‘(1) The Treasury must prepare and publish a report on progress towards regulatory equivalence recognition for UK-based financial services firms operating within the European Union.
(2) This report should include—
(a) the status of negotiations towards the recognition of regulatory equivalence for UK financial services firms operating within the European Union;
(b) a statement on areas in where equivalence recognition has been granted to UK based businesses on the same basis as which the UK has granted equivalence recognition to EU based businesses; and
(c) a statement on where such equivalence recognition has not been granted.”—
This new clause would require a report to be published on progress towards, or completion of, the equivalence recognition for UK firms which the Government hopes to see following the Chancellor’s statement on EU-based firms operating in the UK.
New clause 28—Pre-commencement impact assessment of leaving the EU Customs Union—
‘(1) No Minister of the Crown or public authority may appoint a day for the commencement of any provision of this Act until a Minister of the Crown has laid before the House of Commons an impact assessment of—
(a) disapplying EU rules;
(b) applying rules different from those of the EU as a consequence of any provision of this Act.
(2) A review under this section must consider the effects of the changes on—
(a) business investment,
(e) financial stability, and
(f) financial liquidity.
(3) A review under this section must consider the effects in the current and each of the subsequent ten financial years.
(4) The review must also estimate the effects on the changes in the event of each of the following—
(a) the UK leaves the EU withdrawal transition period without a negotiated comprehensive free trade agreement,
(b) the UK leaves the EU withdrawal transition period with a negotiated agreement, and remains in the single market and customs union, or
(c) the UK leaves the EU withdrawal transition period with a negotiated comprehensive free trade agreement, and does not remain in the single market and customs union.
(5) The review must also estimate the effects on the changes if the UK signs a free trade agreement with the United States.
(6) In this section—
“parts of the United Kingdom” means—
(c) Wales, and
(d) Northern Ireland; and
“regions of England” has the same meaning as that used by the Office for National Statistics.”
This new clause would require the Government to produce an impact assessment before disapplying EU rules or applying those different to those of the EU; and comparing such with various scenarios of UK-EU relations.
New clause 36—Regulatory divergence from the EU in financial services: annual review—
‘(1) The Treasury must prepare, publish and lay before Parliament an annual review of the impact of regulatory divergence in financial services from the European Union.
(2) Each annual review must consider the estimated impact of regulatory divergence in financial services in the current financial year, and for the ten subsequent financial years, on the following matters—
(a) business investment,
(e) financial stability, and
(f) financial liquidity,
in each English region, and in Scotland, Wales and Northern Ireland.
(3) Each report must compare the analysis in subsection (2) to an estimate based on the following hypothetical scenarios—
(a) that the UK leaves the EU withdrawal transition period without a negotiated comprehensive free trade agreement;
(b) that the UK leaves the EU withdrawal transition period with a negotiated agreement, and remains in the single market and customs union;
(c) that the UK leaves the EU withdrawal transition period with a negotiated comprehensive free trade agreement, and does not remain in the single market and customs union; and
(d) that the UK signs a comprehensive free trade agreement with the United States.
(4) The first annual report shall be published no later than 1 July 2021.”
This new clause requires a review of the impact of regulatory divergence from the European Union in financial services, which should make a comparison with various hypothetical trade deal scenarios.
Thank you for your chairmanship, Mr Davies. I rise to speak to new clause 2, in my name and the names of my hon. Friends. We discussed equivalence when we were debating clause 24 or 25, so it might relieve the Minister and the Committee to know that I will not repeat everything I said about how we got to this position, but let us look at what the current situation is.
First, we have withdrawn from the EU, and in so doing we have withdrawn from any joint decision-making process about mutual access to financial services. Secondly, a few weeks ago the Chancellor announced a unilateral move on the UK’s part to grant equivalence recognition to EU member states and their firms. Thirdly, there is a legislative mechanism to do that in the Bill. Fourthly, we now await decisions on equivalence from the EU. Finally, in terms of the regulatory picture, we have spent a lot of legislative time in this House—probably no one more than the Minister in the past two years or so—legislating to onshore various EU directives. That is where we are.
The aim of onshoring that vast body of legislation was to have a parallel position, or as near to one as we could reach, on day one of the end of the transition period. At the same time, though, we have given our regulators powers to diverge in various ways from the terms of these directives in future. We have discussed that quite a few times in Committee, and the Minister said that the Government are not interested in diverging for the sake of divergence, but of course there are many in the Government, and in his party, for whom divergence is the whole point of the exercise, because it is all about sovereignty. Although we may be almost totally in line on day one—new year’s day—what about day 100 or day 1,000?
Nothing in new clause 2 alters the power to diverge. If the package of onshoring and granting new powers to the regulators that the Minister is taking through is there, nothing in the new clause alters that, but it asks for a report on where we have reached in that process. We know that a positive outcome of this process could have a very significant bearing on the UK financial services industry. It would mean better access for our firms than without that process. It certainly would not give them what they have at the moment, but that is water under the bridge—we debated that earlier in Committee.
The converse is also true, of course: if we do not get equivalence recognition, it would have implications for jobs, tax revenue and how the UK is viewed as a home for inward investment in the financial services industries. All that the new clause does is to ask for a report on where we have got to in the process or, alternatively, a statement on who has refused to grant equivalence of recognition.
I hope the Economic Secretary does not mind if I point out that I cannot be the only one who is struck by the clamour, particularly on the Government Benches, for economic evidence to justify covid-protective measures. Everybody wants the exact detail of how that will affect their local economies. If that is the case, it is only right that the Government report on the economic consequences of the other major process that we are going through. That is the intention behind the new clause.
The sector is hugely important for the United Kingdom, as has been mentioned many times during our debates over the last couple of weeks. All that the new clause does is to ask for a report on where we are on market access. I very much hope that we have a positive outcome on that. Some of it may be about good will, and it might depend on what is agreed in the next week or two—we do not know. It is certainly in the interests of the sector to have a positive outcome. The least we can ask is that the Government report to the House on that.
Finally, if the outcome is positive, the Government will probably want to report back anyway. If the outcome is not positive, Parliament has a right to hear about that, too.
Then I will do that—thank you. It is a pleasure to see you in the Chair once again, Mr Davies. It is probably accurate and correct that the new clauses are grouped together, because they are quite similar in scope, particularly when considering the wider issue of divergence. I will come back to that.
New clause 28 seeks to provide an impact assessment before disapplying European Union rules or applying rules different from those of the EU. That is incredibly important, because it goes to the core of what the Bill is about in relation to our leaving the European Union. Only a few day ago, the Governor of the Bank of England highlighted that a no-deal Brexit could of course lead to a worse economic situation than covid. We need to be in a position to assess the reality of what the Government seek to do. That should apply in the case of no-deal, a good deal—as far as the Government see it—a bad deal or a “Boris deal”.
We should compare what we could have had with what we get. We should be open and transparent with the public about that. The Government talk about wanting to take back control and parliamentary sovereignty; let us take that back to the people as well and show them that the Government are being open and transparent with everything that is put forward. That is particularly important in a Scottish context because—lest we forget—the people of Scotland did not vote for Brexit, and they do not want it to happen, so it is incumbent on the UK Government to provide that clarity to them, particularly on such important matters.
If the Government are proud of the actions that they are taking and seek to go down a different path, they should be willing to follow up on their actions and be open and transparent, not shy away from that.
That takes me on to new clause 36, which would do something very similar to new clause 28, but rather than looking at the potential impact of future decisions, it would provide for an annual review of the decisions that had been taken. That, as the right hon. Member for Wolverhampton South East said, is, in the context of equivalence, incredibly important, particularly if we are to see the UK diverge from the European Union in any way, shape or form. As we have heard, the Chancellor has guaranteed equivalence to the European Union, so it will have access to the UK markets, but of course there is not a similar agreement in place for us. Conservative Members would, understandably, argue that that is the EU’s fault and that the EU should be delivering that for us, but, as I said on Second Reading, who can blame it when this is a Government who simply cannot be trusted, a Government—lest we forget—who are willing to break international law?
Irrespective of that, we should all be concerned about the reality of not having equivalence in place and what that could lead to. We have made and heard suggestions that it could mean, ultimately, divergence in relation to MiFID—the markets in financial instruments directive. It could mean divergence in relation to the wider insurance regulatory framework. I appreciate that there are arguments both in favour and against in that regard, but we need always to be mindful of what we are seeking to diverge from in relation to our wider relationship with the European Union. I appreciate that it will ultimately be in the gift of the Government to do these things, but they should surely have some concerns about the actions that they will be taking.
I go back to the comments that I made about new clause 28. If the Government are proud of the actions that they take and have taken, they will be willing to accept both new clause 28 and new clause 36 and to put their money where their mouth is and be open and transparent with the people of Scotland and the people of the United Kingdom that their decisions have not been ones that have had disastrous consequences for the economy of the UK. I suggest that if they do not accept the new clauses, that is because they know the damage that they are going to do.
What a pleasure it is to serve under your chairmanship once again, Mr Davies. These new clauses seek to place requirements on the Government to make various reports related to the UK’s withdrawal from the EU and the subsequent evolution of our financial services regulation.
New clause 2 deals with equivalence, which is an important mechanism for managing cross-border financial services activity. I can well understand hon. Members’ interest in that. However, the obligation that the new clause would impose on the Government—essentially, to report on the status of the EU’s considerations about UK equivalence—is beyond the Government’s power and therefore not something that the Government can agree to do.
The right hon. Member for Wolverhampton South East rightly referred to my right hon. Friend the Chancellor’s speech on
I can reiterate today the Government’s commitment to operating an open and transparent approach to equivalence as the Chancellor explained in his speech on
As part of this, the Treasury will provide Parliament with appropriate information about the operation of the equivalence framework. After the end of the transition period, future equivalence decisions will be made by regulations laid before Parliament, giving Members the opportunity to consider and scrutinise the Treasury’s decisions as part of the UK’s normal legislative process.
As I said, the Chancellor recently announced a package of equivalence decisions following the completion of our assessment of the EU, where we took a thorough but proportionate outcomes-based assessment against the criteria in legislation. As the EU has confirmed publicly, there are many areas where it is not prepared to assess the UK at the current time. In the absence of clarity from the EU, we have made decisions to provide clarity and stability to industry, supporting the openness of the sector and to help to deliver our goal of open, well-regulated markets.
Those decisions will allow firms to pool and manage their risks effectively, and support clients on both sides of the channel in accessing our world-leading financial services in our highly liquid markets. I assure the Committee that we remain open and committed to continuing dialogue with the EU about its intentions on equivalence. The Government have taken all reasonable steps to co-operate throughout the process. I will keep the House updated on the UK’s approach to equivalence for the EU and the rest of the world, as I have done throughout the transition period.
New clause 28, tabled by the hon. Member for Aberdeen South, relates to assessing the impact of the provisions of the Bill under different EU exit scenarios. The financial services sector plays a crucial role in supporting the UK economy, and it is right that the impacts of the measures in the Bill are assessed and well understood. That is why the Government have published an impact assessment alongside the Bill that sets out the Treasury’s current understanding of the costs associated with each measure.
In the majority of cases, the Bill’s measures will enable changes that require further action from the Treasury in the form of secondary legislation, or from the financial services regulators in the form of regulator rules. The changes enabled through the Bill are vital to enhancing the UK’s world-leading prudential standards, promoting financial stability and maintaining the effectiveness of the financial services regulatory framework and sound capital markets. The final impact of the measures in the Bill will depend on subsequent decisions by the Government and the financial services regulators. Therefore, where appropriate, further details on the costs of each of the Bill’s measures will be explained in the impact assessments for the secondary legislation and in the cost-benefit analysis undertaken by the relevant financial services regulator in due course.
More broadly, the UK has been clear since the start of the free trade agreement negotiations that we want an agreement with the EU that reflects the maturity of our financial services relationship, and we remain committed to reaching an agreement. Although it would not be appropriate to discuss the details of our ongoing negotiations, the Government will ensure that Parliament is kept informed of the analysis at the appropriate times, in a way that does not impede our ability to strike the best deals for the UK.
New clause 36 deals with regulatory divergence in financial services. I have been clear before, as the right hon. Member for Wolverhampton South East was good enough to reference, that the UK taking control over its own rules does not mean a race to the bottom. We will continue to adopt high regulatory standards, appropriate for our markets. However, we should also recognise that regulatory regimes are not static, and international standards for financial services develop over time, and develop all the time.
Both the EU framework and our own will continue to evolve to meet the needs of markets and firms. Therefore, both the UK and EU frameworks will inevitably change over time. We can see early examples in the EU through its consultation on the alternative investment fund managers directive. Several of the changes that we are making through the Bill reflect similar changes being made by the EU to its regime. It is therefore not helpful to view all developments in regulation through the lens of divergence or alignment with the EU. It is not appropriate, having left the EU, for the UK to continually compare itself with the EU regime that was in place when we left, which will become increasingly out of date, or with the continually changing EU regime.
Where we are making changes, or will do so in the future, they will be guided by our continued commitment to the highest international standards and by what is right for the UK’s complex and highly developed markets, to support our world-class environment for doing business, ensure financial stability and protect consumers. In many areas, we already go beyond what EU rules require, and any future changes will be undertaken with consideration towards the impact of equivalence.
The Government are fully committed to ensuring accountability and scrutiny around new rules for the UK’s financial sector. That will include following the usual requirements for impact assessments related to both primary and secondary legislation, giving Members of Parliament the opportunity to consider and scrutinise Treasury decisions as part of the legislative process. Where the responsibility falls to the financial services regulators in the form of regulator rules, it is accompanied by robust accountability and scrutiny mechanisms, as I have set out to the Committee in previous sittings. The Government will ensure that Parliament is kept informed with the analysis of regulatory changes at the right times and in a way that does not impede the UK’s ability to strike the best deals with international partners. I therefore ask for the new clause to be withdrawn.
I want to respond to a couple of things that the Minister said. As I said when I moved the new clause, nothing in it stops divergence. There is no attempt to make sure that we are in lockstep with EU regulations for ever and a day. The new clause is completely silent on that.
Nor does the new clause pretend that the equivalence decisions that we seek can be within the gift of the Government. In fact, from the point of view of some of us, that is the problem. We would have a say over that at present, but we will no longer have a say in future. That is precisely why we are discussing this issue.
All that the new clause does is ask for a report on the outcome. What is the outcome for our financial services? It is like we are back on day one of our proceedings, when we talked about the different reasons for turning amendments down. The Minister has said that the Government will report regularly to Parliament, in which case the new clause would be entirely harmless. That is why we will press it to a vote.