Moved by Lord Harlech
2: Schedule 2, page 128, line 38, at end insert—“(5) Paragraph (6) applies where—(a) a central counterparty (A) was taken to be recognised pursuant to Article 25 of the EMIR regulation in accordance with regulation 19A(3), and(b) A ceased to be taken to be so recognised by virtue of the relevant period in the case of A having expired before the commencement day.(6) The Bank of England— (a) may determine that the relevant period in the case of A is (in spite of its expiry) to be treated, as from the making of the determination, as not having expired, and(b) may accordingly exercise its power under this regulation to vary the relevant period on or after the commencement day.(7) In paragraphs (5) and (6) “the commencement day” means the day on which Part 5 of Schedule 2 to the Financial Services and Markets Act 2023 comes into force.(8) Paragraphs (5) to (7) expire at the end of
My Lords, I beg to move government Amendment 2 and will also speak to the other amendments in this group. These are a set of minor amendments that the Government have tabled to ensure that all provisions of the Bill and the Financial Services and Markets Act 2000 operate effectively and fully achieve their intended policy effect.
Turning first to Amendments 2 and 118, central counterparties, or CCPs, are a type of financial market infrastructure and are crucial to global financial stability. Following the UK’s exit from the EU, the Treasury established a temporary recognition regime to enable eligible non-UK CCPs to continue providing important clearing services to UK firms while equivalence and recognition decisions were ongoing. To allow CCPs exiting the temporary recognition regime without recognition time to wind-down exposures to UK firms, a run-off regime was also established. The length of the run-off is determined by the Bank of England for each CCP, with a current maximum period of one year. As a result of provisions in this Bill tabled in Committee, the Bank of England will have the ability to extend the maximum run-off period for CCPs from one year to three years and six months. This would allow overseas CCPs currently due to exit the run-off regime at the end of June 2023 further time to apply for recognition if desired, and to remain able to offer services to UK firms during that period.
Amendments 2 and 118 seek to facilitate continuity of services under the run-off regime in the event that Royal Assent of this Bill occurs very close to or after
Amendments 3, 16, 17, 21, 22, 34, 53 and 54 ensure that the references to the regulators’ objectives in the Bill and the Financial Services and Markets Act 2000 include the new competitiveness and growth secondary objectives for the PRA and the FCA, and the Bank of England’s new secondary innovation objective.
Turning to Amendments 5 and 6, Schedule 5 to the Bill makes amendments to FSMA to ensure that the regulatory gateway for financial promotions legislated for in this Bill can be implemented and operated. One way that it does this is by applying other relevant parts of FSMA to ensure that the FCA can oversee the gateway effectively. Amendment 5 aligns the wording between a provision introduced by Schedule 5 and a similar existing provision within FSMA. These provisions relate to the issuance of notices to vary permissions or to impose requirements. The amendment will ensure that the regulator is required to provide notice when it proposes to vary a permission in all cases, and avoid any potential duplicatory requirements to provide notices. Amendment 5 replaces the relevant provisions in Schedule 5 and in FSMA with a single new provision. This will help to ensure that these similar provisions are interpreted consistently and achieve the intended policy effect. Amendment 6 is consequential on Amendment 5.
Amendment 49 ensures that the CBA panel’s statutory remit includes cost-benefit analyses for rules for critical third parties, and that it is therefore able to provide advice to the Bank in relation to this. Amendment 86 corrects a drafting error, ensuring that Schedule 11, regarding the central counterparties resolution regime, functions as intended. It provides clarity over the Treasury’s power to lay regulations restricting the making of partial property transfers. Amendments 87, 88 and 89 make technical corrections and clarifications to the insurer insolvency provisions in Schedule 12 to the Bill. Amendment 89 provides a clarification to make clearer the amount of FSCS top-up compensation that policyholders will be eligible to receive following a write-down order, meeting the stated policy intent. Amendment 87 clarifies that a liability is, to the extent of its reduction by a write-down order, to be treated as extinguished unless and until revived by the variation or revocation of the order. This helps to ensure that the intent of the provisions is achieved by increasing legal certainty about the treatment of written-down liabilities.
All these amendments seek to ensure that the provisions in this Bill achieve the policy intent and minimise potential disruption to the UK financial services sector. Therefore, I beg to move Amendment 2 and intend to move the remaining amendments when they are reached.
My Lords, I will make very few comments on this group of amendments. I accept that they are technical. I find some of them distasteful, particularly those that enhance the scope of the competitiveness and economic growth agendas. I fear very much that the underlying concept and construct will lead us back in the direction of the kind of risk taking that created the crisis that we went through so badly in 2008 and 2009. However, given that our attempts to turn around those objectives have not won support from other parts of the House, there is no sensible reason for me to object to these more technical amendments, other than to say that it is a sad day and that many of us will be revisiting this, if we live long enough, when we hit the next financial crisis.
My Lords, I will make two points on these technical amendments. As the Minister said, central counterparties are fundamental institutions in maintaining the stability of financial markets. This measure, to continue the role of overseas-based central counterparties, is enormously sensible. But there is an issue that has not been addressed. What if the overseas central counterparties decide not to provide services to UK firms—if they decide, following the UK exit from the European Union, that they will withdraw from providing such a service? What provision has His Majesty’s Government made for providing those services in those circumstances?
Secondly, I echo the point that the noble Baroness, Lady Kramer, made about the competitiveness and economic growth objective that is being incorporated as a subsidiary objective. As a subsidiary objective, it is unobjectionable. What is striking in the government amendments that we will debate is the way in which it is continuously privileged, such that it no longer remains subsidiary; extra reports and consideration will now be required, all focused on one objective. This is a serious mistake, because the statutory objectives of the regulatory authorities will change with circumstance over time. Writing into law that one objective should be privileged is a significant error. The primary and secondary objectives make sense, but overegging the position of a subsidiary objective is a mistake.
My main point at this time is to ask the Minister what measures provide central counterparty provision in those areas where overseas central counterparties decide not to act for UK firms.
My Lords, I am grateful for both contributions to this short debate. The noble Lord, Lord Eatwell, brought up the competitiveness issue, which is something we will come on to at a later stage in the proceedings on the Bill. In answer to his point about overseas CCPs, that would be a commercial decision for that institution to make. However, the idea of the run-off regime is to provide time for UK firms to wind down their operations and make alternative arrangements.
Amendment 2 agreed.
Clause 6: Restatement in rules: exemption from consultation requirements etc