(5 years, 8 months ago)
Lords ChamberThis text is a record of ministerial contributions to a debate held as part of the Financial Services (Implementation of Legislation) Bill [HL] 2017-19 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
My Lords, I begin with some context to explain why the Government have brought the Bill forward at this time. The Government have been clear that we do not want or expect a no-deal scenario but it remains the role of a responsible Government to continue to prepare for all possible outcomes. This includes the unlikely event that we will reach 29 March next year without a withdrawal agreement or an implementation period.
I have updated noble Lords a number of times on how the Treasury will ensure that we have an effective financial services regulatory regime in the event of no deal. That stability and continuity is being delivered by the 60 or so statutory instruments that Her Majesty’s Treasury is introducing under the European Union (Withdrawal) Act 2018. These will ensure that all relevant existing legislation continues to operate effectively, minimises disruption for firms and protects financial stability.
We need to do more than just ensure that our regime continues to function. The UK’s position as a global financial centre is critical to our prosperity and benefits businesses and consumers across the UK. We need appropriate regulation in place, with the right balance between protecting stability and fostering competitiveness. We aim to be the safest and most transparent place to do business, leading the race to the top and always championing high regulatory standards in financial services markets.
In the unlikely event of no deal, thanks to the hard work of both Houses, we will have brought on to our statute book a vast and highly technical body of EU financial services legislation. We thank both Houses, but both Houses should thank our remarkable civil servants for their incredible work in preparing this great volume of legislation with such accuracy and detail.
However, the powers under the European Union (Withdrawal) Act relate only to EU legislation operative on exit day. Numerous pieces of legislation—or files, which I will refer to later—will not be covered by the withdrawal act powers. They include those that are either already agreed but not yet operative on exit day, or those still under negotiation but which will be operative soon after our departure. There are also provisions in the Bill that relate to non-operative provisions, which it would not make sense to bring into UK law alone.
In many cases, the UK strongly supported these laws when they were being negotiated and played a leading role in shaping them over a number of years. These laws provide up-to-date tools to deal with financial stability risks, ensure that our firms can operate on a level playing field with firms on the continent, allow the UK to meet its G20 commitments and maintain the highest international standards, and provide all-important business certainty and continuity.
As part of this ambition, the Treasury undertook extensive engagement with our financial services industry while negotiating these laws. The sector has been expecting many of these proposals for several years and has been preparing to implement and gain the benefits of them. For example, the prospectus regulation will reduce the financial and regulatory burden for companies wishing to fulfil their financing needs on public markets, while maintaining high standards of investor protection. The UK has been a strong supporter of the reform of the prospectus directive and engaged closely in the development of this regulation.
Implementation is critical to ensure that the UK retains its reputation as an attractive destination for capital. If we are to retain our position as the world’s leading financial centre in the unlikely event of a no deal, it will be vital that the Government can implement the key policies in these EU files in a timely way. Global markets adapt and evolve at pace. We cannot afford for our high regulatory standards to fall behind those of other major financial services jurisdictions. That is what the Bill seeks to address. It will do so in two main ways. First, it allows the Government to implement in the UK a specified list of the most necessary EU financial services legislative proposals in the pipeline through statutory instruments subject to the affirmative procedure. Noble Lords will find the full list and purpose of these files in the policy note published by the Treasury.
Secondly, and importantly, the Bill is only for a situation in which we leave the EU without a deal. It will allow for the Government to choose to implement only parts of these pieces of legislation and make adjustments and improvements as they are brought into UK law. I acknowledge that this is a broad power, but let me be clear on two fronts. In the event of leaving the EU without a withdrawal agreement and without a future economic partnership, the UK will not countenance accepting EU laws wholesale. It will therefore be vital to ensure that any legislation implemented in the UK can be adjusted to work best for the UK markets outside the EU in a no-deal scenario. The Bill is and can be only a stop-gap measure to minimise disruption in the event of no deal for a time-limited period. The Government fully recognise the need to establish a more sustainable process for updating financial services regulation following our exit from the EU and will come forward with proposals in due course.
In recognition of the breadth of powers sought in the Bill, it is subject to a number of strict safeguards. First, as I have stressed, this is strictly a temporary solution and will be limited by a non-extendable sunset clause at two years after a no-deal exit, ending on 29 March 2021. Secondly, the power will be subject to the affirmative procedure in every instance of its use, providing Parliament a guaranteed opportunity to debate, discuss and scrutinise the Government’s approach to implementing these files. Thirdly, the Treasury will be mandated to produce and publish annual reports on the exercise of the power. Finally, the power will be subject to limitations as in Section 8(5) and (7) of the European Union (Withdrawal) Act 2018. It cannot therefore be used to impose taxation, make retrospective provision, create some criminal offences, establish a public authority or amend the Human Rights Act or the devolution settlements.
It is crucial that we press ahead with preparations to ensure that, in the event of no deal, we can protect and enhance the UK’s position as a global financial centre. The Bill is an essential part of those preparations, providing us with the critical ability to implement legislation important to maintaining the functionality, reputation and international competitiveness of our financial sector.
I hope that noble Lords will recognise the Bill as the Government taking a responsible approach in their contingency planning. I look forward to this Second Reading debate on the Bill’s contents and to responding to noble Lords’ questions and scrutiny at its conclusion. I beg to move.
My Lords, I agree with the noble Lord, Lord Davies: this has been a well-informed debate, representative of the deep expertise in your Lordships’ House, which has been on full display. The areas of agreement were effectively two: recognition of the necessity of preparing for a no-deal scenario, and a united view that we hope never to be in the position of having to exercise the powers in this Bill.
The noble Lord, Lord Sharkey, began our debate by expressing concern about the range of powers, in particular those to include and exclude files. My noble friend Lord Hodgson questioned whether this was a stopgap measure and said that it could not be a substitute for longer-term legislation and a solution in this important area. The noble Baroness, Lady Liddell, having remarked that this is not the most exciting legislation to come before your Lordships’ House, recognised the importance of the financial services industry, to which it relates. She also recognised the role that the United Kingdom has played over many years in the European Union in shaping financial services regulations.
The noble Baroness, Lady Bowles, teed up what will be, if we are fortunate to secure a Second Reading, a Committee stage debate on words such as “implementation”, “proportionality”, “corresponding”, “similar”, “appropriate” and “adjustments”. It will be important to flesh out exactly what is meant by those terms.
My noble friend Lord Leigh talked about the impact of regulations in financial services on small and medium-sized enterprises. He also became perhaps the first Peer to announce in your Lordships’ House his forthcoming listing on AIM. I do not know whether it is appropriate to comment on that, but I wish him well—he is probably getting worried because I wished him well; it was a personal wish.
The noble Baroness, Lady Kramer, talked about the strong role of the financial services in underpinning the fiscal base of the economy, tax revenues and public services. She said it is vital that we retain that strength and continue to exert scrutiny. The noble Lord, Lord Davies, talked about the oft overlooked fact that, when we talk about the financial services, we are talking not just about the City of London but about a national industry, with hugely important centres in Bristol, Leeds and Edinburgh. He also reminded us of the international competitive nature of financial services, and that the UK’s leadership can never be taken for granted but must be earned and restated.
With that, let me move on to some of the points that were raised in the debate. The noble Lord, Lord Sharkey, asked why, if this is so important, other departments are not doing the same, specifically the Department of Health and Social Care. We have already put in place many of the legislative building blocks to deliver our exit from the EU. Since the European Union (Withdrawal) Act received Royal Assent, the Government have started laying statutory instruments to ensure a functioning statute book in all scenarios. Any requirements for further legislation in other areas will be announced in the usual way. I realise that that is not quite the answer that the noble Lord was looking for—or that I anticipated as I began reading out the note. His was a specific question, asking that I speak with colleagues in the Department of Health and Social Care, and I will certainly do that and find out how the particular legislation he referred to might be handled.
The noble Lord, Lord Sharkey, also mentioned the powers to adjust. As the final outcome on these files is still unclear, we need to make sure that we can bring them into UK law in a way that works best for UK markets. This could, for example, include areas where final parts of legislation could, if unchanged in a no-deal scenario, present inconsistencies with the UK regulatory framework, global standards or the UK’s position as an open, global financial market. It is important that we have the power to correct inconsistencies when bringing these into UK law.
The noble Lord then asked why we had chosen some files rather than others. The Bill provides the UK with an interim means to domesticate key EU financial services files that are in the European legislative pipeline. Those are the files that we believe will be the most important for market functioning and UK competitiveness in a no-deal scenario. Those in-flight files not listed on the face of the Bill include those that apply only to eurozone members, which we would never have implemented as a member state, those that the UK has opted out of, and those where there is not a critical need to implement the legislation in the narrow window of time covered in the Bill.
The noble Lord went on to ask what was meant by the word “appropriate”. Once we leave the European Union, we will lose our ability to influence the outcomes of files at a European level—something to which the noble Lord, Lord Davies, and the noble Baroness, Lady Liddell, also referred. As such, we will require the ability to ensure that the files or parts of the files implemented best suit the needs and the structures of the UK financial services market. The power to make appropriate adjustments to legislation is therefore designed to enable the UK Government to ensure that the implemented legislation is the best fit for the UK.
The noble Baroness, Lady Bowles, similarly asked about the power to adjust. The power will only allow the Government to make adjustments to files and not to make entirely new financial services policy not covered within the files. The power will also have to be exercised with the purpose of making similar or corresponding provision to specific lists of files set out in the Bill, so the subject matter of the regulations will naturally be limited. This is simply about ensuring that we implement legislation that is the best fit for the UK.
The noble Lord, Lord Sharkey, asked what was meant by “some criminal offences”. The limitation in the Bill mirrors that in the European Union (Withdrawal) Act. It prohibits the creation of criminal offences for which an adult can be sentenced to a period of more than two years in prison.
The noble Baroness, Lady Liddell, asked about the comparability of low-carbon benchmarks. This is an important issue and I realise that a number of noble Lords have received representations on it. I undertake to look at it specifically and write ahead of Committee.
My noble friend Lord Hodgson asked about the reporting duty of the Government and whether that would include a statement on why a power is used. The report will provide an overview of how the power has been used in the first year and how the Government propose to use the powers in the second year. In the meantime, the Government will undertake extensive engagement and co-operation with key stakeholders throughout the process, ahead of and during each use of the power, and Parliament will have the opportunity to debate every SI under the affirmative procedure. He also asked whether it would be advisable for the Treasury to consult transparently ahead of each use. We agree, which is why, within the policy note accompanying the Bill, we have committed to undertaking extensive engagement and co-operation with key stakeholders throughout the process, ahead of and during each use of the power. In that term “stakeholders”, we very much include Parliament and your Lordships’ House.
The noble Baroness, Lady Bowles, asked whether it would be helpful to change the wording to “corresponding and similar”. This is classic territory for Committee and a well-worked amendment around that will elicit a more in-depth and appropriate response from the Minister at that point. She asked a specific question, which was also referred to by the noble Baroness, Lady Kramer: namely, whether the power could be used to remove the bankers’ bonus cap. While remuneration policies were introduced as part of the EU’s Capital Requirements Directive IV, they are due to be updated through the Capital Requirements Directive V, which is included in the Bill. The Bill allows us to choose not to implement certain files or to implement parts of them. At this point we are not proposing specific policy changes or decisions. Before bringing forward any secondary legislation using the powers in the Bill, we will engage with a wide range of stakeholders, including the financial services sector.
The noble Baroness, Lady Bowles, asked about legislation regarding pension firms. Again, this is something that might best be covered in a letter ahead of Committee. She also asked why we do not just do this through primary legislation in order to get proper parliamentary scrutiny. Given the number of files in question and the potential requirement to implement them at pace to respond to market developments and meet international obligations, it would not be feasible to rely exclusively on primary legislation in every instance. The Bill requires the use of the affirmative resolution procedure for every statutory instrument made. She went on to ask why the Government will not make a full report about concerns and the approach to policy in this Bill. At this point it is very difficult to say which files or parts of files we would seek to implement and whether and what adjustments would be made. This is because we do not know the exact context in which these decisions will be made and what the final versions of many of the files will look like.
My noble friend Lord Leigh asked about the potential negative impacts on, for example, CSDR. We recognise that there are aspects of these files that are currently under development which different parts of the sector may not fully support. The Bill allows us to choose not to implement files, to implement parts of them and to correct deficiencies in them, as well as to make adjustments to ensure that the legislation works best for the UK, subject to appropriate safeguards.
The noble Baroness, Lady Kramer, asked about the so-called Henry VIII powers being used. Of course we understand the concerns around the breadth of powers, and that is why we have included a number of safeguards within the Bill to address them, including explicitly listing the relevant files on the face of the Bill and sunsetting the powers to two years, consistent with the European Union (Withdrawal) Act.
The noble Lord, Lord Davies, asked about adjustments to powers. It would be possible under the terms of the power only to make adjustments to any EU file we would be implementing and not to completely change its intent. This power would allow us to make provisions which are broadly equivalent to the original file and which therefore seek to achieve a similar outcome in a way that best fits the UK. However, it would not be possible for the Government to use this power to implement something completely different from the original file.
Again, I thank noble Lords for their contributions to the debate.
This may be extremely petty, so I ask for the compassion of the Minister. However, subsection (9) is completely incomprehensible. Three of us read it and we came up with entirely different conclusions as to what it meant in terms of both the preparation and publication of this report. Is he able to provide clarity now or else to do so by the time we get to the Committee stage? It may not be contentious at all—it is just that it is impossible to work out exactly what it means.
I can understand that. It is a fairly short Bill, but I will undertake to write a more substantial letter between this Second Reading and Committee if it is granted by your Lordships’ House. I will cover and expand further on that point.
We will carefully consider all the points which have been raised in this debate. I thank noble Lords for bringing their expertise and knowledge to bear on this important piece of legislation. I request that the Bill now be given a Second Reading.
(5 years, 7 months ago)
Lords ChamberThis text is a record of ministerial contributions to a debate held as part of the Financial Services (Implementation of Legislation) Bill [HL] 2017-19 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
My Lords, the sunset clause is for two years, which is nearly half a Parliament. The fact that there is a sunset clause does not somehow legitimise everything that takes place in that period. There is no case for these provisions at all. Let us be clear that we are talking about further changes to the existing law; these are the provisions that are causing such difficulty for many of us in the House. We are prepared to grant the Minister powers to simply transpose existing provisions into UK law—indeed, I am not even sure that under the European Union (Withdrawal) Act he needs legal powers for that. The key issue here is that it all concerns further changes to the law. The statute book constantly needs to be capable of being updated; the whole purpose of Parliament is to debate further changes to the law, and we have established procedures which go back to time immemorial for doing that. They involve Second Reading, Committee, Report and Third Reading stages in both Houses of Parliament.
There is no reason whatever for subverting those principles simply because the Government are overloaded, which is essentially the argument at the moment. The answer is either not to make those changes in law, if effectively they can be made only by exercising powers by decree, or to create the necessary time to do so, which means the Government having the right priorities in what they put before Parliament. We always have to set priorities. As a former Minister, I know that what you do and do not put in the Queen’s Speech and the legislative programme is a matter of priorities. If necessary, the House must sit for longer.
Finally, if it comes down to whether this House should sit somewhat longer to debate major changes to the law of the land on financial services, I for one feel that it is our duty to sit here, debate these changes and not give the Government the power to legislate by decree. I hope that the noble Lord, Lord Hodgson of Astley Abbotts, feels the same because he has been responsible for financial services regulation in the past. That is effectively the power being granted here, potentially in significant areas that are not to do with simply transposing existing or in-flight European law into UK law. I am sorry to say this to the Minister, but the objections to the Bill are fundamental, not incremental. He may well find that, unless he can meet those objections, substantial parts of the Bill will be removed by the House on Report.
My Lords, I thank noble Lords for contributing to the debate and speaking to their amendments. Let me set out the Government’s position regarding the amendment moved by the noble Baroness, Lady Bowles, and the amendments spoken to by the noble Lords, Lord Sharkey and Lord Davies. I will then come back to some of the points made during the debate by the noble Baroness, Lady Liddell, and the noble Lord, Lord Adonis.
I will speak to Amendments 1, 3, 5 and 7 together, if I may. They relate to the breadth of the amending power, which was central to the speech of the noble Lord, Lord Adonis, and the ability to account for the UK’s specific position outside the EU for the two years in which the power would operate. As I understand it, Amendment 1, moved by the noble Baroness, Lady Bowles, stems from her concern—repeated by all Members who spoke in the debate—that the power is currently drafted too broadly. The amendment would require that no legislation can be made under this Bill which is corresponding but not similar, or vice versa, to the original EU legislation. It is clearly important that we go into the precise definition of each term, as they have different interpretations and implications. In doing so, I hope that we will add to the body of information that can be referred to in future to clarify the Government’s intent in this process.
First, we take “corresponding” to mean “identical in all essentials or respects”. The term “similar” means “having a resemblance in appearance, character, or quantity without being identical”. In practice, of course, the legal interpretation of the two terms can vary, with some judging that “corresponding” affords a wider latitude. However, it is nevertheless clear that on the basis of the current drafting, any exercise of the power would need to be limited in subject matter and purpose. It will be possible to exercise the power only to achieve the aim of the original EU legislation, with an option to make adjustments to account for the specificities of UK markets, rightly reflecting the fact that we will no longer be a member of the EU. It will not, therefore, allow for wholesale changes to the character and intent of the original legislation.
For example, if the Government were implementing a file on pensions regulation, they would need to seek to achieve the same purpose, even with adjustments, and remain focused on that subject matter—not extend it to another policy, such as insurance. However, the Bill provides the ability to best reflect UK circumstances in the implemented legislation, which is key. The intent is to clarify that, in a no-deal scenario, the UK has the tools to ensure that it remains an attractive and competitive place to do business and continues to implement the latest international standards, with regulation that reflects the best interests of UK markets and those international standards. The wording suggested in the amendment would allow provisions to be made under this Bill only should they be corresponding and similar. This would require the legislation as it is implemented to fulfil two different legal standards simultaneously. We consider that this would be a highly uncertain legal bar to pass and in some cases it may even make the power essentially unworkable.
I would also like to reassure the Committee that the formulation “corresponding, or similar” is well established and has been used—to provide recent examples—in the Pension Schemes Act 2015 and the Recall of MPs Act 2015. I hope that this will reassure the noble Baroness regarding the limitations that will apply and the formulation “corresponding, or similar”, for which there are precedents. In short, the current wording is already intended to ensure that the powers under this Bill cannot be used to create substantively new policy outside the bounds of the original EU legislation.
I turn to Amendment 3 tabled by the noble Lord, Lord Sharkey. I understand that this comes from a similar place, intending as it does to forbid the Government’s amending legislation in such a way that it would create significant new policy separate from the original EU legislation, a concern also expressed by the noble Lords, Lord Adonis and Lord Davies. I hope that my response to the amendment of the noble Baroness, Lady Bowles, will provide noble Lords with some degree of the reassurance that is needed. As drafted, the Bill would not allow the Government to significantly alter, expand or run contrary to the primary purposes of that original legislation.
I turn now to Amendments 5 and 7, tabled by the noble Lords, Lord Tunnicliffe and Lord Davies, and spoken to by the noble Lord, Lord Davies. They would limit the power in the Bill to make adjustments in a similar manner to the limitations in the EU withdrawal Act—limiting changes to legislation purely to a fixing of legal deficiencies. I understand the concern across the Committee that the power in this Bill goes beyond that of the EU withdrawal Act. I have already touched on the importance in a no-deal scenario of ensuring that European Union legislation implemented in domestic law best serves the interests of UK financial services, so I will not rehearse the same arguments again at length. However, I will reiterate that we cannot be certain about what files will look like once they are finalised or of the context in which the files will be implemented. The powers in the EU withdrawal Act are strictly limited, and the purpose of the legislation we are making under the Act is to ensure that there is a workable legal framework in place at the point of exit and to minimise disruption to financial services firms and their customers who currently operate under the existing EU rules. It is therefore appropriate to keep any changes made on exit day to a minimum.
There is a fundamental difference between this legislation and the EU withdrawal Act, and this comes directly to the point raised by the noble Lord, Lord Adonis. The withdrawal Act deals only with the legislation which has been agreed at the EU level, with the UK present at all stages of the negotiations. As my noble friend Lord Hodgson pointed out in his intervention, this Bill provides a temporary solution, specifically in a no-deal scenario, to deal with the dynamic regulatory landscape for the financial services industry after the UK has left the EU negotiating table and taken its own path. This is a different challenge that requires a different solution.
I am grateful to the Minister for giving way. In that case, why should there not be primary legislation?
For the points I will come to in a minute, which the noble Lord has slightly pre-empted. Obviously he has read the wind-up speech I gave at Second Reading—the arguments about volume of legislation and timeliness remain consistent—but I will come back to that.
Would I be correct in describing the reason for that legislation as enabling us to meet equivalence requirements going forward if we have not otherwise dealt with things?
Equivalence is one of a range of considerations that could be taken into account at that point.
We will have amendments discussing equivalence more directly later, but will the Minister confirm that nothing could be done to step away from or undermine equivalence, or does this allow that? That is certainly the way it has been read by most Members of this House.
We will have the debate under the future group of amendments on equivalence. We are not setting here the test or the bar as one of equivalence. We are simply talking about the specific directives and regulations before us and mentioned in the Bill: the 15 here; the four already agreed, which are mentioned on page 1 of the Bill; and the further 11 mentioned in the Schedule accompanying it, which have not yet been agreed. Because they have not been agreed and may be under debate or amendment without the UK at the negotiating table, we are simply adding in that greater level of power to say that the UK, in the event of leaving without a deal, would need to look after the interests of the UK financial and industry sector and could not give a blank cheque in the opposite direction to the EU to pass whatever regulation that we would automatically implement because of adherence to a notion of equivalence. That cannot be right for UK financial services. We need to look at what comes to us, then act within the interests of the UK financial services sector at that time.
I will deal with some of the specific points raised. The noble Lord, Lord Sharkey, talked about the recommendation of the Delegated Powers and Regulatory Reform Committee. I pay tribute to the work it did on this and the quick turnaround and punchy conclusions it arrived at. We are considering its recommendations, which the noble Baroness, Lady Liddell, asked us to look at. I will be happy to meet with noble Lords ahead of Report to discuss where we stand. I thank the Delegated Powers and Regulatory Reform Committee for its work and recognise that it raised some very pertinent issues. We want to look at them in greater detail, and I would be happy to discuss that with noble Lords ahead of Report.
I hope I have gone some way to addressing noble Lords’ points at this stage. We will come to a number of the other points in future debates and groups.
It seems the Minister has relied heavily in his responses on Clause 1(1)(a) by using this to demonstrate that there is really a tight restriction on what kind of things can be done by Clause 1. But he has not at all mentioned Clause 1(1)(b), which in many ways is the root of the problem because it contains the word “adjustments” and the phrase “consider appropriate”. To many of us, that seems to extend without limit the reach of the Treasury’s powers. That was the underlying purpose behind almost all the amendments in the first group. Could the Minister speak to Clause 1(1)(b)?
I am happy to do that. As the negotiations on these files continue, further amendments may be agreed, proposed or dropped that the Government will wish to domesticate or remove using the powers under this Bill. As the final outcome on many of these files is still unclear, we need to make sure that we can bring them into UK law in a way that works best for UK markets. This might, for example, include areas where the final parts of legislation could, if unchanged in a no-deal scenario, present inconsistencies with the UK regulatory framework, with global standards or with the UK’s position as an open global financial market. It is important therefore that we have the power to adjust these inconsistencies when bringing them into UK law. I acknowledge that this is a—
I am sorry, but the Minister just said that Clause 1(1)(b) allows an interpretation not to remain with the objective described in the European directive. His whole argument under Clause 1(1)(a) was that the words “corresponding” and “similar” provide, in different legal ways, for us to take steps only where it is consistent with the objective of the European directive. He is now directly saying that Clause 1(1)(b) allows us to take steps that are directly opposed to or completely inconsistent with the European directive. Could he provide us with some clarity on this? It seems that the power allows the Government to move in any direction they wish, and that is exactly the issue we are trying to raise here. Under those circumstances, is that for Parliament to decide or for the Treasury to decide through statutory instrument?
I thank the noble Baroness for her intervention. There is a difference between the two elements and between the use of “adjustments” and the terms used earlier, “similar” and “corresponding”. Effectively, they relate to the two different groups that we have here. The first group is those for which we have been party to the negotiations and to agreeing. Following engagement, we know that the industry is keen to see those transposed into UK law, and we support it in that respect. Then there are those other elements that are incomplete, the final shape of which we do not yet know. Once the final shape is known—in all likelihood, that will be after the date in this scenario and once we have left the European Union and the negotiating table—we will have the power to adjust. Those are the two different elements.
My Lords, the noble Lord speaks as if there is not that power at the moment. There is: it is the power to introduce primary legislation. The Government do not lack this power; it is the power the Government have, in all cases, to recommend to Parliament changes in the law. What he has not made the case for is why the power should be given to the Government to make these changes by decree, which is, let us be clear, what Orders in Council amount to, with just a straight yes/no power in respect of the whole provision. He has not made that argument at all.
The Minister says that it is restricted, but the restrictions are entirely unsatisfactory. There is a time restriction of two years, which is more than enough time for the Government to do what they like with large parts of the statute book. The second, to which the Minister has just referred as though it is some kind of safeguard, are the measures listed in Schedule 1. But the list is incredibly extensive. These are fundamental and wide-ranging changes to the law, which in many cases, as the noble Lord himself has just said, we will not have played a part in agreeing within the democratic institutions of the European Union. Effectively, the Minister is saying that we will neither have played a part in agreeing them within the democratic processes of the European Union, nor will this Parliament have a proper role to play. The only people who will agree them are the Minister, the Chancellor of the Exchequer and a few officials in the Treasury, and we will then be expected to rubber-stamp them. I am afraid that that is totally unsatisfactory.
That is not the case. I accept that the noble Lord is presenting a caricature of the situation that proves a particular point, but of course that is not what will happen. First of all, certain guarantees are presented in terms of reporting, which we will come on to again later. There are certain processes in terms of scrutiny of secondary legislation, not only by the Secondary Legislation Scrutiny Committee, which does incredible work and of course has a role set out in Standing Orders as to how it must scrutinise secondary legislation. Also, the affirmative SIs must be debated in your Lordships’ House. In addition to that, we have also undertaken that there should be proper engagement with the industry in talking about this and with other stakeholders too. There is a wide range of things.
We will delve deeper into some of the points in the noble Lord’s own amendments later. I appreciate that the role and purpose of Committee is to elicit from the Government further explanations about what these terms mean. We may have a difference about whether the noble Lord’s view is shared by the Front Bench, and whether all these matters should be dealt with by primary legislation in 15 Bills or by secondary legislation, which has been the convention, particularly when it comes to financial services.
I will just finish this point if I may. That is why the noble Lord, Lord Tunnicliffe, and I and indeed the noble Baronesses, Lady Kramer and Lady Bowles, spent so much time in Grand Committee talking through various pieces of secondary legislation on financial services. That has been the conventional way in which we have worked. The noble Lord, Lord Adonis, believes that the legislation ought to be primary in this case. That is his view. It is not the Government’s view and it is my job to outline the Government’s view on this. We are following established procedures and providing powers under scrutiny to allow us to deal with a unique set of circumstances, which we have never had to deal with before.
My Lords, this is genuinely a question of clarification. Is the Minister saying to me—I cannot read it in the language of the Bill—that Clause 1(1)(b), which states:
“with any adjustments the Treasury consider appropriate”,
excludes the category of in-flight legislation described as,
“specified EU financial services legislation”?
I assume that it includes that. Therefore, the Minister’s argument is that the Government will have to stick with the underlying objective for specified EU financial services legislation—which is what Clause 1(1)(a) is talking about—but the same legislation can then be overturned and dealt with completely differently under Clause 1(1)(b), which frankly allows adjustments as long as a piece of string. That is what I am trying to clarify. I understand that they are two different groups, but paragraph (b) surely applies to both groups.
Perhaps it would be helpful at this stage to agree that these issues will be addressed in future groups. We will choose some wording—if not today, then certainly before Report—that is quite rightly required by the Committee to reassure itself about what is and is not referred to in that respect. With that, and with the undertaking to meet with colleagues specifically on the report of the Delegated Powers and Regulatory Reform Committee before Report, I invite noble Lords not to press this amendment.
As a member of the Delegated Powers Committee, I specifically draw the Minister’s attention and the attention of the Committee to our paragraph 16, which states that:
“The power to make adjustments is a very broad one with no restrictions”.
We have very deep concerns about the powers proposed in the Bill. I hope, listening to the Minister, that he will address this issue and recognise that it is fundamentally important.
I am happy to give that undertaking. I thank the noble Lord for his work on the committee and thank it for its report, which raises specific concerns. I will address those initially through a meeting with interested colleagues ahead of Report and then, more formally on the record as a result of that, on Report.
I am not proposing an amendment to an amendment, but I wonder whether it would help clarity of thinking for all of us and for the Minister, when he is reflecting on the various arguments that have been put forward in the debate, if we took out “(i)” and “(ii)”, put “(b)” before “any provision”, and took out “but” and that “(b)”, so that the provision read:
“corresponding, or similar, to the provisions, or any of the provisions, of any specified EU financial services legislation, or
(b) any provision that might”.
We could then limit the adjustments point to the second part.
Her Majesty’s Government are, of course, very frugal and are always willing to take free legal advice, particularly when it comes from such a distinguished source. I shall add that suggestion to the others that I will take away. We appreciate it. Oh, something has miraculously appeared. It cannot be in response to the last suggestion—that would be far too quick—but is in response to the point made by the noble Baroness, Lady Kramer. “Adjustments” applies to both provisions, but the limitations come from “corresponding, or similar” and the limitation implied by the word “adjustments” itself in the glossary. Just for clarification at this stage, let me add the definition that we are working to so that people can see it. “Adjustments” means that it will be possible to exercise the power to achieve the aim of the original EU legislation only with an option to make adjustments to account for the specificities of UK markets, rightly reflecting the fact that we will no longer be a member of the EU. It will not therefore allow for wholesale changes to the character and intent of the original legislation. “Adjustments” is an inherently limiting word. With that, and with the commitments that I have given to reflect on the comments made by noble Lords and the legal advice that has been given, I invite the noble Baroness to withdraw the amendment—
What the Minister has said was clearly written for him by the Box: “‘Adjustments’ is an inherently limiting word”. Will he explain to the House how it inherently limits?
The noble Lord is familiar with the way this works. I used to sit on that side of the House while he was having similar words prepared for him. Adjustment leads to an altered version of the original. Changes that produce something completely different go beyond adjustments. Dictionaries make it clear that adjusting is about making small changes to achieve a desired fit or to adapt to a new situation. I hope that helps.
Therefore only small changes can be made, not large changes. My reading of the provisions in the Schedule is that they involve large, not small, changes.
I am getting a certain sense of déjà vu having sat through the early morning debates on the EU withdrawal Bill, as it was at that stage, on words such as “appropriate”. I do not particularly want to rehearse them here. It is very important that, when we use terms, the Government are required to define what they mean by them. I have presented what we believe is meant by “adjustments”, which is that it is inherently limiting in capacity. Should we wish to clarify that further, we will do so on Report. Similarly, if noble Lords have further suggestions, they are at liberty to table amendments suggesting additional wording at future stages.
Let us be grown up about this. The Minister knows that people disagree about the meaning of “limited” in these contexts. I do not think that we think that the Minister’s assurance that the provision will be limited amounts to much, because then we will of course have a big argument about what “limited” means. The only way we could have a meeting of minds on this would be if there were some satisfactory procedure for deciding what “limited” means. The procedure which comes to mind is an independent committee, such as the Delegated Powers and Regulatory Reform Committee. The Minister is extremely open-minded about suggestions from the Committee. Would he suggest introducing an amendment on Report giving the committee responsible for deciding on these regulatory powers the power to decide whether in fact a regulation meets the word “limited” in respect of adjustments?
I am not going to direct what committees of this House opine on—it is certainly not within my powers to do so—and of course they are at liberty to express their views. From a constitutional point of view, having placed on the record, as a Minister of the Crown, our belief of the interpretation and meaning of the word “adjustment” in this context, I think that, when assessing an affirmative statutory instrument against the measures in this Bill, bodies such as the Secondary Legislation Scrutiny Committee will seek to link the two to test whether that is in fact the case. I am sure that the very fact that I have made that remark will be picked up in years to come as the various statutory instruments make their journey through your Lordships’ House. However, we will of course reflect on all these elements between now and Report.
My Lords, as the chairman of a regulatory organisation, I find the discussion about the word “adjustment” very disturbing. I shall give the Minister an example. If a door is open and then you close it, you adjust the door, but it is still in essence the same piece of wood moving within a frame. Taking that over to financial regulation, if a particular regulatory structure permits a given activity and you then close the door and that activity is no longer permitted, that is an adjustment within a given framework. I suggest that when the noble Lord takes this back, the word “adjustment” should be considered very carefully, because in a regulatory context it does not work in the way that he has described.
I certainly defer to the noble Lord’s great experience in this area of regulation. One purpose of this Bill is to give assurances and certainty to precisely the people whom he has spoken of—the regulators—so that they are clear about the Government’s intent. When we spoke to the regulators and the industry, they pointed out that we do not know what will be contained in these files once they land in a legislative context post Brexit in the unlikely event of no deal. Therefore, there has necessarily been a widening of the powers to cope with potentially changing circumstances of which we are not aware at this stage. However, I will certainly take back the points made by the noble Lord and others, and I thank Members of the Committee for raising their concerns.
I want to make one point. When we were dealing with the withdrawal Bill, one of our greatest fears concerned these Henry VIII powers. This is the first time that we are having to apply them in a specific Bill, and we are already scared about the consequences. Noble and learned Lords are already asking, “Have you thought about wording such as ‘adjustments’ and the interpretation of words?” From my experience, every time there is a grey area in a contract, it can be interpreted in different ways. It leaves the door open, and that is very dangerous. I ask the Minister, whom the whole House respects, to take all that into account; otherwise, on Report this will be badly defeated because a precedent is being laid here with a fear that the Henry VIII powers will demolish our whole democracy and the reason for our Parliament. That is really frightening.
I hear what the noble Lord and the Committee have said. That is what a Committee stage is for: it is for the Government to listen to what noble Lords have to say. I am grateful for what they have said, and I undertake to take it back, reflect on it and discuss it with colleagues ahead of Report. In the meantime, if the noble Baroness is happy to withdraw her amendment, I shall be grateful.
My Lords, I thank the Minister for his replies. Part of his early response sounded quite encouraging when he said that things would not move outside the bounds of the original EU legislation, but it got a bit worse later on when he said this meant that things could still be domesticated or removed to match the peculiarities of the UK financial markets, which basically means not doing it if we do not feel like doing it. That is certainly how it was presented, interpreted and ended up in the EU when I was in charge of putting through a lot of this legislation.
With regard to my own amendment, I think he has said that “corresponding” is tight, in that the provision has to be identical in all respects. But he went on to say that this is one of two definitions that give wider latitude; “similar” was somehow a looser term but did not have that same latitude. He made the point that trying to satisfy two different legal criteria can be confusing, and I would side with that view. He also said, I think, that one of the terms was meant to apply to one category of the legislation and the other, looser term—whichever that turns out to be—applied to the other.
If I understood correctly, he said that the list that appears in subsection (2)—which is the finished though not yet active legislation: there are no changes, it is all done and we know what it says—would be subject to the tighter of the definitions, which is possibly “corresponding”. Those in the annex, which have not been finished and possibly might not be finished until after we have left—so we will not be involved in the last tweaks—may need to be tweaked more and will be subject to the term “similar”. This starts an interesting discussion, which we can continue when we talk on other groups, of whether we should completely separate out how we deal with the legislation that we already know about and can already analyse regarding whether it works for the UK markets, as opposed to where things are not definite and one needs more reservations. I push that out as a point.
Other amendments, particularly Amendment 3 in the name of the noble Lord, Lord Sharkey, would also solve some points, as they go back to the question of the “primary purposes”. The key anxiety is that this Bill enables legislation to be made through a secondary method which is incapable of having scrutiny and will not necessarily have had scrutiny even at the European level by way of the adjustments, and there is no way to amend it. It could depart from the purpose, no matter what is said, because the Bill does not actually say there is to be no departure from the purpose. If you put in Amendment 3, or some other amendments that we will come to later, then you can tie it down and make clear where you will depart and where you cannot do so.
Let us be clear that one of the elephants in the room is whether we will implement the legislation at all. There is nothing compelling this. One can cherry pick it—we will come on to that in the next group of amendments—but there is nothing that says it will be onshored, so one could simply not have it at all. It is absolutely clear if you look at the first articles in subsection (2)(a),
“Articles 6 and 7 of the Central Securities Depositories Regulation”—
we know what the issue is there. I am sure there are people in this Chamber right now who could debate the benefits and otherwise of those particular articles. It was thought that the EU might not be able to make the technical standards, or that they would somehow be withdrawn. But no, the technical standards have been made; we know what they are and the likelihood that they will become active in 2020. The question could be put now: are we going to have it, or are we not? If we are not going to have it, should that be at the whim of the Treasury? This has significant repercussions on all kinds of other parts of the market where we may or not be deemed to have equivalence. We might as well discuss this now. It should not be someone sitting in an office and saying, “Well that can go and damn the consequences”.
We have a lot more to discuss around this as we go into the next groups but for the time being I beg leave—
I apologise for not leaping to my feet before the noble Lord, Lord Tunnicliffe; I was looking at something else—I am very sorry. Perhaps I may be allowed to say just a few words in support of the general idea behind Amendment 6.
We are going to embark on a huge body of secondary legislation. I have spoken in this House on a number of occasions about secondary legislation and I think that my views on its dangers are quite well known to a number of Members. One problem with secondary legislation, if we are honest, is that we have no idea what we are looking at. When secondary legislation comes through, I doubt whether more than 1% of the Members of this House actually look at it; I doubt whether more than 5% of the Members of the other place look at it, and it goes through.
We are here dealing with very complex legislation and doing it as best we can in a hurry, in the demanding situation that we are in. Would it not be helpful for an explanation to be given about any individual piece of secondary legislation, identifying, for example, the legislation in the EU with which it corresponds or to which it is similar? We could then look at it and say, “Yes, that’s fine. No need to argue about it”. Otherwise, we tend to leave it so that we examine it blind. There is something to be said for us knowing what is going on.
My Lords, I thank noble Lords on all sides for their constructive suggestions during this short debate. I am grateful for these contributions. The noble Lord, Lord Tunnicliffe, made a fair point about the approach we have taken on considering secondary legislation in Committee. We have brought through 16 statutory instruments so far—we have the joy of another four awaiting us in Grand Committee tomorrow afternoon—out of a total package of some 60, 47 of which will use the affirmative procedure. So there is an element of scrutiny. The noble Lord rightly focused on the provisions of the EU withdrawal Act, which is the substance of Amendment 7, but then we were dealing with known entities and rules.
In introducing this amendment, the noble Baroness, Lady Bowles, made a very fair point and the noble Baroness, Lady Kramer, added to it. If I am paraphrasing her correctly, she recognises that, had she not been there, the legislation coming across to us might not have been dealt with in the interests of the United Kingdom financial services industry. I agree with that, from what I know of her role on that committee in that Parliament. Her input—and that of other members—at that stage was vital in shaping the legislation which subsequently came across. We thank her for that service. She is no longer there and, in the scenario for the future files that we are dealing with, neither will her successors be. Therefore, there needs to be a difference in the way these are treated—between the narrow definition in the EU withdrawal Act, when we knew what we were dealing with, and directives and regulations into which we may have had no input and no responsibility for shaping. These could, potentially, be damaging to the UK financial services industry. There is a long way to go with this debate, but that is the crux of it.
I turn to Amendments 2, 4 and 6, the aim of which is to require the publication of a report three months prior to the exercise of the powers under the Bill. This report would need to explain any policy adjustment or decision to omit aspects of the originating file. The noble and learned Lord, Lord Judge, also referred to this. I reassure noble Lords that the Government’s clear intention would be to set out this information in the reports currently required by the Bill.
Further to that, as is standard practice, the Government would of course seek to engage with interested parliamentarians and the industry on the legislation before taking any statutory instruments forward. Where the secondary legislation omits aspects of any EU files, it would certainly be in the public interest to be open about the choices the Government have made in not implementing them.
Regarding the requirement to publish the reports three months ahead of each exercise of the power, the Bill currently sets the requirement that any implementing legislation be subject to the affirmative procedure. This would require laying the relevant statutory instrument before Parliament, and an accompanying Explanatory Memorandum setting out the policy intent, before the debate on the SI itself and well ahead of implementation. This is the established process for scrutinising such statutory instruments and for this reason it is the model we have chosen to follow.
I am also mindful of the fast-moving nature of financial services. In particular, there may be a need to respond quickly to market developments, and it may be important to avoid imbalances with the EU for even a short period—for example, where the files may be of a deregulatory nature. With respect, I suggest that a three-month gap between a report and laying is too long to respond to market developments. Such a three-month requirement would place at risk the basic aim of the legislation, which is to safeguard the reputation, competitiveness and efficiency of UK financial markets. However, having listened to the points that the noble Baroness, Lady Bowles, made in moving her amendment and to the subsequent points of the noble Baroness, Lady Kramer, the noble Lord, Lord Tunnicliffe, and the noble and learned Lord, Lord Judge, I am willing to consider, ahead of Report, exactly how a process might run in the future to keep noble Lords better informed. Just to manage expectations, we will probably regard three months as too long for what might need to be very fast changes to ensure that UK financial services are not disadvantaged, but I signal my willingness to discuss the issue with the noble Baroness and see whether we can find an acceptable way forward.
Does the Minister accept that the problem he faces is bigger than that? It is not just about this group but about the fundamental fact that we parliamentarians dislike secondary legislation that changes the law. He faces a significant defeat in this House if we cannot come to some compromise agreement that seriously limits the ability of the Executive to impose law upon this Parliament. It is important that he recognises that—otherwise, we will end up deciding what the Bill says, and that is usually not good in terms of using the law in the future.
I am always willing to engage and it is helpful, if I may say so, to engage in that debate, because the point the noble Lord is making is more on general principles than on detail. I subscribe to that, provided that we can agree to recognise that what the Government are seeking to do here is to deal with, effectively, processes that I am not aware have ever been dealt with before. We may be giving an undertaking to implement certain directives and regulations over which we have not had control and of which we do not yet know the precise nature. That is a different challenge from the normal routine of the types of onshoring that we are doing with the other statutory instruments. I am prepared to accept the noble Lord’s point if he will recognise the difference that we are dealing with between those two different types: that would be helpful.
I recognise that there is a difference, but at the end of the day my noble friend Lord Adonis’s point is valid: in day-to-day life the world changes, we have to react quickly to it and, where needed, we have to enact primary legislation. We are not creating a new environment where the Government enjoy executive power to change the laws in this area; surely we are seeking only to manage the transition. I do not see that it is the end of the world if the Government see something develop in Europe, say it is wrong, and say that that will not be covered by this Act and that we will have to bring forward primary legislation. We have done it in the past and we will have to do it after two years; that is the way new ideas should be introduced to this Parliament.
I hear what the noble Lord is saying. Without wanting to rehearse Second Reading again or to undermine any of the progress that I feel we have already made on this in Committee, I will conclude by saying that from my perspective, the noble Baroness has made a proposal to deal with the length of time and the reporting—to address the noble and learned Lord’s point—about where there are changes, what changes have been made and why, and whether that report could be received in advance of the statutory instrument being laid and then debated in the House. In the spirit of recognising the points referred to, I have said that I am prepared to look at that. Three months may be too long but I am prepared to have a discussion ahead of Report on whether another time period may be more acceptable. With that, I hope that the noble Baroness will feel able to withdraw her amendment.
My Lords, we are superficially attracted to this amendment and we await the Minister’s comments with interest.
I thank noble Lords for their contributions to this debate. I shall begin by looking at what I think is an area of common ground: we all recognise the importance of the financial services industry to the UK. Perhaps I may pick up on a point made by my noble friend Lord Flight, that one of the main purposes of this Bill is to ensure that the UK remains an attractive and competitive place to do business, retaining our place as a world leader in financial services. To do this in a no-deal context, it is essential that the UK retains sovereignty over our rules. From the perspective of financial stability and protecting the UK taxpayer, it is essential that the Government, the Bank of England and the FCA have the tools available to ensure that the UK markets are appropriately and effectively regulated.
It would be wrong to set a condition over the UK’s regulatory framework that means decisions which are made about the UK’s future regime are determined through the lens of maintaining equivalence to the EU, irrespective of the quality of those rules and how future legislation and the market itself may evolve.
I think that there may be a misunderstanding. This would mean that statutory instruments could not be used to create divergence—it does not mean that primary legislation could not be used to do so. That is the underlying point.
The legislation we are dealing with is in its very composition a temporary measure; it is a temporary piece of primary legislation with a sunset clause.
I know that we will discuss the sunset clause later. It does not mean that the statutory instruments created under this legislation die after two years, it means only that the powers in the overarching legislation will die. However, those two years are the critical period, so the sunset clause does not have the consequence that I think the Minister might suspect it does.
To go back to first principles, I am saying that the power in this Bill is not in effect to make policy—rather, it is the ability to produce secondary legislation that has a policy content to it and which would then be subject to scrutiny in this House. That power is being put in place for an extraordinary set of circumstances—I think we all agree that these are extraordinary circumstances and in fact I should underscore that we hope that these powers will not be required to be acted upon, because there will be a deal and we will continue to have access to the market in financial services across the EU. That is our aim, but we are preparing for all eventualities.
The noble Baroness will be aware that equivalence determinations are autonomous decisions with the EU and, in turn, the UK retaining autonomy for determining if a foreign jurisdiction has equivalent standards and supervision. The EU takes a varied approach to assessments of equivalence, tailoring its approach to individual regimes with regard to how the assessment is conducted. The Commission itself has stated:
“It is the equivalence of regulatory and supervisory results that is being assessed, not a word-for-word sameness of legal texts”.
Indeed, for a recent example, one need to look only at the EU’s statements on equivalence in a no-deal scenario. Within these, the EU has been clear that equivalence decisions of the UK will be made where justified in the interest of the Union and its member states, with time limits and conditions to their decisions where appropriate. As such, it is very difficult to judge what the EU will take into account in its future assessments and how its autonomous third-country regime will evolve. Such an approach, plus the breadth and variety of considerations that form part of equivalence determinations, from the rules themselves to supervisory approaches, means that it would be very difficult to determine what effect, if any, a change or adjustment that the UK makes to our laws might have on a future equivalence determination in a given area, given that these are autonomous decisions taken by the EU. It is therefore difficult to see how the test set out in this amendment could be met.
Let me reiterate the importance of, in the case of a no-deal situation, retaining the ability to adjust our legislation so that it best serves the aims and objectives of the UK once we have left the EU, as my noble friend Lord Flight has identified. It is crucial to ensure that we can bring into force pieces of legislation in a way that works best for the interests of UK markets. The Government are also committed to doing this as transparently as possible, which is why we have set out the strict reporting requirements to which I know we will return on Report. In the light of that, I invite the noble Baroness to withdraw her amendment.
I thank the Minister for his response. I shall deal first with the point that this might be legislation that will never need to be implemented. But the fact is that something like this will probably be needed when we get to the next cliff edge, and in any event by passing this Bill, we will also set a precedent for what might then follow in subsequent legislation. You cannot get some dodgy things through on the basis of reasoning, “Oh, we might never need it”. We know only too well the effect of having let something slip through once. I can assure the Committee that that is not something I had a reputation for in Europe and I would not allow it here if I had anything to do with it.
Like my noble friend Lady Kramer, I fully accept the point made by the noble Lord, Lord Flight, that the legislation might not be “sensible” when looked at from the UK perspective. This is what is meant by not being able to fit in with the specificities of the UK. However, the trouble is that that is a very vague description. We would need far more of an indication of what is meant by that to allow it to be any kind of gatekeeper. I think that the point about equivalence is fundamental and it can be a gatekeeper. It is probably completely wrong not to contemplate having an equivalence Bill which actually lays out in more detail the sort of tests that would be applied. Looking further into the distance of how we deal with financial services legislation, we are not going to bring to the Floor of this House all the detail set out in the regulations and directives that I had to negotiate. The majority of that will no doubt be passed off to the Treasury and the regulators in some way that will not concern us. I am not sure that I agree with that, but I can see the writing on the wall. However, something big such as whether we want to stay aligned or whether we think that it has progressed too far—it is too uncertain, we cannot deal with this kind of uncertainty, and what are the tests?—could well be put into legislation.
I reject the notion that we cannot have a limitation such as this in some form or other as a guardian within this legislation because of the attitude of the EU and how it makes decisions. You know for sure that doing certain things would remove any chance of equivalence—such as leaving out a couple of articles of the main legislation. Boom! Not equivalent. There is no question. Because certain things are done in a slightly different way, maybe tweaking a little bit in a delegated Act would not be a bar, so that could possibly pass the test and go through.
I come back to subsection (2). The very first item there is a yes/no decision: are we having this, or will we neuter it to the extent that we do not have the buy-in regime of the CSDR? That is what it is all about. If we did not have the buy-in regime of the CSDR, we would not be equivalent in quite a lot of things to do with securities transactions, and maybe in things to do with our clearing houses or our exchanges. I remind the House of my interest as a director of the London Stock Exchange. These things are under active consideration, so doing something like that would, in my personal judgment, put equivalence at risk. I think you can make a dividing line through this.
Especially if there is some tentative encouragement from the Labour Front Benches, I think this is one of those amendments that usefully goes into the pot that we should be working on. The alternative is that you get even less, probably a very tight and improved version of Amendment 7, because an amendment such as this might offer not a great deal but a tad more flexibility—a tiny bit more. With that, I beg leave to withdraw my amendment.
My Lords, I again thank all noble Lords who have taken part in this debate, particularly my noble friend Lord Leigh. His amendment touches on the critical point with regard to the Bill, which is the importance of safeguarding the competitiveness of the UK’s world-leading financial services industry as well as maintaining proportionality in the regulations that govern these markets. These are two of the key reasons this Bill has been introduced. It will ensure that our regulatory system remains up to date in the period following a no-deal exit and that UK firms are not left at a competitive disadvantage as regulations are updated in the EU. I can of course assure my noble friend that the Treasury will exercise its powers under this Bill with competitiveness and proportionality firmly in mind, which my noble friends Lord Flight and Lord Hodgson encouraged, and which my noble friend Lord Deben urged it to do.
When people are talking about the market in the City, people instinctively think of very large institutions, but having worked in the financial services industry, I recognise that it is made up of many small firms delivering outstanding benefits and value to their clients. There are some 58,000 small and medium-sized businesses operating in financial services.
In answer to the points raised by the noble Lord, Lord Adonis, the reason the UK is so successful and the City of London so respected around the world is the strength of the regulatory basis. Reputation and trust are all when it comes to conducting financial services. If people are investing their life savings or pensions with organisations, they need to have confidence that the organisations they are investing in will look after them well and that they will get the return or benefit that they anticipate.
I therefore appreciate my noble friend’s helpful and well-intentioned amendment. However, I am mindful of the difficulties of placing these assurances on a statutory footing, given the difficulties of defining these terms clearly in legislation. In particular, judging the exercise of powers against a hypothetical case—for example, the state of the UK financial market had the UK not left the EU—would be highly challenging. It is also worth noting that many of the files are themselves being designed, with the UK’s input, at the moment, to aid competitiveness and proportionality issues. It is right that we put that on record at this point. My noble friend Lord Leigh set out clearly at the beginning that we pay tribute to the work of the Commission in listening to the voice of small business, a point to which my noble friend Lord Deben returned. Examples are the prospectus regulation listed in Clause 1, which creates a more proportionate regime for all firms, including SMEs, and key measures such as the introduction of a new growth prospectus—a lighter, less burdensome document—to be used by SMEs within the regulation. I hope my noble friend will recognise that the Government are alert to his concerns in this area and support the need to maintain the competitiveness of the UK financial services industry and to ensure that any regulatory burdens are applied to small and medium-sized enterprises in a proportionate way. In the light of these reassurances, I hope my noble friend feels able to withdraw his amendment.
I thank my noble friends Lord Flight and Lord Hodgson for supporting this amendment. They have become the wise old birds. I was very pleased to have two people supporting this amendment who have started financial services businesses in London and grown them to be global financial services businesses. It goes to show the power and expertise that resides in this House.
I thank the noble Lord, Lord Adonis, for his comments. I am sure he was not seeking to stereotype Tories. Curiously enough, although many people would regard captains of industry as natural Tories, one finds that the large multinationals are the companies that want more, not less, regulation because it consolidates their position. From the perspective of small businesses, as the noble Lord, Lord Adonis, said, we look for more appropriate regulation, rather than less regulation.
I am very grateful to him and to my noble friend Lord Bates for picking up my complimentary remarks about the EU Commission. I am a bit worried that I will be drummed out of the ERG after this. Nevertheless, it is true that the Commission has listened. My worry is that it listened to us because we had a voice. However, if we leave under a hard Brexit, we will not have a voice through bodies such as the QCA and therefore, because it does not really understand AIM and other aspects of the financial services industry in London, it will produce inappropriate regulation. We will need a very effective and immediate reaction to that, which I believe the Treasury is capable of doing.
I say to the noble Baroness, Lady Kramer, that the naked short selling by market-makers in the AIM market is essential to liquidity. It is not to be confused with naked short selling by hedge funds, which is a very risky and different proposition. It just goes to show that it is a complicated area. I will be honest: I am not wholly sure that I understand it or how it works but I understand that much—that it is essential to liquidity.
The noble Lord, Lord Tunnicliffe, is right. Essentially this is about unintended consequences; none the less, it is always nice to get into legislation protection for the financial services sector and small businesses.
With the very welcome reassurances from my noble friend Lord Bates, I beg leave to withdraw the amendment.
My Lords, first, I am sure that I speak for the whole Committee in thanking the noble Lord for his succinctness in presenting his amendment. I recognise the old adage that everything needs to be said but not everyone needs to say it. That is a good principle. In following him in that spirit, I will put on the record a few comments that I believe will be helpful for our wider debates.
We appreciate the concerns across the Committee regarding the Henry VIII powers and, where they are proposed, it is clear that their necessity must be well evidenced. In the case of the financial services legislation, to which the power in this Bill will apply, I hope that noble Lords will accept the need for such a power.
An inability to amend existing primary legislation such as the Financial Services and Markets Act 2000 will render it impossible to implement this necessary body of legislation. Further, as noble Lords will be aware, the exercise of many functions under financial services legislation is carried out by the independent regulators—the Financial Conduct Authority and the Bank of England. The capacity and expertise of the financial regulators will be absolutely crucial to the effective implementation of these pieces of legislation and, consequently, to the resilience and prosperity of the financial services sector here in the UK.
The amendment would remove the ability to delegate to the regulators because, as a general rule, a power to make secondary legislation does not include a power to sub-delegate. An inability to effectively delegate powers to the regulators in implementing the legislation contained in this Bill would severely undermine the value of transposing the original legislation into UK law. In many cases, it would effectively render legislation unenforceable, and the Bill would simply not be able to achieve its central goal of ensuring that the UK continues to be an attractive and competitive place to do business in the immediate two-year period post exit, in the unwelcome and unlikely event of a no-deal scenario. Given this context and the context of the previous debate, I invite the noble Lord to consider withdrawing his amendment.
My Lords, we have an open mind on the amendments. The noble Lord, Lord Deben, hit the nail on the head in saying that the gap between primary legislation and the SI process is too wide. Since we are shovelling a lot of stuff into the statutory instrument process, this is a good time to consider some intermediate action. I do not move from my commitment to tighten up what is available for secondary legislation under this Act, and we will be pursuing that, but I shall listen to the Minister’s response with care to see whether this would be the occasion to make some progress in this important area and give two views of a piece of secondary legislation, instead of the usual process. No matter how hard the Minister and I, and colleagues on the Liberal Democrat Benches, try to give some life to the affirmative SI process, we know in our hearts that we are not going to vote against it because we are not going to provoke a constitutional crisis. Some process in between the two—this may be the right one—deserves careful consideration.
I thank the noble Lord, Lord Adonis, for introducing his amendment, and all noble Lords who have spoken. I will touch on some of the points made, but before I do, perhaps I may say that, as we are moving rapidly through the different groups, it is important that we keep updating where we are. In earlier groups, I was responding positively to my noble friend Lord Deben’s point that the legislature needed to be better informed about the effects where changes are made and where we are derogating from existing directives that are in flight. I dealt with the concerns that had been raised by the Delegated Powers and Regulatory Reform Committee, and agreed to meet and talk further about them—so as we move along I do not want to lose sight of the fact that this is an unfolding story. Already, three hours into Committee, we have agreed to undertake and look carefully at some of the points raised.
I recognise the immense wealth of expertise which is here, not least in ministerial office from the noble Lord, Lord Adonis. I would not dare try to calculate the years of ministerial office represented by my noble friend Lord Deben, especially when I have my noble friend Lord Young of Cookham to my left; between them they could put up a cricket score of years.
There needs to be proper scrutiny; I accept that. The Secondary Legislation Scrutiny Committee already scrutinises all instruments laid before each House that are subject to parliamentary proceedings, and it is required to draw to the special attention of the House those instruments which are politically or legally important, or which give rise to issues of public policy likely to be of interest to the House. In addition, Standing Orders set out that the Joint Committee on Statutory Instruments must report on affirmative statutory instruments before debates can be scheduled. This is the established process for scrutinising statutory instruments, and it is a model we have sought to follow.
I certainly was talking in terms of what was delegated and how it was dealing with the things that it then had to deal with. I am not sure that that was the same as the mover’s view, but mine was in the category of doing what was within its power.
I agree, in that spirit, to take back that point and look at it in the wider context of my opening remarks in responding to the noble Lord, Lord Adonis. I hope that he will feel able to withdraw his amendment at this stage, because we will return to these issues in some detail at Report, hopefully with some more to say.
My Lords, I am grateful to the Minister for that characteristically open-minded and engaging response. I would welcome the opportunity for further discussions. The interaction between my amendments and Amendment 7 is crucial. If Amendment 7 is carried, the scope of the changes we are talking about reduces so markedly that the need for advice also reduces. In particular, if Amendment 7 is carried, it is not clear to me that the generality of the issues in the Schedule would come before the House in the form of statutory instruments anyway; they would come before the House in the form of primary legislation.
Primary legislation is of course subject to all those processes of parliamentary scrutiny and decision-making that deal with the underlying concern that there will not be enough exposure of the issues at stake to debate and consultation. The interaction between Amendment 7 and my amendments is crucial. A good deal of the case for my amendments depends on what the Government and the House decide to do in respect of the issues raised in Amendment 7.
However, the wider issue that has come out in this debate and comes up time and again in this House is well worth us considering further on Report: namely, how Parliament deals with secondary legislation and statutory instruments. The point made by the noble Lord, Lord Deben, my noble friend Lord Tunnicliffe and the noble Baroness, Lady Bowles, is completely right. I thought it was neatly put by my noble friend: there is far too big a gulf between the way we consider statutory instruments and the way we consider primary legislation.
The noble Lord, Lord Hodgson, mentioned bars. We have a very high bar for changing the law by primary legislation, with hour after hour of debate—in discussing this two-clause Bill we are now in our fourth hour of Committee. We have had a Second Reading, and we will have Report and Third Reading. Those procedures are tried and tested.
When it comes to secondary legislation, much of which introduces changes to the law—particularly under this Bill, potentially—that are equivalent to changes brought about by primary legislation, our consideration of these changes is cursory. It is a brief debate if you are lucky when a statutory instrument is debated by the House, and there is no power to amend it. As my noble friend Lord Tunnicliffe said, if we try to reject it we will get immediately into a constitutional crisis because there cannot then be the process of reconciliation between the two Houses that takes place in the case of ordinary legislation.
Time and again we come up against this issue. To be blunt, time and again we duck it, because there is no great desire on the part of the Government to give us powers to amend statutory instruments or to have more elaborate procedures for discussing them, precisely because that would, in fact, make your Lordships more powerful on statutory instruments because we could then amend them and ask the House of Commons to think again. The issues raised by the Bill and all the requirements to do with leaving the European Union put this in stark relief, because a very substantial part of the legislative business of Parliament over the next two to three years if we leave the European Union will be conducted by means of statutory instruments, including all the fundamental changes to the financial regulatory system set out in the Schedule.
The conclusion I draw from all this is precisely the same as that of the noble Lord, Lord Deben: we are at one on the fundamental issue that we should not be leaving the European Union in the first place. One of the reasons why we should not be doing so is that we are not taking back control but giving the Government unprecedented powers to rule by decree—which is, of course, farcical. We have far more control at the moment, from the combination of our established procedures for primary legislation when it comes to our changes in the law, plus all the democratic processes we have within the European Union in respect of changes to the law made at the European Union’s behest, than we will ever have by leaving it and having no role to play in the changes recommended or brought about by the EU, and then having to go through this truncated rule by decree process in this Bill and the EU withdrawal Act.
So the right response to all the debate we have had today is not to leave the European Union and to have a people’s vote to give us the opportunity to express the ever more pronounced view of the public that this whole thing is deeply antipathetic not just to the best interests of the country but to our proper parliamentary procedures. But it is probably going a bit too far to press the Minister to accept that whole case just in responding to my one amendment, so just for now I will beg leave to withdraw.
My Lords, we have constantly been debating the same issue, which this amendment addresses from another direction. I am afraid that my experience of government producing annual reports is that, on average, they tend to appear every 18 months, rather than 12 months. I am not quite sure what the last report of the two does anyway, and the idea of one meaningful report every six months has a lot to commend it. Being prescriptive about its contents would also be quite useful, and I look forward to the Minister’s response.
I thank my noble friend Lord Hodgson for ably introducing this amendment. A substantial part of my speaking notes is remarkably similar to those for Amendment 2, when I responded to the comments made by the noble Baroness, Lady Bowles, on early reporting. Again, we have made some progress, so let us perhaps just leave that on the record.
I will make a couple of specific points about my noble friend’s amendments, and those which the noble Baroness, Lady Bowles, has put her name to as well. These amendments would require the Government to lay reports on the use of the power every six months, rather than every year; to set out why the power would need to be used; and to include a table setting out the provisions of the EU legislation that have or have not been transposed into domestic legislation, as the noble and learned Lord, Lord Judge, mentioned in an earlier debate. Again, I can assure noble Lords that the Government’s intention has always been to set out such reasoning and detail as part of the reports referenced in subsections (8) and (9).
As to the frequency of the reports, the current drafting has been designed so that the reports will provide an overview of how the powers have been used in the first year, and how the Government propose to use them in the second year. The intention behind this is to allow enough time to pass for a meaningful report to be drawn together. I hope this helps to clarify the Government’s intention to be as transparent as possible in the exercise of these powers.
As with the amendments tabled earlier by the noble Baroness, Lady Bowles, I have listened carefully to the arguments being presented on all sides, and particularly in this instance by my noble friend Lord Hodgson. It may be that we need to consider further exactly how such a process can run, so that we can provide the House and Parliament with the necessary assurances that it seeks. In that regard, I ask my noble friend to withdraw his amendment, given my commitment that we will look again at this issue and seek to make some constructive suggestions on a new way forward at Report.
I thank all those who have taken part. I thank the noble Lord, Lord Tunnicliffe, for his two-thirds of a loaf, and the noble Baroness, Lady Bowles, whose amendment I should have referred to in my opening remarks; it was rude of me not to have done so. A table of derivations and destinations is what I think such a table would be called in UK law; it would be a very helpful addition to the schedule to the reports that we have in mind. My noble friend was smooth—to the point that I thought he was going to turn me down on, but at the end the horse swerved in and jumped the fence. I am glad that he has agreed to put this into the mix. I am grateful to him and happy to withdraw the amendment for the time being.
My Lords, it is time to be kind to Ministers when one gets to this end of the Bill. My advice to the Minister is to indicate what a logjam of SIs there would be four years on from the consequences of this strategy. I understand entirely, and sympathise very much with the intent behind the amendment, but if I were the Minister I think I would point out a few of the practical difficulties.
There speaks the voice of experience. From his time speaking from this side of the Chamber, the noble Lord has perhaps pre-empted some of the concerns that we would have about this proposal, but let me put them on the record.
I am grateful to the noble Lord for giving us an opportunity to debate this important area. In implementing files under the Bill, it will be necessary to amend existing legislation to reflect updates to the regime. Should all powers under the Bill lapse at a stroke, without replacement, the legal effect on amended legislation would be unclear.
At a time when we should be seeking to provide industry with clarity and certainty, I am afraid that the amendment would have the unfortunate and unintended effect of providing just the opposite. Rather than minimising the cliff-edge risks, it would create a new series of cliff-edge challenges to be faced in the coming years. The potential for this legislation to lapse without replacement does not provide certainty to firms. Compliance with new regulatory regimes can be costly, and it would have a negative effect on firms’ confidence in the Government’s ability to set effective and proportionate regulation should we implement vital legislative reform only for it to drop away after a given period.
I appreciate the noble Lord’s concern that regulations made using this power will have a lasting effect on the structure of the UK’s financial services regulatory framework. This is why the power can apply only to a limited set of important files, which have been set out on the face of the Bill. In a no-deal scenario, implementing those files could be crucial to avoid conceding a competitive advantage to businesses operating in EU-based markets or to remain compliant with the Basel rules and meet our G20 commitment to international standards.
The noble Lord is clearly right, however, in pointing out that this cannot be a long-term model for a regulatory framework. Beyond this temporary solution, once we have left the EU in a no-deal scenario, the Government recognise the clear need for an approach that balances parliamentary oversight of financial services legislation with maintaining the flexibility and competitiveness of our regime. To that end, we will take forward proposals for a sustainable, long-term model in due course.
It is perhaps worth pointing out also that the Small Business, Enterprise and Employment Act 2015 requires the inclusion of a statutory review clause in secondary legislation that regulates business if the legislation continues to have effect five years after its entry into force. When taking forward SIs under the Bill, the Government will therefore be under a duty to make provision to undertake a post-implementation review after five years or to publish a statement that it is not appropriate in the circumstances to do so. In this light, I hope that the noble Lord will feel able to withdraw this amendment.
In the light of the Minister’s very informative response, for which I am very grateful, I am delighted to be able to withdraw the amendment.
My Lords, I, too, raised this issue at the conclusion of my speech at Second Reading. I quite understood, with the vast range of issues that the Minister had to respond to on that day, his feeling unable to go into great detail on this one. That is why I was delighted to sign up to the amendment put forward by the noble Lord, Lord Sharkey. The Minister has a real case to answer here, and I hope that we will have a constructive response.
My Lords, I hope I can oblige the noble Lord, Lord Davies, with a constructive response to end Committee. I thank all noble Lords who have taken part. I understand that several Members have received representations from the sustainable finance industry. This amendment seeks to add to the Bill’s Schedule two EU files that complete the European Union sustainable finance package.
As I have mentioned already, the Government acknowledge that the power being sought in this Bill is broad. That is why it has been designed with a number of safeguards and limitations in place. One of these is for the power to be limited to a specified set of EU legislative proposals, named on the face of the Bill. In order to focus the power as narrowly as possible, the list of files in the Schedule to the Bill was determined through an assessment of the importance of files to the stability and competitiveness of the UK’s financial services sector. The noble Lord, Lord Sharkey, highlighted this as one of his concerns when moving his amendment. In short, these are the files that we believe will be the most important for market functioning and UK competitiveness in a no-deal scenario.
I will, of course, be very happy to meet the noble Lord, and the noble Lord, Lord Davies, on this issue. I think we are already going to be meeting quite a bit between now and next week. I have listened carefully to the arguments in favour of the merits of adding these files to the Schedule, and I undertake to reflect on the matter ahead of returning to it on Report. In the light of this, and of the discussions that will take place, I invite the noble Lord to consider withdrawing his amendment at this stage.
My Lords, I am very grateful for the Minister’s answer and look forward to what may be several meetings between now and Report. As the last speaker tonight, I hope that the Committee will allow me to make a very quick, general observation. As I listened to the debates today, it seemed to me that there was a real, structural problem with the Bill. It sets out to do two things: first, to onshore approved, but not applied, EU legislation; and, secondly, to make possible the onshoring of specified in-flight legislation. The problems we are discussing tonight are largely because we are trying to do both of those things using the same mechanism. That is going to be very difficult.
It might be better to consider simply applying the strict rules of Section 8 of the European Union (Withdrawal) Act—or Amendment 7—to all those approved, but not applied, pieces of legislation listed in Clause 1(2)(a) and (b); and, separately, to require primary legislation to deal with the in-flight legislation coming our way, as suggested by the noble Lord, Lord Adonis.
I thank the Minister again for his observations on Amendment 18 and beg leave to withdraw.
(5 years, 6 months ago)
Lords ChamberThis text is a record of ministerial contributions to a debate held as part of the Financial Services (Implementation of Legislation) Bill [HL] 2017-19 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
My Lords, I thank all noble Lords for their engagement in this Bill not just in Committee on 8 January, when we had an excellent session looking at the Bill to see how it could be strengthened, but also when we followed that up in various interactions with Peers in the gap after that. There was a meeting on 22 January in which we shared some of the ideas at that point, and that conversation has continued. I place on record our gratitude particularly to the noble Lords, Lord Davies and Lord Tunnicliffe, but also to the noble Lord, Lord Sharkey, the noble Baronesses, Lady Bowles and Lady Kramer, and to my noble friends Lord Hodgson and Lord Leigh for their interaction. I also thank the noble and learned Lord, Lord Judge, for his impromptu legal advice in Committee.
Amendment 1 has been grouped with an amendment in the name of the noble Lord, Lord Davies, and the convention is that I cannot pre-empt what he will say. I will listen to him very carefully, and will simply move my amendment at this stage and address the concerns and issues raised in the noble Lord’s amendment at the end.
Amendment 1 is designed to perform two functions. The first change, as set out in the proposed new subsection (1A)(a), is in response to a recommendation by the Delegated Powers and Regulatory Reform Committee—I again place on record my thanks and appreciation to it for its scrutiny, published in the 42nd report of that committee, under the chairmanship of my noble friend Lord Blencathra. In its report, the committee noted that, for those files listed in the Schedule which are still in negotiation, the justification for the power to adjust is that it is not now possible to know what the final form of that legislation will be. However, the DPRRC noted that the same justification could not be used for files already agreed, and it recommended that the power to adjust be limited only to the files in the Schedule to the Bill. I can now say that the Government are able to implement the DPRRC’s recommendation. These files have been settled while the UK has been an EU member and has been around the negotiating table at all stages with a full voice. We accept the principle that this is settled law that has received UK sign-off and that, as such, an ability to fix deficiencies is more appropriate than one to make policy adjustments.
The proposed new subsection (1A)(a) therefore ensures that, for the first category, the Treasury will have no ability to make policy adjustments when these files are domesticated. These files are: the prospectus regulation; articles 6 and 7 of the central securities depositories regulation; article 4(1) of the securities financing transactions regulation; and articles 37 and 38(2) of the markets in financial instruments regulation. Instead, the Treasury will only be able to fix deficiencies in the manner of the current onshoring process under the established terms set out in the EU withdrawal Act.
My Lords, I am very grateful not to be the Minister, who has to respond to my noble friend Lady Bowles and the noble Lord, Lord Leigh. I can see that it is a challenge and I hope that if I talk for a few minutes, it will give the Box a little more time to get notes to him.
I think that the House knows that my underlying question has always been how we draw the line so that we know when it is appropriate for change to be carried through by an SI and when it should come to this House as primary legislation, particularly in this field. What happened in the weeks and months immediately following a no-deal exit would shape whether we were in a position to maintain access to the EU market for our most significant industry—the services sector—and indeed for the economy as a whole. I think that in the changes he has made the Minister has got us to a better place and to a much clearer understanding of the Government’s intent. If he wanted to split the difference, he could say “major or significant” and deal with the problems all in one go.
I want to say how much I appreciate the listening that the Minister did and how much we appreciate the listening, thought and effort that his officials put into responding to the queries and issues that we raised. It gives me the feeling that we in this House, including the Government, are all essentially on the same page in understanding the significance of the period that would follow no deal and how carefully and sensibly we would have to approach regulation in the financial services area because of the potential knock-on impacts and unintended consequences, which could be extraordinarily severe.
With that sense that the Minister understands when an issue should be brought to the House because it is a fundamental change of policy and critical to an underlying key sector of the economy, and when it is an issue that can rightly be dealt with under a statutory instrument, I can say that I am very happy with the changes that have been offered and, again, I thank the Minister for them.
I thank noble Lords for their contributions. I particularly thank the noble Lord, Lord Davies, for moving his amendment and giving us the opportunity to comment. I very much concur with the noble Baroness, Lady Kramer, about how the officials have engaged in this process. I do not know whether it is appropriate to refer to them on the Floor of the House but I will do so anyway. I think that they too found it a very useful interaction. This Bill is beginning its journey through the legislative process in your Lordships’ House, and the ability to shape and craft it so that it will have been improved by the time it leaves this House will make the job of the other place, which has quite a lot on its plate at the moment, a little easier.
I also agree with the tribute paid by the noble Lord, Lord Davies, for the work being done by officials and, indeed, by UK Members of the European Parliament and the industry on shaping EU financial regulation over the years to make it effective and proportionate.
I believe that the intent behind the noble Lord’s amendment and behind the noble Lord, Lord Sharkey, putting his name to it was to give the Government an opportunity to put further flesh on the bones of what is meant by “major” and “significant”. They will become the new version of “corresponding” and “similar”, which we discussed in Committee. I do not want to hark back to that debate; instead, I shall focus on these key words. I will put some remarks on the record and then turn to the point made by my noble friend Lord Leigh.
It is clearly important that we find a way of limiting this power appropriately, and I am very grateful for the proposal in Amendment 2, moved by the noble Lord, Lord Davies. However, the noble Lord’s amendment could have the unfortunate and unintentional effect of rendering the power and therefore much of the Bill almost unworkable. The reason the Government settled on the term “major” rather than “significant” in drafting this amendment was the greater clarity provided by the term “major”.
My Lords, I again thank noble Lords for their contributions and in particular my noble friend Lord Hodgson. Our debate on the previous grouping focused on what limitations would apply to the power under this Bill. This grouping looks at the complementary subject of reporting to ensure that the Government are as transparent as possible in the exercise of the power. The Bill, as introduced, placed a duty on the Government to publish a report annually on their exercise of the power. It was clear in Committee, however, that there was some room for improvement. I am again grateful and indebted to noble Lords from across the House for their work in Committee and in the period between Committee and Report.
I turn to Amendments 3, 4 and 5. The noble Baroness, Lady Bowles, proposed that, where adjustments or omissions are needed when implementing the files, the Government should publish a report beforehand setting this out in detail to make sure that Parliament has sight of this, and can consider the merits of the proposals. Given the exceptional nature of the Bill and the powers being sought, it can only be right that the Government are clear with Parliament and the industry about how they intend to implement these files. The Government therefore propose introducing a new requirement, as set out in Amendments 3 and 4. These would ensure that, before laying any statutory instruments before Parliament under the affirmative procedure, the Government must first publish a document detailing the proposed text of the regulation with an accompanying report. The report would have to outline what, if anything, has been omitted from the original EU legislation, where there had been any adjustments to the original EU legislation, and provide justification for these adjustments.
As I noted in Committee, the three-month requirement could risk being too long. The essence of this Bill is the speed with which it will allow the UK to keep its regulation up to date and responsive to the uncertainty of a no-deal scenario. The amendment therefore proposes a one-month deadline. However, the Government will of course commit to publishing these documents earlier where possible.
On Amendment 5, in Committee my noble friend Lord Hodgson suggested a more regular reporting cycle than the yearly proposal in the Bill as introduced, and that these reports should set out the Government’s reasoning for why any adjustments might have been necessary. I again reassure noble Lords that it was always the Government’s intention to set out such a justification. This underpins the spirit behind the proposed new subsections (8) and (9) in Amendment 5. This requires the introduction of a more regular requirement for the Treasury to report—now every six months. It requires the Government to specify both how the power has been exercised over the previous six-month period and how they intend to exercise it over the coming six-month period.
This change has the further benefit of clearing up an inconsistency helpfully highlighted by the Delegated Powers and Regulatory Reform Committee in its 42nd report. Previously, the reporting deadlines were set out on calendar dates, whereas the power was to be commenced with reference to “exit day” as defined in the European Union (Withdrawal) Act. This amendment now tidies up the drafting to ensure that the reporting periods are set with reference to the commencement of the power itself. I again convey my thanks to the Delegated Powers and Regulatory Reform Committee.
Finally, proposed new subsection (9A) in Amendment 5 responds to the suggestion from the noble Lord, Lord Adonis, and the noble Baroness, Lady Bowles, in Committee. Here we propose to introduce the same requirement for the financial regulators—the Bank of England and the Financial Conduct Authority—to report on their exercise of any powers sub-delegated to them through the Bill. This follows the model established in the EU withdrawal Act. We agree that it is right that, as they will be implementing much of the legislation contained in this Bill, Parliament and the public should be kept informed of how their functions are being discharged.
I hope these amendments demonstrate the extent to which we believe it is vital that Parliament can properly assess and consider legislation taken forward under the Bill. These amendments on reporting, alongside clearer limitations of the power itself, substantially improve the safeguards that apply to the Bill. I hope these will provide the reassurances that I know the Committee sought.
My Lords, I thank the Minister for listening to everything said in Committee. There really is little else to say other than that he has taken on board three of my amendments. I am very pleased to see them there. I accept that he has cut down the timescale in the pre-legislative report, if I can call it that, to one month from three months because it might be necessary to do things more rapidly.
If I can pick out a theme from the several speeches I made before, it is that Parliament should not be surprised by what the Government intend to do and do. This suite of amendments, including the more frequent reporting suggested by the noble Lord, Lord Hodgson, makes it very clear: we are told before and afterwards. In fact, we might be told before twice by the two reports—the generic one, if I might put it that way, and the precise one. We will also know where things are so that the diligent individual, possibly when dealing with things in the Moses Room in Grand Committee, will not have to search around wondering where things have or have not gone.
I thank the Minister. He has served me and us very well in this.
My Lords, I support Amendments 3, 4 and 5. They are the product of ideas from all parts of the House: from the noble Lord, Lord Hodgson, and particularly from Lib Dem Members. Amendment 4 strikes me as a very important innovation. Other parts of the Administration may want to ponder what should be done here, because while it will all be down to the Government how they use it, it creates a mechanism by which we get will close to being able to amend an SI. Clearly, no great measures are going to fall because we have no great power to influence them and we all know that we are not going to vote on such SIs.
However, to be able to discuss an SI with the Government—obviously not on the Floor of the House but perhaps by approaching Ministers on particular issues—before it is laid would be an important step forward. Proposed new paragraph (b)(ii) and (iii), inserted by Amendment 4, is also important for making how such an SI is generated much more structured. I hope this will give real transparency to SIs, which can at times be very complex. I end by thanking the Minister for his efforts on the Bill and almost by celebrating, for want of a better term, the extent to which we have been able to come to consensus.
I thank the noble Lord, Lord Tunnicliffe, for his last intervention. In effect, I think he was saying that in the way we have been working together we have perhaps somehow pioneered a new way of approaching financial secondary legislation. I am pleased that he feels that.
I am grateful to my noble friend Lord Hodgson for his support for the amendments. He was tempting the noble Baroness, Lady Kramer, to rehearse the vigorous and full debate which took place in Committee on these provisions. Perhaps I may step out of the middle simply to reiterate that the Bill is not the Government’s proposed long-term solution for all financial services legislation. The Government will take forward their proposals for a sustainable, long-term model in due course, when there will be lots of opportunities to discuss the important issues which have been raised.
My Lords, I again thank noble Lords for their contributions. The noble Lord, Lord Sharkey, made a contribution in Committee in which he expressed concern about the omission of some files from the Schedule and Clause 1. At Second Reading and in Committee the omission of two sustainable finance files, which complete the EU’s sustainable finance package, was raised. I am pleased to confirm to the noble Lord and the House in general, and to the sustainable finance industry, that the Government are happy to add these two files to the Schedule via this amendment. I thank him for pointing that out and I beg to move.
(5 years, 6 months ago)
Lords ChamberThis text is a record of ministerial contributions to a debate held as part of the Financial Services (Implementation of Legislation) Bill [HL] 2017-19 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
My Lords, very briefly, I should like to ask the Minister a question to do with the in-flight EU prospectus regulation, which has passed all its legislative stages but has not yet been gazetted, as I understand it, and so cannot be treated as settled legislation and is therefore treated in the Bill under the amendment provisions in Clause 1(2)(b). If the legislation is gazetted while the Bill is in the Commons, do the Government intend to move it into the category of settled legislation, governed by Clause 1(2)(a)? What happens if the legislation is gazetted after the Bill has left the Commons but before 29 March? How will the Government make sure that the power to make adjustments is not applied to the now settled piece of legislation?
My Lords, that is a good question. We had hoped that it would be gazetted before then, in which case we could then have made the amendment that we talked about. I was grateful for the noble Lord’s suggestion on that. I cannot say that we have had an explicit conversation about this aspect, but it is going to arrive. Providing that it passes your Lordships’ House, it will be heard in the Commons I think on Monday next week. The same principle would apply—that if it is gazetted we will put it in there. That was certainly the spirit of what we agreed. I will make absolutely sure that the Economic Secretary and the Financial Secretary, who are dealing with this in the other place, are apprised of the commitment that I gave and which we will seek to honour.
My Lords, I am grateful for that answer, which shows that the Government are on top of the issue—against a background where we must all recognise that time is somewhat short with regard to this legislation. The SI relates to a service industry that is a crucial part of our economy. We could not afford any situation in which a gap occurred; I am sure that the Minister is seized of that fact.
We are all aware of the fact that there are not many days left to the point where we are due to leave the European Community, yet there is still a very large number of SIs to be considered. Slips such as this, which are minor, can be remedied reasonably quickly by appropriate action, as the Minister indicated. But slips such as this could be costly if we are right up against the wire with regard to the legislation we are seeking to pass. We must all be conscious of the fact that the Government’s programme between now and the end of March is pretty demanding, to put it mildly. So, although I accept entirely what the Minister said and am reassured by the promptness of the Government’s response, this is an indication that there is many a slip between cup and lip, and the Government do not have much time for a monumental programme.
My Lords, before the Minister responds, will he give me some assurances about how these regulations and this legislation, when it becomes legislation, are going to have any particular impact on online financial institutions? I think that they are the ones where the future is going to lie. I declare an interest as a former chairman of Monzo, an online bank. It is important that the Minister gives some reassurance about the particular impact that this could have on a completely different form of financial institution.
I thank the noble Lord, Lord Davies, for his comments. As he has set out, the schedule that we are up against here is pretty demanding. All of us on the Front Benches are in solidarity in recognising the demands of the work going on. It is also demanding on some of the committees of your Lordships’ House, which are having to do an incredible amount of work. I am thinking of the Secondary Legislation Scrutiny Committee and its sub-committees, under my noble friend Lord Trefgarne and the noble Lord, Lord Cunningham of Felling, which is doing a tremendous amount of work.
The noble Lord, Lord Adonis, asked about the progress being made. We have agreed that we will provide regular updates. We have approximately 60 pieces of secondary legislation that need to come through. Around 45 are subject to the affirmative procedure and, of those, 22 or 23 have made their journey through the House, with some benefiting from the scrutiny of the noble Lord himself. That is basically where we are: about half way. We have some 31 sitting days before Brexit, so it is a pressurised and demanding situation.
I turn to the point made by the noble Lord, Lord Foulkes, about the Delegated Powers and Regulatory Reform Committee. I thank that committee in particular because it has done an excellent piece of work. In fact, we almost took the committee’s script to express concerns about the extent of the Henry VIII powers, some of the wording and some of the files that were in flight and which we have just been talking about. I am pretty sure we have addressed all those concerns. If that is not the case, I will write, but from recollection we wanted to address all the points.
The noble Baroness raised the online community. Of course a number of pieces of legislation relate to online financial regulation. I cannot be specific about which ones are relevant but it is a crucial point. We have had many long discussions in Grand Committee in the Moses Room about statutory instruments that have a strong online financial services element to them and make a significant contribution to the success of UK financial services. We want that to continue once we leave the European Union.
My Lords, perhaps I may say a word or two to put this discussion into perspective. This side hates the idea of a no-deal exit and so on, but the Bill is an outstanding example of co-operation by the Government. The Bill has changed massively from the one introduced at Second Reading. The Government facilitated discussions with the Minister and officials. It is now a much better Bill and, given its task, which we abhor, it is nevertheless a good Bill.
I will ask a supplementary question to follow up the excellent contribution of my noble friend Lord Tunnicliffe about perspective and co-operation. The Bill, with the excellent co-operation of the opposition parties, has taken a number of weeks to get through this House, as the Minister knows. We are now dealing with the Trade Bill, the Healthcare (International Arrangements) Bill, the Agriculture Bill, the Fisheries Bill, the immigration Bill and the withdrawal Bill. Could the Minister, for whom I have great respect because he has a lot of experience here and in the other place—perhaps he has more wisdom than the previous people of whom I have asked this question—give me some indication of how these Bills, of which there are at least six, can be dealt with between now and 29 March?
The noble Lord knows, having stood where I stand, that the Motion before the House is that this Bill do now pass. To be frank, most of us on the Front Bench are taking it one Bill and one SI at a time, so I will sidestep that question. I am sure my noble friend Lord Young, who has provided excellent assistance throughout on this, and is a member of the Government Whips’ Office, will have heard the remarks. I also thank the noble Baroness, Lady Bowles—
That is really helpful. Is the Minister now saying that the noble Lord, Lord Young, for whom I have equally great respect, will answer that question?
If my noble friend Lord Young were so inclined, he would probably want to give me a kick from the side and suggest that I keep moving on.
I turn to the point made by the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Bowles, because it was a good one: there is a great deal of expertise in this House, which could be brought to bear. We even had some free legal advice from the noble and learned Lord, Lord Judge, to help us on our way. When we work constructively and recognise that the Government have a right to make progress with legislation, we can do some good work. Certainly, we can ensure that this legislation leaves your Lordships’ House much more fit for purpose and in better shape as it moves to the other place. That will, we hope, assist in expediting it through its procedures. I beg to move that the Bill do now pass.
(5 years, 6 months ago)
Commons ChamberThis text is a record of ministerial contributions to a debate held as part of the Financial Services (Implementation of Legislation) Bill [HL] 2017-19 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
I beg to move, That the Bill be now read a Second time.
I should begin by paying tribute to my noble Friend Lord Bates for piloting the Bill through the other place so successfully. I am sure that the House will recognise the importance of supporting our financial services industry no matter what the outcome of negotiations on leaving the European Union. The UK’s position as a world-leading financial centre is critical to our prosperity. In 2017, the financial sector contributed £131 billion to the UK economy. It employs over 1 million people across the country, two thirds of whom are outside London, including in the thriving financial centres of Edinburgh, Belfast, Manchester and Cardiff. UK exports of financial services were worth over £77 billion in 2017, which highlights the importance of the sector on the global stage.
I am sure it was an oversight, but in his list of UK financial services centres the Financial Secretary neglected to mention the Yorkshire centres of Leeds and Halifax—of course where the Halifax bank was born—and the many building societies that remain in our area.
I thank the hon. Lady for that very appropriate intervention. She is quite right to mention the local presence of financial services across the United Kingdom.
My right hon. Friend the Chancellor of the Exchequer has already set out the Government’s long-term vision for the future success of the UK’s financial sector, based on world-leading positions in the markets of the future, whether in green finance or in FinTech, and we are pursuing an ambitious global financial partnership strategy to cement our trading relationships with key partners.
However, we also need to ensure that we have appropriate regulations in place, with the right balance between protecting stability and fostering competitiveness. We aim to be the safest and most transparent place to do business, leading the race to the top and always championing high regulatory standards in financial services markets. The Bill will ensure that, in a no-deal scenario, the UK’s regulatory landscape will not fall behind its international counterparts.
The Government have been clear that we do not want a no-deal scenario, but it remains the role of a responsible Government to continue to prepare for all possible outcomes. That includes the event that we reach 29 March without a deal. In those circumstances, we will have brought on to our statute book the vast body of EU legislation that needs to be operative at the point of exit. However, the powers under the European Union (Withdrawal) Act 2018 relate only to legislation operative immediately before exit day. A number of pieces of EU legislation will not be covered by the powers conferred under the withdrawal Act. They include proposals that are either already agreed but which have not yet been implemented, or those that are soon to be agreed beyond our exit from the European Union.
The Minister talks about the in-flight legislation and the proposals as they appeared in the other place. When they first appeared in the other place, they were missing a couple of bits relating to the taxonomy of environmentally sustainable activities that would allow companies to green-check their revenue streams, and to new disclosure requirements for asset owners such as pensions schemes, which is of great concern to the Environmental Audit Committee. Can he explain why those two proposals were left off the list? The Bill has now been amended in the other place, but why were they originally missing?
I think this is an example of Parliament carrying out its process and legislation being improved as a consequence. The most important point is where we have ended up. Having listened to the arguments put forward in the other place, the Government chose to embrace the amendments that brought those two particular files into the scope of the Bill.
The Bill provides a mechanism through which the UK will be able to implement in-flight financial services legislation. They fall into two categories. The first category of files relates to those that have been agreed while we have been a member of the European Union, but will not apply or be in force prior to the UK’s exit from the EU on 29 March. In a no deal and in the absence of the Bill, there would be no effective way to implement those files in a timely manner, as each would require primary legislation. The Bill allows the Government to domesticate each of these files in whole or in part via an affirmative statutory instrument. It further provides a power to fix deficiencies within them.
Will my right hon. Friend give way?
I will give way first to my hon. Friend the Member for Bromley and Chislehurst (Robert Neill), but wait with great anticipation for the intervention of my right hon. Friend the Member for Loughborough (Nicky Morgan).
I am very grateful to my right hon. Friend for giving way. I entirely support the thrust of what is sought to be done here, as does the financial services sector. None of us wish that it should ever be necessary, but given that we are seeking to set out these safeguards, can he help in relation to one matter of in-flight legislation? In clause 3(1)(e), there is specific mention of the inclusion of
“delegated acts under the Prospectus Regulation”.
The financial services sector very much welcomes that being included, because it is important. On the other hand, for another important piece of in-flight legislation, the Securities Financing Transactions Regulation referred to in clause 1(3)(f), there is no use of the words “delegated acts”. It is anticipated that under both examples level 2 legislation, as it is called, might be desirable, so can the Minister help by explaining why the distinction has been drawn in that way?
I thank my hon. Friend for his question. He is quite right, although the reference to the Securities Financing Transactions Regulation is, I think from memory, in clause 1(12), line 35 or thereabouts—the fourth file although the fifth measure in the list, the earlier two being combined. As to the main point on which he seeks clarification, the Bill will bring into effect those measures, as amended or otherwise, by affirmative statutory instrument at the time they are brought in. It will then be a case of the way in which those measures are dealt with in terms of the delegated powers to which he refers.
I thank the Minister for giving way. In his letter to colleagues last week, the Economic Secretary stated that the Bill will allow for the Government to choose to implement only those EU files or part of those files which they deem beneficial for the United Kingdom. The Minister talks about whole or parts of legislation. Is he able to set out which of the files or parts of legislation the UK does not intend to implement, and how they will make the decision about what is or is not beneficial to the United Kingdom?
I would make two points. First, where we will end up with the various files that are the subject of the Bill will, to some degree, be determined by where we end up shortly after or after any no-deal exit. I would imagine that at that point the EU would also wish to be negotiating with us on those measures. Secondly, the files themselves, under the schedule as opposed to clause 1, are being negotiated at the moment. We therefore do not have clarity on the exact form they will take.
The second category of files, as I explained, are those that are still in negotiation. These are files that the UK has, in many cases, played a leading role in shaping, and that could bring significant benefits to UK consumers and businesses. The Bill also allows the Government to domesticate these files, in whole or in part, via affirmative statutory instrument. Given that the UK will not be at the negotiating table when the files are finalised, we will be unable to advocate for the interests of the UK’s financial services sector during those negotiations. The Bill therefore provides the Government with the ability to make adjustments to the files that go beyond the deficiency fixing powers for the agreed files. These powers are clearly defined and proportionate.
I am extremely grateful to the Minister for giving way. As he has outlined, these are powers that would only be used in the event of a no deal. As a Treasury Minister, I would imagine he is probably losing more sleep than most Government Ministers at the prospect of a catastrophic no-deal situation. Will he outline what reporting mechanisms will be introduced by the Treasury for how these powers are used, either by the Treasury or by Treasury-affiliated bodies such as the Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority?
I am pleased to report that the Bill, as amended in the other place, allows for reporting in respect of the statutory instruments on a six-monthly basis—that commitment is in the Bill—and that there will be four periods in total. The first period of six months will commence from the moment the Bill receives Royal Assent. The report will both look backwards at the powers that have been exercised up until that point and forwards to those powers that may be exercised in the coming period. As to other organisations, such as the Bank of England, there will be a requirement for annual reporting on the basis of the measures undertaken by those regulatory organisations.
The Financial Secretary is being extremely generous, but it may actually speed things along. Can he help me on one matter relating to the second class of legislation, the level 1 files? He set out a list of files that are included in the second category. Is it intended that that is entirely exclusive? The Bill deals largely with the procedure for dealing with these files. I have in mind, for example, the proposals that are being developed by the Commission on non-performing loans and on business crowdfunding services—again, areas where the UK has had a good deal of input into initial discussions but that are not actually listed in the Bill. Is it intended to deal with those? If so, in what way?
I can confirm to my hon. Friend that the list is exhaustive in the terms he was discussing. In the case of non-performing loans, these matters were considered but it was decided that the number of these in relation to the number within the EU was relatively low and that existing tools that are available were adequate to deal with those particular matters. Hence, that particular issue does not feature within the scope of the Bill.
Changes cannot be made in such a way that the implemented files depart in a major way from the effect of the original legislation. However, the Government will have some flexibility to make adjustments in order to take account of the UK’s new position outside the European Union. As a result of amendments to the Bill during its passage through the other place, the Treasury will be required to publish a draft statutory instrument at least a month before laying it, alongside a report detailing: any omissions from the original EU legislation; any adjustments from the original EU legislation; and the justification for those adjustments.
The Treasury will be further required to publish six-monthly reports on how the power has been exercised and how it will be exercised in the following six-month period. Following contributions in the other place, the Government have also introduced a requirement for the financial regulators, the Bank of England and the Financial Conduct Authority, to report annually on their use of any powers sub-delegated to them as a consequence of the Bill.
Having gone through the Bill’s various provisions and outlined its importance both to our future financial stability and to making sure that we are in the right place in the unlikely and undesirable event that we face a no deal, I commend the Bill to the House.
I thank all Members for their contributions to the debate. As my right hon. Friend the Financial Secretary to the Treasury set out earlier, the Government do not want a no-deal scenario, but our job as a responsible Government is to prepare for all possible outcomes, including reaching 29 March without a deal. The Bill forms an important part of those preparations. In a no-deal scenario, it would ensure that we could maintain the UK’s reputation as a global leader and that the competitiveness of our financial services industry would be maintained. The UK has in many cases played a leading role in shaping these proposals over a number of years, and they will bring benefits to UK consumers and businesses once they have been implemented. I want to talk about the four or five themes that have been raised in the debate, after which I will address the points made by the hon. Member for Wakefield (Mary Creagh).
I refer the House to my entry in the Register of Members’ Financial Interests. The Economic Secretary to the Treasury will be aware of our exchanges in Committee regarding EU regulations as they relate to key information documents and how KIDs are adversely affecting the assessment of investment trusts. The trade bodies oppose them, including the Association of Investment Companies, which has suggested that the investors’ response to them should be to “Burn before reading”. Can the Minister report back on his deliberations with the Financial Conduct Authority, which has been rather slow out of the blocks? Ultimately, it is the Government’s responsibility to get this right.
I am happy to respond to my hon. Friend’s intervention. I acknowledge his expertise in this area and his excellent article in the Investors Chronicle this week. I would point out that, just last summer, the FCA issued a call for input and sought industry views on the next steps for packaged retail investment and insurance products—PRIIPs. That consultation closed on 28 September and the FCA is reviewing the responses carefully. It will publish a statement in the first quarter of this year. When I next see the chief executive of the FCA, I will challenge him on that publication date.
Let me turn to the substantive thrust of the concerns raised in the debate. The first relates to the desirability of no deal. As I have said, we do not want a no-deal scenario, but we need to be responsible and to plan for all eventualities. Our priority remains getting approval for the deal that we have negotiated with our European partners, which will deliver on the democratic choice of the British people.
Turning to the other preparations, we have now laid 50 statutory instruments before Parliament. The allegation from the hon. Members for Oxford East (Anneliese Dodds) and for Stalybridge and Hyde (Jonathan Reynolds) was that there had been no coherence to the Government’s work, but as the hon. Lady will know, we will have had 53 statutory instruments. We have more debates tomorrow and on Wednesday, and I think several more next week. We are addressing the deficiencies in all the major EU files and the relevant domestic legislation. This will ensure that we have a functioning financial services regime at the point where we leave the EU in a no-deal scenario. Our aim throughout this work has been consistently to minimise disruption for firms and their customers and to provide a smooth transition when we leave the EU.
The hon. Member for Glasgow Central (Alison Thewliss) made a point about the breadth of the power in this legislation. We have worked hard to ensure that this is a clearly defined power and that changes cannot be made such that the implemented files depart in a major way from the original legislation. However, the Government will retain some flexibility to make adjustments to take account of the UK’s new position outside the European Union. The amendments proposed by the Government require the Treasury to publish draft SIs at least one month in advance of laying, as well as a report detailing where there have been omissions and changes and giving the justification for those changes. We believe that the report will allow parliamentarians to scrutinise the changes before the SIs are laid. If the UK were forced to take on EU legislation either in whole or not at all, it is likely that we would be able to domesticate very few of these files in good time, so even the positive aspects of the reforms would be delayed. This is a pragmatic measure to deal with the reality of a very undesirable situation, and our approach has been endorsed by the industry, with which we have engaged in the preparation of the Bill.
The Minister talks in his letter about how things are deemed to be beneficial for the UK, but he and I will have very different opinions on what would be beneficial for the UK, or indeed on whether Scotland should be part of the UK, so how can he say that that is not a policy decision?
We are talking about a no-deal scenario, which we cannot fully anticipate or set out in legislation. However, there would be a full discussion and additional legislation in those circumstances.
For the benefit of the House, I want to clarify the industry engagement that has been undertaken on this Bill. The Treasury engaged with industry ahead of the introduction of the Bill, and the financial services industry has been expecting many of the files for some time. For example, the industry will be generally supportive of the changes that will be implemented with the European market infrastructure regulation regulatory fitness and performance programme—EMIR REFIT—file, which introduces changes to regulations for clearing and reporting requirements, to make them more proportionate and to provide further clarifications. We have been engaging to deliver what the industry expects.
With respect to accepting EU laws after exit, the Bill is not about accepting such laws wholesale. We will be able to implement only those pieces of legislation that are beneficial to the UK, because we will be able to choose the files, or specific provisions within those files, that we are going to implement. For those files that we have already agreed at EU level but not yet implemented, we will be able to fix deficiencies similar to what was done in relation to the European Union (Withdrawal) Act 2018. For those files on which negotiations will be ongoing at the point of exit, we will be able to make some adjustments to them to take account of the fact that we will not be around the negotiating table when they will be finalised.
Moving on to the model for financial services regulation more generally, the Government of course recognise that this legislation should apply only for an interim period while we consider a sustainable, longer-term approach that balances the need to ensure appropriate parliamentary oversight of financial services legislation after leaving the EU with the need to maintain the flexibility and competitiveness of our regulatory regime. That is why the model in the Bill would apply only for a temporary, non-extendable two-year period post exit, specifically in a no-deal scenario, and to specified EU files only. The Government will take forward our approach for a sustainable long-term model in due course.
Turning to the points made by the hon. Member for Wakefield, the UK has publicly led on the development of sustainable finance, as she set out, and the Government are committed to the sustainable finance agenda and are a leader in green finance. That is why we have included these files in the Bill. We recognise that the files form part of the EU’s response to the Paris climate change agreement and the UN sustainable development goals. The Government support the aims of the files and do not consider them harmful to industry at their current stage of development. As such, we were pleased to add them to the schedule to the Bill, and we thank the noble Lords who recommended their inclusion.
I stress again that this legislation involves a temporary measure, with the delegated power limited by a two-year sunset clause and subject to the affirmative procedure in each and every instance of its use. Following constructive engagement in the other place, the Bill is clearer about the power contained within it and has much stronger reporting requirements than at its introduction.
I thank all right hon. and hon. Members for their contributions to this debate. I am sure that we can agree on the importance of continuing to support the UK’s world-leading financial services industry in any future scenario. I look forward to discussing the Bill further in Committee, and I commend it to the House.
Question put, That the Bill be now read a Second time.