord Bishop of ManchesterMy Lords, I support Amendment 2 in the name of the noble Baroness, Lady Bowles of Berkhamsted, to which I have added my name. As we have already heard, this amendment would ensure that, when provisions of the Consumer Credit Act are repealed or replaced by FCA rules, the overall level of consumer protection would not be diminished. The Consumer Credit Act has long provided established routes of redress to consumers; it has done so for decades. It provides a core of fundamental protections enshrined in primary legislation and developed through parliamentary scrutiny, and probably is fairly well known.

As financial services continue to evolve, the ways in which consumers are protected must be capable of adapting to change. Were we to open up the CCA to repeal by the Treasury and the FCA without putting significant statutory protections in place, it would risk reducing standards of consumer protection for all people. Indeed, in its own review of the Consumer Credit Act, the FCA stated that many of its provisions

“could not be replaced by FCA rules”

under its current powers

“without adversely affecting … consumer protection”.

I have spoken many times before about the importance of equal financial opportunity for underserved communities, especially those who have less financial literacy or who face language barriers. The Joseph Rowntree Foundation tells us that a record number of people in this country are currently living in “very deep poverty”. Without equal access to financial services, they are deprived of the tools that might help them to stay afloat. For many families, credit is a lifeline in the face of the cost of living crisis. It is what enables them to make ends meet, but accessibility must be accompanied by adequate protection.

Data from the last year shows that 25% of cases seen by the Financial Ombudsman involved vulnerable consumers. It is these groups who are least able to advocate for themselves when things go wrong or to navigate complex complaints processes on their own. To increase access to financial services of vulnerable groups while simultaneously hollowing out the protections from which they disproportionately benefit introduces greater risk for those who already stand to lose the most.

The protections of the Consumer Credit Act are to be opened up to repeal. We must be certain that consumers will enjoy protections that are at least as strong as those from which they benefited before. This amendment is essential to preserving the fundamental rights which enable vulnerable groups to participate fully in economic life and provide consumers with the confidence they need that they will be protected when things go wrong—as from time to time they do.

Baroness Altmann (Non-Afl)My Lords, I support the amendments in this group, and I feel that this Bill has an opportunity to improve—or at least not diminish—the protections that are offered to consumers of financial services. We have long known that from a consumer perspective, the asymmetry of information and the asymmetry of understanding leaves ordinary consumers open to being taken advantage of by financial services companies. The law is supposed to protect them and currently we have legal protections in place—albeit they are out of date and need updating, as we have already discussed. However, I certainly hope that the Minister—who I warmly welcome to his place—would understand that the aims of these amendments are to ensure that the financial consumer is protected both at the retail level and against practices that have arisen in the past and will arise in the future.

I particularly feel that the amendments about non-diminution when it comes to consumer credit and student loans, in the name of the noble Baroness, Lady Bowles, are extremely important to the ordinary person in the street. I commend the noble Lord, Lord Sharkey, and the noble Baroness, Lady Bowles, on continuing the attempts to ensure that mortgage prisoners are treated much more fairly. We have another opportunity now to remove this stain on our financial services landscape, and I really hope that the Government will be able to agree and accept that capping, at the very least, the costs and interest rates that mortgage prisoners have had to pay—at such great cost and pain—will be a possibility within this Bill.

Baroness Kramer (LD)My Lords, I will be extremely brief because my Bench has just spoken very clearly on this issue. I share with the Conservative Front Bench concerns about accountability with a further removal of powers directly into the hands of the regulator, and had they pressed their Amendment 1, we would have supported it.

Very briefly, I will address the other amendments. I am still in a state of genuine concern that the Government will not accept an amendment that would confirm that the changes they are proposing to the Consumer Credit Act, which will be absorbed now into the role of the FCA, will not involve a diminution of consumer credit protection; this is the non-diminution of rights that the noble Baroness, Lady Bowles, described. Of course, the FCA could keep those rights in place, but there is nothing that compels it to do so. I find it extraordinary that we cannot be given this reassurance.

However, I am more exercised than anything else about the position of mortgage prisoners. The people who have been impacted, and many are now elderly, have dealt with a shocking situation over the past years. We could now give them relief for the remaining years in which they will be tangled with paying extraordinary levels of interest on mortgages that were taken out in good faith, for which they properly qualified and which were, at the time, market-standard mortgages. It has happened because, in essence, an arm of government has made mistakes when it has sold on those loans to vulture funds. It is shocking that we have not corrected this. The amendment before us today is new thinking. It is incredibly effective at making sure that, going forward, this incredible injustice is ended, and I hope very much that, even in these last few minutes, the Government will think again and provide support.

The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)My Lords, it is a privilege to be here today to debate the Financial Services and Markets Bill. I put on record my thanks to my noble friend Lord Stockwood for leading the earlier stages of this debate and thank all noble Lords who have contributed to this debate in Committee and beyond.

If noble Lords would allow me, I would like to say a few things about the Bill itself before moving on to address the amendments that have been put forward. The Bill has a purpose on which I think we are all agreed: to construct rules that help the financial services industry to serve its customers better and to prosper as a result of doing so. Noble Lords will therefore see that, in responding to the debate in Committee, the Government have been persuaded of some significant points made then and are proposing some significant amendments which I hope will be welcomed by the House. There are also amendments that will be suggested on Report where the Government disagree with the specific measure proposed but, in many cases, have great sympathy with the ultimate goals of the particular amendment.

However, there are many amendments which we do not believe belong as part of the Bill, in part because they are complex and require consultation, and/or go beyond the scope of the Bill, and in part also because the aims of the amendment are not best served by changing primary legislation but where the Government often would want to help promote the goals of the amendment—indeed sometimes, they already are—and can perhaps seek to encourage better practice. Central to all this is accountability, which I will come to at beginning and end of this group and then again later today.

To turn to these specific amendments, Amendments 1 and 6 would remove Clause 1 and Schedule 1 from the Bill and prevent the Government’s programme of Consumer Credit Act reform. Amendments 2 and 3 would ensure that the reforms do not diminish consumer protections, and Amendments 4 and 5 relate to the assignment of student loans and of mortgages. Similar amendments were debated in Committee, and the Government have carefully considered the concerns raised. However, we have concluded that we wish to press ahead with these much-needed reforms.

I think that we all in this House agree that the FCA is the right body to take on the role of consumer protection, and Parliament has already given it the right powers and objectives to do so, including a consumer protection objective. Since the 2014 transfer of consumer credit to the FCA, important protections, including creditworthiness and affordability assessments, have successfully operated through the FCA framework. I recognise the concern, raised both in Committee and again today, that Parliament is being asked to approve reform before replacement FCA rules have been finalised. However, I emphasise that the FCA must consult on proposed rules and engage with parliamentary committees as part of an established statutory framework. This includes the Financial Services Regulation Committee, ably chaired by the noble Baroness, Lady Noakes.

Both the FCA and the PRA are clearly aware of scrutiny. Last week, they sent me a letter, which I think has been circulated to all noble Lords, making a number of commitments further to enhance parliamentary scrutiny, and I have placed those letters in the Library. I expect to cover this information, including that in the letter, in detail in a later grouping today.

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On Amendments 2 and 3, I fully agree that consumers must continue to benefit from robust protections and effective routes to redress. The Government would not be proceeding with this reform if we felt otherwise. However, I do not consider that the duty proposed is an appropriate mechanism to achieve this. The Government have already concluded that certain important protections should remain in legislation, including Section 75, which allows consumers to claim their money back from their lender where products and services purchased on credit are faulty or do not arrive, and the unfair relationships provisions in Sections 140A to 140D. As I have said, the FCA H andbook already contains important protections, including for creditworthiness and affordability assessments.

Nothing that we are doing here seeks to lessen consumer protections—a concern of the right reverend Prelate the Bishop of Manchester and the noble Baroness, Lady Altmann. However, the Consumer Credit Act is highly prescriptive in the information requirements, which can produce poor outcomes for consumers. The current regime can be difficult for those with lower literacy and financial capability. Some documents require a reading ability at an undergraduate level. These reforms will make it possible for the FCA to enable firms to tailor communications to consumer needs, which will improve accessibility and support better outcomes for vulnerable customers.

The Bill will repeal the statutory sanctions attached to these prescriptive requirements. Sanctions were designed for a very different regime under the Office of Fair Trading, with limited regulatory powers to ensure that consumer protections were no longer necessary to ensure robust protection for consumers. Instead, consumers will be protected through the modern system of financial services regulation, where the FCA supervises firms, enforces rules and can require redress. Consumers have access to firm complaint processes and the Financial Ombudsman Service, and firms are required proactively to redress consumer harms under the FCA regime, on the basis of consumer complaints or their own regular compliance monitoring.

Finally, the repeal of the Consumer Credit Act provisions will not commence without replacement arrangements being in place. The Government’s intention is an orderly transition that avoids any gap in consumer protection and provides certainty for consumers and firms alike to ensure that consumers can benefit from an updated framework and to bring consumer credit regulation into line with comparable financial services products.

The Government do not believe that it would be right to remove Clause 1, which would prevent this reform, or to introduce the sorts of duties set out in Clauses 2 or 3, where, for example, there could be an argument about the information that was provided to consumers, which might well have been expressed in a way that would not be to their advantage or to their understanding. In all of this, there is no intention to reduce consumer protections.

On the important issue of mortgage prisoners, I recognise the legitimate strength of feeling across the House and the very real pressures that are faced by the affected households. At a time when families are already facing pressure from energy bills, food prices and other essentials, we must ensure that people are treated fairly.

As noble Lords may be aware, the number of borrowers in closed books is still at 105,000—down from 195,000 in 2021, but still too many. The fall is welcome, but it does not lessen the seriousness of the circumstances faced by those who remain; nor should the reduction in numbers be taken to mean that the underlying challenges have been resolved. Those who remain may be facing particularly persistent barriers to switching or to obtaining a mortgage appropriate to their circumstances.

The circumstances of mortgage prisoners deserve our serious attention. I am sure that many noble Lords agree with me about that. I hope many will also agree that the Government must ensure that any proposed intervention in this market is fair but also effective. With this in mind, we have considered whether a rate cap of the kind proposed in part by these amendments would improve outcomes for mortgage prisoners.

We understand the intention behind the amendment, to provide relief to borrowers who may be paying more than they can reasonably afford. This case was made quite articulately by the noble Baroness, Lady Bowles, and the noble Lord, Lord Sharkey. Nevertheless, a cap on the rates paid, as envisioned by the amendment, would not in itself address why some borrowers cannot switch products. Indeed, previous analysis by the London School of Economics also raised concerns about the effectiveness and wider consequences of such a cap.

The Government are sympathetic to the challenges that mortgage prisoners face. They are, however, clear that a cap on rates does not seem to be the right solution. Our focus is on ensuring fair treatment, proper oversight and practical routes for borrowers who are struggling or who may have been unable to access appropriate support. As to the right course of action, as I have said, this deserves the attention of the Government, and we will continue to work with the FCA and the industry to ensure that lenders and administrators fulfil their responsibility to communicate clearly with affected borrowers, and provide appropriate support where people are in difficulty. We will also continue to pay close attention to the experience of those who remain unable to access suitable mortgage products. I am sorry that this answer will not meet the issues that the noble Baroness, Lady Kramer, and others have raised, but we are unconvinced that this amendment will solve the problem that needs to be addressed.

I turn to the sale of student loans, raised by the noble Baroness, Lady Bowles. The last student loan sale took place in 2018. The Government have no active programme of student loan sales and currently have no plans to undertake further sales. I reassure noble Lords that existing legislation already includes protections for borrowers whose loans have been sold, including provisions in the Sale of Student Loans Act 2008 designed to ensure that such borrowers are not placed in a worse position as a result of the sale.

Finally, I turn to the question of delegated powers and Amendments 93 and 100 to 103, in the name of the noble Baroness, Lady Neville-Rolfe. The amendments would require the Treasury to lay before Parliament a report setting out how the powers conferred in several parts of the Bill will be used before it can use the powers or commence the relevant provisions. Delegated powers are a long-standing and accepted part of the legislative and regulatory framework for financial services. The pace of innovation means that detailed primary legislation becomes out of date and ineffective. The Consumer Credit Act is a good example of this. Enabling the Treasury to adjust the scope of regulation to reflect market and technological developments keeps our framework effective. This is not a short cut or bad policy-making. It is how the system is supposed to work.

The Government want to be as open as they can about how these delegated powers will be used. They do not think that legislation is necessary. I note that material already set out in the Bill’s delegated powers memorandum covers powers delegated to both the Treasury and the regulator. That report is 65 pages long and we have published two supplementary memoranda to reflect changes introduced through the amendments.

I am sure that we have all heard complaints that regulations can be slow to change, meaning that it takes longer for consumers and firms to benefit from reforms. I fear that these amendments would slow us down still further. They would also set a precedent to restrict the powers available to the Government in this way and might delay the delivery of important reforms. I note that the Delegated Powers and Regulatory Reform Committee, which did have comments on this Bill, did not raise concerns about any of the delegated powers to which these amendments reply.

In the spirit of openness that has characterised this Bill throughout its transition, I would be more than happy to meet with the noble Baroness to discuss how the Government can continue in a spirit of openness. However, I do not think that legislation is the correct answer to this issue. I therefore ask the noble Baroness to withdraw her amendment.

Baroness Neville-Rolfe (Con)My Lords, I am very grateful to the Minister for his response and his detailed explanation of how Clause 1 is framed. I am also grateful to the other noble Lords who have contributed to the debate—the noble Baronesses, Lady Bowles and Lady Altmann, and the right reverend Prelate the Bishop of Manchester—on the recasting of consumer protection law, which is very important to us all, and the noble Lord, Lord Sharkey, on mortgage prisoners. I would describe that as a sorry tale.

We remain of the view that, when this process of recasting takes place, Parliament and industry must have a practical mechanism through which they can exercise oversight and make such representations as they need to make, such as those that we have heard today, on how the powers are used. The system would not be undermined by that; it is a first-occasion proposal. That is what Amendment 93 and its consequentials seek to provide. It is a workable and proportionate mechanism which allows the Government to achieve their broader objective of introducing a more flexible regulatory framework, but not wholly at the expense of scrutiny, transparency and democratic accountability. We should not be signing away any rights and protections without knowing what will replace them.

I am very grateful to the Minister for engaging with us on our concerns. I do not think that the delegated power memorandum meets them, because it does not explain what all these new powers in these areas are going to be used for, including consumer credit. There must be a meaningful mechanism to acquaint the House with how the powers are exercised and to ensure that regulatory officials turn up to the committee at the convenience of the committee and are able to answer questions on a suitable report on how these important changes are taking place.

We support the general drift of these changes, as the Minister knows well, but we are worried about accountability. I am happy to have further discussions but, if need be, I plan to test the opinion of the House when we reach Amendment 93 on Wednesday. I beg leave to withdraw Amendment 1.

Amendment 1 withdrawn.

Amendments 2 to 4 not moved.

Amendment 5

Moved by

5: After Clause 1, insert the following new Clause— “Protection of consumers where regulated credit agreements or regulated mortgage contracts are transferred to inactive lenders (1) This section applies where rights under any regulated credit agreement or regulated mortgage contract are assigned, sold, securitised or otherwise transferred to a person who is an inactive lender or closed book owner.(2) Where subsection (1) applies, the consumer shall retain against the transferee all statutory and contractual rights, protections and avenues of redress that were available against the original creditor or lender.(3) Any variable interest rate, fee structure or other pricing term applied by an inactive lender or closed book owner must not exceed a reasonable market proxy determined by the Financial Conduct Authority.(4) Any person exercising rights of enforcement arising from an agreement or contract to which this section applies is treated as a creditor or lender for the purposes of this section.(5) For the purposes of this section, the exercise of rights of enforcement includes the setting, varying, applying or collecting of interest, fees or other pricing terms, whether undertaken directly or through an agent.(6) The duties in this section apply from the date on which this section comes into force—(a) to any regulated credit agreement or regulated mortgage contract in force on, or entered into after, that date, and(b) to any person who holds, or subsequently acquires, rights under any such agreement or contract, regardless of whether the assignment, sale, securitisation or transfer of rights occurred before, on or after that date.(7) For the avoidance of doubt, nothing in this section requires the reopening, invalidation or unwinding of any assignment, sale, securitisation or transfer effected before the date on which this section comes into force, but any exercise of rights, variation of interest rates or enforcement occurring on or after that date in respect of such a transfer is subject to the provisions of this section.(8) For the purposes of this section—“inactive lender” or“closed book owner” means a person who holds rights under a regulated credit agreement or regulated mortgage contract but does not actively offer new regulated credit agreements or regulated mortgage contracts to consumers in the United Kingdom;“regulated mortgage contract” has the meaning given by article 61 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544).”Member’s explanatory statement This new Clause seeks to ensure that when regulated credit agreements or regulated mortgage contracts are transferred to inactive lenders or closed book owners, consumers retain their full statutory and contractual rights. It would allow the Financial Conduct Authority to cap variable interest rates and pricing terms at a reasonable market proxy.

Lord Sharkey (LD)My Lords, I had hoped that the life-crippling injustice visited on mortgage prisoners by government would produce a more sympathetic approach. In fact, it is hard to tell what approach, if any, the Government are proposing. What are they proposing to do about this long-standing and obvious injustice? Let me point out one thing. There has been a lot of research in this area, much of it funded by Martin Lewis and Money Saving Expert. That report, three years old now, put forward six areas for discussion to arrive at a solution.

Martin Lewis has had no response from the Government at all to his reportmore talk, but no action that would actually help. The difference between what the Government are saying and what the amendment is saying is that the Government are promising nothing, not even making a commitment to do something, or even think about it, and the amendment delivers something. I would like to test the opinion of the House.

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Schedule 1Consumer credit

Amendment 6 not moved.

Clause 3Access to banking services

Amendment 7

Moved by

7: Clause 3, page 2, line 4, at end insert— “(2A) Regulations may only make provision arising directly from the review carried out under subsection (2).”Member’s explanatory statement This amendment would restrict the scope of the regulations so that they may only implement matters that have been reviewed and consulted upon. It seeks to prevent the power from being used more broadly than Parliament intended.

Baroness Kramer (LD)My Lords, it was exceedingly remiss of me, when I spoke earlier, not to welcome the noble Lord, Lord Pitt-Watson, to his role. We have had so many conversations that I have begun to think of him as the established Minister, yet sitting just a few Benches away is the noble Lord, Lord Stockwood; we are so glad for his presence and that he will stay engaged with this Bill. The noble Lord, Lord Livermore, was also with us earlier: he was a relentless proponent of the Government’s position and I will miss my engagements with him.

Clause 3 deals with access to banking services. The Government have told us that the powers in this clause are intended to allow them to incorporate into law and regulation recommendations from the independent public review of access to banking services, chaired by Richard Lloyd and due in October. The review will evaluate the impact of ongoing bank branch closures and access to face-to-face banking across the UK.

We on these Benches strongly support this review. Banks have closed a third of their branches in the last five years and, since 2015, nearly 7,000 bank and building society branches have shut down. We have been strong advocates of the banking hub scheme to create at least minimal access to services; 235 have opened, but the commitment is to a total of only 350 hubs. Much stronger action is needed, and soon.

But—and it is beyond my comprehension why—Clause 3 has not been drafted for the narrow purpose stated by the Government of implementing the recommendations of the Lloyd review. It allows the Treasury to amend any Act of Parliament and to give any powers it wishes on access to banking to the FCA. Nothing is confined to the Lloyd review; it is Henry VIII on steroids.

I put down Amendment 7, which would limit powers to allow the Treasury to implement only those provisions arising directly from the Lloyd review. That at least has been consulted on and had some broad engagement. The Government have not accepted that amendment. We therefore cannot accept the huge constitutional breach that Clause 3 represents.

If the Conservative Benches move ahead with their Amendment 10, which would knock Clause 3 out of the Bill, I have strong hopes that the Government will come back with proper wording in the Commons, by which time the Lloyd review will have been published. As I say, we expect to support every aspect of the recommendations from the Lloyd review, although we have not yet seen them, but we cannot set the precedent of allowing sweeping powers that go way beyond the stated objective to be incorporated in a Bill of this significance.

17:00:00

Lord Vaux of Harrowden (CB)My Lords, as this is the first time I am speaking on Report, I should remind the House of my interests as a shareholder in Fidelity National Information Services Inc, which provides services to the financial sector, and as a non-practising member of the Institute of Chartered Accountants in England and Wales. I, too, welcome the noble Lord, Lord Pitt-Watson, to his new role, and I apologise to the noble Lord, Lord Stockwood, because, when we discussed this clause in Committee, I jokingly referred to the Minister not always being the Minister, for which I apologise.

I have Amendment 9 in this group, which would remove the egregious Henry VIII power from Clause 3. I have also added my name to Amendment 10, which would delete Clause 3 altogether. As I explained in Committee, as someone who lives in a very rural area, my nearest bank branch, now that the last branch in my nearest town has closed, is a 100-mile round trip—so access to banking is a subject with which I have a lot of personal sympathy. I look forward to seeing the Lloyd report once it has been published in October. Like the noble Baroness, Lady Kramer, I expect to support an awful lot that will be in it.

The problem with Clause 3 is that it gives the Government incredibly broad and unfettered powers in this respect, including an unlimited power to amend any Act of Parliament. Indeed, there is nothing in the clause that would prevent a Government reducing access to banking if they chose to do so. I do not think I can put it any better than our Delegated Powers and Regulatory Reform Committee in its report of 17 June, which brought these wide powers to the House’s attention. It concluded that

“the problem with clause 3 is that it confers a wide regulation-making power on Ministers before any key policy decisions have been made, before any problem has been clearly identified and assisted by a power to amend any Act of Parliament ever made. Such a power severely compromises effective parliamentary scrutiny. We consider that the power in clause 3 is inappropriately wide and should be removed from the Bill”.

This Government have form on pushing through legislation before they know what they want to do with it, and this example is particularly egregious. I asked the noble Lord, Lord Stockwood, in Committee when he was the Minister, which Acts of Parliament the Government had in mind to alter using this power. The response, I am sorry to say, was less than illuminating. He said that

“the Treasury expects to use the power if needed to amend relevant legislation, for example, financial services legislation ”.—[ Official Report , 22/6/26; col. GC 232.] He went on to say:

“As the recommendations of the independent Access to Banking Services review are currently unknown, it is necessary for Clause 3 to be able to amend primary legislation to respond to any recommendations that are made ”.—[ Official Report , 22/6/26; col. GC 235.] In other words, “We don’t know what we want to do, so we’re just going to make it as wide as possible”. My guess is that it is actually highly unlikely that any primary legislation will need to be changed as a result of this, but we shall see.

I think that makes the case against Clause 3. It is not satisfactory for the Government to give themselves the widest of powers, including the unlimited power to change any existing Act of Parliament, when they have no idea what they want to do with those powers.

The Government claim, in the Explanatory Memorandum and elsewhere, that they will narrow the powers once the Lloyd report has been received. But this is Report. We have not seen the report. It will take I do not know how many months for the Government to come up with recommendations based on the report. The Bill will probably already be law by then, so there will be no real opportunity to narrow the powers.

I am sure that the House will support moves to improve access to banking when in due course the Government actually have a plan, and, in the unlikely event that changes are required to existing law, a short, focused Bill can be created to do that, which, as all changes to the law should be, can be subject to the proper scrutiny processes of Parliament. This unfocused clause is too wide and any resulting changes to law would not be subject to proper scrutiny. That is not the right way to legislate. At the very least, the Henry VIII clause should be removed, as I suggest in Amendment 9, but the clause as a whole is too wide, and therefore I urge all noble Lords to support Amendment 10 from the noble Baroness, Lady Neville-Rolfe, to remove this unrestricted power.

Baroness Hoey (Non-Afl)My Lords, I want to support Amendment 8, but no one seems to have spoken to it, so is it in order for me to say a few words on it? It is an important amendment because it contains really the only mention in the whole Bill of post offices. The amendment, in the name of the noble Baronesses, Lady Tyler and Lady Kramer, and the noble Lord, Lord Holmes of Richmond, talks about the Treasury considering

“the effectiveness of alternative frameworks, including the Post Office Banking Framework, in providing access to banking and cash services”.

That is an important aspect of all this.

Increasingly, we are seeing that people, particularly in rural areas or areas where there is high deprivation where people do not have access to online facilities and do not particularly want to go online because they do not trust banks enough to go online or they do not trust the internet, are using their post offices. The post offices could be doing so much more to widen access to cash and money.

I draw attention—although I am sure most noble Lords will have seen it—to the National Federation of SubPostmasters 18-page report on the access to banking services review, which shows statistically just how much more post offices are being used by people and how they could be used to provide even more services. When banks close in areas now, it is usually the post office that picks up a lot of that business.

I welcome the Minister to his position, and I hope he will say whether the Government are serious about increasing the use of post offices, not just for some of the issues to do with banking. You can no longer pay your television licence—if you still want to pay it—in the post office. So many services have been taken away from the post office, but such services would make it much easier and more accessible for people, particularly in rural communities. People trust their local post office. They find that it is somewhere they can go and get the advice and reassurance that they cannot get in a local bank because they do not ever see a bank. I have already mentioned the lack of trust.

I ask the Minister to respond to this amendment and say whether he is willing to talk directly to the National Federation of SubPostmasters to discuss these issues further and how we can make our post offices more vibrant and involved with the local community by being able to offer them the services that they want.

Lord Holmes of Richmond (Con)My Lords, it is a pleasure to follow the noble Baroness. As this is the first time I have spoken on Report, I declare my technology interests as set out in the register, as adviser to the Crown Estate and Simmons and Simmons LLP and as non-executive director at Avalanche Foundation and Avalanche (BVI) Inc. I shall speak to Amendment 8, which I had pleasure in signing.

How many brands or businesses have we in the UK that have been on our high street for over half a millennium? That is what we have with the post office, which rode into our lives in 1511 and continues to have just shy of 12,000 branches up and down the country. Whatever happens with digital—and finance certainly is going to become, and already in many areas is, digital—we need, and must support, physical presence and human access to, and interaction with, finance, not least for those who find themselves at the sharpest end of financial exclusion. As I have already mentioned, financial inclusion often and perniciously goes hand in hand with digital exclusion, compounding both of those exclusionary forces.

The post office has a unique role. Of course, it has had well-known difficulties recently, but that does not diminish the potential role it can play as other financial services providers retreat, and have already retreated, from so many of our high streets. It can be the core of the community with inclusive, accessible finance at that core and rippling out all kinds of other financial, digital and small “s” social services. It has such positive potential. We have seen this with the hub model, and I would be interested in the Minister’s response as to whether the Government believe we have enough hubs, whether the plan for hubs is ambitious enough and whether we need to bring other players into this hub model to ensure that, wherever you are, whoever you are, in the country, in socioeconomics, you can have effective access to finance and through that meaningful, sustainable and often physical access to cash and financial services. I very much look forward to the Minister’s response to this amendment.

Lord Massey of Hampstead (Con)My Lords, I rise briefly to support Amendment 10 from the noble Baroness, Lady Neville-Rolfe, to add a few of my own concerns on Clause 3 and to support the remarks made earlier on this matter by the noble Lord, Lord Vaux, and the noble Baroness, Lady Kramer. Protecting customer access to essential banking services is, of course, a goal we all share. However, the granting of such wide-ranging executive powers, basically conferring almost unlimited powers on the Treasury for this matter, seems unnecessary, even allowing for the understandable desire to act quickly. The Treasury’s own review of in-person banking access does not report until October, as has been mentioned, and we are being asked to legislate before we know the nature of the problem we are solving or the policy decisions that might follow. Would they be proportionate? Would they be effective? We really have no way of knowing this at this stage and do not even have the benefit of seeing the report.

The Treasury’s memorandum to the DPRRC seeks to narrow these powers when the review concludes, so the Government are implicitly aware, I assume, that the delegated powers are too broad. But the answer is not to grant excessively wide powers now and then tidy up later; surely it would be better to wait or bring back a properly balanced set of powers when the evidence exists. I offer my support to Amendment 10, which would delete Clause 3 altogether.

Baroness Altmann (Non-Afl)My Lords, I also support the amendments in this group. I believe that the description of these extremely wide powers should, in itself, alert the House to the dangers that Clause 3 of the Bill could pose. I believe that it is important for the Government to understand, for example, what has been revealed in the latest report, just a few days ago, from Age UK about digital exclusion among the older age groups in this country. It is all very well for policymakers—and Members of this House, indeed—to believe that everyone can manage to bank online and that there is no need to go into a physical branch. But when it comes to the older generations, that is simply not the case. Certainly in terms of the population aged over 65, the research suggests that only 15% of pensioners, or of the over-65s, are fully digitally included and able to use all services digitally—it is 20% of men and 10% of women—and that 1.4 million over-65s are fully digitally excluded. The more we see bank closures and the less access to banking these people have, the more excluded from society they become.

I hope the Government will recognise that we need to make sure that there is an opportunity for Parliament and for the legislation to ensure that these older people are not forgotten or left behind and that the access to banking that they may rely on is not removed, perhaps inadvertently, from legislation where it could have been avoided. For example, if we agreed some of the amendments in this group, they would ensure that either Clause 3 altogether or the most egregious parts of it are removed, as the noble Lord, Lord Vaux, said. As the noble Baroness, Lady Kramer, said, we should make sure that the Lloyd review, which is meant to deal directly with this, is part of the legislation.

17:15:00

Baroness Lawlor (Con)My Lords, I support my noble friend Lady Neville-Rolfe’s amendment, which would leave out Clause 3. I very much agree with the noble, Lord Vaux, and other noble Lords who have spoken. I support these amendments on constitutional grounds, because of the importance of the separation of powers and the role of Parliament in checking executive power, as my noble friend Lord Massey mentioned. How can we hold the Government to account if we have no knowledge of the powers proposed? Clause 3 allows the Treasury the power to make any regulations it considers appropriate. We have no knowledge of what they are. Clause 3 also gives the Treasury power to delegate powers to the FCA. It allows the FCA to “make rules”,

“amend an Act of Parliament”

or

“make different provision for different purposes”.

There are many concerns about the regulators. I will mention two. First, the regulators do not supervise or explore predictably in accordance with their own rules. You will find different interpretations given to their rules in their rulings. We must ensure that their decisions are consistent between firms which operate businesses of similar sizes. Secondly, formal decisions by the regulators do not necessarily include sufficient explanation to serve as precedents to allow the application of the relevant rules.

I am very pleased to welcome the Minister to the Front Bench and to say how much we miss the noble Lord, Lord Stockwood, but I wish the Minister well. It is on constitutional grounds that I ask him to think very carefully about these amendments.

Lord Mackinlay of Richborough (Con)My Lords, I will say a couple of words on Amendment 10 in the name of my noble friend Lady Neville-Rolfe, which I fully support. The phrase:

“The Treasury may by regulations make such provision as they consider appropriate in connection with providing access to banking services”,

is not just wide; it is ocean-wide. It is far too wide, and it is without parliamentary consent or any investigation as to what our democratic processes consider to be the right level of banking services and access to banking across this country.

I will also say a few words on Amendment 8. I am very pleased that the noble Baroness, Lady Hoey, spoke about the Post Office. When I was a constituency MP, I faced—as anyone who lives in any part of this country faced—the closure of banking services, which always caused concern, particularly to older residents. I purposely kept my father, now deceased, away from digital banking because of the risk of scams and of those dodgy emails coming in. He was of perfectly sound mind and very capable, but he perhaps was not as scam aware as younger people are, so I wanted him a long way away from digital banking services—and why should he not stay away from digital banking services?

We were always told by the banks that were closing, “Fear notwe have a Post Office network for all that your constituents and customers need to do in terms of access to cash, banking cheques and that more standard stuff”. I do not know about other noble Lords, but I use digital banking—of course I do. However, when faced with cheques, which are a little bit rarer these days than they used to be, I struggle—for obvious reasons—to hold the camera and go up a bit, left a bit, right a bit, down a bit, get told, “It’s not all in the picture yet”, and press the button. I am sure we all share that frustration. Let me leave your Lordships with this about the Post Office: it is not the panacea of everything. Over the last few months, Lloyds Bank has stopped the use of Post Office services to its customers. I do not know why. This is a two-way street: at the banks’ discretion, they can have a relationship with the Post Office or not. For reasons known only to itself, Lloyds has decided not to use the services of the Post Office. For those reasons, I sympathise massively with the noble Lord, Lord Vaux, who now has to make a 100-mile round trip to a bank. No doubt there is a post office nearer than that, but if you are a Lloyds customer, hard luck: 100 miles.

This is not about the quantity and texture of tomato sauce in a can of beans, which might lead to officials and statutory instruments; these are fundamentals of life that everybody faces on a daily basis. To allow the extent of this power is a power too far. We see far too much Henry VIII in all legislation, not just from this Government but from the Government I was with over the years. There has been a temptation for this creep to happen, and it must not enter the Bill.

Baroness Neville-Rolfe (Con)My Lords, I thank the noble Baroness, Lady Hoey, and my noble friends Lord Holmes and Lord Mackinlay, for reminding us of the value of post offices and the importance of banking hubs, especially in this ever-expanding digital world. There are serious issues here across the country.

I will speak to my Amendment 10, which would do a very simple thingremove Clause 3 from the Bill. My argument for it is equally simple: Clause 3 contains no detail about what the Government intend to do. Instead, as the noble Baroness, Lady Kramer, explained, it grants Ministers extraordinarily broad powers, including the power to amend primary legislation on access to banking.

Once the Richard Lloyd review has concluded, the Government may legislate for whatever they subsequently decide is necessary. That could include anything on banking services, with huge implications for consumers, banks, other financial services and the high street. As the noble Lord, Lord Vaux, said, the Government will have the power to amend any Act of Parliament. That is a huge power grab by the Treasury and a very significant delegation of power to ask Parliament to approve in advance. We do not know what problems these powers will ultimately be used to address, what regulations the Government envisage making, or which Acts of Parliament they wish to amend. Yet Parliament is nevertheless now being asked to hand over the power to do all these things.

We should be very cautious about giving any Government powers of this breadth on the basis that they will decide later, in good faith, how they wish to use them. Parliament should not be asked to give Ministers carte blanche, particularly where the powers include the ability to amend primary legislation with minimal parliamentary scrutiny. That would set a terrible precedent. The right course is straightforward: Clause 3 should come out. Once the Government have completed the review of access to banking and know what they wish to do, they can return to Parliament with legislation setting out the policy, the powers required to deliver it and the appropriate safeguards.

I am very grateful to the noble Baronesses, Lady Kramer and Lady Altmann, the noble Lord, Lord Vaux, and my noble friends Lord Massey, Lord Mackinlay and Lady Lawlor for supporting this amendment. The Minister has a problem: we have a lot of concern across this House, not only among those engaged on the Bill. The amendment reflects the concerns of the Secondary Legislation Scrutiny Committee, with its very expert membership. The committee has also advised that Clause 3 be removed; I say to the Minister that that is usually a killer argument. For these reasons, I do not believe that Clause 3 can remain in the Bill. When Amendment 10 is called, I intend to test the opinion of the House.

Lord Pitt-Watson (Lab)My Lords, I am hearing two arguments here: a strong consensus across the House for the need for access to banking and for the appropriate actions to be taken to make sure that that takes place; and a concern, also raised in Committee, about the breadth of the power, particularly its constitutional implications and the degree of scrutiny that Parliament would be able to exercise over any regulations made under it. These are serious points and the Government have considered them seriously, but they have concluded that Clause 3 is needed at this stage. Because the independent Lloyd review of access to banking has not yet concluded, we do not know whether it will recommend intervention, which consumers may be most affected, the nature of any detriment, and what form any intervention should take. Removing Clause 3 altogether, as Amendment 10 would do, would risk leaving the Government without a mechanism in the Bill to respond promptly if the review identifies a focused and time-sensitive need for intervention.

Amendment 9 would remove the ability to amend primary legislation through regulations made under Clause 3. If acting on the review’s findings required changes to an Act of Parliament, removing this ability would risk removing the mechanism to respond promptly to the review and could delay implementation. Amendment 7 would take a different approach by limiting the powers to matters arising directly from the review. I understand the intention behind that amendment and the review should clearly play the central role in shaping any future intervention. That is why the Bill already requires the Treasury to have regard to the review’s recommendations, but it would not be right to prevent Ministers from considering other relevant evidence alongside the review when deciding whether and how to act. The Government need to preserve the ability to respond proportionately to the full evidence that is available.

Amendment 8 is probably one on which we all agree. The noble Lord, Lord Holmes, and the noble Baroness, Lady Hoey, talked about the central part that post offices can play in making sure that banking access is available. I can confirm that the chair of the review into access to banking services has received representations from and has engaged with the Post Office and the National Federation of SubPostmasters and that officials will continue to engage as part of the development. As noble Lords know, the target is more than 350 full banking hubs, plus 10,500 post offices, involved in this, and I thoroughly commend the points that they have made.

I absolutely understand the concerns about the Henry VIII powers, which seem very broad. Clause 3 does not itself impose new obligations on firms, or any specific model of banking provision. Any regulations under the power would also be subject to the affirmative procedure. However, I assure noble Lords that the Government do not expect Clause 3 to remain in its current form. I forget how the noble Baroness, Lady Kramer, said her hopes would be fulfilled, but I think they would be fulfilled by amendments that were focused on the thing that we all agree on, which is the need for proper access to banking for older people, for younger people—for everyone.

The Government remain committed to keeping the scope of the power under review as the independent review completes its work. We expect to narrow this power after the review reports in October, when I expect the Bill will be in the Commons. Once the Lloyd review has concluded, the Government will be in a better position to consider the correct scope of this power. It would therefore be premature to narrow the power at this stage. For those reasons, I ask the noble Baroness to withdraw her amendment, though perhaps more in hope than expectation.

Baroness Kramer (LD)My Lords, given that the Conservative Front Bench have expressed their interest in moving Amendment 10, I will withdraw Amendment 7.

Amendment 7 withdrawn.

Amendments 8 and 9 not moved.

Amendment 10

Moved by

10: Leave out Clause 3

Baroness Neville-Rolfe (Con)My Lords, I seek to test the opinion of the House on this amendment.

2|17:31|247|165|Division on Amendment 10|Amendment 10 agreed. See col. 495 for explanation of mistake in voting figures.||0|0

17:42:00

Amendment 11

Moved by

11: After Clause 3, insert the following new Clause— “Access to affordable credit(1) The Financial Conduct Authority must—(a) within 12 months of the day on which this Act is passed, establish and publish a framework for assessing and rating the performance of relevant deposit takers in providing access to affordable credit,(b) annually publish updated ratings and scores produced by the FCA under the framework, and(c) keep the framework established under paragraph (a) under review and publish an updated framework as it deems necessary.(2) The framework must—(a) assess the extent to which relevant deposit takers serve the credit needs of individuals, households and small businesses, including those who are underserved by mainstream financial services, and (b) enable comparisons to be made between relevant deposit takers.(3) In developing the framework, the FCA must have regard to—(a) the distribution of lending across income groups, geographic areas and customer characteristics,(b) the availability of affordable credit to consumers who may otherwise be at risk of financial exclusion,(c) the provision of affordable credit to small and medium-sized enterprises, and social enterprises,(d) the extent to which a bank supports access to affordable credit through partnerships, referral arrangements and funding agreements, with credit unions, community development finance institutions or other community-based lenders, and(e) such other matters as the FCA considers relevant to the objective of promoting access to affordable credit.(4) For the purposes of subsection (2), the FCA may—(a) make use of regulatory data already collected by it, including product sales data,(b) require relevant deposit takers to provide such information as it reasonably considers necessary for the purposes of the framework, and(c) make different and proportionate provision for different sizes of business.(5) Where a relevant deposit taker receives a score or rating below a minimum threshold prescribed by rules made under this section, the FCA must require the deposit taker to take proportionate remedial action to improve its rating.(6) For the purpose specified in subsection (5), the FCA may—(a) make such rules or issue such guidance applying to designated persons as appear to the FCA to be necessary or expedient, and(b) give a direction under this section to a designated person if it considers that it is desirable to give the direction.(7) For the purposes of this section, “relevant deposit takers” are—(a) banks, within the meaning given in section 2 of the Banking Act 2009;(b) building societies, within the meaning of section 119 of the Building Societies Act 1986;which meet an FCA-set threshold for the total volume of personal and small and medium business lending.”Member’s explanatory statement This amendment requires the FCA to establish a framework assessing banks’ and building societies’ provision of affordable credit, including via partnerships with credit unions and community development finance institutions. It uses existing regulatory data where possible, with proportionate requirements for firms of different sizes.

Baroness Kramer (LD)My Lords, this group of amendments concerns itself with financial inclusion. I have two important but very different amendments in this group. The first is Amendment 11, to which the right reverend Prelate the Bishop of Manchester has added his name, and I thank him for that. The House will know that I have long been an advocate for CDFIs—community development financial institutions, which are usually banks or credit unions—which are dedicated to serving the banking and finance needs of local communities and small businesses, as our high street banks once did. They do what I suppose in modern terms we would call “place-based lending”; they know the community, its businesses and its people, and they are structured, staffed and skilled to provide those services. By contrast, SMEs struggle to get mainstream bank credit.

The Government have taken steps to grow CDFIs, providing £150 million to the British Business Bank to develop a community ENABLE fund, and increasing the growth guarantee scheme by a significant £6.5 billion over four years. They have set up a UK community finance partnership taskforce, with an impressive membership, to build partnerships between CDFIs and mainstream banks. But the key piece of the puzzle is missing; we do not have the driver to create many more CDFIs or community banks, if you prefer that term, and credit unions across the country, especially in our most disadvantaged areas.

17:45:00

That is what my Amendment 11 tackles. It takes a British approach, inspired by success in the United States. The FCA would assess lending to individuals, households and small businesses against deposit taking in a community to determine whether the lending is proportionate. Where a bank does not wish to lend in reasonable proportion, it can fund a CDFI rather than change its business model. UK CDFIs have very low default rates and create impressive numbers of businesses and jobs, so the mainstream banks are not losers by this mechanism, just as they have not been in the United States. Thanks to the growth guarantee scheme, the banks are required to hold capital against only 30% of their contribution.

In the USA, CDFIs now hold over £300 billion in outstanding loans. They are the primary way in which small businesses borrow. In the UK, the amount of borrowing is £188 million. If anyone wants to understand the difference in resilience and growth in our two economies, much of it lies in those numbers.

This amendment creates, in effect, a local banking network which is committed to lending to local people and local small businesses, so it is absolutely key to delivering the very promise that John Healey, as Chancellor, made today:

“Good growth in every postcode”.

Yet, I understand that Labour will oppose it, and that is perverse. Without the change the amendment delivers, the Chancellor’s goal is really not achievable. Liberal Democrats have brought this forward, because we are determined to actually achieve growth in every postcode and make that a reality.

My second amendment in this group is Amendment 60. The amendment is to limit an unfolding sadness. Young people turning 18 who are eligible to access their own child trust funds or junior ISAs cannot do so if they lack the mental capacity, usually because of learning difficulties. The families and guardians of these youngsters, who typically manage significant sums of money on their behalf, are unable to access the funds to spend on the youngsters because of administrative and legal obstacles that take months to surmount and require paying a whole variety of court and administrative fees, often amounting to £1,000, even though the typical child trust fund for these youngsters has only £2,000 in it. Around 80,000 disabled young people are caught up in this awful snafu, and some £210 million is locked in the child trust funds.

In our House, the noble Lords, Lord Young of Cookham and Lord Blunkett, have campaigned extensively on this issue and can confirm that the obstacles that were created were never intended. Every Government Minister seems to accept that something must be done, but changing the Mental Capacity Act is incredibly complex because of concerns for precedence. Amendment 60 takes the tack of using this Bill to empower the FCA to provide cover for financial institutions holding these funds to release them, based on documents from registered medical practitioners confirming incapacity and from the families or guardians acknowledging their duties. The FCA would report to Parliament annually. It is a practical way to get the money where it needs to go, and none of this costs the Government a penny.

In meetings with the Government, I was told that the FCA does not have scope in this case. Then last week, the FCA announced a review into child trust funds, in part to see whether there were obstacles for vulnerable youngsters. It is not going to finish the review until next year, and any action will take far longer than that. Clearly, however, the very act of initiating a review demonstrates that the FCA does have scope. I have also talked extensively with lawyers, who have confirmed that any authority created under FCA rules still sits inside the Mental Capacity Act framework and does not challenge it in any way.

Fairness for these youngsters, many of whom have life-limiting conditions, and for whom this money is a chance to use their own money to do something special, should not have to wait on an FCA review which may or may not yield anything. The amendment to this legislation can deliver change in weeks; 80,000 very vulnerable youngsters need us to act.

I will briefly address other amendments in this group. My colleague, the noble Baroness, Lady Tyler, whom I had anticipated was going to move the Post Office amendment, cannot be here today. She sends her apologies. I have signed her Amendment 61, as has the noble Lord, Lord Holmes, and we very much appreciate his comments in the previous group as well. It is a very modest amendment that would require the FCA to report annually on financial inclusion to Parliament and its committees, on the grounds that what gets measured gets managed. The consumer duty does not fill the gap, as it does not apply to those whom financial institutions decide not to serve. The financial inclusion strategy is widely regarded as insufficient and does not include measurable targets. How else is Parliament meant to scrutinise the FCA’s progress on financial inclusion if we do not follow the thrust of this amendment?

The amendment from the noble Lord, Lord Mackinlay, on probate, should, frankly, be a complete no-brainer for the Government to support. I know he will make that case strongly. I also support Amendment 94 on financial education, tabled by the noble Baroness, Lady Neville-Rolfe, although, as I have said to her in the past, I am a bit cautious about trusting something as important as financial education to the FCA. But the underlying thrust—that we need to be making huge headway on financial education—is absolutely correct.

Lord Holmes of Richmond (Con)My Lords, it is a pleasure to speak in this group and, indeed, to follow the noble Baroness, Lady Kramer. There is a thread which unites all the amendments in this group: they all make sense, they are all clear and the Government should accept them.

Before I talk about the amendments in my name and the ones I have signed, I echo the points made by the noble Baroness, Lady Kramer, around child trust funds and follow her in acknowledging the great work that the noble Lords, Lord Blunkett and Lord Young of Cookham, in particular have done for years on this issue. The words of the noble Lord, Lord Blunkett, are particularly pertinent to this point. He was the Minister in charge at the time, in a Labour Government, and he has said things on numerous occasions in this House along the lines that this was never the intention. If this was never intended government policy from a Labour Government, then we now have a Labour Government. Would this not be the ideal opportunity to stop this being government policy and to make the changes set out in this amendment—and, if not to make the changes along the lines of these words, for the department to come up with some words of its own to make this change?

A review is not the solution. We know the issues; they have been well set out over years. We have the opportunity, with this Bill, to resolve the issue and to make such a difference, not just to the 80,000 or so individuals who have those trust funds but to the hundreds of thousands of family members, friends and communities who are adversely affected by this current position for want of government action, which could make this change and, through that, make such a difference.

I turn to my amendments on financial inclusion and the role of the various regulators. The regulators have a lot of obligations put upon them. I suggest just this: how can we have, in the United Kingdom, a financial services regulator which does not have clear responsibility for financial inclusion and a clear obligation to report on what it has done to advance it, specifying in detail all those affected? Financial inclusion—and, indeed, the adverse, financial exclusion—is not just a matter of the same people having the same effects and suffering the same exclusion. It is specific to older people, to disabled people, to those in certain socioeconomic groups and to those in certain geographies. Specific solutions and a strategy which incorporates all that and puts it into an operational road map are required if we are to get behind solving financial inclusion.

We have a Financial Stability Board, but I argue that you cannot have financial stability if you do not have effective, sustainable financial inclusion. It may not be measured, because the adverse impacts are often in other government departments and other parts of the state. But be in no doubt: when you gross up all the costs, implications and consequences of financial exclusion, that is financial instability, not just for individuals but for communities and for our country. The financial regulators, among others, should take a leading role to get after this pernicious problem of financial exclusion, which has dogged our society for decades, blighted lives, impacted individuals and had an impact, when all put together, on what the Government constantly—and rightly—go on about in terms of growth. Well, if they want growth then financially including individuals right across this country would be a fine place to start.

Lord Mackinlay of Richborough (Con)My Lords, I have only put forward one amendment to this entire Bill, Amendment 70. I spoke at great length in Committee and highlighted then, as I will highlight now, that I am a chartered accountant and chartered tax adviser, and have conducted probate work over many years.

Let us just lay out a little the framework of where we got to in the provision of IHT423, because it will not be familiar to everyone in this House, I am sure. The IHT423 arrangement was first rolled out in 2003 and applied only to banks and building societies, or cash-based liquid accounts. It allowed for the breaking of the Catch-22 situation which executors find themselves in when they administer an estate. An estate is often in two parts, one of which is called the free estate, which is your cash and liquid investments. The IHT on that has to be paid six months after the end of the month of death. The other part of the estate is property and often unquoted securities, where there is a non-liquid market; an instalment basis can apply over 10 years. Given that the new rate of IHT interest chargeable on unpaid tax, following Rachel Reeves’s first Budget, is now 4% above base, so currently 7.75%, then no matter whether it is free estate, payable immediately, or part of the estate that can be paid over 10 years, given the 7.75% interest rate, which is truly penal, most executors would like to pay the tax as soon as they possibly can, and certainly by the due date of six months after the date of death.

In the old days, the IHT423 procedure, which is a means by which a financial institution can release funds before probate, was working, because very few estates were hit by IHT. But because of fiscal drag—I will admit as much as anybody else that a lot of it occurred over our Government—the levels of free amounts for IHT have remained unchanged since 2009, which has meant that more and more estates are dragged into the IHT pot. So the IHT423 arrangement, of getting funds out of an estate before probate can be obtained—as I say, a Catch-22 of chasing one’s tail of having to pay the tax before probate can be obtained—was widened to any types of investment. That was negotiated by HMRC in 2024, so fairly recently, in recognition of the huge number of estates that now face IHT.

18:00:00

If we think the situation is fairly tough today, it will be a lot tougher from April next year, when pension schemes will be dragged into the scope of inheritance tax. As a practitioner, I fear how HMRC will cope with this because my experience is that, frankly, it is not coping terribly well with the system it has to deal with today. A lot more work will land on its system, and I would love to hear the Minister’s ideas about how that would work in the future.

The IHT423 procedure is going to become increasingly important. It is a discretion exercisable by financial institutions as to whether or not they want to take part. My amendment seeks to make it non-discretionary—rather, statutory—that if a financial institution wants to do business in the UK and be registered under the FCA, it must allow IHT423, and it must be paid at the appropriate time.

This came to light in my own experience recently in dealing with my father’s estate, who, sadly—for me—suffered an IHT bill. The estate has a liability to discharge, and it has an asset in an investment with M&G plc, one of the biggest investment houses in the UK. It has £380 billion under management and 5 million customers, so there will be a lot of executors and executor estates among those customers. For reasons known only to M&G—one of the biggest investment houses in the country—it has decided that it does not want to take part in the IHT423 scheme.

My amendment is very simple. It would be good for the Treasury, because money will come in at the right time. It would be good for executors, and this part of the Bill is about financial inclusion. Executors are often family members, and they are facing a pretty tough time. For them to then be told by institutions, “No, we are not going to assist you at this very tough time”, is not good enough, and the Government can put that right.

In Committee, I spoke in similar terms. The Minister was fairly new to his place then, and perhaps the scope of what I was asking for had not quite landed, but he has had some months to consider this. One of the issues that he raised then was a worry about risk. Back in 2003, HMRC negotiated the IHT423 scheme with institutions on cash-based accounts, because the only place the money can go is from that institution to HMRC’s bank account. I certainly hope that that is not a bank account of risk, and I am sure it is not. In 2024, HMRC negotiated with the other institutions to expand the ability to use the IHT423 scheme to a far wider range of investments. HRMC negotiated it, and it does not feel that this is an area of risk.

Therefore, I hope the Minister will be able to give me some assurance that this is an area that will need to be looked at because of the expansion of inheritance tax into pensions next year, when executors are going to struggle even more to extract funds to pay the tax at the right time to avoid those rather horrendous rates of 7.75% IHT. I am sorry to say that, given the state of the economy and the bond market and that it is 4% above base, it could go that little bit higher. In the media today, there is an expectation that interest rates will go up by two quarter points within the next six months. So you could have executors facing an 8.25% interest rate, which is not just high; it is truly damaging. I will leave the Minister with a bit to think about, and I look forward to his response.

Baroness Altmann (Non-Afl)My Lords, I fully echo the comments that the noble Lord, Lord Mackinlay, just made, having had personal experience, sadly, of just what he described. Amendment 70 would provide at least some relief to those executors who cannot access funds and who see the interest racking up while probate delays or other delays beyond their control are occurring to the estate.

I urge the Minister also to take back to his department that if inheritance tax is indeed levied on unused pension funds from next April, there is not even the allowance in the new system for a 10-year delay, as there is with property, so it will not just be interest that racks up; there will be penalties and so on. There is a real problem in that regard and, indeed, there is a real issue with the costs involved in probate for the executors who cannot have the money released because some institutions have decided that even though the money is going to be paid directly to HMRC to satisfy inheritance tax, it will still not release the money—and, of course, it will still be charging fees on the funds that it retains. So I hope that the Minister will take seriously the ideas in Amendment 70.

I strongly support Amendment 60, and I would have added my name to it had I been more on the ball. It was so nobly spoken to by the noble Baroness, Lady Kramer. She spoke of the child trust fund issue, where parents and carers of children—who cannot make the decision for themselves—who are managing the money for those children, and have done so since the child’s birth in some cases, are being told that they must go through an enormously lengthy legal process just to be able to take a bit of money out of the money that the Government gave for those children, which was safeguarded until age 18. When they reached that age, they were unable to access the funds.

Child trust funds started in 2005 so this problem of people being unable to get money from the child trust fund has been going on since 2023. Indeed, there was a consultation in 2022, which recommended that a small payment scheme at least should be introduced, but in the meantime, nothing has happened. As the noble Baroness, Lady Kramer, said, the costs of going to court and obtaining an order to be able to take money out of a trust fund could use up most—or, even, in some cases, all—of the money in the fund. There is an issue that needs to be addressed. Amendment 60 would be a way of helping these families, and I hope that the Minister will take this back to the department and come back with some positive news on this issue.

The Lord Bishop of ManchesterMy Lords, I have sympathy with all the amendments in the group, but I will focus my comments on Amendment 11 in the name of the noble Baroness, Lady Kramer, to which I added my name. As we have heard, this would require the FCA to establish a framework assessing banks’ and building societies’ provision of affordable credit.

Credit is a lifeline for families facing debt and financial hardship. According to a recent report, 60% of the clients of Christians Against Poverty—CAP—an organisation that is very active in my diocese, find that they have to borrow money to pay for household essentials and bills. They are not borrowing for luxuries: when credit is unavailable, they are left to delay essential spending and go without meeting their most basic needs. Sometimes, spending a little now will save you spending a lot more down the line. I am extremely grateful for the remarks made by the noble Lord, Lord Holmes of Richmond. Credit inaccessibility has real consequences for those who are struggling the most. According to CAP, 47% of UK adults who currently have debt that they are struggling to manage have been unable to access their preferred credit option in the past two years.

This kind of financial exclusion means that we are locking vulnerable families into a cycle of poverty. We are depriving them of the tools they need to climb their way out. Unable to look beyond the pressing need to put dinner on the table, it is those with the most desperate need who are forced to sacrifice the most to get by. Left with limited choices, they are the ones most likely to enter riskier credit deals and to pay the greatest poverty premium. I have worked as a vicar in parishes where loans were enforced by men with baseball bats.

Since Committee, we have had the report of the Commons Treasury Committee on the Government’s financial inclusion strategy. The report highlights the need for

“proportionate firm-level financial inclusion metrics. These should focus on the largest providers and on markets where exclusion causes the greatest consumer harm”.

That specifically includes “affordable credit”. The report proposes that metrics

“should be designed to identify whether progress is being delivered consistently across firms and sectors”.

The committee also concluded:

“Voluntary action and pilots … cannot be the main driver of a national financial inclusion strategy unless there are clear routes to scale and clear consequences if voluntary action fails”.

What is proposed in this amendment clearly has much wider parliamentary backing than simply from the noble Baroness, Lady Kramer, and me. Indeed, several major lenders indicated to the Treasury Committee that they would be entirely happy to provide financial inclusion data as part of a statutory system.

This Bill, and this amendment to it, provide a sensible and practical solution to implement what the Treasury Committee advocated. Importantly, it will place responsibility for access to affordable credit on the lender, and introduce a clear framework by which banks and building societies can be assessed on how effectively they are meeting the financial needs of underserved communities. The new requirement for this framework to be kept constantly under review will ensure that those requirements remain open to scrutiny and adaptable to ever changing patterns of financial exclusion—patterns that could become more dynamic and entrenched as society rapidly changes. This amendment is an important step towards ensuring that our financial services meet the needs and uphold the dignity of real people, rather than expecting individuals to adapt to systems that too often exclude them from full participation in economic and community life. The only people who will not like it are the dodgy lenders who harass people in my diocese. I pray that we all support this amendment.

Baroness Neville-Rolfe (Con)My Lords, I am grateful to all noble Lords who have contributed to this interesting debate. I much look forward to the Minister’s response, particularly on child trust funds for those in that capacity. I agree with my noble friend Lord Mackinlay that we have a problem with HMRC administration of estates, with the risk of more chaos in prospect as IHT on pensions arrives. We should be finding a way to improve the system—for example, by widening the application of IHT423.

I will focus on Amendment 94 on financial education. This is an issue on which I have campaigned for a long time. It reflects my belief that financial capability is an essential life skill and, indeed, that it is essential if we are to have financial inclusion for those struggling to make ends meet. I will not repeat the strong case I made in Committee on 8 July which can be found in Hansard at column 149. Our revised amendment would require the FCA to take reasonable steps to work with the Money and Pensions Service, the Secretary of State for Education, relevant education bodies, providers of teacher training and professional development and industry bodies to support the effective delivery of financial education. It is good that I now have the support of the noble Baroness, Lady Kramer.

The financial decisions that people are expected to make are increasingly complex. Young people, as well as adults of all ages, need a working understanding of concepts such as compound interest, inflation, pensions, savings, taxation, borrowing and so on. My noble friend Lord Agnew was on the BBC this weekend. He has written about how 10 million adults in Britain right now have the numeracy of a primary school child, yet we are asking young people to make extremely significant financial decision—sometimes taking on tens of thousands of pounds of student debt—without necessarily giving them the grounding in financial concepts that would allow them to understand those decisions.

I was very grateful to the Minister for helping to arrange a meeting with the Money and Pensions Service. I recognise the work that it is doing. However, one concern I took away from that meeting was that a considerable amount of financial guidance focuses on moments when an individual has reached a major financial event, such as taking out a mortgage, dealing with a divorce, approaching retirement or experiencing financial difficulty. I believe we need to be more ambitious. Our objective should be to build financial capability throughout the population before people reach these moments and, indeed, to encourage sound investment and savings for a rainy day.

18:15:00

That is what this amendment is intended to encourage. It does not seek to make the FCA responsible for teaching financial education in schools. It seeks to establish a practical framework for co-operation between the regulator, MaPS, government, education providers and industry. I have discussed these issues positively with the Minister. I hope that he can tell the House more about what the Government are doing to build financial capability, particularly among young people and through schools, as well as how the FCA might contribute to the cause. I would also be grateful if he could explain how noble Lords and others with an interest in this important area can engage with the work on financial education in schools and elsewhere as it develops.

The prize is considerablea population who are more financially resilient and better equipped to make decisions for themselves. That is good for consumers, investment, financial services and growth.

Lord Pitt-Watson (Lab)I am grateful to noble Lords for raising these issues around financial inclusion. The Government fully recognise the importance of improving access to appropriate and affordable financial services—particularly those for people on low incomes and in vulnerable circumstances—and of improving the financial education of the nation. We support the intention behind many of the amendments, but we are not persuaded that putting this measure into primary legislation is necessarily the right way forward. I hope to describe what the Government are doing, including actions that we have taken as a result of some of the issues raised in Committee.

I start with Amendment 11, which would measure what banks and building societies are doing about affordable credit then set standards for them; for example, setting up something such as a CDFI would count against what they would be required to do. I would like to take a step back because quite a lot is already happening and there are important things that the Government are doing, as was articulately described by the noble Lord, Lord Holmes. Let me start with small businesses. In the Mansion House speech in July, the then Chancellor announced the expansion of the British Business Bank’s growth guarantee scheme, doubling SME lending to £3.5 billion.

I share the focus of the noble Baroness, Lady Kramer, on community development through financial institutions. Through the Community Finance Taskforce, we have brought together banks, community finance advisers and the Government. At Mansion House, more than £10 million of philanthropic funding from JPMorgan Chase and support from BNY was announced for the sector. The taskforce will publish a road map early next year to support the ambition of unlocking a further £1 billion of SME lending over five years. The British Business Bank’s Community ENABLE Funding Programme committed nearly £120 million of funding, with a second phase intending to grow that to £500 million. We are improving competition and supply through the enhancement of commercial credit data sharing in order to strengthen bank referral arrangements.

On personal lending, the Government’s financial inclusion strategy includes measures to strengthen community finance and partnerships between mainstream lenders and CDFIs. We are supporting practical interventions, including a small sum credit pilot in which Monzo has already announced it will be the first participant, as well as a transformation fund for credit unions alongside the common bond reforms—those are even part of this Bill—to make sure that credit unions can do their job better. I was quite taken by what the right reverend Prelate the Bishop of Manchester said about the centrality of being able to provide this sort of fund; I note that the only businessperson to receive a Nobel Peace Prize was someone who did that by finding a way to lend unsubsidised money to poor people in Bangladesh. This is important, but a lot is already going on, and I wonder whether supporting that might be something that we would want to think about. The amendment would require the FCA to act against firms that do not meet minimum lending standards. However, do we not want customers and businesses to access appropriate credit and balance that with risks of overindebtedness? The noble Baroness, Lady Kramer, is right that what gets measured gets managed; equally, we need to be worried about creating a system where people are hitting the target and missing the point. For these reasons, the Government are not persuaded that these amendments are the right way of improving behaviour or pricing. I ask the noble Baroness to withdraw her amendment and, please, support the other actions that are being taken by the Government to address this critical question.

Amendments 57 and 61 concern how the regulators report on financial inclusion. Amendment 57 seeks to require the FCA and PRA to publish annual reports on how they have advanced financial inclusion. Amendment 61 seeks to require the FCA to publish an annual report on financial inclusion detailing how it has had regard to financial inclusion in exercising its functions and assess the impact of its activities on financial inclusion outcomes. These amendments would impose new statutory reporting duties that risk duplicating existing arrangements for how the FCA reports about the state of financial inclusion and its impact on it. Amendment 57 would also place reporting duties on the PRA, whose statutory duty is prudential regulation. This would create uncertainty about the PRA’s remit and what it would be expected to report against.

Financial inclusion is a shared responsibility across government, regulators and particularly the industry rather than a matter for regulators alone. We know that exclusion is driven by a broad range of complex and overlapping factors, including wider economic conditions, technological change and behavioural drivers. Accountability for improving financial inclusion should therefore remain a collective effort rather than being placed on one or two institutions whose powers extend to only part of the challenge.

The Government have set out this collective approach through our Financial Inclusion Strategy . We continue to work closely with regulators, firms and consumer groups to improve access to financial services and support those who are underserved. The strategy is subject to a public review, which will take place next year, to assess the progress that has been made through this collective effort and where further work is needed. I look forward to the input of Members of this House when that is published.

Amendment 60 concerns child trust funds, which have been spoken about passionately and very articulately by a number of noble Lords, including the noble Baroness, Lady Altmann, and the noble Lord, Lord Holmes. Decisions about who may act on behalf of persons lacking capacity are governed at bottom by the Mental Capacity Act 2005 and determined by the courts. The Act provides a well-established framework, including oversight by the Court of Protection, to ensure that access to and management of a vulnerable person’s account takes place where appropriate safeguards are in place and in that person’s best interest. This reflects the very real need to safeguard and protect vulnerable people.

This amendment seeks an alternative route of access outside that framework. However, it is difficult to ask the FCA to put that court protection aside—and the FCA does not even have the power to do that. Legislating to permit that would require giving the FCA the power to alter the effect of primary legislation through its rules via a Henry VIII power but without the same degree of oversight. That cannot be the right way forward.

As the noble Baroness, Lady Kramer, mentioned, on 8 July the Ministry of Justice convened a round table on mature child trust funds and young adults who lacked the mental capacity, not least because of debates in your Lordships’ House. That meeting was attended by the noble Baroness, Lady Kramer, other stakeholders and the previous Economic Secretary to the Treasury, Rachel Blake. My noble friend Lady Levitt spoke directly with the noble Baroness, Lady Kramer, and members of the public, and she made it clear that any solution to this issue would likely need to be delivered through primary legislation. Ultimately, this cannot be resolved through the FCA rules or changes to tax legislation. Primary legislation would be required.

However, we do take this matter very seriously, and I have raised it with the Ministry of Justice. I reassure the noble Baroness, Lady Kramer, that it is exploring how the Government can best facilitate access for parents and carers to child trust funds on behalf of their children. I do not have a solution, but we are trying. In the meantime, the FCA is conducting a review into provider practices under child trust fund accounts, including on whether there are barriers to vulnerable young adults accessing their money. We welcome this review. However, as I said, the underlying issue lies in the Mental Capacity Act, and it is not possible for the FCA to substitute or override the primary legislation in that Act.

Amendment 70 would require the FCA to ensure that financial institutions that are registered or regulated by the FCA facilitate the payment of inheritance tax by executors, before probate is obtained, through direct payment schemes. I thank the noble Lord, Lord Mackinlay, for raising this question. I am sorry to hear of the difficulties that he experienced. The duty of administering an estate often arises at one of the most difficult times in a person’s life, and I understand the noble Lord’s desire to ease that process for people who face similar circumstances.

The noble Lord has previously acknowledged that the direct payment scheme generally works well in its existing voluntary form and that it is rare to come across a case where an institution refuses a request to pay tax that is due. Following our debate on this amendment, we asked HMRC officials to contact the company where the money was lodged to understand more generally its policy on the direct payment scheme. The company confirmed that it does in fact facilitate direct payments to HMRC, normally through investment holdings, but there were some types of investment products that it did not consider suitable for release directly to HMRC before grant of probate. These included certain types of bond products. That is as far as we have got on this.

However, the noble Lord’s amendment proposes to mandate the use of the direct payment scheme by FCA-regulated institutions. Our experience—and, I think, his experience—is that most financial institutions facilitate direct payment schemes most of the time. There may be certain types of financial product where releasing funds to HMRC before the grant of probate presents a particular legal and technical complexity. Perhaps we can write to people who are not following the voluntary scheme well, but the advantage of a voluntary scheme is that institutions can assess the level of risk involved and make payment only if they are satisfied that they are releasing those funds correctly. The amendment as drafted would not allow for that to happen.

The noble Lord suggested that this change be made through FCA rules. However, changes to primary legislation may also be required to make this change. FCA rules do not generally displace the private law framework. Making this change through FCA rules could leave financial institutions on an uncertain legal footing. However, we have taken most seriously the points that the noble Lord has raised. They are good points and this area may still need to be addressed, but not by this amendment.

18:30:00

Amendment 94 is very close to my heart. I am grateful to the noble Baroness, Lady Neville-Rolfe, for continuing to raise the important issue of financial education. As noble Lords know, I teach finance at Cambridge University so I have a shared interest with her, at all sorts of levels, on how we do this. However, I am not sure that placing new statutory duties on the FCA to support financial education is the right way to achieve our aims here. The FCA already carries out substantial work to promote financial capability and helping customers navigate their financial lives is one of its priorities in the 2025-30 plan.

The noble Baroness is right to highlight that the FCA cannot do this work in isolation. It works closely with bodies such as the Money and Pensions Service. She has met the Money and Pensions Service to discuss exactly this; I hope that she mentioned the subject of compound interest when she did. There is also to be a consultation from the Department for Education, which I believe is coming out this month. I hope that Members of the Lords, including me and the noble Baroness, might have an early meeting with the Minister to discuss our concerns.

We have also been approached—I hope I can say this—at least for an introductory call by the Financial Times , which does lots of work in this area. I would be happy to recruit any other Members of this House who were particularly interested in this topic and to continue my engagement with the noble Baroness on it. However, I do not think that a legislative solution is needed and I ask the noble Baroness not to press her amendment.

Baroness Kramer (LD)My Lords, I will not reargue the points, and I thank everybody who has participated in this debate. I will just say to the Minister on Amendment 11 that, having cited a number of American banks, I suggest that he goes to talk to them and tell them that this amendment both works and is vital. Because of that, and because of the significance of growth for the future of the UK economy and growth in every postcode, I intend to press Amendment 11.

3|18:32|69|171|Division on Amendment 11|Amendment 11 disagreed.||0|0

18:43:00

The Deputy Speaker (Baroness McIntosh of Hudnall) (Lab)My Lords, before I move to the next amendment, I should inform the House that there was a small discrepancy in the numbers announced for the second Division, which did not affect the result, but the result should have been: Contents 246, Not-Contents 165. That was Division 2 on Amendment 10.

Clause 4The Financial Ombudsman

Amendment 12

Moved by

12: Clause 4, page 3, line 34, at end insert— “(ga) in paragraph 14 (scheme rules), in sub-paragraph (2), omit paragraph (f);”Member's explanatory statement This amendment would remove the power of the scheme operator to make rules providing for the delegation of functions from the Financial Ombudsman to staff, given the Financial Ombudsman’s general power to delegate under new paragraph 1B inserted by clause 4(8)(b).

Lord Pitt-Watson (Lab)My Lords, I will speak to the amendments in my name in this group. Before turning to the detail, I should briefly note that almost all these amendments were previously tabled by the Government in Committee, where, in light of concerns expressed about the way in which they were tabled, the Government agreed to bring them back on Report. The group contains a modest number of minor and technical amendments, which are not unusual for a Bill of this size. They do not alter the underlying policy of the Bill. Their purpose is to ensure the Bill is relevant and that the relevant provisions in FSMA operate clearly and consistently. I will try to be quite quick, therefore, in going through them all, so as not to tire your Lordships.

First, turning to Amendments 18, 21 and 23 to 25. These are minor technical corrections to Schedule 2 to the Bill, which, taken with Clause 13, abolishes the Payment Systems Regulator and gives broadly equivalent functions to the FCA. Amendment 18 removes the duplicative provision from new Section 131Z19. Amendment 21 corrects a cross-reference so that the Bill refers to the correct FCA payment system. Amendments 23 to 25 ensure that references to the chair of the PSR, which should be obsolete after the PSR is abolished, are deleted in the correct places.

I hope this is all making sense, but if noble Lords have a particular thing they want to talk about, please do indicate. Amendments 73 to 75 are, once again, minor and technical amendments.

Amendment 12, which relates to Clause 4, makes a consequential amendment. New paragraph 1B of Schedule 17 to FSMA, inserted by Clause 4, permits any function of the Financial Ombudsman to be performed by any member of staff.

Amendments 76 to 79 relate to Clause 33. As noble Lords will be aware, the Bill introduces a more flexible senior management approvals framework, including the ability for firms to apply for conditional or time-limited approval in specified circumstances. These are technical amendments to ensure that the framework operates consistently and in line with the original policy intent.

As regards Amendment 81, finally, when the Bill before us gains Royal Assent, there will already exist a number of overseas recognition regimes created under existing powers in FSMA 2023 to restate regimes inherited from the EU. This amendment enables the Treasury to make consolidating provision, which would restate the existing regimes within the new overseas recognition regime framework. This is essentially a tidying-up exercise.

In summary, this group of government amendments makes technical corrections to ensure the Bill works as intended. I hope noble Lords will join me in supporting them.

Lord Altrincham (Con)I thank the Minister for bringing forward these already tabled amendments, assembled this evening in group 4, and declare my interest as a director of South Molton Street Capital. These amendments, as the Minister explained, remove duplication, correct drafting, make the provisions of the Bill work better together, and make the Bill intelligible, internally consistent and ultimately more workable in practice. Therefore, we support them.

Amendment 12 agreed.

Clause 7Referral of matters to the FCA

Amendment 13

Moved by

13: Leave out Clause 7 Member’s explanatory statement This amendment would remove provisions relating to how the Financial Ombudsman Service may refer matters on complaints to the FCA.

Lord Sharkey (LD)My Lords, I will speak to my Amendments 13 to 15 and 99. Clauses 7 and 8 propose radical reform of the relationship between the FOS and the FCA, and of the method of determining complaints to the FOS. These proposals will have a critical effect on consumer protection. They will turn the independent FOS into a subset of the FCA and make successful complaints harder to progress or achieve. Parliament designed and brought the FOS regime into being to provide accessible, no cost procedures for quickly determining complaints. At its heart is the “fair and reasonable” test. This test is abolished by the Bill, despite having been explicitly confirmed in July last year in the memorandum of understanding signed by the FOS and the FCA. The Bill will reduce access to free and impartial redress, introduce additional bureaucracy and costs, and ultimately risk damaging confidence in the financial services industry.

The Government have not supplied any meaningful hard evidence that might justify, or at least explain convincingly, the rationale for these reforms. They say only that the Government’s review found that,

“in a small but significant minority of cases, the FOS has acted as a quasi-regulator”.

They do not say how small or how significant these cases are, or how significance was defined and engaged, and they have completely ignored repeated requests from these Benches to provide a clear description of the problem being addressed and of the necessity for such radical changes. Three months ago, at Second Reading, I asked for hard evidence. I got none, not even an acknowledgement of the request. I asked again on the first day in Committee, and again had no result. I asked again on the last day in Committee. This time, the then Minister—who is in his seat—apologised for not writing in answer to my questions and promised to get back to me

“as soon as we have that information to hand again ”.—[ Official Report , 8/7/26; col. GC 161.] I have heard nothing since. This lack of response displays an almost contemptuous approach to parliamentary scrutiny, and it also makes obvious that the Government are unclear about the existence of any significant problem in the way that the FOS and the FCA operate under their current MoU.

I am grateful to Sarah Pritchard, FCA deputy CEO, for her attempts to persuade the Government to answer our questions in a meaningful way. In her letter to me and my noble friend Lady Kramer of 6 August, she said:

“We recognise that you have consistently sought further evidence from HM Treasury to support the case for reform, particularly the contention that uncertainty in FOS decision making may be constraining innovation. Following our meeting, we have formally re-iterated this request to HM Treasury and highlighted the importance of ensuring parliament has access to the evidence and analysis underpinning these proposals”.

HMT appears to deal with these things even-handedly; it has ignored her as well.

Her letter went on to say:

“One area where legislative change is being proposed concerns the interaction between our rules and the Ombudsman’s ‘fair and reasonable’ test. The aim is to provide greater consistency and alignment between regulatory requirements and complaint outcomes, while preserving the Ombudsman’s discretion to consider the wider circumstances of the case”.

This sounds like the arrangements currently in place under the MoU, but the Bill goes much further in practice. In effect, it reduces the scope of this discretion and reduces the FOS to a subset of the FCA, with the FCA rulebook being the determinator. It is very hard to see that this preserves the independence of the FOS and, of course, independence is desirable.

In evidence given to the Treasury Select Committee on 15 July, Nikhil Rathi said:

“From the FCA’s perspective, we want an independent Financial Ombudsman Service. That is a really important safeguard for your consumers”.

Both Mr Rathi and Mr Alder, the FCA chair, in the same TSC session, went on to express concern about the interaction between the FCA’s interpretation of rules and the FOS’s decision-making. Mr Rathi said that

“with a system where people can try to instrumentalise it so that everything that they disagree with can get pushed to us to try to deal with in 30 days because it is deemed ambiguous, you will gum up the system”.

His chair emphasised the point of this:

“To Nikhil’s point, if we get this wrong, the system will become gummed up … As a result, the main objectives of those changes in the legislation will not be met. It is very important that we get this right”. This is the very real danger of a requirement for the FCA to respond to a referral from the FOS within 30 days. In the same session, Sarah Pritchard said:

“We have been clear that we want the Financial Ombudsman Service to deliver quickly for consumers. We do not want to turn into a backdoor appeal mechanism. Where there are important matters around the intention of our rules, absolutely we should be there to clarify. We are already taking referrals from the Financial Ombudsman Service that do that”.

The July 2025 MoU between the FOS and the FCA is in operation now. It seems clear that this blueprint has taken into account current and anticipated problems, but it differs radically from the FOS proposals in Clauses 7 and 8, including on the absolutely critical criterion of the FOS making a determination. If the MoU is working and if it is working with, as it says, the fair and reasonable test at its heart, why are the Government proposing to abolish that test and the FOS’s effective independence?

My Amendments 13 and 14 address these issues. Amendment 13 would remove Clause 7, with its referral method and four other pages of prescriptive micromanagement, including a kind of Henry VIII power on page 6. Amendment 14 seeks to restore the “fair and reasonable” test agreed in the MoU.

Consumer groups have noticed the proposed changes in the Bill and many are very strongly opposed. For example, Martin Lewis of Money Saving Expert strongly supports the removal of Clause 7 and the replacement of Clause 8 with the current “fair and reasonable” test. In all, 12 leading consumer organisations have written to us asking for support for Amendments 13, 14 and 15. I will not read out the whole list, but they have agreed a statement that says:

“At a time when the cost-of-living crisis is pushing household budgets to breaking point, the Government should not be altering the fairness test and introducing new bureaucratic hurdles in the very system that provides redress for financial loss”.

Finally, my Amendment 15 would create breathing space to enable a proper evidence-based review to take place, with a report to Parliament on its findings and recommendations. Amendment 15 sets out the proposed independent review process and its scope and timelines. It requires the review to take place not before the second anniversary of signing the MoU and then to report within 12 months. Amendment 99 would simply put the commencement of Clauses 7 and 8 on hold until the review’s report has been laid before Parliament. I beg to move.

Lord Davies of Brixton (Lab)I congratulate the noble Lord, Lord Sharkey, on making a very powerful case for keeping the existing system under which the FOS operates. The problem here, expressed in the considerable representations that we have received from consumer groups, is a lack of clarity about the problem that this is meant to address, coupled with clear concerns about the loss of the fair and reasonable requirement. That is the central point. We have a system that works, in which there is a degree of consumer confidence. The reason for interfering in that system is not clear to the bodies representing consumers, so my Government have to do more to justify these changes.

Interestingly, I had some discussions with the previous Minister, who is now sharing the same Bench as me, and one of the points that came out is that it is quite difficult for the Government to point to cases in which they expect a different result following this change from what was happening before. It would be unreasonable for the Government to pick on individual cases and say, “Those people really should not have had that finding from the ombudsman”, but that is at the heart of what is being proposed here.

Before my noble friend the Minister’s elevation, I discussed this with him at length. He assured me at the time that the impact on the consumer would not be material—that the way that the legislation is worded, in particular the rules that the FCA would have to interpret for the FOS, would embrace the concept of “fair and reasonable”. It would certainly help a great deal in allaying my concerns if those assurances could be given to the House. The Minister probably cannot express it in these terms, but it would help if he could say that these changes are contingent and will be reviewed and judged on their effect. That would allay my continued concerns about what is being proposed here.

19:00:00

Baroness Bowles of Berkhamsted (LD)My Lords, I rise briefly to support my noble friend Lord Sharkey’s amendments. Some years ago, I gave a speech on ethics in finance in connection with the international Robin Cosgrove Prize in which I outlined what I called my eggshell strategy. The premise was simple: we must force firms, boards and employees to think, not merely to comply. Worry is a warning system. The question is never “How close to the line can we sail?” but “How fair have we been?” The core issue here is exactly that: rule compliance is not a substitute for fundamental fairness. The FCA’s consumer duty expresses the same principle, but that does not mean that the FCA should become the sole repository of judging fairness. We have always had the courts as the backup, and the Financial Ombudsman Service more recently, because courts are financially inaccessible to most consumers.

The proposal to tie the ombudsman strictly to FCA rule compliance assumes that, if a firm follows the letter of a rule, it has acted fairly. The motor finance saga demonstrated the opposite. For years, firms relied on nuances in the FCA’s disclosure rules to argue that discretionary commission arrangements were permissible, but these were hidden discretionary commissions, and any reasonable person looking at those structures from a consumer’s perspective could see that variable hidden commissions, with costs levied on the consumer, were inherently unfair.

Honesty and transparency are always the best policy, irrespective of rule nuances. They are your defence. Firms must think like a consumer when considering what is fair, rather than asking their compliance officers how close to the line they can sail. If we shackle the ombudsman to technical rule compliance, we destroy its core statutory purpose to provide an independent, common-sense check where formal regulations have fallen short or lagged behind market practice.

Equally, imposing a rigid 10-year absolute long-stop creates a dangerous incentive. In long-tail products or hidden commission structures, unfairness may be actively concealed. A 10-year cut-off rewards firms that manage to keep material facts hidden for a decade, while shutting the door on consumers who discover the harm only years later. Under Section 32 of the Limitation Act, the courts do not allow time to run when material facts have been concealed. Why should the Financial Ombudsman be forced to do so? A regime that rewards concealment is not a regime that promotes fairness.

Lord Altrincham (Con)My Lords, we take a different view on the Financial Ombudsman Service. Our position is that the present FOS model now requires more fundamental reform. We propose that the Treasury should publish draft legislation to replace the FOS with a new financial adjudication service, alongside a dedicated financial services chamber within the First-tier Tribunal.

We accept the need for consumers and SMEs to have access to redress that is fast, expert and affordable. Our concern is that the FOS has evolved well beyond a simple dispute resolution function. Its decisions can shape market behaviour and influence how FCA rules are understood, without the same accountability as a regulator or the legal certainty created by binding precedent.

At the heart of that concern is the fair and reasonable test. A firm may comply with the law, FCA rules and its contractual obligations but still face uncertainty about whether the ombudsman will take a different view. We simply cannot have this situation if we want a regulatory landscape that is conducive to business confidence. We therefore understand the position taken by the noble Lord, Lord Sharkey, but we start from a different premise. Our position has not changed. We want a redress system that remains accessible to consumers but is also more predictable, legally certain and consistent.

Lord Pitt-Watson (Lab)My Lords, I start with an apology to the noble Lord, Lord Sharkey, if I have failed to respond to him appropriately, but perhaps I can do so in the remarks that I will now make. In response to my noble friend Lord Davies, I am clear that treating customers fairly is one of the business principles of the FCA and is therefore one of the criteria by which a complaint will be able to be made to the FOS.

The FOS plays a vital role in the redress framework for financial services, ensuring that consumers have confidence that, if there is a complaint about a financial services provider, there is an independent, impartial service that can resolve that complaint and has the ability to put things right. That role will not be changing as a result of these reforms. However, the framework within which the FOS operates is not as consistent as it needs to be, and that is not good for consumers or financial services firms. That inconsistency is not surprising because the FOS’s fair and reasonable test was determined before the consumer duty came to the FCA.

The Government’s review of the FOS found that there is a small but possible minority of cases where that inconsistency in the framework could cause false determinations to have the effect of quasi-regulations by setting standards that may not be in line with FCA regulations. To be clear, these are all the FCA regulations. If noble Lords had been with me three months ago, they would have seen me writing letters to my predecessor confirming that that was indeed the case. As far as the House of Lords is concerned, the Financial Services Regulation Committee stated in its report Growing Pains , that the FOS’s actions can,

“have regulatory impacts by creating precedents that the FCA requires firms to follow”—

again, a quasi-regulator. That is the background to why we are doing this.

Baroness Kramer (LD)The key issue that I think the Minister has rather glossed over is the evidence base for making these changes. We have been told it would be coming; it has not come. Consistently, we have been told that letters are being developed, but letters have not arrived. I asked for a specific letter and was told that of course it could be provided. It is about the car finance scandal, which was basically exposed through the FOS while the FCA stood to the side, and what would be different now in the consequences of the complaints. What would happen to the complaints that would be different? This seems to be the issue that lies at the heart of this. The FOS exposed a major scandal. As the Minister will know, car finance is the second largest financial market in the UK. Nine out of 10 people who buy a car finance that car. The redress scheme that the FCA has been forced to put into place is currently £7 billion. If I understand correctly from listening to the Minister and his various advisers, in future the FCA approach to the problem would reign, this scandal would never be exposed and there would never be redress. I am waiting for the letter that is supposed to tell me whether that is exactly correct.

Lord Pitt-Watson (Lab)Let me try to address that question. The FCA and the FOS are independent. It is not for the Government to decide what was a correct or a false decision. All that the Government are saying is that the criteria by which the FOS adjudicates should be similar to the rules that practitioners are trying to exercise in the way in which they are working. I think that is just good common sense. I believe there will be a publication coming out shortly from the industry with examples of where the industry may think that the FOS treated it in a way that was inconsistent with the FCA. It is not for me to judge whether that took place. It is for the FOS to judge whether that took place. That may be the reason that I am proving so frustrating in being able to write back properly to the noble Baroness.

Amendment 14 would remove Clause 8 from the Bill and add a list of factors that the FOS must take into account when determining what is fair and reasonable in all the circumstances. In Committee, the noble Lord and others raised concerns that Clause 8 might remove the ability of the FOS to consider fairness in the round. That is not the case. The FOS will still make its determination based on all the circumstances of the case.

The amendments made to FSMA by Clause 8 do not abolish the fair and reasonable test. That is the final adjudication that will be made by the FOS and, because of the principles of business, treating customers fairly is one of the criteria by which a complaint could be made. Where the relevant FCA rules apply, the Government consider that FOS determinations should be consistent with those rules. Consumers and firms should be able to understand and rely on the FCA rules as providing the standards against which conduct is going to be assessed. I want to be clear: that extends to all the FCA’s rules—I think that addresses my noble friend Lord Davies’s question. That includes the principles for business, the consumer duty and the code of conduct. These are designed to secure high standards of conduct and consumer protection. If a firm fails to meet its obligations under these broad principles-based rules, the FOS may conclude that it should pay redress to the complainant, taking into account this failure and any other relevant information, such as the impact the failure had on the complainant. There is no requirement for a firm to have breached one of the more specific, detailed rules in the FCA’s rulebook.

The consumer duty was introduced by the FCA to improve consumer protection across all financial services, and the Government are confident that it sets a high standard of care that firms should provide to their customers. It includes a requirement to act to deliver good outcomes and an expectation that firms will act in good faith, avoid causing foreseeable harm and enable and support retail customers to pursue their financial objectives. The consumer duty, as I pointed out, did not exist when the FOS was established and the fair and reasonable test was introduced. It is right that the framework governing the FOS should be updated to reflect this landmark piece of consumer protection regulation. Without clarification, we are left with a situation where two different bodies are independently making assessments of what standards firms need to meet, and that does not seem like a sensible approach. The reforms to the fair and reasonable test strengthen consistency across the framework. They do not weaken consumer protection.

Amendment 13 would remove Clause 7. In Committee, the noble Lord suggested that the referral mechanism would in effect subordinate the FOS to the FCA. That is not the case. The FOS will remain completely independent and responsible for resolving complaints between consumers and financial services firms. The FCA will not determine individual complaints, it will not investigate disputes and it will not direct the outcome of cases. Those functions will remain entirely with the FOS.

The amendments to FSMA made by Clause 7 ensure that, where the FOS considers there to be an ambiguity within the FCA rules, the FCA must provide an opinion requested by the FOS. That is entirely consistent with its statutory role as a rule-maker. The FOS will then use that opinion, applying it to the individual circumstances of the case to make a determination.

Lastly, some noble Lords expressed concerns about the potential for referrals to lead to delays, including with reference to the FCA’s comment about the potential operational load. The Government recognise the importance of maintaining the FOS’s quick and informal model, but the Government anticipate that only a very small number of cases are going to be referred to the FCA. The vast majority will be resolved without the need for referral. To avoid delays, the timeline for the FCA to respond will be set out in secondary legislation.

The FCA and the FOS are already gaining practical experience of operating such a mechanism by trialling arrangements through their memorandum of understanding. The experience gained through this trial has provided valuable lessons for the implementation of the legislative mechanisms. The Government will continue to work closely with the FOS and the FCA ahead of those changes taking effect, preparing them to ensure that the new system works effectively. The memorandum of understanding, by the way, is creating a very small number of referrals from the FOS to the FCA.

19:15:00

Amendments 15 and 99 would provide for an independent person to carry out a review of the operation of the memorandum of understanding between the FOS and the FCA. The combined effect of these amendments would mean that changes delivered through the Bill would not take effect until at least 2028, which would mean two more years of ongoing misalignment. The Government conducted a review of the FOS in spring 2025, with the conclusions announced by the then Chancellor in July 2025. They then took a 12-week consultation period on the Government’s proposals. A further review would duplicate the Government’s review and introduce unnecessary delays in delivering these important reforms, and it is therefore not necessary.

The Bill makes important reforms to the redress framework to increase clarity and consistency while preserving the strengths and the independence of the FOS. I therefore ask the noble Lord not to press Amendments 13, 14, 15 and 99.

Lord Sharkey (LD)My Lords, I thank the Minister and all the others who have spoken for the way in which they have covered the issue. But it is notable that a lack of evidence for the reform proposals still exists. We still have not seen what it is that is wrong with the current system. We have not seen any hard data. We have seen soft data that suggests there is a problem with the operation of the FOS. It is the case as well that the definition of the determinator contained in the memorandum of understanding contains direct references to the FCA rules in its book, and that is the expanded definition that is currently being worked on by the FOS and the FCA. But it is still the case that I cannot see a compelling problem that is addressed by the radical changes that the Government seem bent on making.

If possible, I would like at some stage to continue the conversation about the evidence. I feel that we are somewhat wide apart, perhaps unnecessarily when on the one hand we seem to have a system that works very well, and on the other hand we have a desire for fairly radical reform. I am not sure that that plays out happily together, but I would be happy to discuss that if the Minister is willing. Having said that, particularly my remarks about the evidence, I beg leave to withdraw the amendment.

Amendment 13 withdrawn.

Amendment 14

Moved by

14: Leave out Clause 8 and insert the following new Clause— “Determination of complaints: matters to be taken into accountIn section 228 of the Financial Services and Markets Act 2000 (determination of complaints under the compulsory jurisdiction of the ombudsman scheme) in subsection (2), at the end insert “, having taken into account the relevant law and regulations, the relevant regulator’s rules, guidance and standards, the relevant codes of practice and (where appropriate) what the Financial Ombudsman considers to have been good industry practice at the relevant time”.”Member’s explanatory statement This amendment would remove Clause 8 from the bill and insert a new clause requiring the Financial Ombudsman, when determining whether an outcome is fair and reasonable in all the circumstances of a case, to take into account various other points.

Lord Sharkey (LD)My Lords, I would like to test the opinion of the House on Amendment 14.

4|19:19|59|144|Division on Amendment 14|Amendment 14 disagreed.||0|0

Amendment 15 not moved.

Consideration on Report adjourned until not before 8.09 pm.