We need your support to keep TheyWorkForYou running and make sure people across the UK can continue to hold their elected representatives to account.Donate to our crowdfunder
I am someone who believes in Parliament—I believe in it not just as a way to pass the laws under which we are governed and to hold Ministers to account but, crucially, as a way of reconciling the different and competing interests that a complex and sophisticated country such as ours inevitably encompasses. Like many colleagues, I find our politics at the moment increasingly bitter and angry and lacking in respect and empathy for opposing points of view. For me, the House of Commons and, to an extent, the House of Lords have historically given this country the means to have the conversation that it needs to have with itself to begin to resolve differences of this kind.
I say that in opening to explain that it is a genuine source of sadness to me that, so far, Brexit has represented not the return of greater powers to Parliament, but the greatest accumulation of power to the Executive that we have ever seen in peacetime. That reality is before us again today. The Minister has clearly laid out the basis of today’s legislation. We are now so close to our EU exit day without a deal—just 34 working days, to be precise—that ensuring that we have a functioning regulatory system after Brexit is an urgent priority.
Leaving without a deal would be so problematic for this country that it is hard to believe that it has ever been much more than a thinly veiled threat to try to force Parliament into supporting the Government’s rejected Brexit withdrawal agreement. However, we have had to take appropriate steps to ensure that we have a functioning system in the event that that does happen. The Bill transfers significant powers to Government to deal with EU financial legislation that is in flight at our time of departure, meaning that we have been involved to some extent in shaping it but that it does not yet form part of the law applicable to the UK.
It is a welcome change to have the opportunity to substantively debate a major piece of legislation such as this. Until now, the Government have chosen to transpose the existing EU financial regulatory framework through secondary legislation. Ministers, my colleagues and I have now debated dozens of statutory instruments with just a handful of colleagues in the corridors of this place, passing legislation on huge items of EU regulation, containing many thousands of pages. I will spare our colleagues the excitement of referring to each of them in detail, but they provide all sorts of vital consumer protections and market safeguards.
Financial regulations are like the intricate parts of an engine: we do not need to understand them all or even to know about some of them, but we benefit from them being there and we will soon know when they go wrong. The regulations that we have dealt with include those that mandate the provision of clear, succinct information to people before they invest in particular products. They include the protections that ensure that people are not charged exorbitant fees for paying by credit card when they book a flight for a holiday, and those that allow insurers to operate across the UK and the continent, providing products that people depend on to give themselves security and protection. At a macro level, we have dealt with regulations that form part of the package that was designed to fix the enormous flaws in our global financial system that caused the 2008 crisis, including those that specify the bank capital requirements and which put in place the new market infrastructure designed to make derivatives trading more robust and more stable and lower the risk of contagion in a market downturn.
So far, all these have been debated by up to 17 Members each time in Committee Rooms in the House. The Opposition have requested debates on the Floor of the House on a number of them, all of which have been refused until very recently. Tens of thousands of pages of regulation have simply been ported across in a way that I do not think any Member, on either side of the House, has found fully satisfactory.
The Government have assured Parliament that no policy decisions are being taken as part of this process. However, it is vital that all colleagues are aware that porting across EU regulations into British law does not mean that we have been legislating for the status quo. Sometimes, the very act of taking out a reference to “the European economic area” and replacing it with a British one results in a material change. For instance, a no-deal Brexit would immediately mean that we assess the capital reserves of financial institutions differently, because we would no longer be giving preferential treatment to the sovereign debt of EU member states. Similarly, there would be no limit on the fees applied if a UK citizen used their credit card to buy something from an EU member state after a no-deal Brexit, because the reciprocity that we have now cannot be provided for. This point—that the withdrawal process cannot guarantee the continuity of the status quo—is one that I feel very few people understand, and I cannot stress it enough.
In addition, this process inevitably involves matters of judgment and raises questions about capacity and resourcing. For example, simply substituting “the European Securities and Markets Authority” for “the Financial Conduct Authority” and “the European Commission” for “the Treasury” creates a new relationship between those institutions that has not existed previously. It creates questions about the checks and balances between them, especially when new powers are being bestowed, and about which decisions will instead go to other bodies such as the Bank of England and the Prudential Regulation Authority. These decisions should not be taken unilaterally and simply presented for rubber-stamping in a Delegated Legislation Committee. That is relevant because the Bill effectively sets up the same process, but for the next two years of new financial services legislation.
We are extremely grateful to the Minister and the civil service for taking the time to fully brief us about their approach, but the Opposition plan to vote against the Bill today, and I want to explain the three reasons why. First, as I have touched on, we believe that the Government’s approach is fundamentally undemocratic. Simply diverting the process for the scrutiny of future EU legislation to secondary legislation Committees risks a major democratic deficit.
As we have seen with the no-deal statutory instruments, it is entirely within the Government’s gift as to whether time is granted on the Floor of the House to debate these instruments further. We will effectively be bestowing power on the Treasury to decide our future compliance with EU financial regulation. Given the concerns that the financial sector has about being a rule taker, that is an enormous step to take. When Britain voted to leave the EU, I believe that it was to empower Parliament to debate and make those decisions, not to concentrate them in the hands of a few civil servants and Ministers. Of course, the big change from a sovereign point of view is that, for some of these, we would no longer have had any input at the EU level.
Secondly, the approach of splitting in-flight files and existing regulations into a patchwork of statutory instruments lacks coherence. We are debating the Bill today. Numerous other, related statutory instruments will proceed in Committee this week, one of which we are sitting on tomorrow. We have already discussed some of the legislation referred to in this Bill in Committee, yet the updates on them and the next stages of these directives and regulations are now included in the Bill as being in flight. We need a single overview to identify what the post-Brexit framework will look like. Approaching it piecemeal risks having items fall through the gaps as well as creating clashes and inconsistencies. Significant powers are being transferred to the Bank of England and our regulators, yet there is no single item of legislation that demonstrates the extent and scope of the powers.
To be frank, given that the legislation is itself only a stop-gap, none of us really knows what the Government have planned for financial regulation after Brexit. This opaque and confusing process is inaccessible not just to legislators, but to those outside Parliament. I have received correspondence from two different asset managers in the past fortnight, for example, seeking insight into what is happening in this place regarding the collective investment regime because they have found the SI process so confusing to follow and are worried about the future.
Thirdly, we must acknowledge the systemic importance of what is included in the Bill. Nobody wishes to see a repeat of the events of the global financial crisis in 2008. That is why an extensive package of regulation emerged in the aftermath of the crisis, designed to protect against a repeat of those mistakes. Many of those pieces of regulation had their origins in the 2008 and 2009 G20 summits. There was a co-ordinated global effort, of which we were part, intended to make our financial markets safer and better able to withstand stress, hopefully protecting the public purse in future.
I genuinely hear no appetite for a bonfire of EU regulation when I speak to people in the UK finance sector but, in truth, we simply do not know what the future holds or where pressure may come from to relax or tighten regulations. However, the Bill risks enabling the Treasury to make wholesale changes to our regulatory regime with little recourse available to Parliament to have a say on that, other than through the secondary legislation process, which, as we have all seen, can severely limit the chances for scrutiny. I believe that the current Treasury would approach that process in good faith, but Ministers and Prime Ministers change and we do not know who ultimately will be entrusted with these powers.
Some of the fundamental pillars of the post-crisis financial regime, such as the capital requirements directive V and the bank recovery and resolution directive II, as well as other items of regulation designed to strengthen the financial market infrastructure, are included in the Bill. The capital requirements directive, for example, sets out the asset buffers that systemically important financial institutions must hold and in what ratios. Given the costs involved to banks, these regulations often involve significant negotiation and lobbying. We saw in the US last year that a concerted lobbying effort secured major concessions from the Basel committee on capital requirements. It is simply a fact that such legislation involves the management of large and competing interests, and it does not seem right to the Opposition that the Treasury could be lobbied on such a matter and subsequently implement a statutory instrument that is subject to limited scrutiny compared with primary legislation.
It is for these reasons that our reservations outweigh our understanding of the need to pass the Bill. We very much want a strong and successful financial sector after Brexit, but we reiterate that the best way of ensuring that we have that is to negotiate a deal that the House is willing to vote for. We acknowledge that in the event of no deal a whole raft of emergency legislation would need to be passed, but at present we cannot sign up to handing over these powers to the Government without any guarantee about how they will be used. It is our intention, therefore, to oppose Second Reading and divide the House.