Exiting the EU (Financial Services)

Part of Bill Presented – in the House of Commons at 6:00 pm on 25th February 2019.

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Photo of Nicky Morgan Nicky Morgan Chair, Treasury Committee 6:00 pm, 25th February 2019

It is a pleasure to speak in this debate. I thank the Minister for coming to the Treasury Committee to give evidence at the end of January, and the chief executives of the Prudential Regulation Authority and the Financial Conduct Authority, who sat alongside him and also gave evidence.

I am grateful that, as the shadow Minister said, the Leader of the House listened to the Committee’s request that this SI should be debated on the Floor of the House, because it offers unprecedented powers, for understandable reasons. That is why I and Committee members understand and will support the powers sought in this SI, but it is right that they should be scrutinised. Continuity of business is important for our financial services sector. The impact assessments for this and similar statutory instruments make clear the enormous contribution that the financial services sector makes to this country and the huge amount that it pays in tax revenue, which is important for funding our public services, but our financial services sector also puts the UK very much on the global map.

The Minister, who was perhaps left with no choice, and the chief executives have generously said that they are willing to come back to the Committee, should the powers be needed and we have further questions about how they are used in future. However, we all hope that this SI will not be needed, because it is for a no-deal scenario, and we all hope very much that the Prime Minister is successful in negotiating a withdrawal agreement with the European Union.

I want to concentrate on two areas this afternoon. The first is the duration of the new powers. The shadow Minister rightly said that, because of the timescales and the complexity, what is being created feels like a patchwork of legislation, some of which will be needed in one scenario and some in another. That might be challenging for Members of Parliament and for Ministers and shadow Ministers, but the people we should really be thinking about are the businesses that will have to try to follow the new legislation, which sets out the new powers. The Committee has noted that the no-deal statutory instruments relating to financial services seem to have different durations, creating cliff edges at different times. Would it not be easier for the businesses—those that will have to rely on this secondary legislation—and other interested parties if the Government provided the regulators with additional powers in a no-deal scenario that had a consistent duration, to minimise multiple cliff edges throughout the negotiations that will take place in the coming years?

Let me turn to the impact assessments for regulations such as this, which I think have been subject to some debate upstairs in various Committee Rooms. The Treasury has provided impact assessments, and there seem to be two types of costs: familiarisation costs for most businesses, which have to read the regulations and understand them, and implementation costs for business that have to modify their business practices. The assessment calculates that this statutory instrument will cost each firm £1,900. That calculation appears to be based on the number of words used in the instrument, with a cost across the industry of £110 million, which suggests that 57,000 to 58,000 firms—the shadow Minister mentioned 59,000—will be affected.

I speak as a former lawyer. Words were important and often, it would be fair to say, we tried to use as many as possible. The number of words used is an interesting way of measuring the impact of regulations made through secondary legislation. I do not know whether the Minister wants to say something about that now—it has been covered in debate elsewhere—but I would ask him whether that is the right way to proceed.

Secondly, the Government have been unable to put a monetary value on the cost to businesses of complying with the statutory instrument. The Minister rightly said that he has worked with industry to ensure that the new powers are what the industry needs to provide continuity—I know he has done that, because I have had feedback from different financial services firms—but has he asked the affected firms of different sizes what they estimate their compliance costs will be? Would that not be a pragmatic approach to calculating the costs of compliance—the cost of advice that firms will need to take and the amount that they might have to spend to change their internal rulebooks and guidance and the guidance provided to clients?

We live in extraordinary times. This is an unprecedented situation, where all sorts of hyperbole can be used. As I have said, granting these powers to the regulators makes enormous sense for the continuity of a very important part of our business sector. I wish that the Government had produced a proper White Paper about their plans for financial services, as I asked them to well over a year ago. Right hon. and hon. Members in all parts of the House will understand why the Government are asking for these powers. However, while I have no reason to think that this Minister does not welcome scrutiny—I think he has appeared before our Committee more than any of his colleagues—he and other Ministers should expect continued rigorous scrutiny by the Treasury Committee and other interested Members of how the powers are exercised and of whether and when they can be done away because we have moved to a new system of financial services regulation.