In the previous debate, I explained how the extension of the Article 50 process had made some additional onshoring legislation necessary. This instrument fixes deficiencies in new EU legislation that will become part of UK law at exit and amends some EU exit provisions already made to account for the extension. It also corrects several minor errors or omissions in earlier EU exit instruments.
I note that, in its report published on
“the range and magnitude of the changes”, made by it. It also expressed concern about the scale of the challenge facing financial services firms in adjusting to the changes being made to financial services legislation generally.
While the instrument makes amendments to 15 pieces of legislation, the number of amendments is modest and their nature minor. They follow the same approach to fixing deficiencies in EU legislation as approved by Parliament in previous financial services EU exit instruments. They do not change policy or alter requirements on firms. The SLSC is of course right to highlight the challenges financial services firms will face in adjusting to changes introduced by exit legislation.
I reassure the House that minimising this challenge for industry has been central to the onshoring project from the beginning. The Treasury, under other secondary legislation approved by Parliament, has introduced a variety of measures to smooth the transition for businesses adjusting to the changes in EU exit legislation and changed circumstances generally. These measures include a range of temporary permissions and transitional regimes for EEA firms and funds. Parliament has also granted UK financial services regulators powers to phase in requirements that change as a result of EU exit legislation, giving firms the time they need to adjust in an orderly way. The regulators have consulted on their approach to phasing in these requirements, which involves broad use of their transitional powers. They have received a very positive response from industry.
We have also engaged with the industry on the development of all our EU exit instruments to give it as much time as possible to become familiar with the legislation. Given the minor and technical nature of the amendments in this SI, I will not cover every provision in my opening remarks, but I am happy to take questions on any of the individual provisions.
The provisions in this instrument cover three broad areas. First, they make changes to a number of pieces of EU legislation that have become applicable since the Article 50 extension and will therefore form part of UK law on exit day, but they are not substantive enough to warrant separate additional instruments. For example, the European Commission recently introduced measures to further promote the use of small and medium-sized enterprise growth markets. Those trading platforms are subject to more proportionate regulation, making it easier for SMEs to raise finance. The instrument makes minor amendments to fix deficiencies in the new EU legislation, ensuring that it continues to function in UK law after exit. Following the approach approved by Parliament in previous financial services exit legislation, this instrument gives UK regulators the job of fixing deficiencies in the new technical standards that have been adopted by the EU since
Secondly, the instrument makes amendments to existing EU exit legislation that are required to take account of the Article 50 extension process. For example, it makes a change to the Solvency II exit legislation by amending the date from which the PRA will be obliged to publish certain technical information that insurance and reinsurance firms must use to value their liabilities. Previously, the PRA had been required to begin publishing this information from
Finally, I will address the corrections that the instrument makes to earlier EU exit legislation. Although all the instruments laid under the European Union (Withdrawal) Act have gone through the normal rigorous checking procedures, as with any legislation, errors are made from time to time. However, in this instance it is important to keep a sense of perspective. The financial services onshoring effort has been an unprecedented legislative challenge, involving 57 EU exit instruments making amendments to more than 500 pieces of EU and UK financial services legislation. In that context, the errors that we are seeking to correct here are extremely minor and very small in number.
For example, the instrument makes an amendment to the Criminal Justice Act 1993 to ensure that UK individuals trading financial instruments in the EEA or Gibraltar are not guilty of insider dealing, which is a criminal offence, if they are compliant with the market abuse regime as it applies in those territories. This does not change the criminal offence of insider dealing but ensures that the scope of the offence remains the same and operates effectively in UK law after exit.
I have already referred to the scale of the onshoring challenge for financial services and I conclude by paying tribute to the hard work that has gone into preparing our regulatory regime for exit. The very constructive collaboration between the Treasury, our financial services regulators and our industry stakeholders has been highly effective. The legislation has been very positively received by the industry and has done a huge amount to provide confidence and reassurance that the UK’s regulatory regime will continue to work effectively in all scenarios. I thank all those involved in this admirable effort. I hope that noble Lords will join me in supporting these regulations and I beg to move.
My Lords, again, I declare my interests as listed in the register—in particular, as a director of London Stock Exchange plc.
I shall start where the Minister finished, in the sense that he said that there had been constructive engagement with stakeholders and industry. I acknowledge that that is true, and I also acknowledge that HMT has, by and large, done a very good job with the full range of statutory instruments, a great many of which some of us have had the pleasure of looking at. However, I have a comment to make on the others, and I say this because the Minister is relatively new to his post. Previously, once there was a final version, this was sent to those of us who were engaged on the SIs with a little more notice than we have had in this case—perhaps to look up a few things and occasionally even to find a few more mistakes than we have been able to this time.
I recognise that this is an unusual time, with our having been dragged back when perhaps the Government had not expected that—although that was obviously the right thing to do—but if any more SIs are lined up, can the Government try to give us a little more notice of the final versions? That would make things far smoother for us. We are rather large stakeholders but are not really being consulted until it is in the final form. We sometimes have only a couple of days to look at it. The Government are giving far more time to the people who do not have to make decisions than those who do. In general with secondary legislation, it is very important that this can be done with much more time at our disposal.
I do not have a great deal to say. I agree that, by and large, these are relatively small changes. It gives us a nice list of things that I need to go and look at in the Criminal Justice Act—it raises my curiosity about what regulated markets are defined elsewhere. Obviously, if it is a question of bad behaviour, we want to catch that globally, not just within the EEA. I assume that we have some definitions of regulated markets, such as in the United States and elsewhere. Maybe that can be answered for me, but I will have to go and have a look.
Something jumped out at me slightly in the amendments to MiFID, where it is being redefined to refer just to the UK systematic internalisers, rather than reading “EU systematic internalisers”. It says that that was previously a mistake and should have been localised to the UK. We have had several instances where things were deliberately UK-wide and EU-wide sometimes—the question was whether it would be a symmetric or asymmetric case. In some ways, this reflects back to the whole criminal justice thing: we are catching bad behaviour in the whole of the EEA and they presumably want to catch it in the UK, even if by an EU firm.
Was it previously a mistake that it covered the whole of the EU or has there been a slight change of policy from the UK’s perspective? Are we saying, “Okay, we are going to narrow this down so that you have to do it in the UK, rather than allowing you to do it in a wider range of locations”? I would like to know that. We have previously picked up on things and asked, “Why are you allowing these to be EU-wide?”. That is the only point I really have to make, other than repeating the fact that it would have been nice if the Explanatory Memorandum had been slightly updated.
Oh, yes—there was also a point on solvency. I note that the PRA becomes in charge of the risk-free rates. I hope that there will be some co-ordination there so that we do not end up having a completely different risk-free rate from the rest of the EU. That might be a rather difficult situation. I cannot resist saying that I hope the PRA makes a better job of the risk-free rate than the Government have of the discount rate.
My Lords, I remind the House of my declaration of interests, particularly my chairmanship of the association representing financial advisors.
I apologise to the House—but not to my noble friend, because he has not heard the comments that I have carried through all the debates on these statutory instruments. I would not like this statutory instrument to pass without us yet again making the point that this is rubbish. We should not be here. This is a nonsense. The more you read about it, the more you realise what a nonsense it is. The truth is that we are kindly giving other people the opportunity to do things that we have always done, and we will not be able to do them unless we are prepared to take the same rules as everyone else. So the whole thing is a nonsense. I am sorry that my noble friend the Minister has to present it. He will do so charmingly and nicely and will not be rude about it, but I do not want him to go without some people on this side of the House, as well as others, saying that we should not be here. We have spent hours and hours on debate. He very rightly thanked all the people who have helped him, but they should not have been wasting their time. We have spent an enormous amount of time doing something wholly deleterious to the United Kingdom. In the whole of my long life I cannot remember an occasion on which that has been so obvious.
This happens to be a worse Government than those who have preceded them in this situation, but the fact remains that we should not be here, because what is being proposed is bad for Britain. We are not taking back control; we are putting ourselves into a position in which other people will have control and we will have no say in it at all.
That is the first point about this very small and unimportant series of amendments. The second point is this: as the noble Baroness has so often said before and has said again today, it is utterly impossible for people to keep up with the minutiae, or with the very fact that the Government has had yet again to make changes. I noticed a very elegant phrase that my noble friend used: “Like all legislation, when we went through it again there were things that we needed to change”. Of course there are, if you keep on legislating entirely unnecessarily at great length in order to damage our country. That is what is so serious. Of course, it is true that we have found yet more examples. I imagine that the noble Baroness, Lady Bowles, with her considerable knowledge, will find some more, and we will go and tell the Government how nice it would be if they added all these other things.
The third reason I intervene is simply that the financial services industry is an important part of the United Kingdom’s economy; it does some very important things. Over many years, it has become respected throughout the world for its knowledge and under- standing. There have, of course, been occasions when things have gone wrong. I am the last person to defend that. But we have an established reputation throughout the world. I say to my noble friend the Minister that this is another example of us undermining that reputation for no good reason at all.
Of course, we will pass this and go through the motions yet again, but I resent having to spend good time on bad proposals. I resent it not just for myself, noble friends or noble Peers opposite; I resent it for all those decent civil servants who have spent their time not improving this country, not extending its influence, not making things better for Britain—but undermining it, in what I know they will have tried to make the least damaging way. The fundamental process is deeply damaging. I do not think that this House should pass these things without reminding the Government, including even so charming a Minister as we have, of the nonsense that we are engaged in.
My Lords, I am going to add a few words of comment. I suspect that the noble Lord, Lord Deben, has said everything that I would love to have said but I will narrow down and make a few more detailed comments. I want to pick up again the issue of divergence that I raised earlier. I fully understand that these are on the whole very minor changes to the statutory instrument and we are certainly not going to oppose them. I can see that they are tidying up.
However, two things struck me, one of which was addressed by my noble friend Lady Bowles: that we end up with a different risk-free rate within the UK from that being used, essentially, within the EU. I suppose people will say that that is a version of taking back control. As far as I am concerned, it is once again a mechanism for trouble and regulatory arbitrage. I am slightly worried that it does not seem to be accompanied—perhaps I have missed this—by any kind of mechanism to make sure that there is a great deal of common thinking and consultation around an issue like that. Choosing a different risk-free rate can rock the markets dramatically, quite frankly, and one can see that in the wrong hands there is a potential danger for this to be used as a competitive tool rather than as a tool to provide financial stability. I am just concerned that nothing in this SI really addresses that issue, though it has had the virtue of drawing our attention to the fact that this now becomes a pretty major problem.
I turn to an issue where I do not understand quite what is going on. Paragraph 2.9 of the Explanatory Memorandum raises the issue of the EU’s determination that a regulatory and supervisory framework for trading venues in Singapore is equivalent to the EU’s framework —in other words, there is an equivalency recognition between the EU and Singapore, and that makes a great deal of sense. I am unclear from looking at this where the UK stands following Brexit, should it happen, in terms of an equivalence relationship with Singapore. Perhaps the Minister could help me. Is this a mechanism that extends our recognition of Singapore as equivalent? Does Singapore’s recognition of the EU as equivalent carry over to us in our new separated role? Only a handful of markets carry on the same sort of global trading activities, so it seems important that we have some understanding and clarification around that.
Those are the only two issues that I wanted to raise. I again thank the noble Lord, Lord Deben, for really underpinning the fundamentals.
My Lords, there is not much else to say. It is the case, as the noble Lord, Lord Deben, indicated, that we have spent a considerable period of time dealing with the financial services industry on the question of a no-deal exit from the EU. He was absolutely right when he said we were in danger of diminishing the reputation of the industry, and of London, throughout the world. The most specific and important fact is that we are diminishing the position of London in relation to Europe just as we were absolutely clear that on the whole question of the development of financial services the British voice was heard with a great deal of sympathy in Europe. Just at the point when we were, if not taking control then showing the necessary leadership for the benefit of the whole of the European community and confirming and consolidating the position of the City of London, we take this step to end it all.
The Minister has probably not come totally armed with the facts of where we are with regard to the whole debate on Brexit, but now and again, prior to his accession to his position, he will have heard a few comments on where we are all at with regard to Brexit. It is the case that most noble Lords in this House who have taken a keen interest in the issue are absolutely shattered and exhausted by the amount of work that has been necessary, and of course the great danger is that so much of it is going to be utterly wasted and detrimental to the nation’s interests.
The Minister will want us to concentrate rather more on the immediate issue of this instrument. The regulations were flagged as an instrument of interest by the Secondary Legislation Scrutiny Committee in its 58th report. The committee expressed its concern that while this incident is presented as an innocuous tidying up exercise on past efforts, the exercise is actually fairly complex. This single statutory instrument makes changes to 15 items of legislation. The Minister already knows this, but he will not mind my reading it into the record. It includes a sub-delegation of powers and extends a ministerial power of direction. A saving grace is that the measure is subject to the affirmative procedure. That provides some safeguard, as the noble Baroness, Lady Bowles, indicated.
Financial services regulation is a complicated matter at the best of times. Amending legislation in this manner is of little help to anyone who is seeking to understand the rules of the game. Primary legislation, including the Financial Services and Markets Act, has been continually amended throughout its lifetime. This process has been repeated at the European level. Every time these changes are made, regulatory authorities such as the FCA and the Bank of England update their own guidance, adding another element of complexity. That is not to say that regulation is not important; we on these Benches would scarcely advance that argument. But we are dealing with a very complex field, and our job is not made any easier by the Treasury’s approach to this exercise.
My noble friend Lord Tunnicliffe, who has played such a significant part with regard to the SIs relating to a no-deal exit, and of course those colleagues on the Liberal Democrat Benches who have also pursued these issues with great diligence, had a meeting with the Economic Secretary to the Treasury in late February to discuss the kind of concerns that have been expressed today. At that meeting, Mr Glen, the Economic Secretary, committed to producing a summary of the EU exit SIs passed up to that point, with what we hoped was a genuine commitment to a plain English explanation of the effect on key pieces of legislation and guidance. We do not know whether that document has ever been provided. Given the number of changes that have been made, I assume—or at least hope—that somebody in the Treasury has maintained an overview of the situation. Would the Minister, who of course comes new to all this, commit himself to chasing this up with the department? A great deal of work was invested in this and it reflected the sheer complexity of the issue and its significance for the industry that we are dealing with. The Minister will reap a reward for his time in taking advantage of the offer I have made to him, to which I am sure his civil servants will be only too glad to respond.
I know that the Treasury has worked with bodies such as the FCA and the Bank of England when drawing up these instruments, but I wonder whether the Minister could shed any light on what else the department is doing to assist regulators during these particularly challenging times, when so much is in a state of flux, yet people need clear, accurate and legal decisions. Complex the industry may be, but there is a great deal at stake in its welfare, and at the present time we are not sure that the Government are bent on the correct course at all.
My Lords, I would like to thank everyone for participating in a really meaty discussion about an SI that is incredibly detailed in nature. The discussion got under the skin of some very serious issues.
I shall start by tackling head-on the comments made by the noble Baroness, Lady Bowles, about the late notice or delivery. I completely sympathise and understand her point. With a mopping-up SI such as this, one wants to capture the latest changes that have been processed, and therefore there is a pressure to have the SI as up-to-date as possible and that mitigates against early delivery. However, I agree with her sentiment that it is preferable for these things to be delivered early, and I will try to ensure that the department achieves that.
I do not want to raise the curiosity of the noble Baroness, Lady Bowles, too much about the CJA—that could be dangerous for the department—but I reassure her that the concerns she had were just about an omission. We need to reflect that Gibraltar and the EEA will be separate jurisdictions but that market abuses will still be caught in the same way as now. The changes that refer to the CJA simply capture that.
I will try to provide some reassurance on systematic internalisers. As the House knows, this instrument amends MiFID legislation so that the ability to meet the shared trading obligation using a systematic internaliser requires such trades to be made through a UK systematic internaliser after exit. This change in scope is consistent with the overall onshoring approach; it does not try to create something different. Once we are outside of the EU single market and joint supervisory framework, UK regulation will need to reflect that.
The noble Baroness, Lady Bowles, also asked about Solvency II and the risk-free rate. I reassure her that the risk-free rate will be calculated on the same basis as now. The change is that it will be published by the PRA instead of the EIOPA. That will be the principal change from this SI.
The noble Baroness, Lady Kramer, asked about equivalence with Singapore. We will carry over all the EU’s existing equivalence decisions, including that for Singapore. I can explain that we are speaking to Singapore about that jurisdiction recognising the UK in the same way. I understand that talks are progressing well, and I hope to be able to provide good news to the House at a future date.
The noble Lord, Lord Davies, asked about a plain English explanation. I reassure him that we provided an overview to noble Lords earlier this year, but I am happy to provide any further information that he may require and to chat about that at a later date.
The noble Lord, Lord Davies, also asked whether adjusting to all these changes is a substantial challenge for industry. That is linked to the heartfelt and moving appeal about this entire process from my noble friend Lord Deben. I take my noble friend’s comments on board, but I have a different perspective. In life, you often have to spend a significant amount of your time providing for and protecting yourself against things that you hope will not happen. That is a basic fundamental in life. That view is shared by not just me but the financial services industry, which urges this House, Parliament and the Government to pursue these measures with great energy and in great detail, to ensure that there is full protection against a possible no-deal Brexit.
At times, it feels like a waste of energy and a distraction, but that does not detract from the value of the work that has been put in. I have not been sitting here for the 50 SIs and I do not have the scars on my back like many in this room, but I still value enormously the expertise, time and passion that have gone into making such a good job of this whole exercise. I endorse the work of Parliament, industry and the officials working on all of this and reassure the House that it is taken extremely seriously by the Government. In that vein, I commend these regulations to the House.
House adjourned at 6.14 pm.