The Financial Services and Markets Bill is set to become a defining piece of legislation for the financial sector. Paul Montague-Smith, senior counsel – public affairs at MRM looks at the Bill’s progress through the House of Lords and what changes could be in store.
Once every 10-15 years or so we get a piece of financial services legislation that makes major changes to the regulatory framework for the sector, or parts of it.
The 2000 Financial Services and Markets Act created a single regulator for the sector in the FSA.
In response to the global financial crisis the FSA was given a financial stability objective in 2010, but it was the 2012 Financial Services Act that heralded the next major structural change, with the split of the FSA into the Financial Conduct and Prudential Regulatory Authorities.
A decade later the Financial Services and Markets Bill has been progressing through Parliament. It will create a new post-Brexit regulatory framework, with most EU legislation set to be ported over to the FCA rulebook and the regulator having considerably more power over regulatory policy.
The Bill has already passed its stages through the House of Commons and is now with the Lords, who have just started line by line scrutiny and consideration of amendments.
Changes to legislation – other than through government amendments – are rare in the Commons, mainly because of the Government’s in-built majority, but also not helped by debate being ‘timetabled’ (i.e. curtailed), leading to large sections of Bills not getting the scrutiny they deserve.
In the Lords the Government is outgunned 2:1 and debate can last as long needed. So it is over the next couple of months that the most significant changes to the Government’s proposals will be made and compromises negotiated.
The overall direction of travel of the Bill has cross-party support. But from following the debates and looking at amendments table to date, the key issues on which the Government could face defeat or need to give ground appear to be:
- Accountability and parliamentary oversight – there is a strong view amongst Peers that while giving regulators more independence and flexibility makes sense, the Bill falls far too short in ensuring a corresponding increase in effective accountability and oversight of their actions.
There’s a strong chance of it being amended to create and resource a joint committee or other body within Parliament to oversee the regulators’ work and proposals.
- Growth and competitiveness – viewsare split on whether the new secondary growth and competitiveness objective is a good or bad thing. Conservative peers and those with financial services industry experience generally welcome it. Some think it doesn’t go far enough and won’t make much difference.
Others, including leading lights who sat on the Parliamentary Commission for Banking Standards set up after the 2008 financial crisis, argue that a similar requirement on the regulators before the crash was removed by the Government because it was concluded to have contributed to the crash. They fear a repetition of past mistakes.
As the Bill progresses there’s a chance of enough Peers supporting a vote that would effectively ask the Government to ‘think again’.
- Climate and nature – there is a cross party move to introduce another secondary objective on the regulators to support the alignment of the UK economy with the targets in the Climate Change Act, as well as the conservation and enhancement of the natural environment.
An argument will be that, if the growth and competitiveness objective for the regulator is to be included, it should be counterbalanced by an equal consideration that that growth must not work against our move to Net Zero.
- Duty of care – some leading peers think that the FCA’s Duty of Care falls significantly short of what the House wanted and voted for back in 2020. During debate on the 2020 Financial Services Bill, the Lords voted for an amendment implementing a statutory duty of care, defeating the Government.
It eventually accepted a compromise amendment from the Commons that merely required the regulator to consult and implement rules. There’s a view that the FCA approach is too weak and needs beefing up, including through a private right of action so that consumers can sue firms that put their interests ahead of consumers’.
- Financial inclusion – concerns around access to financial services are regularly raised when Peers consider financial services legislation, including whether the FCA should be formally required to have regard to financial inclusion when regulating. The current Bill includes provisions to ensure reasonable access to cash withdrawal and deposit facilities.
Amendments to be debated cover guaranteed minimum levels of access to cash for consumers and SMEs, designating the cash network as critical national infrastructure, collecting and publishing data on the level of cash acceptance by retailers.
Closely linked to this and reflecting the ongoing and accelerating closing of back branches, Peers will also try to amend the Bill to protect access to essential banking services through branches or hubs.
As ever with the Lords, some interesting debates are to be had, with the potential for changes to the Bill that could have significant impacts for firms. Before summer, the new regulatory framework for financial services – which will probably last at least a decade – will be in place.