My Lords, the Treasury has been undertaking a programme of legislation, through SIs introduced under the EU withdrawal Act, to ensure that, if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning legislative and regulatory regime for financial services in the UK.
The SIs made before
This SI has four components. First, an important aspect of our no-deal preparations is the “temporary permissions regime”, which enables EEA firms operating in the UK via a financial services passport to continue their activities in the UK for a limited period after exit day, allowing them to obtain UK authorisation and complete any necessary restructuring. We also introduced a run-off mechanism via the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019, made on
This SI does not amend the design of these regimes but introduces an additional safeguard for UK customers of firms that will enter run-off. Specifically, it adds an obligation on firms that enter the contractual run-off regime—part of the run-off mechanism established by the Financial Services Contracts Regulations—to inform their UK customers of their status as an exempt firm and of any changes to consumer protection. This ensures that EEA providers must inform their UK customers if, for example, there are changes to consumer protection legislation in the firm’s home state or in the EEA that affect UK customers. Part 3 of this SI introduces similar obligations for electronic money and payment services firms in the contractual run-off.
The second component of this instrument concerns the post-exit approach to supervision of financial conglomerates. An EU exit instrument fixing deficiencies in the UK’s implementation of the financial conglomerates directive was made on
The Treasury and the regulators engaged with industry on the temporary regimes and on the approach to phasing in onshoring regulatory changes in order to minimise disruption for firms. TheCityUK, with representation from a number of different trade associations and law firms, expressed support for the approach to transitional arrangements, describing them as “prudent and pragmatic”.
Thirdly, this SI makes a clarificatory amendment to the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018. Here, the drafting approach resulted in the FCA having only the implicit power to cancel the temporary deemed registration or authorisation of an EEA-authorised payment institution or EEA-registered account information service provider that is providing account information services, which lacked the insurance cover currently applicable to EEA passporting firms conducting this activity. This instrument makes this cancellation criterion explicit.
Finally, this instrument makes corrections to earlier EU exit SIs. All the legislation laid under the EU (Withdrawal) Act has gone through the normal rigorous checking procedures. However, as with any legislation, errors are made from time to time and it is important that they are corrected.
Certain provisions in the Financial Services Contracts Regulations 2019 relating to the run-off regimes incorrectly referred to “EEA fund managers”. These references are now removed, as EEA fund managers will not be able to make use of these regimes. In the Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019, made on
As I explained in my opening remarks, it was not essential for the additional measures and corrections covered by this instrument to be in law by the original exit day of
My Lords, I am so glad I did not have to write the content of this SI; it was hard enough trying to work one’s way through it when simply reading it. It is obviously the result of a combination of “Oops!” and communication with customers. I see absolutely no reason to oppose it. If anything, this underscores the complexity of trying to make arrangements for dealing with a no-deal scenario. I hope we never have to use it, because we would run into more “Oops!” if we ever found ourselves in that situation. I hope the Treasury is going ahead with a mapping exercise to try to link this all together, because how anybody who functions in the industry can ever work their way through all this is completely beyond me. Frankly, if you ever needed an argument for remaining, it seems that this alone provides it.
My Lords, this is one of many no-deal SIs on which I have been forced to represent Her Majesty’s Opposition from the Front Bench—a pretty unattractive pastime. The principal reason for this is the fact that most of these SIs amend an SI that amends an SI that amends an Act that is many years old, which makes it fundamentally difficult to understand them. When one has put all the intellectual effort into understanding the so-called no-deal SI, one then discovers that the actual substance of the SI is frequently merely technical or consequential.
I found that this SI, and particularly its Explanatory Memorandum, really won the prize for being the most difficult to understand yet. In my frustration, I thought I would find out to what standard an Explanatory Memorandum should be created. I had the inspiration to go along to the Secondary Legislation Scrutiny Committee offices to seek guidance. I was once on that committee when it had a much grander title, the Merits Committee, and the staff there were always helpful and competent. I asked, “What is the guidance on the creation of SIs?” They said there were two pieces of guidance: that given by the committee itself and the Government’s guidance, which—for reasons I do not understand—is actually issued by the National Archives. The guidance from the committee itself is some 17 pages long. The latest version is from July 2016. Its objectives are caught in one particular paragraph:
“The purpose of the EM is to provide members of Parliament and the public with a plain English, free-standing, explanation of the effect of the instrument and why it is necessary. It is not meant for lawyers, but to help people who may know nothing about the subject quickly to gain an understanding of the SI’s intent and purpose. Legal explanations of the changes are already given in the Explanatory Note which form part of the actual instrument”.
The latest government guidance from the National Archives, the fifth edition on statutory instruments, dated
“The purpose of an EM is to provide the public with an easy-to-understand explanation of the legislation’s intent and purpose—why the legislation is necessary. Avoid repeating content you have included in the Explanatory Note. Your explanation should be concise but comprehensive, and should not generally exceed four to six pages. Use plain English and avoid … jargon”.
I put it to noble Lords that this document fails.
I then turned to the EM itself, which at paragraph 15.2 states:
She is wrong. It does not.
However, in my frustration. I rang the number given at paragraph 15.1 to try to understand a little more and my conversation resulted in an email from Richard Lowe-Lauri. At long last, after much toil, I feel that I do largely understand the Explanatory Memorandum, as prompted and helped by that useful email. What did I find? I found at the end of this exciting process that the issues tackled in this SI are technical, consequential or merely corrective. Therefore, I have nothing to object to, except for one very minor question about paragraph 2.4, the last sentence, which happens to be about five lines long. It states:
“It also inserts provisions into other temporary regimes, allowing EEA financial services firms to continue to service existing contracts with their UK customers post-exit, and mitigating risks faced by UK firms using services provided by non-UK central counterparties and trade repositories”.
I could not find anywhere how and what the risks were that we were mitigating and how they were being mitigated. Otherwise, I have no objection to the SI.
My Lords, I am grateful to both noble Lords who have taken part in this debate. I agree with the noble Baroness, Lady Kramer. I do not want a no-deal scenario any more than she does. The Explanatory Memorandum at paragraph 7.2 explains all that we are doing to move away from no deal by seeking a,
“deep and special future partnership with the EU … greater in scope and ambition than any such agreement before and”, that encompasses “financial services”.
On that point, the Minister should realise that that paragraph has been repeated 65 times, so we all know it well.
That is why I knew exactly where to find it. I am sure that the noble Lord had no difficulty with that particular paragraph as he has had an opportunity to reflect on it many times. But I am grateful to the noble Baroness, Lady Kramer, for her broad support for the SI before us.
I note from the noble Lord, Lord Tunnicliffe, that we have tested his patience. He made that abundantly clear and he has awarded the wooden spoon to this particular Explanatory Memorandum. If he ever wants a different job, perhaps he could be recruited to draft Explanatory Memorandums for the Government. He clearly has high standards, and he is capable of turning the documents in front of him into something which he understands, which is a valuable skill.
I shall deal with the specific point he raised about paragraph 2.4 of the Explanatory Memorandum. The Financial Service Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019 inserted provisions into the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 and the Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018; I hope the noble Lord is still with me. These amendments established a run-off regime for central counterparties, allowing UK firms time to wind down relevant contracts and business with non-UK CCPs in an orderly manner. They also established a run-off regime for trade repositories giving UK firms time to make alternative arrangements with another registered or recognised TR to satisfy the reporting obligations set out in the European Market Infrastructure Regulation—EMIR. In a nutshell, without these run-off provisions, UK firms would face cliff-edge risks, and that is the risk that we seek to mitigate, including disruption to services from non-UK CCPs and TRs introducing operational, legal and stability risks. I hope I have dealt with that point.
On the noble Lord’s valid final point—that an Explanatory Memorandum should be a stand-alone document which is readily understood—the Treasury has endeavoured to ensure that all its Explanatory Memoranda provide a full and clear explanation of how and why each exit instrument laid under the Act is intended to operate, so that we can scrutinise the legislation as effectively as possible. However, in the light of his comments, we will have another look at this Explanatory Memorandum and consider whether the document should be revised and relaid to ensure that its explanations are as clear as possible.