Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018 - Motions to Approve

Part of the debate – in the House of Lords at 3:30 pm on 6th November 2018.

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Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy) 3:30 pm, 6th November 2018

My Lords, I am afraid your Lordships have the reserve team from these Benches, since my noble friend Lady Bowles was the intended lead on this series of statutory instruments. However, with the change in the timing of the debate in the House today, she has had to go to the Economic Affairs Committee, so I am a very last minute stand-in. I am grateful to the noble Lord, Lord Kirkhope, for asking some of the most insightful questions, and I look forward to the Minister’s answers.

Underlying this, we appreciate that the Treasury is trying to do this, and do it sensibly and properly. At one time there was a fear that the Treasury might try to use these SIs as an opportunity to extend powers in a way not intended. It is not doing that, and we on this side very much appreciate it. It is also necessary to say that payment services are absolutely core to the financial life of this country, so getting this right is critical, and we appreciate that range of issues.

To return to SEPA, which the Minister described and the noble Lord, Lord Kirkhope, raised, I too am trying to understand the implications of allowing Monaco, San Marino, and possibly Andorra into that club. Whether or not that is a template for a third country to remain involved in SEPA, I understand that there are underpinning monetary agreements between the EU and those entities. Can the Minister enlighten us as to the characteristics of those entities, which presumably we would need to echo if we were to have third-country membership? We would find that extremely helpful. I also underscore that the only way we will get reciprocity in our arrangements in this area is if we are a player within SEPA, so it is exceedingly important for both individuals and businesses in the UK.

I will also pick up the issue of transitional—temporary—permissions and their extendability. I understand that the initial temporary permission can be extended, but I am slightly unclear whether it involves Parliament in any way. It appears from reading these documents that this is a decision of the regulator combined with HM Treasury. Can the Minister enlighten us on how that issue is to be handled and whether it would be appropriate for Parliament to have some sort of engagement or oversight on something pretty fundamental to the economic life of the country?

We have also noticed in the reading of the temporary provisions for European entities that receive such permissions—these are intended to last through the transitional or implementation period, or whatever one chooses to call it—that this is not intended to be a long-term arrangement. The implication is that entities with branches in the UK—I give just one example—would need to create subsidiaries instead, a far more costly and burdensome approach, which many have suggested they would not be willing to take. However, it suggests they will have to create subsidiaries and I believe the SI allows for that. However, it does not deal with how to prevent a disruption when moving from a temporary permission—under the branch arrangement, for example—to the new entity that would come in as a subsidiary. Presumably, any kind of hiccup would be of real concern. How is the SI intended to deal with those issues in a relatively short period, as we might soon be facing that set of problems?

I also want to look at safeguarding and the “keeping money safe” regime. As the Minister said, given our current membership of the Single European Payments Area, UK banks are able to keep clients’ money safe in accounts anywhere within the EU. In fact, this may be outside SEPA; it might relate to EU membership—I am not entirely clear, as my noble friend Lady Bowles would have been. In any event, the regime of keeping clients’ money safe anywhere within the EU is now to be extended globally, provided consumer protections are in place.

One of the fundamentals of the regime of permitting UK banks to keep those deposits—which are cash deposits—anywhere within the EU is that there is a common jurisdiction making it possible to act to ensure that money is kept genuinely safe. The arrangement of just recognising that another country has suitable consumer protection is a far weaker standard. The Minister compared it to the rules that apply to invested assets, but those can be tracked and identified in a way that cash never can. There is always a good deal of anxiety about cash sitting in deposits that can disappear and be untraceable. Can he comment on that regime and whether there are concerns and risks embedded in the change of which, frankly, we should be aware?

I shall make a couple of further points. HM Treasury was kind enough to give us an electronic link to its policy guidance associated with these SIs. In that—it was not in the Explanatory Notes—we identified that cross-border payments regulation is not included in the new arrangements. If I understand correctly, that is because this is a cross-border issue. Obligation to the EU end cannot be ensured and therefore the rationale is that there should be no cross-border payments regulatory scheme at the UK end. I hope that good sense and discussion will make sure that we keep cross-border payments regulation, in which case is the SI missing the relevant powers for the UK end or is there some other mechanism by which they can be introduced? That is important because, as the Minister will know, we have cross-border payments regulation to prevent unhealthy price competition driving deposits out of one country and into another.

My final point is a small one concerning drafting, which I suspect only my noble friend Lady Bowles has noticed. If the Minister looks at Regulation 8 of the Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018, he will see that paragraph (4) states:

“Omit paragraphs 4 and 5”.

However, the next paragraph then says in effect that paragraph (4) needs to be reincorporated to read paragraph (1). So it is deleted and then undeleted, which is a fairly inelegant way of dealing with the matter. I have no idea why we have to go through a deletion and then an undeletion under certain circumstances. It raises the curious prospect of how, if we end up staying in the EU, we can simply undelete the various changes that we have put in place. It is a small point but rather a strange one.