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Financial Services and Markets Bill [HL]

My Lords, as discussed on Monday, we have received constructive letters from the chief executives of the FCA and the PRA. They show genuine willingness to engage, and they elaborate on transparency of activity—consultations, responses, reports, strategies and evaluations. I do not dispute any of that. The government amendments that are proposed restore proportionality as an operational day-to-day have regard, thus they cover my proportionality requests during Committee and those parts of my amendments that I speak to today.

Unfortunately, the Bill still relegates the transparency have regard to the long-term strategy report, which provokes me to articulate something that has not been said clearly before: Parliament cannot check proportionality unless it can see it. Indeed, the Select Committee tried

to do exactly that during our inquiry into competitiveness and growth. That is why transparency of reasoning is an integral part of cost-benefit analysis and proportionality. Today I ask the Minister to confirm that this is understood and that it applies at the operational level under the proportionality requirements. To be clear, what I am talking about here is the transparency of the cost-benefit analyses.

Internationally, this is well understood. In the United States, the SEC publishes an economic analysis with major SEC rule-making, setting out costs, benefits, distributional impacts and alternatives, all considered. That allows Congress and the courts to scrutinise it. They show their working in detail.

In the European system, the ESAs publish impact assessments showing how burdens fall on small firms versus large firms and how rules were adjusted to reflect proportionality concerns—a lot more specificity than we get. Again, they show their working. We simply do not get that level of working shown, so our regulators are not top of the class by international standards.

While I note the letter on cost-benefit analysis from Nikhil Rathi, CEO of the FCA, which the Minister recirculated to Members today, the frequency and working detail is just not as much as elsewhere. The FCA has denied a statutory requirement to do that and has been criticised for insufficient workings by its own cost-benefit analysis panel.

For example, in CP 24/30, which was on changes to the safeguarding regime for payments and e-money firms, in September 2024, the panel said:

“The CBA does not include analysis of how sensitive its results are to variations in its main assumptions and estimates”.

That is not very helpful if you are trying to understand them. The panel went on to say that this was important in

“identifying which assumptions are … critical to the expected costs and benefits”.

The FCA accepted the criticism and went back and added sensitivity analysis covering different compliance levels and insolvency rates. But the fact is that the FCA resisted it, including by objecting to the fact that it had to do it by statute and that it was not its first instinct. That is a very good example of the need for a lot more transparency in cost-benefit analysis, which is hindered by this demotion of transparency to being examined at just the strategic level.

As the Minister has already recognised in showing willing to make changes to Clause 17, I ask that he think about this one seriously and about whether he has to do something about transparency. In any event, going forward, I challenge the regulators to deliver on the detail of proportionality with full reasoning, working and concrete examples, showing how burdens were weighed, alternatives considered and adjustments made. After all, it is what government departments are required to do for significant regulatory proposals, but which our regulators do not follow.

I hope that the regulators will step up and do this. I hope that the Minister will step up and put this measure in its rightful place, back in Clause 17. I expect the Select Committee will also want to pursue this but, quite frankly, this legislation is leaving an awful lot of heavy lifting to the Select Committee. I beg to move.