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Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 3) Regulations 2019 - Motion to Approve

Part of the debate – in the House of Lords at 5:40 pm on 1st October 2019.

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Photo of Lord Bethell Lord Bethell Lord in Waiting (HM Household) (Whip) 5:40 pm, 1st October 2019

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 25 July, the Secondary Legislation Scrutiny Committee highlighted this instrument as of interest for what it called,

“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 29 March.

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 10 April 2019. The instrument amends that date so that the obligation on the PRA does not commence until an appropriate date after the UK has left the EU.

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.