My Lords, these draft regulations have been laid under the European Union (Withdrawal) Act 2018 as part of government preparations for a scenario in which the UK leaves the EU without a deal. As with other instruments, this does not intend to make policy changes other than to reflect the UK’s position outside the EU in that eventuality. This instrument addresses legal deficiencies in the markets in financial instruments regulation, the markets in financial instruments directive and in related domestic financial services legislation and EU delegated regulations, which I shall collectively refer to from here on in as MiFID II.
MiFID II regulates the buying, selling and organised trading of shares, bonds, and complex financial instruments. It governs the practices of investment banks, exchanges and portfolio managers, among others. MiFID II came into effect on
In its report of
MiFID II requires buyers and sellers on financial markets to disclose specified data, such as price information for their trades, which brings transparency to price formation in financial markets. It also provides exemptions from these transparency requirements in several cases. Formulas are used to calculate whether a trade may qualify for an exemption to these transparency requirements. Generally, these formulas are calculated using pan-EU trading data.
In a no-deal scenario, the UK is not expected to have access to the pan-EU trading data, which is necessary for calculating these thresholds. This instrument therefore grants the Financial Conduct Authority a set of temporary powers that will allow it some controlled flexibility over how the MiFID II transparency regime operates in the UK. These powers will operate during a transitional period of up to four years. If the Treasury feels that the FCA can fulfil its transparency functions before the end of the transitional period, the Treasury may end this period by the issue of a direction.
In addition to temporary powers, the FCA is also provided with some longer-term flexibility to reflect the fact that it may be necessary to use reliable trading data from other countries in calculating transparency thresholds after exit. The four-year transitional period for the FCA’s temporary powers is necessary to give the FCA time to adjust its IT systems and gather relevant market data so that it can administer an effective transparency regime in a no-deal scenario.
In its report to the House, the Secondary Legislation Scrutiny Committee mentions the adequacy of FCA resourcing to carry out its new responsibilities. The Treasury has worked closely with the FCA to deliver MiFID II, and the FCA is confident that it will have sufficient resources to operate the transitional transparency regime. Before exit day, the FCA will publish a statement of policy on how its temporary powers will be used. The Treasury can refuse to approve the FCA’s policy statement on specified grounds. The ability for the Treasury to object to such a statement by the FCA was raised by the Secondary Legislation Scrutiny Committee in its report, which noted Parliament’s interest in understanding the reasons for an objection, should one be made.
Provisions have been included so that the Treasury may refuse to approve an FCA statement should it potentially prejudice any international agreement that the UK hoped to reach, or the Treasury believes that the statement is incompatible with international obligations. In a no-deal scenario, it is important that the Treasury can manage international negotiations effectively, and this mechanism is a sensible way of ensuring this. The FCA supports this approach. Parliament will also be able to scrutinise and question Treasury Ministers and the regulators on its approach to the use of these temporary powers, as Parliament does now.
The Secondary Legislation Scrutiny Committee also noted that it would have been helpful if the FCA’s policy statement on its use of these powers could have been made available before the debate. This was not possible, as the FCA needs sufficient time to consider the drafting of such a statement. The FCA has provided assurance that a statement of policy will be ready at least four weeks before exit, if the UK leaves the EU without a deal. I turn to other issues contained in this SI.
Certain functions under MiFID II are carried out by EU authorities, principally the European Commission and the European Securities and Markets Authority, known as ESMA. The Commission and ESMA will not carry out these functions once the UK leaves the EU. This instrument therefore—consistent with other SIs—transfers the functions of the Commission to the Treasury, and ESMA’s functions to the FCA and the Bank of England. The instrument also transfers responsibility for making binding technical standards from ESMA to the FCA, the Bank of England, or the Prudential Regulation Authority. This is in keeping with the approach set out in the Financial Regulators’ Powers statutory instrument, which was debated in your Lordships’ House on
This instrument also deletes provisions that will become redundant when the UK leaves the EU, such as requirements regarding automatic recognition of an action by an EU body. In addition, this instrument removes obligations on UK authorities to share information with EEA authorities’ obligations, although this does not preclude UK authorities from co-operating with the EEA; it can do so on a discretionary basis.
A key set of provisions of concern will be the treatment of third-country regimes. Under MiFID II, a third-country regulatory regime may be determined by the European Commission to be equivalent to the requirements of MiFID II. So that MiFID II equivalence regimes operate effectively in the UK after exit, the Treasury will take on the Commission’s function of making equivalence decisions for third-country regimes. Existing Commission equivalence decisions will also be incorporated into UK law and will continue to apply to these third countries.
The Government have introduced a temporary permissions regime, as set out in the EEA passport rights regulations 2018 made on
Without these provisions, such firms would be faced with possible conflicts of law and duplicative regulatory regimes, which would impede their operations in the UK. This provision will apply only to certain provisions of MiFID II during the temporary permissions regime, and only where the EEA MiFID II requirement has equivalent effect to the UK MiFID II requirement.
This instrument also includes transitional arrangements for data reporting service providers which report transactions to regulators and publish transparency data. Under the transaction reporting regime in MiFID II, investment firms must submit a report to their national regulatory authorities following a trade. These reports are used by regulators to detect market abuse. Under the regime, UK branches of EEA firms do not send transaction reports to the FCA but to their home regulator, and this information is then shared between EU regulators. As automatic sharing of information will no longer occur, this instrument will require UK branches of EEA firms to report to the FCA. The instrument also provides that firms will continue to be required to report on trades in financial instruments admitted to trading, or traded, on trading venues in the UK and the EU. This maintains the FCA’s existing scope for the monitoring of markets.
The Treasury has been working closely with the FCA, the Bank of England and industry bodies in respect of this instrument. It was published in draft form, with an Explanatory Note, on
This Government believe that the proposed legislation is necessary to ensure that MiFID II continues to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope noble Lords will join me in supporting these regulations. I commend the regulations to the House and I beg to move.
My Lords, the Government are planning for all eventualities, including the UK leaving the EU without an implementation period, and changes made in this statutory instrument might not take effect on
As the Minister said, MiFID II is the EU legislation that introduces a transparency and disclosure regime into financial markets, particularly by requiring firms to provide trade data to give transparency on the best-execution obligation and transaction reporting requirements, which are used by regulators to detect market abuse. The intended outcome of this regime is to improve protections for investors, increase confidence in financial markets and maintain financial stability.
The functions under MiFID II are carried out by EU authorities, so if the UK leaves in a no-deal scenario this legislation needs to continue to work, and these regulations transfer responsibilities to the FCA, the PRA and the Bank of England, with overall responsibility reserved to the Treasury. In particular, it gives the FCA a set of temporary powers to operate the MiFID II transparency regime with flexibility during a four-year transitional period—with the intention, it states, of preserving the existing outcomes of the transparency regime as far as possible: that is, improving protections for investors, increasing confidence in financial markets and ensuring financial stability.
The FCA has to issue a statement of policy on its use of these temporary powers but, as the Secondary Legislation Scrutiny Committee observed in its report of
It will take four years for the FCA to become operationally ready to carry out its functions relating to transparency and disclosure, and these regulations could result in significant policy changes. Yes, this SI addresses a deficiency by transferring the functions of the European Securities and Markets Authority to the relevant UK regulator and the functions of the Commission to the Treasury, but it also gives the FCA a set of temporary powers that allow it the scope to operate the transparency regime in a stand-alone UK context.
It is clear from reading the Explanatory Memorandum that these temporary powers go beyond the narrower issue of correcting deficiencies into making policy. For example, as the Explanatory Memorandum confirms, waivers and thresholds for disclosure contained in the current transparency and disclosure regime are calculated on the basis of EU-wide market data. An abrupt move to using UK-only data will pose operational challenges for the FCA and could result in outcomes that do not enhance investor protection and market confidence.
The Explanatory Memorandum further confirms that the FCA is given powers that include amending and freezing obligations on firms where it is considered appropriate. Certain transparency conditions could be suspended during the four-year transition period. In effect, there could be a weakening of the transparency regime, with implications for investor protection. These are important matters which necessitate the FCA statement of policy on how these temporary powers will be used being in place before exit day if there is no implementation period.
There is also a time-sensitive issue. Firms will need to review their contracts, and contracts on derivative trades may need to be agreed some time in advance. So I ask the Minister for an assurance that an FCA policy statement will be in place before exit day and that Parliament will have the opportunity to consider that statement, as the Secondary Legislation Scrutiny Committee flagged. In his opening speech the Minister acknowledged the need for the FCA to have the necessary resources. But it is not simply a matter of saying that it needs extra FTE of 200, 500 or whatever; it is about whether the Government are confident that there is the supply of staff with the necessary expertise to carry out what is going to be a hugely complex challenge for the FCA.
As the Treasury made clear in response to a question from the Secondary Legislation Scrutiny Committee, it can refuse to approve the FCA policy statement on the use of its temporary powers if the department considers that the statement would prejudice an international agreement it hoped to reach. That again prompts a series of questions. Can the Minister confirm that, in the event of the Treasury refusing such approval, its reasons will be made known to Parliament, and Parliament will be able to consider them? If the Treasury vetoes an FCA policy statement, what policy will apply in its stead? These temporary powers are given to the FCA to maintain a transparency and disclosure regime intended to protect investors and maintain confidence in financial markets, so could the Minister give an illustrative example of when potential prejudice to concluding an international agreement could justify vetoing an FCA policy statement and possibly weakening the transparency regime?
My Lords, once again I thank the noble Lord, Lord Bates, for his introduction and declare my interest as a director of the London Stock Exchange plc. I will speak on many of the things that the noble Baroness, Lady Drake, has just mentioned. I too echo the feelings of Secondary Legislation Scrutiny Committee (Sub-Committee B) about being asked to approve this legislation in the absence of the FCA policy. Even if it is not completed, we could have been given more clues about its shape and type of content.
In its reply to the sub-committee, the Treasury says the response to the FCA consultation is needed first. I think that refers to the FCA consultation that came out last Friday, and I wonder whether it was timed to come out after we would have, under the normal scheme of things, approved this the previous Wednesday. So was it actually being kept away from our beady eyes? I could not get around to looking at it until today; in fact, I could not even find it when I looked earlier. In fact, it just repeats that the policy is yet to come. It is 986 pages long, but on pages 39-41 I found some useful information. It says:
“We will issue a statement of policy on how the temporary powers will be used”.
That refers to the transparency regime. Everything else in there just details the powers it has been given.
I found a little more useful information around page 770, but only about the new Article 17A of the relevant BTS, which appears to say how it will operate those waivers that will remain, such as “large in scale”, and how it will operate deferred publication on venues—but these are not actually among the main things that the FCA has been given the power to suspend.
The only firm policy we have been given is that the FCA does not have the necessary resources and that some of the most controversial, industry-disliked parts of MiFID II and publication on waiver volumes are to be suspended by up to four years. It is a major policy change to go from mandatory measures to suspension for such a long period and yet the Government say that they aim to preserve existing outcomes of the transparency regime as far as possible.
I shall go on to test that statement in a moment but, before I do, I should mention that the Treasury, in reply to the Secondary Legislation Committee, in Appendix 1, states:
“A properly considered statement of policy on the use of the temporary powers would need to be informed by”,
the FCA consultations. However, there is nothing in the FCA consultations that informs how the policy of suspension will be used. In another reply, it states:
“HM Treasury received no objections from any of the industry stakeholders on the way these powers would be used by the FCA”.
So it seems that industry has been consulted. However, it was not a public consultation—I have looked for that too. Industry has been spoken to and has some knowledge of what is going on but we, who have to approve this legislation, are the ones most kept in the dark. This is a decision in search of a policy and that is not the way properly to treat Parliament.
I shall go on to test the statement about preserving existing outcomes of the transparency regime as far as possible. With equities, the double-volume cap is suspended because the FCA does not have all the information, but here there is a mitigating measure in that the FCA can suspend two of the transparency waivers for six months at a time. The formulation used for the suspension of those waivers is,
“if the FCA considers that it is necessary to do so to advance the FCA’s integrity objective under section 1D of FSMA”.
I have asked the Minister to confirm whether the policy intention of the double-volume cap—which, broadly speaking, is to limit the amount of dark trading—is fully encompassed in that integrity objective, taken together with the additional conditions of having reference to consumer protection, competition and the pre-Brexit thresholds.
I ask this question about the integrity objective because the FCA objectives as defined in FSMA are not coupled to MiFID II, and historically UK regulators have gone to less-strict standards. For example, on best execution, the UK regulators always went with “all reasonable efforts”—indeed, I remember the fight to get that wording into MiFID I—rather than the strict “best endeavours” that the EU finally went out with as the standard of MiFID II. So if we fall back on FSMA objectives, my concern is that they are not as strict as the requirements of MiFID II.
There is a mechanism here for the FCA to address the dark-trading policy, but it is thrown into doubt by the statement that there will be no publication of trading under waivers and that the FCA will not have sufficient data. Does this mean that there will be no way of checking whether the FCA has done its job? I do not understand why the FCA will not have data, because it collects UK data. What lack of data is preventing information under the equity waivers when they are used?
There are other things that the FCA could also do. Under MiFID I, venues had the task to monitor waivers and impose restrictions under conduct of business rules. My next question is: is the FCA empowered to revert to such a mechanism should they wish and are there any plans to do so? I certainly have not seen any in the consultation because it was all silent about how these powers would be used. Concerning equities, my conclusion is that there is, possibly, the ability to live up to the statement about preserving the outcomes of the transparency regime because there is a substitute regime, but there is still no way for observers to know that if there is no information about the use of waivers.
On non-equities—I will not do everything because we would be here all night—the policy objective is to have pre-trade and post-trade transparency, lowering costs for investors and less over-the-counter trading. There is some evidence on the ESMA website of costs having come down already after the EU transitional measures were introduced. In the US, the evidence is very substantial that costs are lower for bonds when they come under the TRACE post-trade reporting system.
MiFID II went further than the US with provisions for pre-trade as well as post-trade transparency—the pre-trade was, of course, the bond traders’ most hated—although it is still pretty much a fledgling provision and covers only a small part of the market, the liquidity tests having ruled out most instruments; it ends up covering only about 1%. It is those liquidity tests that use EU-wide data, hence the suggestion that there needs to be a suspension. The same integrity objective and other conditions are used and I question whether they can fully cover the policy objectives that I have outlined. Here there is no mitigating alternative suggested for the FCA to use. As far as I can see, the pre-trade and post-trade transparency regime goes completely—and from the tone of everything that has been written, that seems to be the likely outcome. Preserving as much as possible, therefore, means preserving nothing. I think we should have a touch more honesty about that.
There has been massive lobbying to get rid of bond transparency—bond traders do not like it. Consultant Russell Dinnage, reported in the FT by Norma Cohen on
“Bond trading is like playing poker …You never want to give your hand away”.
But he also highlights the importance of the measures to derivatives, interest rate swap and exchange-traded funds, which will all come under the suspension chop. Transparency helps to get away from that gambler mentality, which is pretty fundamental to addressing culture and attitude in financial services. That same FT article also references the view from another consultant, Larry Tabb: that if EU transparency rules had been around in 2006-07, banks would have been alerted sooner to the souring of the US mortgage securities market. So it is no trivial measure as an early warning about financial stability.
I can assure noble Lords that this is not something that a consultant has dreamt up retrospectively. These were the very issues that were being discussed when MiFID II was negotiated—that is engrained on my brain, and the scars are on my back. Therefore, I have a series of questions. Is any consideration being given to continuing to have post-trade transparency, even if pre-trade transparency is suspended? Is it expected that suspensions will be done at the same time for venues and systematic internalisers? Also, what volume of the data originates in the UK anyway, given London’s position, and what volumes might be expected to move? Is it really true that the London volumes cannot sustain sufficient data for transparency?
Finally, I come again to the suspension of publication of trading carried out under waivers—I am still mystified as to what that is all about. The policy note says that the FCA will have neither data nor resources to do that. On non-equities, it seems likely that there will be nothing to publish anyway; if there is no transparency regime because it has been suspended, there is no need for waivers. However, if and where there are waivers, such as on equities, why will the FCA not have the data? It collects all the UK data. I cannot see that being suspended—or will it? Perhaps the Minister could let me know.
If the FCA does not have the data, how can it monitor market integrity and make those other suspension decisions based on market integrity? How is there to be any measure of whether the policy objectives—less dark trading—have been achieved? If the FCA has the data, why can it not be published so that others can take a view on, comment on and perhaps even judge the FCA’s efficacy? Should investors not have that information? It may look charming to have fancy words around the suspensions about the integrity objective, taking account of the latest ESMA data, preserving as much as possible and so forth but in reality, such words conceal the fact that there will be no policy preservation when suspension takes place. That is for non-equities.
I can accept the need for emergency powers in the event of a chaotic, no-deal Brexit. I can accept trying to work out where they might be—perhaps matching changes that the EU is in the process of making—and I acknowledge that hard work is being done by all. However, I do not accept pretending that transparency measures will be preserved when they will not, and I object to removing waiver use publication and depriving the public of information on market developments without a better explanation.
My Lords, I thank the Minister for presenting the instrument and I thank both noble Baronesses for the variety and depth of their questions. I tried to understand the instrument—I put quite a lot of effort into it—and I thank Treasury staff for helping us to do so. I came across a clear need for the maintenance of MiFID II in our law; I accept entirely the general direction of the instrument towards preserving it. Fortunately, I did not come into contact with the entire 900 pages, which is probably the only reason I can claim for still being sane.
I came across some of the concerns that have been expressed. The most worrying area, at least to me, is the temporary powers that the FCA is to have. Why has the SI not been delayed until we have sight of the FCA’s statement of policy on the use of temporary powers? No matter how expert one may be, we do not have a clear view of what powers we are giving away and what impact that may have. If that is not possible—clearly, that is the Government’s position—surely the statement of policy should be brought before Parliament. Its impact will be as big as that of granting the concept of temporary powers.
Can the Minister assure us that in those four years, the temporary powers will not be used to water down MiFID II? That seems an important step towards transparency in these intricate markets. I can see why the industry would want those watered down. It is crucial that the Government be able to assure us they will resist that, and that the temporary powers will not be used to water it down.
Finally, I would like to come back to the FCA having sufficient resources. In the past, the most detail the Minister has given is to say “it will have sufficient funds because it will be able to pre-set the industry, so funds are not a problem”. The noble Baroness hit the nail on the head: it is not about funds but available pools of talent. In the letter the Minister will undoubtedly write concerning this instrument, could we have some clarity, direct from the FCA, on why—in this very highly paid industry, where there is strong competition for talent—it is so confident it will be able to access the available talent to do the task required for this SI and the others considered today?
My Lords, at this hour a letter is an attractive proposition. I counted some 27 questions, which is a pretty respectable ratio from the three distinguished speakers in this debate. I will try to deal with as many as I can in the time available. Clearly, I will have to read the Official Report with officials to see if there are any points we need to write on; I suspect there will be. Therefore, if we run out of time, I will include other answers in that communication.
The noble Baroness, Lady Bowles, asked why the amended thresholds which appear in Article 5(1)(a) and 5(1)(b) of the Commission of Delegated Regulation 2017/567—thresholds for determining which equity instruments are liquid—have not been changed. However, replacing references to Union data with UK market data in the legislation would change which instruments were classed as being liquid for UK market participants.
On the FCA not having the data, it needs sufficient time to build systems to analyse market data independently from ESMA. It estimates that this will take four years. As noted, the Treasury can end this period earlier if the transparency regime cannot operate earlier. The FCA does not have all the data relating to firms in the UK, as EU firms currently report back to their own competent authority and not to the FCA.
Does not this very regulation enable that, within the transition period, the FCA will collect that data? That is one of the other provisions. Although it might not have it now, after Brexit, as soon as we are into the transition period, it will have it.
Of course, in the event of a deal, that would be the case, and that is what we would expect to happen. On the transitional period that the noble Baroness, Lady Bowles, asked about, it took approximately four years to develop the detail of the current transparency system and put it in place. On her point about the FCA being held accountable, and what parliamentary oversight of the FCA’s decisions there would be—a point also raised by the noble Baroness, Lady Drake, and the noble Lord, Lord Tunnicliffe—the powers being granted to the FCA are necessary to uphold market stability. These powers will generally be constrained to situations where their use is necessary for the advancements of the FCA’s integrity objectives. The FCA will be held accountable in two ways. First, it will be required to publish a statement of policy explaining its approach; the policy statement could only come into effect if the Treasury did not raise objections. Secondly, Parliament will be able to further scrutinise and question Treasury Ministers; if the Treasury objected, the FCA would need to revise its statement.
The noble Baroness, Lady Bowles, asked about the transitional powers. Without these powers—
I am sorry to interrupt again, but I think that the noble Lord just said that Treasury officials would interrogate the FCA about its policy and that it would have to change it if they did not like it. However, my understanding of the regulation is that they can do that only with regard to either international standards or if it would interfere with some international negotiation. The provision does not appear to have been put into the legislation as an all-round general policy; indeed, I think that the whole idea is that the Treasury is not supposed to interfere with what the FCA does. So I am not sure that this line from the Treasury—“We’re going to make sure it’s all right”—fully stands up.
That is a good one for the letter. We will certainly address that point; it is a legitimate question to ask.
The noble Baroness, Lady Bowles, asked whether the FCA consultation was timed to come out after the debate should have occurred. No, the FCA operates completely independently of the Treasury. She also asked whether we had considered keeping the post-trade transparency even if pre-trade transparency is suspended. Simply replacing references to EU market data with UK market data in the legislation will result in significantly different calculations and thresholds for market participants. The FCA can use the data available to it. The intention is to maintain the outcomes of the transparency regime. Transparency will continue to operate during the temporary period.
The noble Baroness, Lady Drake, said that the instrument should not set bad precedents. It has been drafted in accordance with Section 8 of the EU withdrawal Act, and some policy changes are an unavoidable result of addressing deficiencies. We have sought to maintain the intended policy outcome of the legislation. She asked whether a sudden change in the requirement would be hard for firms to deal with. We have announced plans to grant the regulators temporary powers to phase in new requirements that would apply to firms in a no-deal exit. Those powers must be exercised by the regulators in accordance with their statutory objectives, as set by the FSMA. This is a sensible measure to ensure that firms have the time needed to adjust in an orderly way.
The question about whether the FCA has enough human capital to carry out its functions and responsibilities is interesting, I undertake to feed that point back to it, and it may feel better placed to respond. The FCA has reported to the Treasury that it is confident that it will have sufficient resources to operate the transitional transparency regime, due to the preparations that it is making. As it set out in its 2018-19 business plan, a significant proportion of its resources are already focused on the forthcoming exit.
The noble Baroness, Lady Drake, asked about the Secondary Legislation Scrutiny Committee report saying that the powers could have been made available to the House before the debate. Unfortunately this was not possible because the FCA had given priority to making regulatory rules fit for purpose in a no-deal scenario, to avoid significant disruption of financial markets. It would also be unusual for the FCA policy to be ready prior to the passing of legislation to which it relates. She also asked about the scale of what was covered—
In my experience it is not unusual for enabling legislation to be accompanied certainly by draft regulations. Often the House has demanded that, to give it proper comfort that it is right to give those powers.
We are not talking about the secondary legislation; we are talking about the statement—but I take on board the noble Lord’s point.
The noble Baroness, Lady Drake, asked how many firms would be directly impacted by the SI. The answer is approximately 3,300 UK firms and 1,650 EEA firms. The FCA estimates that changes to reporting requirements and IT processes will affect approximately 1,500 branches of EEA firms, and that this will result in a one-off cost to business of £8.75 million.
The noble Baroness, Lady Drake, asked whether the statement would be ready. We have said quite specifically that it will be ready at least four weeks before exit. On views expressed by stakeholders, the Treasury has engaged with a wide range of stakeholders, representing large international firms as well as smaller UK businesses.
The noble Lord, Lord Tunnicliffe, asked whether the SI makes policy changes. The UK is putting in place all necessary legislation via the EU withdrawal Act to ensure that there is a functioning legal regime in the event of a no-deal exit in March 2019. He asked whether the FCA will have adequate resources. I covered that point in response to the noble Baronesses, Lady Bowles and Lady Drake. He also asked about the temporary permissions regime that applies for a limited period and who would decide when it ends. The length of the temporary permissions regime is determined in accordance with the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018, made on
In a previous debate, the noble Lord, Lord Tunnicliffe, asked why the Treasury is solely responsible for the equivalence decisions, which relates to this debate. Across all financial services statutory instruments, the Commission’s functions are transferred to the Treasury. The transferral of equivalence powers is in keeping with this approach. Equivalence decisions are made by the issue of Treasury regulations. Regulations are issued by statutory instrument and subject to parliamentary scrutiny.
Again in a previous debate, the noble Baroness, Lady Bowles, asked whether the impact assessment is accurate given the cost to firms and how extensive MiFID is. The estimated costs of familiarisation have been calculated using the formula given at the end of the impact assessment and relate only to the cost of reading and understanding the instrument. Of course, effective firms will also need to familiarise themselves with a number of materials that are already published.
The noble Lord, Lord Tunnicliffe, asked a further question about whether temporary powers would water down MiFID II. The temporary powers are included to try to preserve outcomes for transparency. Without these flexibilities there would be a cliff-edge risk as to how the transparency regime operates. It would create uncertainty for firms and business, which we are trying to avoid.
With those responses, and the undertaking to study in detail the Official Report and to write on the specific questions raised, I beg to move.
House adjourned at 9.38 pm.