Treasury Committee

Welcome to the Treasury Select Committee on Wednesday 15 July 2026. Today, we are having one of our regular sessions with the Financial Conduct Authority on its work, particularly focusing on consumer issues. I am delighted to welcome the chief executive of the Financial Conduct Authority, Nikhil Rathi. He is joined by Ashley Alder, who is the chair of the Financial Conduct Authority, and Sarah Pritchard, who is the deputy chief executive of the Financial Conduct Authority. Before we begin today’s evidence session, I want to acknowledge that the dates for hearing the case in relation to the Financial Conduct Authority motor finance scheme have been announced by the upper tribunal, which means that this case is subject to the sub judice resolution in Parliament. While I recognise that it is important that the facts of the case and the arguments on either side are not discussed in this room today, I am none the less convinced that a wider discussion about the motor finance compensation scheme is in the public interest. We are the place where this happens in Parliament. Following consultation with Mr Speaker, I have decided to waive the sub judice rule so that the compensation scheme can be discussed in today’s hearing. Of course, as witnesses and members, we are all operating under parliamentary privilege, but we need to just be mindful of those facts. On that very subject, I am going to ask Bobby Dean MP to kick off.

Appreciating the boundaries that have been set, I feel it would be remiss of me not to mention the reported war of words that has been going on. The FCA is said to have called the carmakers’ claims absurd, and to have said that they are equivalent to arguing for foxes to guard the henhouse. It seems that Consumer Voice has been questioned for its independence and integrity in this case. Would you like to offer any further elaboration or clarification on those comments?

Our objective through all of this is to ensure, where consumers have been treated unfairly, that they are compensated in an appropriate way and as quickly as possible. That is why we moved fast after the Supreme Court clarified the law in August last year, and put forward the rules at the end of March after very extensive consultation. Three out of about 111 lenders affected have challenged. There is also, as you say, the challenge from Consumer Voice, represented by Courmacs Legal. We have published our statement of case. It is on our website, so you can see what we are saying there. We think the scheme is the quickest, fairest and most efficient way to resolve this issue. We are defending it robustly. We are confident in it. Most importantly, at the heart of this we have millions of consumers, some of whom have been waiting now for many years. Many of your constituents and your colleagues’ constituents are frustrated. They are facing significant cost-of-living pressures this year. They would have liked to see the money. We have had correspondence directly from individuals asking us to get this moving. Stepping back, we always knew this would be legally contested territory. The Supreme Court made a judgment. Obviously, it is important that we follow the rule of law here and that anyone who has standing to challenge is entitled to do so. At the same time, throughout all of this, we are dealing with, on one side, lenders who perhaps do not always want to acknowledge that they had harmed consumers and have been seeking to minimise the compensation, and, on the other side, a claims management ecosystem that is largely seeking to generate as much profit as it can for that ecosystem from this situation. We hope to make progress as fast as we can to resolve it.

Can I continue on that theme about claims management companies? I know you have had very deep concern about some of the activities happening in the market. We have seen evidence of some pretty disgraceful behaviour. Are you concerned that the integrity of the market as a whole is at risk? There will be some people who argue that there is still a dire need for representation on behalf of consumers, and that it is sometimes difficult to take on some of the large financial firms on your own, even via things like the ombudsman. Do you have a concern about the impact on the reputation of the entire industry and legal representation more generally because of the activities of however many firms you think are behaving poorly?

We are concerned about the integrity of the claims management market and ecosystem. That is everything from lead generators who secure referrals for law firms or claims management companies, the claims management companies and law firms and some of their conduct, and indeed those who fund and insure that activity. We have been really clear that at the heart of many of these issues has been misconduct by regulated firms. In this case, it is motor finance lenders, and that needs to be resolved. Claims management companies and law firms have a role to play in securing access to justice, but seeking access to justice cannot excuse breaking the law. I have shared some statistics with you in the letter I sent to the Committee. At the point I sent it, we had reports of 6 million complaints to the Information Commissioner about abuse of data; that is now up to 12 million. The Office for Statistics Regulation has 109 open investigations into 76 law firms. We ourselves have opened two enforcement investigations into claims management companies. In both cases, we were threatened with a legal challenge if we wanted to name the companies that we were investigating. On one of them, we had to defend that challenge in the High Court; it delayed the investigation by three months. We have allegations of forged signatures. We have allegations of people signing up without consent. We have allegations of people who have passed away who are alleged to have signed consent forms and claims going into lenders. We have a whole range of allegations here that need to be addressed in a system-wide way. That is also why I drew the attention of the Committee to the work of the Civil Justice Council last year. One of the issues we have is that these concerns can be discussed and reviewed over many years. At some point, a decision needs to be taken. One of the things that the Civil Justice Council recommended was, at the very least, that those who fund high-volume consumer claim activity, whether that is CMCs or law firms, should at least be subject to money laundering registration with the FCA. We would support that, and at the very least that should now move forward as quickly as possible. Some co-regulation of claims management activity is done by CMCs, some by law firms and some by barristers. There is arbitrage between those different frameworks. We think that should be sorted out as well. I am conscious that you have received letters from some companies prior to this hearing. Straightforwardly, just as lenders who have committed misconduct should compensate if they have harmed consumers, and just as landlords in housing who have not looked after your constituents who are tenants of theirs should compensate, and just as in personal injury cases, if anyone in the claims management ecosystem has broken the law, there should be redress. We will be using our powers as far as we possibly can to address this, but there may also be something here for Parliament to think about, to make sure the millions of people who have been affected by some of this behaviour are appropriately compensated.

Just to clarify then, do you think Parliament needs to go further in terms of setting the legal and regulatory framework? At the moment, trying to enforce in this current situation is not going to be sufficient. You need more powers to be able to enforce against this bad activity in the market.

To be clear, the position of the FCA is that, across all misconduct, we will use our powers as far as we can. We are tackling the lender misconduct using our redress powers.

It sounds like a plea for further powers to be introduced.

We will go as far as we can. We are using our system-wide powers and our Enterprise Act powers. There are other powers we can use under the Consumer Rights Act and the Digital Markets, Competition and Consumers Act. However, some gaps have already been drawn to the attention of Government and Parliament by the Civil Justice Council. Last year, a very detailed report was provided to the MOJ. There is a Bill before Parliament now on financial services. We think there may be an opportunity for you to address that, at least when it comes to high-volume consumer claims, money laundering and regulation of the claims management ecosystem. Legal services is a huge source of competitiveness and economic strength for the United Kingdom. It is a major source of exports for us. I am not talking here about the broader litigation work that goes on in the UK, including commercial litigation and other things; I am talking about this narrow area of high-volume consumer claims where we have seen really significant misconduct.

You had taken down 1,000 misleading adverts when you wrote to us just over a month ago on 8 June. Do you know how many you have taken down since then or what the current total is?

We have addressed 1,200 misleading adverts since January 2024.

It has gone up since then.

I have given you the figures from the Information Commissioner. The Advertising Standards Authority has five formal investigations under way into motor finance advertising. I have given you the figures for the SRA as well. We have required 12 CMCs to make changes to their processes through voluntary requirements. We have required reduction of fees to protect over 500,000 consumers. We have a taskforce that is operating here with a number of regulators. You can expect a steady drumbeat of activity from across the regulatory system here, with all of us using our powers, to the extent we can, to deal with this. The engines driving this are the funding engine, the insurance engine and the social media engine. Much of this spam activity is coming via social media. We have had that discussion about the Online Safety Act before. Facebook has been at the heart of some of this. That system-wide contribution to these allegations needs to be dealt with. We will go as far as we can and keep you informed.

Just looking ahead now, you talked in your letter about firm preparedness. Pleasingly, you said that most of them have submitted plans about what is going to happen next, but many of them did not appear to be ready. Can you elaborate on that? What do you mean in terms of them not being quite ready? What more do they need to do and how are you going to support them to do that?

The scheme is now partially suspended. We agreed that with the parties and by order of the court, but that means that a significant amount of work needs to proceed. In the coming months, firms will need to deal with cases where the issues are not in dispute in the court case and where consumers are not eligible for redress. One of the things that has happened with the pause is that consumers who are normally entitled to an answer within eight weeks are not getting any answer at all, and that includes an answer of no. It is important that those not entitled to redress know about that as well, because some of them may have had their expectations raised or be expecting a payment, and it might not be forthcoming. We are also moving forward with the processing of claims that are not within the scheme. High-value loans are a very small portion overall; they are 0.5% of the agreements here. They can move forward now as well. As I said, there are 111 lenders. There is a range of readiness. We are seeing commitment generally across the market, but not everybody has gone as far as we would like them to in terms of getting their operational processes up and running, making sure they are sorting out the agreements that fall into the different categories, and making sure that they have the right customer service support mechanisms in place if there are queries that come back from their customers when they contact them. We will be supervising that very intensively. Generally speaking, in light of the feedback we have given, we are seeing commitments. In terms of readiness, we have been really clear about this in our public communications and I am happy to explain our thinking to the Committee. I stress that we are confident in our scheme; we are defending it; we would like it to go ahead. Parts of it are moving forward, as I have just explained. We also need everybody to plan for the scenario in which the scheme is quashed, because that is what the parties on both sides are asking for. That means no-scheme planning as a central planning scenario. Of course, should the tribunal rule in that way, we would have to consider, at the time, all the relevant factors and make a decision, but one thing we will have to think about at that point is whether it is desirable to produce a new scheme where you have to do another year of consultation. The new scheme could be subject to legal challenge again, which could take another year. Remember that people are normally entitled to an answer within eight weeks.

You also said in your letter that you have heard from some consumers who said, “We just want to get on with it”. Firms are saying the same. How is that possible with the legal challenge live? Is there any way that some people could just decide to settle and say, “Yes, we are happy to come to an arrangement”? What would the FCA’s role be in facilitating that to make sure it is fair and just?

If I may, can I quote a letter from a pensioner that I received on 19 May? “I was very disappointed to hear that there will be a further delay, which is frustrating, as I have not asked any of the bodies that are appealing to represent me, and I was happy with the terms proposed by the FCA after years of deliberation and consultation. I am a pensioner, and probably like many thousands of other pensioners, as well as those on low income, would rather have a payout as soon as possible than wait further months or even years for an uncertain outcome. Could the FCA consider and promote an alternative option whereby finance companies can make an either/or offer to affected individuals?” We have done some survey work as well so we can understand where sentiment is, and the majority of consumers we have surveyed would like the option of moving forward and receiving a payout if they are entitled, in full knowledge that there is a legal process under way, and that there may be a different outcome that comes out of that process, notwithstanding that we are confident in our scheme. We are talking to lenders. We are talking to some claims law firms as well about, where consumers want to move forward with the terms of the scheme and get compensation at the level of the scheme, them being able to do so in full and final settlement. There are millions of people in a difficult cost-of-living situation who need this money now.

Could you explain how it would be different from just implementing the scheme? Would it be that you would have a flat-rate offer going out rather than a calculation going on? I am just trying to understand. If the scheme is under legal challenge but you are saying, “We can proceed in some way otherwise”, what would be the differences between somebody waiting for the scheme and the way that you would implement this kind of offer?

In any dispute situation, the two parties can agree a settlement, irrespective of whether there is a scheme in place, including in a court situation. That is an established part of our legal framework. While we have paused the complaints, lenders can reply if they want to and make an offer to the complainants. Clearly, with the millions of complaints—there were as many as 6 million by February; it is probably much higher by now—we paused so we can bring some order, consistency and fairness to this, and a structured mechanism, including an independent review mechanism by the Financial Ombudsman Service, so that this could be dealt with decisively, and to give certainty not only to consumers but to investors as well. We would take a very dim view if lenders sought to make settlement offers below the level of the scheme. We are not hearing of anybody who is contemplating that. We would envisage that lenders who wish to move forward, which is entirely optional, and to make offers to consumers in line with the scheme, can do so in full and final settlement. We would obviously be verifying that through supervision as necessary. Those consumers, who have been waiting many years for the money, are happy with that level of settlement, are aware that there are legal challenges going on, but notwithstanding those would like to settle, get the money and get on with their lives, can do so.

Just to be absolutely clear, that activity in itself is not challengeable as implementing the scheme by the back door.

At any point, lenders can make settlement offers. This is irrespective of whether it is motor finance or any other dispute, inside or outside financial services. I am conscious, Mr Dean, that you have worked with a number of the claims law firms, and I am sure you hear representations. When we talk to the claims law firms, we hear different perspectives. There are some claims law firms whose business model relies on litigation. They rely on what is called “after the event” insurance and they want to push as many claims as possible through the courts because that is how they make the most money. There are others that would be more open to working with their clients who want to move forward. Clearly, ideally we would like the scheme to have gone ahead on the timetable we set out so that people would be getting the money within the next few months or so, but we respect the court process. We also want to make sure that consumers who want money quickly are not forgotten in all this. I would bring you back to the point that they are normally entitled to an answer within eight weeks.

To be clear, I listen to all stakeholders on this. Finally, on the FOS’s preparedness, it seems to have a more optimistic view of how many complaints it would need to handle and how much it would need to upscale by if it did fall to it to deal with individual complaints. What do you make of its assessment?

We are working very closely with the Financial Ombudsman Service, and I am glad that you engaged with it to understand its preparedness here. The numbers of complaints that might arise if the scheme goes ahead versus it not going ahead is hard to predict. We have put some estimates out in our cost-benefit analysis. Because the scheme is only partially suspended, we will learn a lot in the next few months about the operational preparedness of lenders and about how they are dealing with certain types of claims. What do I mean by that? The claims that are not eligible for redress and that are not at issue in the litigation will move forward. Consumers who are not entitled to redress will get an answer. We will see how many of those seek to challenge that answer in the Financial Ombudsman Service. That will give us a good sense in the next few months of what the numbers might be in future scenarios. Likewise, it is a small number, but on the lenders who have to deal with complaints like high-value loans where some may merit compensation, we will see how lenders behave. If they seek to simply dismiss all those complaints and say they are not going to pay anything, I would envisage that they will get a lot of those going through to the Financial Ombudsman Service and the complaints will rise. We all have our estimates. We will learn a lot in the next few months and we will make sure, for all scenarios, that everybody is ready, including the Financial Ombudsman Service and also the lenders. We are holding the lenders’ feet to the fire to make sure that they have provisions and capital in the United Kingdom, to make sure they are ready to deal with all scenarios. They have had many years now to prepare. We need to respect the litigation and the process and then move forward with whatever answer it gives us.

Mr Rathi, you said that lenders can make settlements; you would not expect them to do it at a level lower than the scheme. If they did offer at, say, 75% or 80%, the consumer’s interests, though they would agree to it, would be damaged in the sense that they would have agreed to something for fear that it would never happen. How and when would you intervene in that situation, given your concern around a lower level being offered?

I wrote in my letter to the Committee that we have supervisory and enforcement powers, and that we will use them if needed. If you look back at the British Steel Pension Scheme, which was the most recent section 404 redress scheme, it was a much smaller scheme. It was a narrower scheme, but we saw advisers seeking to make offers of as low as £100 in certain cases. We intervened and we warned, including publicly warning, about some of those behaviours. We took 30 enforcement cases.

I recognise that you do not want to get into a public debate over the level, but there is a difference between a nominal settlement at less than 50% or something that is very near it. How do you calibrate the enforcement that you take on these matters?

We have the consumer duty in force. It would be very unwise for any lender to offer below the level proposed in the FCA scheme.

That is very clear. Thank you.

We will be watching closely.

Moving on to the payments vision, Ms Pritchard you are responsible for competition so I will direct my questions to you. One of the aims of the national payments vision is to reduce regulatory complexity, support innovation and have more competition in payments. How will the FCA briefly assess its progress in improving outcomes for consumers and businesses in the payments market as this progresses? What are your metrics?

Yesterday, the Government published a consultation on modernising payments regulation. That sets out the long-term regulatory framework that will enable us to set our rules for the future to implement the national payments vision. Innovation in markets, a payments system that is resilient, works well and supports consumers, and ultimately consumers having the protections of the consumer duty are foundational to our approach around pensions. We have always said that to really develop this and to bring it fully into our regulations, the long-term regulatory framework needs to be set out. In the interim, we have been working in particular on open banking, seeing some of the innovations there that are benefiting consumers already. Commercial variable recurring payments is an example of something that I talked about just recently at the Financial Inclusion Committee.

What about the costs of all of this? Do you have an estimate of the costs of implementing the payments vision?

I do not have the figure to hand; I am more than happy to follow up if that would be of benefit.

We do not have the costs. There are many different components to it. The central component is the next-generation retail payments infrastructure. The scope of that is still being developed at the moment with the industry and with users. Neither we nor the industry yet have a full cost for it, although we are all very supportive of the need to get the next-generation retail infrastructure built.

Do you have any idea when you might have costings?

Within the next six to nine months, we should have a clearer picture of where we are going. There has been some consultation on the scope. What will decide the cost is the scope, and so we have to finalise the decisions with the Bank of England and other authorities about the scope, and then we can be clear on what it is going to cost.

Presumably, you have to have benefits that exceed the costs. How do you assess that this is a good idea without a firm understanding of the costs?

We can say that there are certain things that need to get done. There are benefits that come from investment in greater resilience, for example, in the core international standards as well. Those are hard to quantify in a very detailed, granular, numerical way, but we can all understand that having a resilient next-generation retail infrastructure is very important. We can also see that consumers would like to be able to use new technologies, whether that is through open banking, open finance or the use of digital wallets. The national payments vision will enable an architecture to be built that brings innovations to the market quicker. Again, that all contributes to benefits to users and productivity benefits in the economy, and enables us to compete more effectively internationally.

I would not demur from any of that, Mr Rathi, but it would be helpful for the Committee if we could have a note from the FCA setting out how you will carry out that cost assessment over the next six to nine months, and the factors you will consider in the cost-benefit analysis of this to make sure that the scope and the cost of the scope bring greater benefit to consumers and businesses. Moving on, Ms Pritchard how will you ensure that innovation in areas such as stablecoins, digital wallets and other emerging technologies does not come at the expense of consumer protection? Is work being done on that?

As you all know, we set out our comprehensive regulatory framework for crypto just within the last couple of weeks. That is really significant. It is a really significant extension of our perimeter to introduce a consumer protection regime for something that has been largely unregulated. We have said repeatedly that consumers who use crypto should be prepared to lose all their money. That has always been a concern of ours before about whether that has been fully understood. Now in the consumer protection regime, which will come into place in legal force from October next year, we have set that out in full so that consumers can be protected. At its core, that regime will set the standards around resilience, capital and prudential rules. It will set really clear explanations in terms of consumers’ ability to complain to the Financial Ombudsman Service. That regime is really significant for us as a significant extension of our perimeter.

On wider payment technologies, what is the programme to ensure that consumers are protected for other payment technologies in the vision?

The stablecoin aspect of the crypto regime envisages the potential for stablecoins to be used as innovative forms of payment in future. There is a comprehensive regime there around UK-authorised stablecoins in the future regime. Clearly, if we think about it from a consumer perspective, we have always been clear that we want to make sure that consumers know how they are protected and how they are not. The global interconnected nature of the crypto regime in particular is something that we are paying close attention to, working with our international partners in terms of international standards.

My question might have been unclear. Leaving aside stablecoins and that line of technology, the wider payment technologies universe is much broader than that, is it not? What about protecting consumers in that context?

It is public. For example, we have a competition investigation open in relation to digital wallets. I will not go into details on it, but that is a signal that we will use our powers when we need to. Digital wallet usage has gone up from 8% of card transactions in 2019 to over 30% today. There are huge benefits of convenience, but that attention to the competition effects remains important. We are building in, through the national payments vision and in all of our work, a real focus on fraud and financial crime. There are enormous benefits. We in the UK have been a world leader in payments and innovation. This provides benefits to our consumers and businesses. The same benefits that drive convenience are also the attributes that criminals use to defraud consumers.

Since the beginning of the year, I have been chairing the PSR, which, as you know, is ultimately going to be folded into the FCA. What is interesting there is that, in the context of APP fraud, where there is a remediation standard or rule, APP fraud has reduced in scope. The issue more broadly is that the overall measure of fraud across the system is increasing, which is one of the reasons why, in our strategy that we published last March, we said that our aim was to reduce the growth of fraud. That was a realistic aim as opposed to an unrealistic aim. In the context of payments, we are really in the design phase at the moment because there are so many interlocking features. It is important that the new infrastructure itself is sufficiently interoperable with fundamentally new forms of money, including stablecoins. The issue of fraud risk is incredibly important. We look at stronger customer authentication standards and similar, but, from a strategic perspective, which is what the FCA and PSR boards do, over the next few months we are going to have to be laser-focused on the balance between interoperability, resilience, which of course we work with the Bank of England on, and the ability of the system to withstand fraudulent activity, including, as part of that, cyber-attacks, without any doubt. That gets us on to frontier models and such like.

You have made an important point there. I have a final question, Mr Alder, as you are chairing the PSR. It is not controversial to say that reorganisations and putting organisations together and so on can lead to distraction and loss of focus. There are many listed companies that have been taken over over the last 30 years and still think that they are independent in some way. Could you reassure me that the reorganisation of the PSR and the FCA is not leading to a loss of focus on this very important work?

It is actually the opposite. It is leading to a greater level of focus, because in the FCA we have carriage of digital assets; we have published our rules around that coming into force next year. We also supervise payments firms whose business models evolve very rapidly, including open banking. Within the PSR, there are the payment systems such as the cards and Faster Payments, et cetera. Where we sit now in 2026, it does not make sense to have institutional fragmentation around those interconnected activities. It is an opportunity to put all of this together under one strategic direction.

Could we turn to the Leeds reforms? Mr Rathi, you wrote to the Committee and said that you are on the way to implementing nine out of the 30. Could you tell us what initiatives you are prioritising as you seek to deliver the Government’s agenda in this area?

We set out to the Prime Minister last year the 50 or so measures on growth, many of which included the Leeds reforms. We have largely delivered all of those. To the extent that we are thinking about our priorities going forward, much of what is left of the Leeds reforms is now contingent on legislation. That legislation is now before Parliament, including on the reforms to the senior managers regime and to the redress system. As and when those get concluded, we can then move forward and execute against the final stages of those. We have also moved beyond the Leeds reforms. We are working in a very dynamic, fast-moving market. One point I wanted to underline today to the Committee is just the extraordinary pace with which we are seeing market developments. The scale, pace and force of technology affecting financial services and the economy has never been seen before in history. That is contributing to all the work we are doing in our AI labs. We saw the first authorisation of a tokenised fund come through fully end to end on chain, which had come through one of our sandboxes last year. We are looking at agentic AI capability in our organisation to be able to monitor markets more effectively. We have launched the fixed income consolidated tape and the equities consolidated tape. We will be making announcements about that shortly. The pace with which we are moving on reforms is really important. There is a debate and a discussion we need to have about how legislation and rules can cope with the force and pace with which the market is moving.

Could you say a little bit more about the risk appetite? You wrote to the Prime Minister in December seeking a clearer articulation of the Government’s risk appetite with metrics to support innovation and growth. Are you clearer on that? If not, what more would you be looking for, obviously respecting the fact that we seem extremely likely to have a new Chancellor?

This is an issue about how the framework works. I have appreciated the ability to talk about this before this Committee and the Committee in the other Chamber. We are completely bought in to making sure we deliver our primary objectives and recognising the urgency of the growth and productivity challenge in the UK. We are delivering at pace. There is always more we could do to go faster, and you hold our feet to the fire on that. To really get these reforms secure and enduring, and to give people confidence about it, including those who are investing in the UK, having a good understanding of our risk appetite would be valuable.

What would that look like? What would you really need explicitly? I get the headline, but what does not exist at the moment that you would like to see that would really define that in a way that would be meaningful for businesses thinking about investing here?

Let me take an example that Mr Grady touched on earlier, which is payments. We are dealing with a huge opportunity for innovation, which can be transformative for the economy and for businesses and is moving at incredible pace. As we enable those innovations to come at force and at scale into our market, we are managing a risk of financial crime on the other side. We are not going to able to allow all those innovations in and guarantee you that there will not be risks on the other side. For example, in the e-money world, we have tightened up the safeguarding regime. It was an area where we allowed a lot of companies in, but 65% of the money of those e-money companies that failed ended up being lost for consumers. We now have new risks around cyber risk and resilience risk. Where we need to go with this—and this is emerging thinking—is some sense of thresholds. It is hard to have a discussion, but what is the level of tolerable market integrity risk, crime risk and AML risk? In the context of frontier AI, we need to have a discussion about the tension between availability and security. Sometimes things need to be taken offline for a bit longer to make them secure, which will impact availability, and we need to have a discussion around thresholds. In the context of lending, I have talked about mortgages and consumer credit. Today is a really important day; after five or six years, “buy now, pay later” is regulated from this morning. We can ensure access to credit. We have loosened the mortgage standards. We have seen many more first-time buyers come in over the last year, benefiting your constituents, but in a tough interest rate cycle, some more people may fall into arrears; we are seeing a slight tick-up there. Having some sense from you of the thresholds that are tolerable helps us manage the system and engage with you on how we are doing that.

You have repeated this to us a number of times since this Committee was established two years ago. If you were sat now in front of a Chancellor of Exchequer, be that the current one or any future ones, what would be your couple of asks for them on assessing where the risk lies?

Be clear with us about your tolerance around market integrity risk. I am very concerned about the risks to market integrity and the cost of financial crime in the payments sector. We are always encouraged to allow lots of innovation. We are absolutely on board with that, but we need to have the powers to move fast and not to authorise firms that are potentially committing serious financial crime and money laundering. It is unrealistic to think that, operationally, through our supervision powers over multiple years and through legal processes, we are going to be able to deal with all of that and magic it away. We need an honest conversation around that. We need an honest conversation around timetables. After several years, the critical third parties regime came into force earlier this week. The delay, though, has created operational risk. We recommended with the other regulators some time ago to move it, but who owns that risk? Are we having an honest conversation about it?

What was the reason for that delay? We were talking about critical third-party risk for cloud providers four years ago. Can you explain why that has taken this amount of time?

This has been under successive Administrations. You were obviously a very experienced Minister in the Treasury. Legislation and decisions take years. On the Consumer Credit Acts, targeted reforms are now before Parliament. That started back in 2018 and 2019. Then we have to do rules at the end of it once you have finished legislating. It will be another period of time, so you are talking eight, nine or 10 years. There is something about the speed of decision-making. Where I am going to on this, under the control of the board, is that we are going to need to use our system-wide powers much more because legislation will not necessarily be able to keep up. We will need to have a really good, thorough conversation with you about how we do that, because they are quite heavy powers, but if we do not use them, we will not be able to deliver our objectives.

Is it the licence to use powers you have or powers you do not have, or do you want some sort of quantification of the risk from Government in order to give you the clarity of what to aim for?

It is all of the above. Let me give you another example. In the last multi-year strategy of the FCA, which is the first one we did over three years—we now have a five-year strategy—we said we wanted to bring the cost of the FSCS levy down. Back in 2020, it was heading towards £1 billion. It was a huge cost on the industry that causes competitive distortions. We have brought that down to a 10-year low through the actions we have taken. Some of the issues from the causes of that compensation burden, such as the pension freedoms and so on, have worked their way through the system. We are now at around £250 million to £300 million. If we are allowing more risk in the system, what is tolerable? Is it double that, at £600 million, going back to the long-term average? Is it back to £1 billion? What is tolerable, and at which point would Government and Parliament say to us, “Hang on a second. That is an intolerable burden for industry to bear and for the customers of those firms who are paying that levy to be bearing”.

Ultimately, that could go on the face of legislation.

Yes, it could be in a remit letter. We have to be experimental here, because this is a very dynamic market.

There are a lot of remit letters and a lot of “have regards to”.

Yes, exactly.

Is there any message you might have for any new incumbent in the Treasury on that?

We recognise that none of the problems that we are dealing with can be solved by the FCA alone. We are going to have to work deeply in collaboration with Government and with a whole range of regulatory partners. My message would be that we would like system-wide thinking, attention on the operational implications of decisions, clarity around risk appetite, and pace.

Can I just come on to the other side of the equation? Obviously, the Government have brought forward changes to the Financial Ombudsman Service and the redress mechanism. That has been met with quite a strong pushback from some consumer organisations. We had the director of advocacy from Which? describe the change as probably the most anti-consumer change she had seen. Would you like to respond to that? Do you see it in that way?

We need to modernise the system. We need to make sure that there is good alignment between the FCA and the FOS, so we broadly support the principles there. I know that the leadership of the FOS—you engaged them—are also very supportive, have made a number of changes and are focused on their operational effectiveness. From the FCA’s perspective, we want an independent Financial Ombudsman Service. That is a really important safeguard for your consumers. It is a free-to-use, independent service where, if they do not feel their complaint is being dealt with, particularly for vulnerable consumers who do not have access to other resources, they get a fair hearing. Financial services firms need to be treated fairly through that process as well. There are elements of the legislation where we have some reservations. We are nervous about the idea that, wherever there is so-called ambiguity in rules or legislation, the FOS must refer to us and we have to reply within 30 days, because that could lead to a huge operational load on individual cases, and it will affect the independence of the ombudsman service. We hope that gets attention during the passage of the legislation.

Do you mean the interaction between the FCA’s interpretation of rules and the FOS decision-making?

That is right, yes. We all agree that, where there are major or significant issues like motor finance—and there are others that bubble away—there should be good co-ordination. We are absolutely committed to that, but 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. This is an example of where there needs to be real attention to how this system operates to make sure that things do not get gummed up. Well-meaning bits of legislation can have big operational consequences.

In practice, Mr Rathi, given the volume and range of decisions that are likely to be referred to that mechanism, it is highly likely that you are going to be gummed up, is it not?

We are working on the basis that we will not be, but, as Nikhil has raised, there are some really important points there around the way in which the legislation is drafted at the moment in terms of the referral mechanism. 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. There is a way to do this that puts the consumer’s interests first and delivers well for them, but there are unintended consequences around the operationalisation if the referral test stays as it is and anything that is ambiguous must be referred. We are hoping that that can be resolved as this goes through Parliament.

Through the legislative process, yes.

This is incredibly important. To Nikhil’s point, if we get this wrong, the system will become gummed up, to use Nikhil’s words. 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 cannot be dealt with through secondary legislation. There is an idea that you have “must” in the primary and then it will be dealt with through secondary. If the primary says it, then it is going to be hard to try to sort it out afterwards.

There is a lot hanging on this Bill going through Parliament.

Finally, you mentioned in your answers, Mr Rathi, the tardiness of the throughput of legislation, through all Governments, from the Treasury. This has come up previously. How do you go about fixing that? Is it a resourcing issue? Is it decision-making? Is it prioritisation? The seven Economic Secretaries after I left office four years ago all will have worked to make the right decisions as quickly as they had them put before them. How do you characterise what a fix could look like that would make life easier for you trying to do your best?

First of all, we have to make sure we are operationally effective and moving fast ourselves. We are not perfect. We have improved. We have put our annual report out last week; that was laid before Parliament by the Economic Secretary. Over 90% of our metrics are green, but we always have more work to do. That is why we are investing so heavily in technology to keep improving our enforcement record. We had 11 cases under 16 months in the last couple of years, which is a big improvement on where we were before. Please keep holding our feet to the fire on our pace and rigour.

Don’t worry—we will.

I have mentioned it previously. Sometimes we have statutory deadlines. In the competition arena, there are statutory deadlines for the Government when the CMA makes recommendations to the Government under the Enterprise Act, with a certain number of days by which you have to respond. This market is moving within weeks at times. If we make a recommendation, which we will have to do thoughtfully, having a commitment to a response to that within 30 days, with a statutory deadline for the Treasury or whatever to respond, transparently, is it going to act or not? It goes to the question about risk. If you are not going to act, then at least we know who owns the risk. It is clear, and you as this Committee and Parliament can hold all the actors in this system accountable for it. It is about statutory deadlines. We also have to be realistic. This is where I get into difficult constitutional territory, because I recognise that it is not really my place to talk about the balance between the institutions, but there may need to be more delegated authority in certain areas, because the markets are moving so fast and you simply cannot wait 18 months or two years for legislation. Also, I was with my family at Lincoln Castle on Saturday, which is one of the four places, alongside Salisbury Cathedral, that has the original Magna Carta.

That is a gratuitous mention of Salisbury Cathedral.

I had a refresher on the rule of law. We have large companies, whether they are big tech companies or large financial services companies, which, should they wish to, can slow us or my fellow regulators down for years through the judicial review process. We all respect the rule of law. Ultimately, Parliament is responsible for it. We follow the rule of law. Your constituents sometimes need answers in weeks and months. How do we sort that out?

Just to emphasise that, from a board perspective, you might ask, “What is front of mind right now in 2026 or over the next few years?” There are basically three things, one of which is agility; that possibly involves some quite hard questions about what responsibility sits where. In that context, it is not the only reason, but one of the reasons we have shifted to an outcomes-based approach is around that concept. Secondly, it is the FCA’s own operating model and the degree to which we are able to be even more data-enabled and use technology to act faster, of course including embedding AI into our frontline operations. Finally and really importantly, there is this point about the need to operate system-wide. That is partly to do with the fact that consumer harms right now do not necessarily originate in the traditional financial system. They originate elsewhere. Fraud is one example. We see social media. The critical third parties aspect is really plain. Pulling those concepts together is absolutely fundamental, particularly around agility, speed and the trade-offs that implies, who has the responsibility to do what quickly, and a system-wide co-ordinated approach.

Yes, you can see the bag being passed around a bit if you are not careful. That is very helpful. Thank you.

Just briefly on that point, is the UK Regulators Network doing enough on that system-wide area? Is it working well enough for all of the regulators in the room to be saying, “It is originating in your sector, but it has to come over here”?

No, we are not doing enough. Would I pick on the UKRN or not? No. We are a member of the UKRN and we contribute. Let me take the claims management work as one example. We are stepping in to lead that across the entire regulatory system, because we are seeing some of the acute harms in motor finance. Those harms are there in housing disrepair claims. There are military hearing loss claims where we see extraordinarily bad behaviour with respect to veterans and the way they are duped into making claims and sharing their medical details. We have powers right across the system, but it needed somebody to come in and say, “We are going to drive this”, and then also provide the evidence to Parliament to take action. In online safety, it is going to be Ofcom. Then we all need to just get on with backing it. If we have to do loads of work on online fraud to support a case that Ofcom needs to take because it has the powers, we will do it. We just need a bit more of that attitude across the system to sort out these complex problems.

We are really here to talk about helping consumers. We have touched on quite a bit of that, but I just wanted to talk a bit about the pillars of your strategy. Helping consumers navigate their financial lives is one of the aims in your five-year strategy. Where do you think the greatest harms are for consumers, Mr Rathi? We have touched on some of them, such as social media and so on. Is there anything you wanted to add to what you have already said?

I have touched on financial crime and market integrity risk; that is increasingly preoccupying us. If I look at the enforcement cases we have on our books right now, 75% of them are now linked to work tackling financial crime; that was about 30% a few years ago. The sophistication, complexity and impressiveness of some of these serious organised criminal actors—I say that just in terms of how professional they are cross-border—and the way they inflict damage on consumers around the world is important. You are seeing us lead the work on finfluencers globally with other regulators as well. That is one big area. Secondly, there is opportunity and harm. We published the Mills review, which was by our distinguished, now former colleague, Sheldon Mills, who worked very closely with Sarah in particular. We wanted to ask the questions about the future on AI. We are doing so much work on today. What are the questions about the future? We are seeing a world where we think consumers are going to be increasingly willing to use large language models and agents to do core financial services activity for them. We cannot pretend that we are going to stop that. We need to figure out how we are going to enable that innovation in a way that generates huge benefits for consumers but also make sure that all the traditional-issue protections around crime, liability, fairness of treatment, good communication and good understanding are dealt with. That is a major issue for us as well.

These are big subjects. Ms Pritchard, how do you think you can make the most difference to support consumers? You cannot solve the AI problems. The Mills review, which we will perhaps come on to in a bit more detail in a moment, outlines some of the challenges. The Governor yesterday was very clear about a lot of the challenges in the system of AI and how fast it has moved even since he was in front of us in January. Where do you think you can make that difference? Is it that system-wide approach that you have been talking about in answer to other points?

It is really important that the system as a whole is forward-looking as well as looking at the here and now. Sheldon’s review for us looking at the impact of AI on retail and financial services by 2030 is the most extensive piece of work that I have seen that is taking that timeframe. It surveyed 5,000 people. One in five people said that they would consider using autonomous AI. The pace of change, with risk and opportunity, is hugely significant. It is really our role to look forward and then to work with others to convene in terms of how markets might change, and how the system as a whole might need to set itself up well to deal with some of those risks and opportunities.

How are you going to allocate resources to that? This is a useful piece of work, but we see movements so fast in this area. What resources do you need to do this?

We at the FCA have made a decision that we ourselves know that we want to use AI. We are already using AI in some of our supervisory frontline decisions and some of our authorisation cases. We are deliberately setting that culture ourselves. There is sometimes a little bit of experimentation around how AI can help us be more operationally effective and how we can learn the skills as we go. This will be fundamentally something that needs to be cross-cutting for every one of us. I will need to understand the implications fully. We have invested in our senior leadership team as a whole so that people can have in-depth training about how we can lead through AI. This will not be something that one team by itself should do; it will be absolutely cross-cutting. As well as the forward-looking aspect, the other aspect is that we have really set a culture of experimentation. We want to see financial services experiment. We have scaled our sandboxes. What will be very important for the system—and we are having a look at it because this is featuring in a lot of our discussions with firms—is how we can give more of that feedback loop around what we are seeing in terms of where the good practices are, where the real issues are around explainability, and maybe issues around outcomes bias. We have done some thought leadership work in terms of bias and AI models. We want to be working alongside those who are experimenting now. We know that we also need and want to be giving the feedback loops in terms of what we are seeing currently.

Just to very quickly add to that, if I was to be asked about the main challenges and where the threats lie, I would first say financial crime, which we have discussed, enabled by technology. There is effectively an arms race in place around that. The second is long-term financial security for individuals. That then relates to the work we and others are doing around pensions, targeted support and better information for consumers to equip them with the means to engage with financial services for their benefit. In some ways, the phrase “risk taking” might seem to be rather odd in the eyes of a consumer. We are really about enabling consumers to have a better ability to engage with financial services in the context of longer-term financial security. The Pension Commission issued an interim report that unsurprisingly talked about adequacy in relation to auto-enrolment, et cetera. That is somewhat separate from the core technology issues that we are dealing with, but it is also incredibly important.

I wanted to change tack. Earlier, we mentioned this ongoing issue with Litani contacting shareholders of Aviva offering to buy their shares at a significant discount on the prevailing market price. The chief executive of Aviva has not welcomed this. It has happened as the consequence of a legal case that allows access to the shareholders’ data. We have discussed before that consumers need to take responsibility for what they do, but if this happens on a mass scale, lots of people will be vulnerable. They will wonder why they are being offered that and what is going wrong in the company. Do you see a case for some sort of intervention here from the FCA? How do you calibrate and what is appropriate for the FCA to opine on this matter?

The spirit of our reforms on capital markets and listings is that investors should be empowered with information to make their own decisions. We have made huge changes to the listing and prospectus rules; those have generally been welcomed. We are apprised of this situation from many different angles. Our job here is to assess whether or not the existing law is being followed. The High Court has taken a decision. I recognise that not all parties welcome that decision, but it has taken that decision. Access to the register has been given, and any communications that go to the shareholders must be fair and clear. We will be keeping an eye on it.

In essence, it is the consumer’s choice whether to respond to that letter or not. That is a matter for them.

Yes, absolutely. Your choice of language there was also interesting, Mr Glen. Are they consumers or are they investors? What are we talking about here? Is it consumer protection or investor protection? When you look at our fellow regulators’ mandates around the world, a number of our fellow regulators do not have a consumer protection mandate; they have an investor protection mandate relying on disclosure. Then investors can then make their own mind up. You are seeing this tested here. To the Chair’s question earlier about where the market is going in the future, a big pillar of the consumer duty is information to consumers and how they make well-informed decisions.

On this matter then, we are perhaps moving from a saving to investment culture. There is an active desire by the Government to encourage more of that because it is a more appropriate and better outcome for the economy and for individuals. Could I draw your attention to the disclosure proposals in CP26/24, which deals with the issue of double-dipping and cash interest? I have been made aware of a wide discrepancy in the behaviours of different platforms. If an investor has a portion of cash, they will get an interest rate. The individual platform will determine how much they are going to give you of that interest and how much they are we going to retain. If they retain a lot of that interest and do not give the investor all of it, they reduce the fee. There is a lack of consistency and transparency to the investor around what makes up the fees because they are hidden in interest that has been withheld. You seem to be moving forward to some degree on that, but it seems to me that it would be perfectly reasonable for all of that to be quite transparent. The actual fees that the platform charges should be transparent and not hidden in a distribution. How do you feel about this issue and where do you feel this is going to go? Ms Pritchard, I would like to hear from you.

Transparency is absolutely essential for consumers. That is at the heart of all our retail disclosure simplification rules. I just want to be clear that we have taken action on double-dipping before, which is the scenario that you have described. We have saved consumers £10 million as a result of that action. What you see in that consultation is our intention to make it very clear that this is not permitted. We do not think that it delivers fair value, and we want to make that really clear through rule change. At its heart, though, in terms of how to create this greater culture of investing that we want to see for consumers, for those for whom investing would be the right thing over the medium to long term, we want people to be able to make informed decisions that meet their risk appetite. They should not have to rely on very prescriptive disclosures under outdated legislation such as the Consumer Credit Act. We do not think that approach delivers well for consumers. Our philosophy very much is simplicity and getting consumers the information that they need. We are doing some really interesting work around APRs and whether they are understood. That work has behavioural testing at its heart. We are not making these rules in isolation; we are engaging with real consumers to understand how they make decisions.

If you leave a degree of ambiguity over this, you surely create the scope for different platforms to present what they are doing slightly differently and not make it clear to the consumer when we really want fair competition where the actual fees and charges that the platform is taking or the withheld interest are made explicit to the investor.

As we look to reform our rules on a forward-looking basis, there is a real balance to be struck about how much we prescribe in terms of comparability and how much we leave with the consumer duty so that firms can innovate and our rules can keep up to date with the pace of change that Nikhil was describing in terms of markets. We are trying to strike the right balance. It is a consultation. It is open for feedback and we really welcome views in terms of whether our proposals give sufficient comparability and enable future innovation. At its heart, the speed of the regulatory system and the ecosystem is not just about legislation and how legislation interacts with rules. It is about whether we are going to need to be constantly updating our rules to reflect the changes to markets. That is really at the heart of consumer duty: it is preventing us from having us to do that so much in future.

Most investment platforms do not pay a reasonable amount of interest on the cash held in accounts. Some are paying no interest at all, according to James Daley of Fairer Finance. Does that concern you?

It absolutely concerns me where there is double-dipping. We very much want to ensure that all products and services deliver fair value for consumers.

The Litani situation that Mr Glen mentioned illustrates a point about vulnerability because a lot of those shareholders may well be older people who have utility shares or insurance shares through demutualisation. We have heard evidence that firms do not have a grip on monitoring and acting on vulnerability. Ms Pritchard, what is your take on that?

We have a really strong focus on vulnerability. It is at the heart of how we deliver against our consumer protection mandate and at the heart of consumer duty, which does not just reflect the needs of all consumers but has a particular focus on the vulnerable. We see different experiences in different markets. We have done some really in-depth work looking at our vulnerability guidance. We have been very clear that firms can share information within firms. We have seen some good practice where firms have a “tell us once”-type policy, where a consumer only has to disclose once to that firm that they are vulnerable and they can have a greater support and wraparound.

When it comes to firms and vulnerability, this is a longstanding discussion in the FCA. Where do you think firms are? Are they at 10 out of 10, where you would like them to be, zero out of 10, nowhere near where they need to be, or at five out of 10? Where would you put them? How much room for improvement is there in the industry overall?

There is always room for improvement, but I would say that we have seen real progress since the consumer duty has been in place. The latest UK Consumer Satisfaction Index is reporting that banks and building societies are scoring higher than retailers for the first time ever, at 82, in terms of consumer satisfaction and there has been a year-on-year increase since the consumer duty has been introduced. We recently set out some in-depth work on vulnerability, particularly looking at product design. Are firms considering the needs of vulnerable consumers when they are designing their products? A common feature across the consumer duty, which I would say applies to the industry as a whole, is about what data and oversight exists in terms of the outcomes that vulnerable consumers are seeing. I can give a really specific example where we have seen really good practice. One firm saw that customers with additional mobility needs were being auto-declined for credit at a much higher rate than they were expecting. The data showed that. They took a look, and they realised that there was an auto-decisioning rule in their system that was leading to declines for those who were declaring benefits as their main source of income. They remediated that. That is a real sign of how data is important and how you can use it at a system level to achieve better outcomes for vulnerable consumers.

Briefly, Mr Rathi, this Committee is doing a lot of work on financial inclusion. The consumer duty does not oblige firms to provide loss-making products, as I understand it. There is a cohort of consumers in our constituencies who cannot afford basic financial products. Back to the roles and responsibilities conversation that you were having earlier with Mr Glen, where do you see the responsibility sitting between the Government and the FCA on resolving this quite serious issue?

Thank you for the thoughtful report of the Committee on financial inclusion this week and the focus that you are giving to it. We absolutely have a role. We have a role in terms of drawing attention to the issues that impact vulnerable consumers. We have done recent work on basic bank accounts. We are doing a lot of work, for example, on insurance. Our Financial Lives survey, particularly in the context of cost of living, has drawn attention to the fact that some vulnerable consumers may be under-insuring. They are cancelling policies to save money, and that can have some quite significant medium-term impacts on their financial resilience and wellbeing. Ultimately, we cannot direct firms to provide products. Where there is a market failure, where the market is not providing the full cover—that may be things such as flood insurance or access to cash—those are ultimately social policy interventions. We can surface those to the Government, and they need to think, with Parliament, about whether they would like to take any further action or not. That is the right system. There is a lot of discussion in the current Bill about the accountability of regulators. We want to stay within our appropriate boundaries with the guardrails that you set us. When it gets into these social policy questions, Parliament is the place where these are mediated.

I was also very interested in the Mills review. We could have a whole session on this. We heard a lot from the Bank yesterday. One of the things here is that the pace of change is great. The salaries that people are paid are enormous. How can you keep up with monitoring AI? Where do you see your role in keeping up with this pace of change? We have touched on it a bit before. Are you equipped to deal with the challenges of AI?

I always look to our primary objectives that you have set us when I think about what our role is. As the leaders of the organisation, if we need to profoundly change our operational model in the context of changing technology to deal with the fast pace of change, that is what we will embark on and that is what we will do. I have surfaced some of the points that we are thinking about here.

You think you could extend your perimeter to include this.

It is thinking very differently about the perimeter. In some sense, everything is blurring. The issues that we talked about at the start of this transcend sectors. They transcend claims management, law firms, private credit or the core consumer work that we do. The boundaries between big tech firms and financial services firms in the context of payments are blurring. The global boundaries are blurring. We can see enormous markets growing in jurisdictions way beyond anything that we would consider previously to have been a major sizeable financial services jurisdiction. Those markets have influence on our markets and indeed big markets such as the United States. What is our job? Our job is to draw on all the intelligence that we possibly can to make sure we understand what is going on. Secondly, it is to make sure that we have the technology platform to surveil these markets as well as we can. We are experimenting with agentic market surveillance, which sounds quite Star Wars-y or science-fictiony, but essentially it is using agents to process the billions of rows of data that we get every day on all the securities that get traded in the United Kingdom, to back-test that data and go back to firms automatically to clean it up so that our case officers can get to the high-risk stuff quicker.

Ms Pritchard talked about the senior management team being skilled up, but realistically can you compete in this world? The salaries that people are being paid to do this and the skillsets that they have are quite different from those of the people who normally in the past, not that many years ago, would have been recruited to the FCA.

It is a statement of the obvious that the large hyperscaler big-tech firms are spending hundreds of billions of dollars investing in AI infrastructure. There are rumours that the top individuals there get paid as much as $200 million or $300 million. Clearly, unless you fundamentally change the way that we operate, we are not going to be there.

We are outgunned.

AI is going to impact every sector in the economy. It is going to impact all our workflows. Everybody is going to need to build capability here, whatever job you are doing, dare I say it even in Parliament as well. You are going to find that it is going to impact your work and some of your constituency work in terms of the nature of the cases you get. We are investing in that. We want to go further and faster. I would also say that the quality of work that you can do at the FCA is hugely inspiring for our colleagues. I am really proud of our 5,500 colleagues. We are recruiting very successfully at the moment. We have very low turnover. The development of our digital hub in Leeds has been really great for our organisation. We are attracting people from overseas to come and work at the FCA. That is because we are leading the way in many areas in terms of the regulatory focus on AI through our labs and sandboxes.

Do you even want to regulate them? Will some of the companies, such as Grok and OpenAI, be receptive to regulation?

We got there on critical third parties for the first three. That was a spirited debate and discussion.

It took you a long while.

In the big tech world, you see a range of views. Some take the view that they want to embrace the regulatory system and work with authorities very closely as they develop and roll out new products. Others have a more libertarian view of the world.

Is there anything that Parliament or Government should be doing? It has taken a long while for the critical third parties to be named. We have been pushing Ministers on that since this Committee’s inception in 2024 and previously. Is there anything that the system ought to be doing to make it easier to regulate AI?

We have some great innovations in the UK. The AI Safety Institute has put the UK in a really strong position to understand some of these developments. The AI Economics Institute is coming. The only part of the system that can mediate some of these choices will be Government and Parliament. You will be interrogating things such as the interplay between defence and civilian uses of AI, innovation versus market integrity, the benefits to the individual versus the risk to the system, national versus global, sovereignty versus working in an independent way and availability versus security. Spending as much time as you can with the other Committees that are interested in this, really interrogating those issues and then giving the regulatory system the guardrails within which we should operate on these trade-offs would be hugely beneficial to us all.

Finally, internally, the Mills review recommends that you build and adopt an AI-enabled agent supervisory model. How is that going?

I mentioned the markets area where we are doing that already. We are quite excited about that. We think it could be very beneficial. There will be bumps in the road. Agents are not going to be perfect. There are some really interesting legal questions about liability and so on that need to be resolved.

Yes, the Governor laid that out very clearly yesterday.

One of the challenges for us compared to, say, some of the firms we regulate is we are a regulator. We take quite significant and far-reaching decisions that can affect people’s livelihoods and their firms. We need audit trails. We need to be able to explain our decisions before courts and before Parliament. Therefore, the controls that we need to place around the way in which agents are used in our everyday operations may be a little bit different to other types of entity. That means it may take us a bit more time, but we are not going to be able to do our job and deliver our primary objectives unless we move fast in this direction.

How are you making sure that, when you are using AI models, you are very alert to the data that you are putting into that and how that is going to be used? You have a relationship with Palantir, for example, about which concerns have been raised in other sectors. What safeguards are you putting in place to protect that data?

We have our cyber-security safeguards. We are investing heavily in our security programme. We have our data governance and data management frameworks. Of course, we respect GDPR as well. We have multiple lines of defence within our organisation that keep an eye on that. That is also an area, though, where we need to constantly think about our risk appetite and constantly evolve. If I take financial crime—I know I keep coming back to this, but it is preoccupying me at the moment—we are not going to tackle the money laundering risk or the fraud and financial crime risk if we are not able to share data and intelligence in a fast and systematic way across sectors, across regulators and between the public and private sectors, including with telecoms companies and financial service institutions. Some of that might need legal change to make it possible, and with that comes risk.

You have set out a lot of challenges for Parliament and Government.

Yes, and us.

You are quite right that these are things that we will need to consider, as you say, with some of our sister Committees.

I want to move on to consumer credit and “buy now, pay later”. Mr Rathi referred to today as being regulation day. You got a very good write-up in the Guardian this morning, I see. What change in practices will consumers see? How will it be monitored? If you squeeze the balloon at one end, it comes out at the other.

Today is regulation day for “buy now, pay later”—now, 30 firms either have full or temporary authorisation. At its heart, it is there to make sure that consumers can access affordable credit, that they can have support if they get into financial difficulty, that they have protections under the Consumer Credit Act for purchases over £100 and that they have the ability to complain if things go wrong. We do know that it will have an impact on some consumers. Those for whom it is unaffordable will not be able to access “buy now, pay later”. We have been really explicit on that because that is one of the natural consequences. As we have developed that rule set, we have said very clearly that we want the “buy now, pay later” sector to thrive. We believe that it will, and we will be monitoring closely how it develops. One of our executive directors Sheree Howard is up in Liverpool today talking to consumer groups on regulation day.

Last month we heard from Citizens Advice and some of the other groups about their fear that it could lead to consumers using unregulated firms. We can look back over the last 10 years, with all the work that the Member for Walthamstow did at the beginning of her period here in the House and so on. Mr Alder, you have been around and seen some of these changes. What is the general view about whether we are getting better at protecting consumers who are particularly vulnerable to the payday loan sharks, as they were?

I was up in Birmingham a couple of weeks ago, and I spent some time with the illegal money lending team there, which operates under trading standards. I was asking the same question: how does loan sharking operate in practice? There is an understandable narrative that, if you tighten up “buy now, pay later”, which we have done and needed to do, without any doubt, you are going to squeeze it out into the illegal money lending sector. That is an understandable reaction. What I got from that visit—to a degree it was anecdotal, but they have been operating for some years in this area—was that by and large the origin of loan sharking and the way it operates is not driven by exclusion from the regulated sector or the financial sector. It is more to do with the way in which crime operates in localities. That boils down to aspects of drugs and organised crime or similar. That was their impression. There is a set of societal issues around loan sharking, but it is just too simplistic to say, “This is a product of a tightened regulatory push on buy now, pay later”.

I am very pleased to hear that. Otherwise, we would never do anything in the way of regulation, would we?

If I may add, I recognise that there are real pressures on household budgets and that there are some for whom this will be unaffordable. For those people, who may be your constituents, no one should suffer in terms of debt alone. Free debt advice is available. This is where, in the round, some of the other measures in the financial inclusion strategy are so important. There is a priority around workplace savings. How can consumers be helped to create small savings that they can draw on in an emergency. How can the small sum lending pilot scale? We need to look at it in the round. We do not want people to go to illegal money lenders. Free debt advice is always available. We will be monitoring closely what happens. We know that there are a small percentage of people—it was 2% back in 2024—with over £500 of debt outstanding. There are many consumer stories from people saying, “I did not realise what the cumulative effect would be of ‘buy now, pay later’”. That is at the heart of the consumer protection that this new regime will drive.

This is also where AI and technology can make a big difference. We have open finance and the Data (Use and Access) Act. In excess of 16 million people in the UK have had an adverse credit event. That can cause a real issue in getting access to credit, but more recent experience shows that those people can manage. Technology enables those people potentially to access small amounts of money in a much safer way than has been the case previously.

Perhaps in 12 months’ time we can have the same panel back.

It is certainly something that we are going to be watching. Certainly, it is going to be helping many of our constituents.

I am going to turn to something that is very important to a lot of our constituents, which is mortgages. We have gone through a period where interest rates have gone up enormously. Can you talk us through your thinking currently on the mortgage market for people who want to get on the housing ladder and people who are facing a revaluation in terms of their next mortgage? The mortgage charter is a thing of the past. It seems to have helped keep repossessions to a low over the last two decades. Where is your thinking now in terms of where the level of risk in the mortgage market should be shifting to, if at all?

We are broadly comfortable with the way the mortgage market is working. It is healthy; it is competitive. On arrears, the latest quarterly number of repossessions is about 1,200, which is modestly higher than previous quarters but a long way lower than what we saw in previous episodes of sharp increases in interest rates. Arrears levels overall have started ticking down in the last few months. We would attribute a lot of that to the consumer duty, the borrowers in financial difficulty work that we did and a general improvement in the way lenders are going about how they treat their customers. Ms Pritchard talked about the customer satisfaction index. We tend to see that lenders work really hard to keep their customers in their home and only go for repossession as a last resort. Sometimes repossession is the better outcome for a consumer. Our attention is also focusing now on the future. We have done a lot on first-time buyers. We have some more to do on those who have variable incomes, who may have temporary work or who are self-employed. We have some proposals that are closing for consultation on 28 July to make it easier for those people to access the market. We really want to tackle later-life lending. There is £4 trillion of housing wealth in the United Kingdom. When people retire, 80% of their wealth is in their housing or their DC pension. The DC pension is very often not going to be sufficient in terms of the generation of income even alongside the state pension for the living standards that people expect. If we are not able, in a sensible way, to unlock some of that housing wealth so that people can make use of it in retirement, people will not have the living standards that they want. We need to rethink that. We are working on that as well. We are also trying to make it a little bit easier for people who go through some challenging life events, where they need temporary lending, to be able to access the regulated market.

What about people who want to get on the housing ladder? What you describe sounds like a market that has functioned well for people who are within the risk tolerance of the industry and the parameters that you have set. There are constituents who say, “I am paying more in rent than a mortgage payment would be, but because of my salary, the multiples and the limits that are in the market, I cannot get a mortgage that would be more affordable than my rent”. Where is your thinking on the risk around that?

We adjusted the affordability standards in the first quarter of last year. That made, on average, an additional £30,000 available to borrowers. First-time buyers have been the biggest beneficiary of that. I will have to double-check the figures, but in the last period 54% of all new mortgages went to first-time buyers. The proportion of new mortgages issued has gone up very significantly in terms of what is going to first-time buyers, particularly outside London and the south-east. With the PRA and the Bank of England, we have made some adjustments to some of the loan-to-income flow limits that banks were restricted on in terms of how much high loan-to-income lending and high loan-to-value lending they could do. We are seeing real movement there. You are also seeing some new products come, which are not going back to the days of 125% mortgages in the early 2000s, but you are seeing 97% or 98% mortgages, where lenders are confident that the income trajectory of the borrower is such that they will be able to manage that over time. Where we see the biggest issue is around housing supply and saving for a deposit. Those have been the perennial challenges for first-time buyers. I know that the Government have thought about interventions in those areas.

Ms Pritchard, I know that the FCA has been asked to take on the anti-money-laundering responsibilities for the solicitors and conveyancers who may often be involved in the housing market. You are aiming to do that within the next three years, I understand. Does that add an extra layer of complexity and regulation for our constituents who are trying to buy a house? They will already have had to prove the source of the deposit. The conveyancer will have had to check all those things. The FCA is now going to be regulating as well as the Solicitors Regulation Authority, I understand. How is that going to work in real life?

From a consumer perspective, in terms of what we are talking about here, access to mortgages, it should not have any impact at all. Those proposals—part of this is in the legislation before Parliament at the moment—give us the responsibility for setting money laundering standards consistently across the legal and accountancy sector. It is quite significant: 60,000 firms and 100,000 individuals will come under our scope. Consistent with the discussion that we have had already around using data, using technology and focusing on financial crime, we will be using data and tech as an initial approach to help us get to grips with that population. It will enable us to be more effective system-wide in terms of financial crime and money laundering risk. From the perspective of consumers, though, they should not see that that causes any friction. It should enable us to have a much more effective understanding of where the financial crime threats emerge across the system and how to most appropriately take action, if you think about the financial ecosystem as a whole.

I have two other quick issues, if I may, Chair. Mr Alder, on 18 June the FCA dropped its investigation into Drax and whether there had been incorrect reporting to the markets by Drax. Whistleblowers have been in touch to say that there might have been some Government pressure for you to drop that investigation. Can you just confirm that that is not the case and that it was an independent decision?

We always take all our operational decisions independently.

Mr Rathi, would you also agree that there was no political interference in that decision?

No. On enforcement transparency, in that case the company was listed and they announced that we had opened an investigation. We confirmed it reactively. If we close an investigation, having done a lot of work, having looked at thousands of documents, we also have a responsibility to let it be known that we are closing the investigation. We did not find evidence that pointed us to meeting the threshold for enforcement.

That was not a politically timed announcement.

It was an evidence-based decision.

You did not receive any influence from the Government on the timing of that decision.

The timing of the decision is important. If we have come to the conclusion that the evidence is not leading us to take enforcement action, it is important that we communicate that promptly to the people under investigation because it impacts them and they need to communicate that to their investors.

Finally, on my favourite topic, which is the advice-guidance boundary, it is a constant source of frustration to me that there is all this expertise in our financial services sector, but all our constituents are dying for more help in terms of making life-changing financial decisions. Artificial intelligence, as we saw in the Mills review, is now filling a lot of that gap and giving a lot of our constituents financial advice. I know you have taken steps to try to make it easier for people to get access to financial advice, but it still feels like a very regulated area where people are turning to the internet to make life-changing financial decisions and often either getting scammed or getting bad advice from offshore. Is there anything more that you can update the Committee on around helping our constituents with these financial decisions? It does not feel like we are yet in the right place.

As you know, we have undertaken some really quite significant regulatory reform to try to close the advice gap. Some of that will take time to scale, but targeted support, which we think can benefit 23 million people in closing that advice gap—

How many firms have applied to do that?

Eight are now authorised. We have been speaking to 30 in total. Given that the regime went live at the start of April, that is an encouraging sign of progress. I am not sitting here saying that that by itself will solve the advice gap that you have described. Only 9% of individuals are receiving regulatory financial advice. This is where we need to look at the system as a whole. Targeted support is important. Simplified advice, which we have consulted on and we want to see a much greater uptake of, is important, as is full financial advice. Sheldon has described some of the features of AI as like a financial coach in your pocket. This goes to the heart of the perimeter question, and we raised it in our perimeter report. AI models, as they are currently constructed, are outside our regulatory perimeter. We have issued some guidance to consumers on InvestSmart because we want consumers to know what is protected and what is not. We have to look at this in the round. We have to make sure that the benefits of AI, in terms of that financial guidance, can be seen by consumers and, equally, consumers are protected in terms of fraud and scams. One of the things that I did want to highlight, to take the opportunity of being in front of you today, is our Firm Checker. This is an improvement that we have made to our system so that individuals can check very quickly whether a firm is authorised. We have seen real uptake on this since we have been running some significant media campaigns on it this year. The message to consumers is always, “Please go and check Firm Checker before you are engaging with a financial services firm to find out whether they are authorised by us or not”.

Is there any evidence that banks use the AML restrictions and obligations to not open bank accounts for certain categories of prospective customers that they do not want to have?

We did an extensive report on this within the last two years, which looked at the provision of banking services and, in that context, account opening and account closure. We did not see any evidence that consumers were being unfairly declined or debanked. We do know, though, that the AML rules create some friction in the system. I hear that regularly when engaging in some of the discussion around workplace savings, for example. That is in the context of how employers enable workplace savings schemes at scale and whether they have to repeat AML checks, if they are working with a third party that is providing that scheme. We know it causes friction in the system. That is where things such as digital ID, which I know is controversial, could be a real game-changer. We have seen studies in India showing that, when they moved to e-Know Your Customer, the cost of those AML checks reduced from $12 a person to six cents. You can see the cost benefits of that, the benefits for the efficiency for markets and some of the protections that can be driven around financial crime. We can look at the regulatory system, but there is some foundational underpinnings there that can help.

It is taking out the friction.

Can I just add something on the business side? This question comes up both for individuals and businesses. Banks have full commercial freedom to decide which businesses they bank. It is different to the question on individuals, where Parliament has given more legal protection. Let me take defence, which has been one area where there has been some caution, whether it is about AML or sanctions or just general caution. I spoke about this at the regulators’ dinner at Mansion House last year. We have been really clear. There is nothing in our regulations that stops banks or any other financial service provider from providing financial services to defence start-ups. We have seen good responses. Usually, where one or two individual defence companies have raised it with us on some of our visits, we have dealt with that with banks. We have also authorised our first defence fund, in four days, earlier this week. We are really keen to send that message out.

Moving on to insurance, you have done a lot of work on monthly premia, APRs and the cost of those. We have heard quite a bit of criticism of your work on this Committee. One line of criticism, Ms Pritchard, is that the FCA is primarily focused on firms charging above 30%, creating the impression that rates below this level are legitimate. What we have been told is that the data suggests that many motor insurance providers and brokers are now charging just a little bit under 30%. Have you been vigorous enough in dealing with these monthly premia?

If I take premium finance, consumers paying monthly for their insurance, this was not a once-and-done piece of work. Our focus with those firms continues. We were able to use the consumer duty, act at pace through our fair value rules and take action, which has benefited consumers by £157 million a year. We have seen big reductions in APRs for those firms that we have directly challenged, 7% on average and 4% on average for those across the market as a whole. We continue that follow-up work. We are engaging with the next tranche of firms that we did not engage with directly in the first stage of that review. Our focus very much remains on how firms are implementing our fair value rules in practice. If I just take a step back and think about the insurance sector as a whole and why it is so important in terms of our strategy, helping consumers deal with unexpected shocks is one of the key features of our strategy. We want consumers to be able to access insurance products. We had a conversation at a previous Committee meeting around whether we could mandate particular products if they are not commercial. I was very clear in that session that that is beyond our remit. We took really significant action on gap insurance in 2024, not long after the consumer duty came in. We took action under fair value that led to £70 million back in terms of gap insurance. Our focus remains on making sure that the insurance market serves consumers. Premium finance is a good example of us being able to use our consumer duty rules to deliver reductions in rates on a swift basis.

I am glad to hear that it is not once and done. One of the other criticisms that has been raised, which seems not unfair, is that there have not really been any consequences, from the point of view of redress, for people who may have been overcharging for monthly insurance. What would be your response to that criticism?

Through our premium finance and market study—you are right—we have taken interventions on a forward-looking basis. We thought that was the most appropriate course of action in premium finance, but it is not always the approach that we have taken. We have good examples of us securing a £200 million redress for consumers that were underpaid, for example, in relation to motor total loss claims. The other point that I wanted to highlight is—Nikhil has touched on some of our enforcement work previously—that we are trying to be really transparent about how we are also using our supervisory intervention and enforcement tools across the market as a whole and in particular in insurance. Just a couple of weeks ago, we set out that we have 11 active consumer duty cases now in enforcement. Six of those are in the insurance sector. We will take those individually and we will take an evidence-led approach, but that is a sign of how, where we see significant outliers, we will use the full range of our tools to deliver better for consumers.

Would I be right in thinking that, now you have carried out some work on this and you have set out your position, firms that do not comply with the FCA rules will run a higher risk of redress and sanction for breaching the FCA rules?

We are very clear that we expect people to take into account our findings and the expectations that we have set out around fair value. If we see examples where that is not the case, firms can expect us to have some very detailed supervisory conversations about what the appropriate next steps might be.

I have a more general question, perhaps for Mr Rathi. A concern expressed quite frequently to this Committee at the minute is that the FCA in the current context is tending more towards the industry and less towards the consumers. That is a concern that is expressed frequently. Is the explanation for this, taking us back to the earlier chapter of this hearing and the discussion with Mr Glen, the need to get clarity on thresholds and risk tolerances around the industry?

Look at the outcome metrics. Sarah spoke about the customer satisfaction index. Banks and building societies are at the highest ever level. They are the highest-scoring sector. That has come from the consumer duty. In our own Financial Lives survey, we are seeing trust metrics in financial services improving. That is banks and, to an extent, insurers. Insurers have a bit more work to do, along with asset managers. The FSCS levy is at a 10-year low. To an extent, the FSCS levy is a signal of consumer harm that needs to be compensated. I recognise the critique. There are many organisations that would like to see us using our enforcement tools much more forcefully and much more publicly. I do not want to repeat the debate around enforcement transparency. As Ms Pritchard has told you, without naming any names, we have a number of those cases up and running. We are delivering on our consumer protection objective, but we are also doing it very transparently with you in a way that is rebalancing risk, seeking to reform our regulatory system, and seeking to deliver the mandate that we have been given by Parliament on growth and competitiveness. Yes, the risk appetite and risk thresholds will make a difference. The financial inclusion report that you have given will make a difference. We have surfaced in our work, for example, that 58% of adults do not hold pure protection products, life and critical illness insurance or income protection. We cannot solve that on our own. That is something that goes much beyond purely the FCA, but we can help, though, to surface it.

Would you be in favour of a basic insurance product that people have to provide, like a basic bank account?

The basic bank account has been important. We have seen some important—

Would it be worth translating that over to the insurance side?

There is potential for that. People’s lives are complicated, so insurance is much harder to compartmentalise in a very simple way. Their family circumstances are different. There are different types of critical illness. It is quite hard to make it completely basic because it depends on your own medical history.

It might be for certain types of person.

Briefly, because time is marching on, the other concern frequently expressed to this Committee in the context of insurance is that the much greater use of data and the hyper-personalisation of insurance effectively prices out quite a lot of people from insurance who would not have been priced out 30 years ago. Is that something on your radar, Ms Pritchard?

The use of data for personalisation is not new, but at the scale at which that is possible through some of the new AI and other tools that we have been talking about is clearly significant. Our regulatory framework is clear around risks of bias. We are paying attention to that and we are monitoring the market. There could be real upsides as well to some of this technology in terms of the ability to reach some of the underserved and the ability to price more accurately for consumers who may be excluded from current products. We need to look at it in the round, both in terms of the risks of bias and the opportunity. Our sandboxes are there for a reason. We are very open to firms that wish to experiment around any of this technology, and we will be monitoring the market very closely. We would be happy to keep you updated.

Does this take us to the hard edge of your jurisdiction? As you price risk better, you might decide that Dame Meg is a lower-risk person compared to me and so her insurance will be cheaper and mine will be more expensive. I might not be able to afford it. That takes us to a hard edge: you cannot mandate people to supply insurance at a specific price.

That goes to the heart of what Mr Rathi was talking about.

To this point on data, though, we are open-minded about new products. Let me give you the example of motor insurance, where there are people piloting this. Some people cannot afford motor insurance, but, with personalisation and better risk management, there are products starting to be talked about where you can be insured for six hours, nine hours or a week, which might fit better with your lifestyle and make that form of transport available to you when it was not otherwise.

There are positive sides to this.

There are, yes. We want to be very open-minded about those while managing the risks that you describe.

It is an area of abiding interest for this Committee.

It was only when Which? brought their super-complaint with regard to the home and travel insurance markets that the FCA intervened to look at that. What percentage of your work is proactive and what percentage is reactive?

We had been doing a huge amount of work in the insurance sector before the Which? super-complaint arrived.

Specifically, what is the percentage between proactive and reactive work at the FCA?

You might not have that figure to hand, but do you have it somewhere?

It would be difficult to give a specific figure in terms of proactive and reactive. The work in terms of claims handling is a really good example of us using the data that we get from the market as a whole, complemented by the trust data from the Financial Lives survey, which showed that home and travel claims were being paid out at a much lower rate than motor, for example. That is why we commenced a really deep programme of work that we published in July 2025, which challenged that and said that we could go further. We set out at the end of last year how we will go further alongside the existing programme of work.

Could I also make a point about prioritisation? We have been doing work on pure protection; we have been doing work on motor insurance; we have been doing work on premium finance; we have been doing work on gap insurance; and we are doing work now in the commercial sector on leasehold insurance. We have to make choices at any moment in time about which sectors we are going to focus on, and we are transparent about those choices. For example, we have also had concerns raised with us about pet insurance. We are not going to be able to have every market under deep study on a continuous basis. That is part of the discussion that we have to have with this Committee about why we are making those choices.

If you could take away the point about the percentage of proactive and reactive, it would just bring a bit of clarity for the Committee.

Finally, we have talked a lot about consumer harm and challenges. Would it be helpful to have something similar to the Financial Policy Committee looking at consumer harm, or are you managing it well within the organisation as it is?

When I look at our three objectives, something like that is probably more relevant for our market integrity objective. I am seeing a range of risks there around resilience, financial crime and AML and the system-wide nature of those risks. We are doing a lot of thinking in our organisation about how we join the dots. We have made some improvements. On consumer protection, the issues go way beyond the FCA. Some of the issues that we have talked about today go into the connections with health services and mental health, online safety, social housing and the housing regulator.

It has to be multidisciplinary.

It is Government-wide, really. It is system-wide.

We referred to this at the very beginning of the meeting, but it is really important. First, what seems to be happening at the moment is that the pace of risk and the different types of risk coming into the system are outpacing the ability of regulators across the piece to respond. That is for all of us to think about. Secondly, as I mentioned earlier on, harm is increasingly originating outside regulated firms. There is still an issue in relation to regulated firm behaviour. We can see that. That system-wide point is absolutely fundamental as to how we think around how we approach consumer protection, but not only consumer protection, very quickly over the next few months.

Having some sort of multidisciplinary Committee may be an answer, but I will leave that as a hanging thought. Can I thank our witnesses very much indeed—the three representatives of the Financial Conduct Authority? Thank you to our colleagues at Hansard. The transcript will be available on the website uncorrected in the next couple of days. Thank you to our colleagues at Bowtie for the broadcasting.