Clause 1 - Revocation of retained EU law relating to financial services and markets

Financial Services and Markets Bill – in a Public Bill Committee at 9:25 am on 25 October 2022.

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Photo of Peter Grant Peter Grant Shadow SNP Spokesperson (Europe), Shadow SNP Deputy Spokesperson (Treasury - Chief Secretary) 9:25, 25 October 2022

I beg to move amendment 44, in clause 1, page 1, leave out line 6 and insert—

“(1) The Treasury may, by regulations, revoke the legislation referred to in Schedule 1.

(1A) The Treasury may not make the regulations referred to in subsection (1) if the Chancellor of the Exchequer considers that the revocation of legislation provided for in the regulations

This amendment would mean that the Treasury cannot revoke retained EU law relating to financial services if such revocation would be prejudicial to the interests of consumers, unless other provision has been made to mitigate these prejudicial effects.

Photo of Maria Miller Maria Miller Conservative, Basingstoke

With this it will be convenient to discuss the following:

Clause stand part.

That schedule 1 be the First schedule to the Bill.

Photo of Peter Grant Peter Grant Shadow SNP Spokesperson (Europe), Shadow SNP Deputy Spokesperson (Treasury - Chief Secretary)

It is a pleasure to see you in the Chair this morning, Dame Maria.

As Members know, the SNP group came close to voting against the Bill on Second Reading. In fact, we tabled a reasoned amendment, primarily because of our concern about how the clause intends to take matters forward, but it was not selected by Mr Speaker. A sad fact for many of us is that the United Kingdom is no longer part of the European Union and that, therefore, all European Union legislation needs to be reconsidered. My problem is that it has already been decided in the Bill that, on financial services, all European Union legislation needs to be thrown out.

We hope that someone in the Treasury will at the same time, or very quickly afterwards, replace that legislation with something at least as good, if not better. I mean no disrespect to anyone here, to any Member of Parliament, the Minister or anyone working in the Treasury, however, when I say that I can have no confidence that that process, on that scale and at that speed, will work—we need only look at the number of amendments that the Government have had to table to the Bill because of mistakes in it, as published. In Delegated Legislation Committees on which I have sat, there have been instances where we have had to correct the correction to the correction of an initial piece of secondary legislation arising from Brexit.

It is simply not realistic to believe that all the revocations and repeals proposed under the clause can be replaced with equally good regulation without mistakes being made. When mistakes are made in the regulation of financial services, people get scammed, companies that should survive go under and the United Kingdom’s reputation as a dodgy place to do financial services becomes even worse. For all that I am not a big fan of the United Kingdom, I do not want to see that happen. I am not a big fan of the United Kingdom Parliament either, but I do not want to see its right to scrutinise in detail any suggested changes to legislation undermined, simply because it suits the Government of the day.

While it may be that the right thing to do with all 200-plus pieces of legislation listed in schedule 1 is to revoke and repeal every single word, Parliament should be given a choice, at reasonable speed, to decide whether that is correct. Ideally, at the same time as Parliament is asked to revoke the legislation, we should be given the chance to consider what will be put in its place.

My view on clause 1 altered slightly when we heard from the witnesses last week, especially those from the financial institutions. Some of them said that they genuinely felt that some of the existing EU legislation needs to go or to be changed significantly. I did not hear anybody asking for a wholesale revision of all 200-plus pieces of legislation. The motivation appears to be to take the European Union sticker off the number plate and put a Union Jack on it instead. If that is the only difference that is being made, what the Government suggest here is far too risky and undermines the right of Members of Parliament, including those who are not on the Committee, and their responsibility to scrutinise legislation that is crucial not only to the wellbeing of the economy on a big scale, but to the wellbeing of the economies of hundreds of thousands of our constituents. For many of them, this legislation has come too late, because they have been ruined by financial services scams that could perhaps have been prevented if this legislation had been introduced sooner.

It is my intention to press the amendment to a Division, Madam Deputy Speaker—I mean, Dame Maria. I do not know whether I should apologise for promoting you. Accepting the amendment would not significantly delay any legislative changes that the Government intend to introduce, but it would ensure that they are scrutinised properly to increase the chance that when mistakes are made in the replacement legislation, as they will be, they are picked up and dealt with before it is too late.

Photo of Angela Eagle Angela Eagle Labour, Wallasey

Good morning, Dame Maria. It is a great honour to be on a Bill that you are chairing—I think it is our first time together in this iteration.

The Opposition do not have a problem with the principle of repealing some of the EU legislation, but I rise to invite the Minister to give us more detail on precisely how he envisages the wide-ranging power in clause 1 will be exercised in practice. I speak as a former member of the European Statutory Instruments Committee, which did a great deal of work in sifting all of the EU legislation to onshore it ahead of Brexit, including all the legislation covered by the Bill. We sat regularly and looked at thousands upon thousands of pieces of EU legislation, which we brought onshore ahead of Brexit. A great deal of work was done to achieve that, but a great many mistakes were made during the process in the drafting, the interpretation and the way in which powers were onshored in areas where we have not legislated directly for 47 years. This is a great accumulation of technical, but also extremely important, legislation that impacts on our constituents’ experience of everyday life as consumers and on how they use financial services and insurance, banking and savings products. If we get it wrong, there can be a great deal of detriment to our constituents.

Will the Minister give the Committee an idea of how the wide-ranging power to amend a large amount of legislation that has been on the statute book for many years will be done in a way that reassures all our constituents that we have the right balance between consumer protection and consumer rights on the one hand and our financial services industry and the way that it operates on the other? How will Parliament get to look at this? It is possible to argue that clause 1 would allow Parliament to be run over roughshod, without providing proper scrutiny, so will the Minister indicate how it will work in practice? How does he propose the powers will be exercised? What can Parliament do if we perceive that an issue that has been overlooked in all the technocracy impacts on our constituents? We need to ensure we have proper accountability.

I would be less worried if, as the hon. Member for Glenrothes said, we are just taking off an EU flag and sticking on a Union Jack, but I assume the Minister is taking these powers because he wants to use them. Will he set out in his comments on clause 1 precisely how he expects that to happen?

Photo of Shaun Bailey Shaun Bailey Conservative, West Bromwich West

It is a pleasure to see you in the Chair, Dame Maria. We often cross paths in these Committees and it is great to see you once again in the Chair.

I will speak briefly about amendment 44, following the comments of the hon. Members for Wallasey and for Glenrothes. The Government need to be nimble in how they lay regulations, particularly in this transitional period. Clause 1 provides the ability to be agile, particularly as we redevelop our financial services framework following our departure from the European Union. The Government clearly need the ability to do that. We are dealing with a vast array of regulation, primary legislation and laws that will require a significant amount of time to be developed, but at speed. Clause 1 enables the Minister to do that, and I trust my hon. Friend the hon. Member for Arundel and South Downs to develop the legislative framework in the right way.

Photo of Peter Grant Peter Grant Shadow SNP Spokesperson (Europe), Shadow SNP Deputy Spokesperson (Treasury - Chief Secretary)

If there is such an urgent need for speed, why has it taken so long for the Bill to be brought before the House?

Photo of Shaun Bailey Shaun Bailey Conservative, West Bromwich West

Perhaps I should have finished my comments, which would have led to the point that the hon. Gentleman has made. There is a need for speed and also a need to make things right. I think that is the point that he and the hon. Member for Wallasey were making, particularly as it is so vital that we get it right. I agree with the hon. Lady that there is a place for scrutiny. Drafting errors are a concern, and we have to make sure that as we build the framework, it is done in the right way. I pay tribute to the work that she did on the EU sifting Committee, because it is a thankless task to go through.

Photo of Angela Eagle Angela Eagle Labour, Wallasey

It was not the most fascinating thing I have ever done in the House, but it was one of those things that one has to do, or the statute book ends up in a right mess.

Photo of Shaun Bailey Shaun Bailey Conservative, West Bromwich West

I thank the hon. Lady again for the work that she has done.

I will round up my comments by saying that I think it is right that in clause 1 the Minister has the ability to do what he needs to do, but I do ask him to consider what Members have said about the safeguards to ensure that there is the right framework, particularly around drafting amendments and suchlike, so that we get this right. The Bill is needed and the Government are absolutely right to do what they are doing. As with any piece of legislation, it is about ensuring that we iron out the creases. I hope the Minister will give us those assurances today.

Photo of Tulip Siddiq Tulip Siddiq Shadow Minister (Treasury)

It is a pleasure to serve with you in the Chair, Dame Maria, especially after our time together on the Women and Equalities Committee.

The Opposition recognise that enabling the City to the thrive will be fundamental to support the country and to help people through the cost of living crisis. We need a regulatory framework that allows our country to take advantage of opportunities outside the EU, whether by unlocking capital in the insurance sector for investment in green infrastructure or supporting the vibrant UK fintech sector to thrive.

The Minister knows that the Opposition are broadly supportive of the Bill. We welcome clause 1, which will empower the UK to tailor regulation to meet our needs outside the EU, but my questions are similar to those posed by my hon. Friend the Member for Wallasey. What reassurance can the Minister provide that clause 1 will not result in the Government diverging for divergence’s sake and, in the process, unnecessarily revoking rules that might boost the competitiveness of the City or protect consumers from harm? As my hon. Friend said, we want a bit more detail on clause 1.

I also have a few technical questions. Will the Minister confirm whether his Government still plan to revoke all retained EU law by the end of 2023? What assessment has he made of the impact of that date on UK financial services? The date seems a bit arbitrary and we want to know how much thought went into coming up with it. Does the Minister think there is a risk of creating uncertainty and extra costs for the sector by forcing financial services businesses to unnecessarily adapt their business models by the end of next year? A bit of information would help us gain clarity on the clause.

Photo of Andrew Griffith Andrew Griffith The Financial Secretary to the Treasury

It is a pleasure to serve under your chairmanship, Dame Maria. The Bill is central to delivering the Government’s vision for the future of the financial services sector. The hon. Member for Hampstead and Kilburn talked about some of the great opportunities that it unlocks. It seizes the opportunities of EU exit, although it is not exclusively about that. It tailors financial services regulation to UK markets to bolster the competitiveness of the UK as a global financial centre and to deliver better outcomes for consumers.

Clause 1 revokes retained EU law on financial services. That clears the way to regulate financial services in a way that works for the UK, building on the model established by the Financial Services and Markets Act 2000. In response to hon. Members who asked how it will operate in practice, the settled position for some time has been that the FSMA model delegates the setting of regulatory standards to operationally independent financial services regulators, within the framework that Parliament sets. That is an internationally respected approach that historically has had support from all sides of the House, and I hope that continues.

As a result of our membership of the EU, the UK has been left with a patchwork—the hon. Member for Wallasey talked about her assessing role as that corpus of law was brought into the UK.

Photo of Angela Eagle Angela Eagle Labour, Wallasey

I wonder about the sequencing. There is a list in schedule 1 of all the legislation that applies to financial services, lock, stock and barrel. The sifting Committee had oversight of that when we onshored it. Once the schedule is law, it does not all disappear at once, does it? Surely, we keep it there and have a look at things that might cause difficulty and at where we may wish to diverge.

Photo of Andrew Griffith Andrew Griffith The Financial Secretary to the Treasury

I am coming to the point where I will address the hon. Lady’s comments, but that is the substance of the position. The Bill enables the powers to do that, but we do not seek divergence for divergence’s sake. The whole purpose of the Bill and of giving the Treasury and regulators the necessary powers is to allow a thoughtful process that provides continued certainty to the sector—so no arbitrary retirement—and that allows time for those regulatory rules to be put on the UK rulebook in a way that is appropriate for the UK. That is the substance of what we are trying to do in the clause.

As to the question asked by the hon. Member for Hampstead and Kilburn, there is no arbitrary backstop date. The technical repeal is in the Bill, but the rules will sit on the rulebook, providing valuable certainty and continuity to the sector until such time as the operationally independent regulators decide that it is appropriate to revisit the rules and tailor them to UK circumstances. That is what the clause is intended to do.

Photo of Liz Twist Liz Twist Opposition Whip (Commons), Shadow Minister (Scotland) 9:45, 25 October 2022

As a member of the European Statutory Instruments Committee, I wonder whether the Minister can offer any assurance that there will be parliamentary scrutiny of the clause in the future. Can he offer any suggestions as to how we might be able to ensure that that takes place?

Photo of Andrew Griffith Andrew Griffith The Financial Secretary to the Treasury

The hon. Lady is right to talk about the important role of Parliament. We are giving regulators a great deal more power because we are importing a large body of European laws into the UK rulebook, which is one of the reasons why the Government have contemplated the public interest intervention power in the past. The large number of rules—the hon. Member for Wallasey talked about how large that body is, and painted a graphic picture of all that sifting work—does not lend itself to Parliament being the rule setter in each case. Again, that is at odds with the approach to rule setting in the UK historically, but Parliament will continue to have a voice where it feels the need to.

Photo of Angela Eagle Angela Eagle Labour, Wallasey

I apologise for intervening, but Standing Committee is the time when we can ask detailed questions, so I hope the Minister does not mind my coming back in. [Interruption.] I think there was a Siri outburst there.

Photo of Maria Miller Maria Miller Conservative, Basingstoke

I am sure it will not disturb us anymore.

Photo of Angela Eagle Angela Eagle Labour, Wallasey

As a member of the Treasury Committee, I can say that we are trying to get a handle on the scrutiny that will be applied as regulators come to look at these things. One assumes that they will announce that they are reviewing a particular area, and they may come up with some divergences. Regulators have their way of doing things, Government Ministers want particular things, and sometimes Parliament has a different view, particularly if something affects our constituents in unanticipated ways. Given the structure that the Bill sets out, I am trying to get a handle on how Parliament’s view on an issue would be put forward.

Photo of Andrew Griffith Andrew Griffith The Financial Secretary to the Treasury

I will try one more time, Dame Maria, but I want to emphasise that the approach that the Government envisage being taken is exactly the approach embedded in FSMA 2000. We should not be debating these points ab initio simply by virtue of the work that the Bill does in importing the EU rulebook into UK law. The Treasury Committee, of which the hon. Lady is a member, does valuable oversight work and spends a disproportionate amount of time interviewing the regulators. All the regulatory rules are required by statute to have a period of consultation.

We are straying off the clause, but the role of the Treasury Committee and its Sub-Committee is codified in the Bill to enhance the level of scrutiny. There is a Government proposal—it would be interesting to hear the views of the official Opposition on this—for a public interest intervention power, which would cover precisely the sorts of issues that the hon. Lady’s constituents may be concerned about relating to regulations. I say again that there is no substantive change to the way Parliament scrutinises the independence of financial services regulation, and I hope that is something on which we can all agree on both sides of the House.

In the interest of time, I turn to amendment 44, which would, as the hon. Member for Glenrothes said, mean that retained EU law relating to financial services could not be repealed, other than where it is prejudicial to the interests of consumers, unless replacement legislation is already in place. It is not the Government’s desire to sweep away retained EU law in financial services without ensuring that it is adequately replaced in UK law. I can assure the Committee that there is no arbitrary sunset—

Photo of Tulip Siddiq Tulip Siddiq Shadow Minister (Treasury)

I watched every minute of the Minister’s appearance before the Treasury Committee. He specifically said that the Government would revoke the retained law by the end of next year, in line with the previous Prime Minister’s policy. Is there now a change in that policy?

Photo of Andrew Griffith Andrew Griffith The Financial Secretary to the Treasury

That is not the position in the Bill, which does not contain that date. Whether or not the Government’s intention at the time was different, nothing in the Bill says that that will happen. The Government will not diverge for divergence’s sake, because we understand the need for continuity to give financial services companies the confidence that they seek.

Photo of Andrew Griffith Andrew Griffith The Financial Secretary to the Treasury

If I may, I will come back to that point later.

Photo of Andrew Griffith Andrew Griffith The Financial Secretary to the Treasury

One more time. I am being generous in giving way because we are at the early stages of the Bill, Chair.

Photo of Maria Miller Maria Miller Conservative, Basingstoke

You are being very generous.

Photo of Emma Hardy Emma Hardy Labour, Kingston upon Hull West and Hessle

The Minister is being generous, but as my hon. Friend the Member for Wallasey pointed out, we use Committee stage to scrutinise, question and ask for lots of detail that we would not ask for on the Floor of the House.

The Library briefing states that there is to be

“a ‘transitional period’ of undefined length…for each provision that is to be revoked.”

How will the decision be made on which provisions are to be revoked and when? What is the justification for revoking some at a different time from others?

Photo of Andrew Griffith Andrew Griffith The Financial Secretary to the Treasury

The Committee will indulge me if this sounds repetitive, but the thrust of the questions is the same: there is no change in the fundamental approach to UK financial services regulation, which is that the pen is held by the operationally independent regulators—primarily under the scrutiny of the Treasury Committee, to which they regularly give evidence—and they use the established statutory consultation procedure. That is the position, and will be the position going forward.

If the hon. Member for Kingston upon Hull West and Hessle would like to table an amendment that would dispense with operationally independent regulators in the UK, so that Parliament holds the pen on rule making, the Government will consider it. That is not the Government’s view of what should happen, however, and I do not believe that it is the view of the official Opposition. I understand the important role of parliamentary scrutiny, but an embedded feature, and one that I hear hon. Members pushing back on or challenging, is that regulators—in consultation with industry, following the statutory consultation process—are that ones that make the rules.

I will make some progress. To address a point made by a number of hon. Members, the Treasury will, as it does now, work closely with the Financial Conduct Authority and other regulators to ensure that the transition from retained EU law to UK regulations is orderly and meets the need of UK consumers, and that there is no gap in protections or relevant rules. As I have said, that work will be subject to the statutory consultation process in the normal way.

Amendment 44, tabled by the hon. Member for Glenrothes, is about consumer protection. I can assure the Committee that clause 3(2)(f)—we are getting ahead of ourselves—specifically enables the Treasury to modify retained EU law to protect consumers and insurance policyholders. Clause 4 enables the Government to restate retained EU law in domestic legislation for the same purpose. Consumers of financial services are already assured of appropriate protections under the UK framework for financial services regulation. Parliament has given the FCA a consumer protection objective—one of its core objectives—to ensure an appropriate degree of protection for consumers, which the FCA is required to advance when discharging its general functions. As evidence of that, the FCA has, among other things, recently introduced a new consumer duty. I hope that assures the Committee that there are already adequate consumer protections, both in the Bill and in the wider body of regulation. I therefore ask the hon. Member for Glenrothes to withdraw his amendment.

I will now explain the approach that clause 1 and schedule 1 take to repealing retained EU law. Retained EU law is revoked by clause 1. Schedule 1 lists the retained EU law revoked by clause 1. Part 1 of the schedule captures retained direct principal EU legislation, which means EU regulations such as the prospectus regulation. Part 2 captures secondary legislation that was made to implement EU directives or other obligations. That includes statutory instruments made under the European Communities Act 1972, which implemented significant pieces of EU law, such as Solvency II and the markets in financial instruments directive, known as MiFID.

Part 3 captures EU tertiary legislation, including delegated regulations, implementing Acts and EU decisions. Part 4 repeals part of primary legislation that relates to retained EU law, in particular part 9D of FSMA 2000, which relates to rules defined in relation to the EU capital requirements regulation, and chapter 2A of part 9A of FSMA, which governs technical standards. Those parts of FSMA will not be necessary following the repeal of the retained EU law to which they relate. Part 5 acts as a sweeper provision: it revokes all EU derived legislation relating to financial services that is not directly listed in the schedule. That does not capture any domestic primary legislation; it simply captures the kinds of EU law covered by parts 1 to 3 but not specifically listed. I therefore recommend that clause 1 and schedule 1 stand part of the Bill.

Photo of Peter Grant Peter Grant Shadow SNP Spokesperson (Europe), Shadow SNP Deputy Spokesperson (Treasury - Chief Secretary)

I thank all the hon. Members who contributed to the debate. I notice that the Minister did not explain why amendment 44 is a bad idea. He has not given any reason why it would make things worse. He has argued that it would not make things better, would make them only slightly better or would make them better in a way that is not needed.

I take the Minister’s point that later parts of the Bill give the Treasury the power to act in the interest of consumer protection. I want to go further than allowing the Treasury to protect my constituents; I want Parliament to force the Treasury to protect my constituents. We do that by not allowing the Treasury to revoke consumer protection legislation until we, the House of Commons, are on behalf of our constituents satisfied that there is a suitable replacement for it.

I draw the Committee’s attention to part 5 of schedule 1, on page 96 of the Bill. It essentially states, “We have listed 200 bits of legislation that we are going to revoke. There are probably lots of other ones that we have not found yet, so we are going to put in a catch-all clause, so that they will all be revoked as well.” That does not strike me as a good way for the House of Commons to revoke legislation. The Minister has repeatedly said that the Government do not expect all the legislation to be revoked overnight. In fact, the explanatory notes to the Bill point out that the Government think that changing all that EU law will take several years. What happened to, “We got Brexit done”? We have hardly even started on the financial services part of Brexit.

As I said in my opening remarks, although I was against the suggestion that that law needs to be changed, I accept that the United Kingdom has to start to change parts of EU law. The wholesale nature of the change intended in clause 1 is not necessary and is extremely dangerous to the interests of our constituents. Amendment 44 would not necessarily remove all of that danger, and I am still concerned about what we would be left with. I have nothing but respect for the Minister as an individual, but let us face it: if recent history is anything to go by, he will not be there when decisions on revoking legislation are actually taken. Who knows? Maybe he has his phone on just now, and is waiting for that call.

Let us be honest: over the summer, this has not been a Government who have honoured their promises. They have not honoured the assurances made to their own party members so that one Member could become Prime Minister—the Prime Minister who recently resigned. Promises made at the Dispatch Box have been unmade almost before the Minister making them sat down. This Government have severely damaged the tradition that assurances given by a Minister, either here in Committee or in the Chamber, will always be honoured. That does not happen any more. I am afraid the House is entitled to ask for a bit more than might have been accepted a few years ago, when the traditions of this House were actually respected by each and every member of the Government.

Photo of Angela Eagle Angela Eagle Labour, Wallasey 10:00, 25 October 2022

Clearly, Pepper v. Hart applies when a reassurance is given by a Minister. That is partly why we ask questions in these proceedings. We wish to have on record reassurances about the meaning of the statute in front of us, how the Government interpret it, and what the Government’s intent was. If there is any subsequent doubt about that, the record can be looked at under the provisions of Pepper v. Hart.

Photo of Peter Grant Peter Grant Shadow SNP Spokesperson (Europe), Shadow SNP Deputy Spokesperson (Treasury - Chief Secretary)

I am grateful for that intervention. I do not disagree with a word of it. My point is simply that whatever the conventions, traditions and proceedings of this House might tell us, in practice the doctrine of ministerial responsibility does not apply in the way that I just about remember learning about 50 years ago as a schoolchild, in what was then called modern studies. There are numerous examples of Ministers behaving in a way that would require them to go, if they believed in the conventions of the House. I am not suggesting for a second—

Photo of Maria Miller Maria Miller Conservative, Basingstoke

Order. I remind the hon. Member that we really need to stick to the text of the Bill, rather than giving a lesson on constitutional law. That would be really helpful.

Photo of Peter Grant Peter Grant Shadow SNP Spokesperson (Europe), Shadow SNP Deputy Spokesperson (Treasury - Chief Secretary)

Thank you, Dame Maria. I hear the Minister’s assurances, but this issue is too important for us to rely on the conventions of the House, which have been broken far too often. The protection of our consumers and the financial services industry is important enough that any changes to regulations that had to be at least initially consented to by this Parliament should be made only with the consent of this Parliament, to which power was supposed to be returned by Brexit.

Question put, That the amendment be made.

Division number 1 Financial Services and Markets Bill — Clause 1 - Revocation of retained EU law relating to financial services and markets

Aye: 2 MPs

No: 10 MPs

Aye: A-Z by last name

No: A-Z by last name

The Committee divided: Ayes 2, Noes 10.

Question accordingly negatived.

Clause 1 ordered to stand part of the Bill.

Schedule 1 agreed to.