Draft Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019
(5 years, 10 months ago)
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The Committee divided: - Ayes: 9 / Noes: 8 - Question accordingly agreed to.
The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019.
It is a great pleasure to serve under your chairmanship, Sir David. The Treasury has been laying statutory instruments under the European Union (Withdrawal) Act 2018 to ensure that the UK continues to have a functioning regulatory and legislative regime for financial services should it leave the EU with no deal or implementation period. The regulations are part of that work and fix deficiencies in UK legislation that relate to the UK’s prospectus and listing regimes, as well as its transparency framework, to ensure that they function appropriately after exit.
The approach taken in the statutory instrument is consistent with that of other statutory instruments being laid under the 2018 Act in maintaining existing legislation at the point of exit where possible to provide continuity, but amending relevant legislation where necessary to ensure that it works effectively in a no-deal context. It amends the legislation that implements the prospectus directive, the transparency directive, the consolidated admissions and reporting directive—CARD—and related legislation to ensure that the UK continues to have an effective prospectus and listing regime and an effective transparency framework to regulate activity in the UK’s capital markets.
The prospectus directive harmonises rules across the European economic area to govern the format, content, approval and distribution of prospectuses. Prospectuses contain information on issuers seeking admission to trade on a regulated market or issuers seeking to offer securities to the public. The transparency directive provides for EU-wide transparency requirements that ensure that issuers with securities, such as bonds or shares, who are admitted to trading on an EU-regulated market publicly disclose certain information. CARD sets out the rules governing the admission of securities to official stock exchange listing and the information to be published on those securities.
The UK legislation implementing the prospectus directive, the transparency directive and CARD needs to be amended, given that the UK will be outside the EU’s legal, financial regulatory and supervisory framework in a no-deal scenario. The amendments will ensure that the UK continues to have a functioning prospectus regime, listing regime and transparency framework in that scenario.
First, under the prospectus directive, certain public bodies are exempt from the requirement to produce a prospectus. The statutory instrument extends the exemption to the same set of public bodies in all third countries post exit. If a UK-only approach were taken, EEA public bodies that currently access the UK market would be obliged to produce a prospectus to issue securities in the UK, which they would not be required to do when issuing in the EEA. Additionally, extending the exemption to public sector bodies of third countries is consistent with the UK treating EEA member states and third countries equally.
Secondly, under the current arrangements, EEA issuers can passport prospectuses approved by another EEA regulator for use in the UK. Post exit, the statutory instrument will require EEA issuers to obtain the Financial Conduct Authority’s approval of their prospectuses when seeking access to the UK’s capital markets. That is in line with our current treatment of third countries and with the approach taken across other financial services statutory instruments laid under the 2018 Act.
The statutory instrument also introduces grandfathering arrangements that enable any prospectus approved by an EEA regulator and passported into the UK before exit to continue to be eligible in the UK up to the end of its validity, which is usually 12 months after initial approval. That includes prospectuses that are supplemented with further information as necessary.
Furthermore, the explanatory memorandum for the statutory instrument states:
“in a no deal scenario, HM Treasury intends to issue an equivalence decision, in time for exit day, determining that EU-adopted IFRS”—
international financial reporting standards—
“can continue to be used…to prepare financial statements”
for UK transparency and prospectus requirements. That decision will enable EEA state-registered issuers in the UK that are making an offer of securities, or that have securities admitted to trading on a UK-regulated market, to continue to use EU-adopted IFRS when producing their consolidated accounts. The decision aligns with the Government’s approach to provide post-exit regulatory continuity. It is supported by the FCA and has been welcomed by industry.
Additionally, the SI will transfer responsibility for powers and functions currently held and carried out by EU authorities to the appropriate UK institutions. Specifically, it transfers powers to the Financial Conduct Authority from the European Securities and Markets Authority—ESMA—to create and amend certain binding technical standards. It also transfers powers to the Treasury from the European Commission, including the ability to make delegated Acts pursuant to the relevant legislation. The transfer of functions is consistent with the current split between the regulatory role of ESMA and the legislative power of the Commission. The SI also makes further amendments to other retained UK and EU legislation to ensure that the prospectus regime, listing regime and transparency framework function correctly in the UK once it leaves the EU.
Finally, the SI removes the requirements for the FCA to share information and co-operate with EU regulators, as such an obligation would not be appropriate as of exit day, given that there will be no guarantee of reciprocity. The FCA, however, will continue to have the ability to co-operate with EU counterparts through the existing framework in the Financial Services and Markets Act 2000, consistent with the current arrangements with all other third countries.
Certain provisions of the prospectus regulation have applied since July 2017 and July 2018, and the remainder of the legislation is due to apply from July 2019 after the UK leaves the EU. It is the Government’s intention to domesticate the remaining provisions as they will constitute the prospectus regulatory regime from July 2019. However, the European Union (Withdrawal) Act will convert into UK law only EU legislation that is already in force and applies immediately before exit day. Therefore, remaining provisions of the prospectus regulation will be domesticated via a statutory instrument laid under the Financial Services (Implementation of Legislation) Bill and in-flight files legislation. The Bill as currently drafted requires the affirmative resolution procedure for every statutory instrument made under it, provided that Parliament has an opportunity to debate and discuss each file that the Government are implementing.
The UK has played a leading role in shaping the prospectus regulation for the benefit of consumers and industry. It is welcomed by industry and acts to cut the costs to business of producing a prospectus in the UK. In terms of industry engagement and transparency, on 12 December 2018 the Treasury published the instrument in draft with an explanatory policy note published on 21 November 2018 to maximise transparency for Parliament and industry. Throughout the drafting process, the Treasury has been working closely with the FCA and has also engaged the financial services industry using the assistance of TheCityUK as a convening body for the appropriate representative firms and trade bodies on the SI, and it will continue to do so in future.
To conclude, the Government believe that the proposed legislation is necessary to ensure that if the UK leaves the EU without a deal or an implementation period, the UK’s prospectus regime, listing regime and transparency framework can continue to function appropriately post exit. I hope colleagues will join me in supporting the regulations. I commend them to the Committee.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to serve on this Committee with you in the Chair, Sir David. As always, I am grateful to the Minister for his explanation of the statutory instrument. Once again, the Minister and I are here to discuss a statutory instrument that would make provision for a regulatory framework after Brexit in the event that we crash out without a deal. On each occasion, I and my Labour Front-Bench colleagues have spelt out our objections to the Government’s approach to secondary legislation. The volume of EU exit secondary legislation is concerning for accountability and proper scrutiny. The Government have assured the Opposition that no policy decisions are being taken. However, establishing a regulatory framework inevitably involves matters of judgment and raises questions about resourcing and capacity.
Secondary legislation ought to be used only for technical, non-partisan, non-controversial changes because it allows limited accountability. Instead the Government continue to push through far-reaching financial legislation via this vehicle. As legislators, we have to get it right. The regulations could represent real and substantive changes to the statute book and they need proper in-depth scrutiny. In this light, the Opposition would like to put on record our deepest concerns that the process is not as accessible and transparent as it should be.
Yet again, we have an SI that changes primary legislation—in this case, FSMA. At the latest count, 288 changes had been made to that Act through Henry VIII powers, as part of the no-deal preparation process. In that connection, I am increasingly concerned about the mission creep that has been evidenced via the progression of SIs that have been laid before Delegated Legislation Committees.
After a discussion in one such Committee this morning about what was and was not facilitated by the EU (Withdrawal) Act 2018, I went back to that legislation to examine exactly what it describes as deficiencies, which are the purported basis for the SI. There is no reference to Ministers being able to determine what may be in the national interest, and to use secondary legislation to enact that. I have no doubt that there would be considerable financial turbulence in the event of no deal—the Minister was absolutely right to emphasise that this morning—but the no-deal SIs, coupled with the 2018 Act, do not provide carte blanche to deal with market turbulence.
The deficiencies mentioned in the 2018 Act do not encompass general problems that might arise and require a public policy response. Instead, they cover specific areas, such as where retained EU law would be redundant because it would have no practical application, or where reference is made to reciprocal obligations that would no longer exist. However, the Minister intimated this morning that it was acceptable for the FCA effectively to adopt a completely different approach to approving benchmarks from that of the European Securities and Markets Authority, if it felt that that was justified by its own objectives and not, I underline, those of the retained EU legislation. We have a similar issue with this SI, to which I will return later.
As with many of the instruments that we have been considering recently, the SI seeks to transfer significant powers to the FCA. First, regulation 19 allows the FCA to make rules requiring disclosure by issuers, but there is little guidance about how it should do that or about the limits of the rules. Will the Minister please provide us with further information in that regard?
Secondly, regulation 27 gives the FCA regulating power to make corporate governance rules relating to the corporate governance of issuers who want to trade securities. I hope that the Minister can explain the rationale for providing that wide-ranging power to the FCA, rather than allowing the Treasury to set those rules, at least in part. I appreciate that it would be done under the purview of the Treasury, but surely in many circumstances there would be more of a direct political impact in that area.
Thirdly, as with the SI we discussed only this morning, we find a new definition, this time that of “debt securities”. As before, it would be helpful to understand why the definition is present here.
Fourthly, I want to ask about the process for determining equivalence between UK and non-UK accounting standards in relation to the issuing of securities. The explanatory memorandum appears to suggest that the creation of an equivalence regime is an aspiration rather than a mechanism provided within the SI. I appreciate that it was probably written quite some time before the latest draft of the SI was, but the power to assess equivalence does appear to be provided, in regulations 67 and 68.
The process of assessing whether other countries’ accounting standards are equivalent to the UK’s or to the EU’s IFRS, which the regulations seem to deem equivalent to the UK’s approach, could be very onerous. It would be helpful to understand, first, whether the resource implication has been taken on board, and secondly, and above all, to know the anticipated timing of the process of assuring equivalence. If securities cannot be traded by issuers based in non-EEA countries until their accounting conventions have been deemed equivalent by the FCA, that could surely pose significant problems for the financial markets, even accounting for the fact that existing prospectuses will continue to be able to be passported into the UK under the SI. That would be an issue for new securities but also for those whose prospectuses had expired.
I would have thought that the cost of a potential gap would be rather more than the £700 one-off familiarisation cost per firm that is intimated in the impact assessment. There is an acknowledgement in that assessment that a change to business processes would be needed as a result of the SI, but the costs of that change are not quantified. From what I can see, there is just the one-off familiarisation cost, and we had a discussion about the basis for that this morning.
In the circumstances, it is unclear why the Government seem to have chosen not to assume equivalence for accounting procedures with non-EEA countries where the EU might have already deemed them equivalent for an initial period, with the FCA being able to review that later. In fact, there seems to be an inconsistency here, because a very different approach has been taken when it comes to allowing public bodies to issue securities without having to comply with prospectus requirements. There is a completely open door for those public bodies, even if they are from outwith the EEA.
As the Minister said, the impact assessment states that it is appropriate to enable public bodies to issue securities without their having to comply with prospectus requirements, even if they are from outwith the EEA, because that
“offers the most appropriate balance between investor protection and maintaining the attractiveness of the UK market, and is therefore the most appropriate option to preserve the continuity of the UK’s financial services market—in line with HM Treasury’s overall approach to financial services legislation, and the framework set out in the EUWA.”
Given what I said previously, I suggest that that exemption is in line with the former but not the latter. It may well be in line with the approach that the Government decide to take to financial services legislation, but it is not clear that it is justified by the 2018 Act.
Fifthly, the explanatory memorandum refers to an SI that was to be laid before the House by the Department for Business, Energy and Industrial Strategy this January—last month—about the future adoption and use of UK-adopted international accounting standards. The Minister seemed to suggest that that would happen only at some unspecified point before exit, so it would help if he could give us more clarity about the timing. BEIS is not the Minister’s Department, and I do not know whether the SI has been delayed because of issues with setting up the new UK IFRS endorsement board within the Financial Reporting Council, but given that the explanatory memorandum refers to the SI being laid before the House last month, it would be helpful to know when it will be in place. In the SI that we are debating, reference is made to UK-adopted international accounting standards, so presumably amendments will need to be made to change the language once the BEIS SI has been laid before the House.
Finally, I am pleased that the Minister made it clear that the future elements of the prospectus regulation that have not yet been enacted will be covered by the in-flight files Bill; that was not stated in the explanatory memorandum. I wonder about the extent to which that coheres with the approach taken to benchmarks. This morning it was stated that although all the provisions for benchmarks had not yet commenced, the SI assumed that they would be complied with, whereas with the SI that we are debating it is suggested that additional legislation will be necessary. That is presumably because more substantive changes will come in under these regulations, but clarification would be helpful.
John Glen
I thank the hon. Member for Oxford East for her examination of the points that have arisen. I will initially address her concerns about the appropriateness of the judgments that the Treasury and I, as a Minister, are making.
I do not think the hon. Lady and I agree on our interpretation of the powers under the 2018 Act. I feel as though we are having quite a lot of scrutiny as we go through the process. Each SI, as I explained, goes through a thorough process of engagement with industry and the regulators, and I do not recognise the notion of mission creep. I acknowledge the concerns that the hon. Lady raised this morning, and I have started to respond to them by letter, which she will receive imminently. I will take account of what she said and look very carefully into the matter, but let me now address some of her specific points.
On the processes that the Government went through to make the equivalence decision, the decision will be made in time for exit day. The position that we have considered is to have the same rules as the EU, and the FCA has provided a technical assessment of the suitability of using the EU-adopted IFRS in the UK. We consider EU-adopted international financial reporting standards to be suitable for the specific purposes of preparing financial instruments for transparency directive requirements, and preparing a prospectus. That is because they enable investors to make a similar assessment of the assets and liabilities, financial position, profits and losses, and prospects of an issuer as financial statements drawn up in accordance with the UK-adopted IFRS, with the result that investors are likely to make the same decision about the acquisition, retention or disposal of its securities.
The intended decision recognises the interconnected nature of the UK and EU regimes, and it has been strongly welcomed by industry. In fact, if we did not adopt it, we would essentially oblige issuers to adopt a different way of presenting accounts. Arbitrarily asserting a differentiated regime would create burdens for those in the EU and other third parties.
When it comes to consultation engagement, I recognise that we have not undertaken a formal consultation on this statutory instrument, but it was published in draft on 12 December and we worked with the FCA throughout the drafting process to ensure that it was effective and fair. During that process, we engaged with industry, which expressed the view that the SI is not contentious, and that it largely reflects the minor changes to the legislation that will be necessary as a result of our withdrawal from the EU. Minor drafting changes suggested by industry as part of our engagement on the statutory instrument have been incorporated into the final version to improve the clarity of the text.
I will now clarify our approach to the prospectus directive and public bodies exemption. To address a deficiency arising from our withdrawal from the EU, we are extending such exemptions to bodies of that type in all third countries. In the absence of prudential justification, we cannot keep the scope of the existing exemption, which is for EEA bodies only, because we cannot offer preferential treatment to the EEA. We are obliged to treat public bodies in the EEA in the same way as we do other third-country public bodies. Restricting the exemption to UK bodies would exclude EEA public bodies that currently use the exemption, and they would have to start producing prospectuses in order to access the UK’s markets. That would negatively impact the attractiveness of the UK’s markets.
Our approach offers the most appropriate balance between investor protection and maintaining the effective functioning of the UK’s primary markets for capital. The hon. Lady’s substantive point was that we have made an arbitrary assessment, which constitutes policy origination. I assert that it is an intelligent interpretation of the most market-appropriate fix in the undesirable and urgent situation of no deal, against the Government’s intentions. I have now put that on record as our motivation.
The hon. Lady also raised issues about cost. As the SI largely replicates the current regulatory regime—except for the changes that are necessary to reflect the UK’s position outside the EU—it should have no significant impact on UK issuers accessing the UK’s capital markets. Such issuers will continue to operate as they did prior to the UK’s withdrawal from the EU. For example, they will secure approval for their prospectus directly from the FCA, as they do now. That is intended to minimise, as far as possible, the impact on issuers.
The issuers who are impacted will need to understand the changes, and the hon. Lady raised—as the hon. Member for Wallasey (Ms Eagle) did this morning—the question of how the relevant costs are computed. They are set out in an annexe to the explanatory memorandum, I believe, but I will draw attention to them in the letter that I am drafting to the hon. Member for Oxford East. We expect there to be a one-off cost of approximately £700 per firm, as she acknowledged. Given that the SI is designed to replicate the existing regime, we do not expect there to be any business change that will result in further transitional costs. Our engagement with industry during the drafting of the SI did not highlight such concerns about costs.
Anneliese Dodds
I am grateful to the Minister for those clarifications. To be absolutely clear, the equivalence gap that I was concerned about was not about EU IFRS and whether they are equivalent to UK rules. It was about non-EEA countries’ accounting rules and the process by which the FCA deems them to be equivalent. That process does not seem to be set out clearly in the SI. I am concerned that it could take the FCA some time to assess that equivalence, and that within that time costs could be imposed on business. Sorry; I obviously did not express that point sufficiently clearly.
John Glen
To be honest, I think the best thing is to write to the hon. Lady and set out my response clearly for the record, and also to make it available to the Committee.
The hon. Lady asked what we are doing in the SIs within the remit of section 8 powers on deficiency fixing, and I can say a little more about that. The 2018 Act, which gives Ministers the power to lay the SIs before the House, was debated thoroughly, and it represents the considered view of Parliament as we prepare to leave the EU. The section 8 powers were the subject of particular scrutiny and debate, and we spent approximately 12 hours in Committee debating the clause that grants them. What constitutes a deficiency in retained EU law is clearly defined in section 8 of the Act, and the Treasury is clear that the relevant SIs fall within the scope of that power. I do not think that the scrutiny that has taken place so far would have allowed us to reach this point, if that had not been the case.
On the question of whether the FCA has the resources to carry out the extra functions, we are absolutely clear that it does. It has had the additional resource of 130 full-time equivalents over the past year. Its business plan for 2019-20 will give more detail on that, but it has the discretion to raise more from a levy should that be needed. I accept that £16 million has been diverted to Brexit-related SIs, but I contend that that work is wholly necessary to prepare for the unwelcome outcome of a no-deal scenario without an implementation period.
The hon. Lady asked for an explanation regarding the FCA’s sub-delegation powers to legislate. Regulation 72 provides the FCA with the powers to make technical standards for the purposes specified in part 3 of schedule 2 to the SI. Currently, the European Securities and Markets Authority exercises those powers. As the powers relate to technical standards currently made by ESMA, it was considered appropriate to delegate them to the FCA rather than to the Treasury. Again, that is consistent with the financial services legislation domesticated under the 2018 Act.
The hon. Lady also drew attention to the in-flight files Bill. The challenge is that in a no-deal situation without an implementation period, a whole body of work is ongoing, some of which we have been very involved in, as a country within the EU, and some of which we absolutely desire to happen but will not land fully until after exit day. It would be possible to adopt the four files at the start of the in-flight files Bill, as per the terms that we discussed on Second Reading, only if we fixed the deficiencies in the language. They would essentially mark the next iteration of an evolution in the regulations on prospectus. In the same way, the general review that would cover the benchmarks we discussed this morning would have to be in the schedule of files. Those would not be the four that are nearly done, so we would have to make a judgment subsequently.
If I may, I will conclude the discussion. I will examine the record, and if there are any outstanding points, I will write to the hon. Lady and make my response available to the Committee. The Government contend that the SI is needed to ensure that the UK has an effective prospectus regime, listing regime and transparency framework. We seek to do that within the letter of the law. If the UK leaves the EU without a deal or an implementation period, we must ensure that we have made the appropriate provisions for the legislation to function. I hope that the Committee has found the sitting informative and will join me in supporting the regulations.
Question put.
Draft Merchant Shipping (Marine Equipment) (Amendment etc.) (EU Exit) Regulations 2019
(5 years, 10 months ago)
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The Committee divided: - Ayes: 9 / Noes: 1 - Question accordingly agreed to.
The Parliamentary Under-Secretary of State for Transport (Ms Nusrat Ghani)
I beg to move,
That the Committee has considered the draft Merchant Shipping (Marine Equipment) (Amendment etc.) (EU Exit) Regulations 2019.
It is a pleasure to serve under your chairmanship, Ms Buck, on this glorious February morning. Made under section 8 of the European Union (Withdrawal) Act 2018, the regulations correct deficiencies in the Merchant Shipping (Marine Equipment) Regulations 2016 and related legislation that arise from the UK’s withdrawal from the EU. “Marine equipment” is the collective term used to describe a ship’s safety and pollution prevention equipment. Examples include lifejackets, fire extinguishers and navigation lights. Marine equipment is regulated globally by the International Maritime Organisation under three international conventions.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
I have served on many of these Committees—I will be on more, I would have thought, after yesterday’s events—and the fact is that we come in and every Minister stands up and gabbles right through as though the measure is not important. The rate of knots at which this Minister is speaking means that I cannot follow. Could she slow down and articulate better, so that we can all hear? I am not blaming the Minister; it is the procedure that has been adopted—gabbling through. Please do not gabble.
Ms Ghani
I apologise for my speed of speech; I would probably put that down to my passion for the subject. If the hon. Member for Huddersfield would like me to slow down and extend the sitting, I will do so. I hope that I can now be heard by the hon. Gentleman— I can project my voice more if he so wishes—and even by my own colleagues, if they are not yet awake.
The three international conventions require flag state administrations to ensure that marine equipment complies with safety requirements as regards design, construction and performance standards. The UK’s flag state administration for these purposes is the Maritime and Coastguard Agency. Historically, each EU maritime administration had its own systems for approving marine equipment, so the EU adopted legislation to harmonise the way in which EU member states implement International Maritime Organisation marine equipment requirements. That legislation allows member states to designate conformity assessment bodies to issue an EU-wide approval for marine equipment.
The MCA, on behalf of the Secretary of State, has designated 10 conformity assessment bodies for the EU. The MCA intends to convert those 10 bodies from EU notified bodies to UK approved bodies after the UK’s withdrawal from the EU. That will provide continuity in approval of marine equipment in the UK and ensure that the UK continues to meet its international obligations.
Mr Sheerman
We hear many Ministers telling us whom they have consulted. I chair the Transport Safety Commission, so I know a little about this area. The last time that I served on one of these Committees, it was about air safety, and I discovered that the Minister had met not one leader of note of an airline—a chairman or chief executive—and nor, he thought, had the Member of the House of Lords whom he said led on that territory. How many people in the industry—chairs and chief executives, even the ones who do not have any ships—has this Minister met?
Ms Ghani
I am grateful for the hon. Gentleman’s intervention, because it allows me to explain the number of organisations that I have indeed met. I chair an inter-ministerial group for maritime, which reflects not only the views of Maritime UK, the UK Chamber of Shipping and all the large maritime ports in our country but the views of shipowners. Regular meetings take place, across the country. Indeed, if the hon. Gentleman follows my Twitter feed, he will see all the meetings that I have had at ports with shipowners and with the organisations that represent these people.
Mr Sheerman
The Minister is very generous to give way again. I talk to the Yorkshire ports people, and they say that they have not met her. There will be tremendous stress on the regional ports, but they have not met her. Could we have a list of the people whom Ministers have actually met—the names and dates?
Ms Ghani
It is a fair offer.
The MCA regularly meets the 10 bodies—another bunch of meetings is reflected here—and it has kept them informed of the proposals, which they fully support. Similarly, the MCA regularly meets manufacturers of marine equipment and has received only positive feedback on the proposed regulations.
The regulations make changes that are essential to adapting the EU approval system to one that can function effectively as a UK system after exit. The regulations will allow ships to continue to use marine equipment that has been approved under the EU system. However, they also establish a new UK approval system, making simple changes that enable that system to work, for example by changing references to “member state” and “the Commission” to references to “Secretary of State” and “the United Kingdom”. The regulations establish a UK conformity mark for the UK system, and UK ships will carry equipment that bears either the EU’s wheel mark or that new UK mark.
The regulations also include important saving and transitional provisions. First, UK conformity assessment bodies that are, immediately before exit day, designated EU notified bodies will automatically be converted to UK approved bodies on and after exit day. Secondly, any application for conformity assessment lodged with a UK body before exit day for EU approval will be treated as an application for UK approval on and after exit day, so that a manufacturer will not need to make another application for conformity approval if it is not determined before exit day. Thirdly, existing conformity assessment certificates issued by EU notified bodies before exit day will be treated on and after exit day as if they had been issued by a UK approved body.
Importantly, and to clarify, the regulations do not change the design, construction and performance standards applicable to marine equipment, the methods for conformity assessment of that equipment, the requirements to become a designated conformity assessment body for that equipment, or the mechanisms for protecting the UK market against fraudulent or unsafe equipment. The only significant difference between the UK and EU approval systems is that the EU system requires a manufacturer established outside the EU to appoint an authorised representative in the EU and the UK system does not. An authorised representative fulfils responsibilities for the manufacturer in the EU—mainly those of retaining documents. The UK has made the appointment of an authorised representative voluntary to ensure that our system matures as quickly as possible. The EU took the same voluntary approach for nearly two decades to enable its system to mature.
Mr Sheerman
I have to say that the Minister is getting up her speed again. Does she agree that if something goes wrong in shipping after Brexit—if there is a cataclysmic collision or sinking and oil pollutes half of the coastal area of Britain—it will be a terrible environmental and human tragedy? Is she telling me that there has been no risk assessment of the transition and the equipment, which is so sensitive? Or is she telling me that a risk assessment by her highly paid officials has come to the conclusion that there is no risk?
Ms Ghani
The hon. Gentleman conflates many different scenarios. The MCA already undertakes work. All we are suggesting through the statutory instrument is that it will continue to do that, but it will work with UK bodies, as working with EU bodies will no longer be appropriate once we exit the EU. The MCA and the marine accident investigation branch are of world standard in their dealings with issues that arise on our waters.
The MCA has other mechanisms through which to obtain the same documents, either directly from the manufacturer or from the relevant approved body.
Ms Ghani
I will continue to conclude. Along with merchant shipping notice 1874, the regulations are supported by two user-friendly marine guidance notes on marine equipment market surveillance and procedures for designating UK approved bodies, and a plain English marine information note for industry stakeholders.
Karl Turner (Kingston upon Hull East) (Lab)
It is an absolute pleasure to see you in the Chair, Ms Buck, and a privilege no doubt to serve under your chairmanship. I do not intend to detain the Committee long. As the Minister has already set out, the instrument seeks to maintain and update existing regulations covering the application of the international standards for marine equipment produced and certified in the UK and the EU used on UK and EU-registered ships after Brexit. The marine equipment covered includes life-saving appliances, crew accommodation and equipment for navigation, fire protection and marine pollution prevention.
Merchant shipping notice 1874 lists the bodies certified by the Maritime and Coastguard Agency to issue approval of marine equipment.
Mr Sheerman
I intervene on my hon. Friend because I could not get in to ask the Minister about the safety of vessels and whether there was a real problem with the danger of marine pollution. My hon. Friend knows well the port of Kingston upon Hull and the Yorkshire ports. I am getting feedback from them. They are extremely concerned about a major problem with this transfer. We have to remember that some of the worst disasters at sea were not predicted. They could very well happen in the turmoil post Brexit.
Karl Turner
My hon. Friend is right to raise safety issues, but I have to be honest. I am, indeed, the Member for Kingston upon Hull East, but it is not true to say that the port has approached me to raise safety issues with me. My hon. Friend has a great deal of knowledge in this area, and he is right to raise concerns about what happens once we leave the EU, but the reality is that the regulations continue to ensure safety standards in the UK when we leave the EU. I do not like the fact that we are leaving the EU; I have made my position on that matter very clear. But the truth is that we are leaving, and we need to ensure that safety regulations that already exist apply in domestic law once we have left.
MSN 1874 was reissued in June 2018. I note that paragraph 6.3 of the explanatory memorandum refers to a draft MSN 1874, but this does not appear to be available. The international market in marine equipment, especially for marine pollution prevention is likely to grow significantly in the coming years and will be accompanied by further regulations at IMO level.
Mr Sheerman
Does my hon. Friend agree that it is our job as the Opposition to make sure that we tell the British public the real danger of a major incident in the turmoil post Brexit, which could pollute the seas right round this wonderful island of ours? Is that not the case? The Government have not done a risk assessment, or published a risk assessment, and they should reassure the British public that the possibility of disasters has been assessed and they are okay.
Karl Turner
I am assured in various Committees on which I have served that various standards have been tested and safety provisions are in place. We can only rely on what Ministers tell us, but I have been assured on a number of occasions that those factors have definitely been considered.
Scott Mann (North Cornwall) (Con)
Is the hon. Gentleman aware that under the EU directives some diesel ships are allowed to flush their tanks at sea, which creates a wax pollution that has washed up on our beaches? Some EU directives are not great, because they have led to that. Does he agree that there is much more we can do once we have left the EU to ensure that pollution does not happen on our blue flag beaches?
Karl Turner
The hon. Gentleman is extremely optimistic. Safety protections to guard against potential pollutants are better done collectively, in my view. We can always improve safety standards.
The instrument preserves the status quo for the shipping industry post Brexit, which is some reassurance to seafarers who rely on compliant equipment including in emergencies at sea, as my hon. Friend the Member for Huddersfield rightly mentioned. There are issues with the marketisation of marine equipment, especially safety and pollution prevention equipment, but they are deferred by the provision. Merchant shipping notice 1874 has not been made available as part of the process, although a draft version is referred to in the explanatory memorandum.
Mr Sheerman
I promise my hon. Friend that this is my last intervention on him. I have much more memory of this than the hon. Member for North Cornwall: until we were in the European Union and had European regulation, people swam in sewage all around the coast of Britain. It was a European regulation that cleared up our seas and oceans and made them decent. We stopped pumping sewage into the seas. Does my hon. Friend agree that the problem is that, without European regulation, we will be back in that situation and pollution will, again, make us the filthy man and woman of Europe?
Karl Turner
My hon. Friend is right that the regulations have improved standards. There is no doubt about that, in my view.
MSN 1874 was last issued in June, but a draft was not attached to the explanatory memorandum. When will the updated notice be distributed, and have the addresses of UK-based notification bodies changed since June? The explanatory memorandum refers to “minor familiarisation costs” that will result for the public sector and for business. What will that mean in practical terms for the shipping industry and for seafarers who use the equipment?
Finally, can the Minister explain a little more about the instrument’s effect on the new IMO regulations that cover marine equipment that are introduced after the instrument come into effect and before any future trade deals between the UK and the EU are agreed and implemented?
Ms Ghani
As has been noted, the regulations will ensure continuity on EU exit for UK conformity assessment bodies and manufacturers wishing to gain access to the UK market. They make no changes to how conformity assessment bodies conduct conformity assessment activities or to the underpinning standards that marine equipment must meet before it is accepted on the UK market or placed on board UK ships. Therefore, the assumption that standards are somehow being lowered is incorrect. The standards will continue to be kept as we leave the EU.
Toby Perkins (Chesterfield) (Lab)
I am grateful for the Minister’s reassurance. As regulations change in the EU after we have left, will we keep pace with those regulations or will we have to change our regulations off our own bat, alongside whatever the EU does?
Ms Ghani
The hon. Gentleman makes an important point. He will know that it is not just the EU that guides maritime. Maritime is a global sector, and the IMO, which has the highest standards, is just across the river from us. We are part of the high ambition coalition, so as a country we are a driving force on maritime regulations and standards. Given that we lead that group and are trying to bring the rest of the world up to our high standards, it would not make sense at any point to lower standards.
In response to another point about the reduction in standards, I mentioned in my opening statement that the regulations retain the existing international standards that apply to marine equipment. They in no way undermine, devalue or reduce standards, and I find it peculiar that the hon. Member for Huddersfield, who made a number of interventions, assumes that the act of Brexit alone will create a dire situation on our waters. I think he should come to terms with what we are trying to do.
Ms Ghani
I will just go a little bit further, thank you.
The hon. Member for Kingston upon Hull East asked whether the bodies had changed since 2018. The answer is no. He asked why MSN 1874 had not been published. MSN 1874 Amendment 3 was put to the House for sifting and will be published by the MCA on commencement. I will write to the hon. Gentleman to make him aware of the timeline.
Mr Sheerman
I am sorry if the Minister does not like my interventions. We have been sitting for about 14 minutes, and the British public expect us to scrutinise this legislation. That is why I got up early this morning. It is my job to ask for my constituents and the people of this country what is going on. I have asked whether the Minister has evaluated the safety of these legislative and regulatory changes. She said that the IMO was just across the river. Has she been over there physically to talk to them? What steps has she taken?
Ms Ghani
The hon. Gentleman has got out of bed on the wrong side this morning. The IMO is indeed across the way, and the secretary-general and I meet regularly on a number of issues. This morning seems to be turning into a discussion about whether we should or should not be leaving the EU, but that decision has been made and this morning we are ensuring that standards continue.
Mr Mark Harper (Forest of Dean) (Con)
The Minister, as ever, is covering the regulations comprehensively. I have listened carefully to what the hon. Member for Huddersfield said about changes to the safety standards. My reading of the regulations is that they simply make sure that the existing standards and rules operate when we leave the EU. No one is changing or lowering safety standards. The hon. Gentleman says that he wants to scrutinise the regulations, but perhaps if he read them before asking his questions we would all be better informed.
Ms Ghani
It continues to be a glorious morning, as we can see by the amount of interventions that are being made. The regulations do indeed bring on board standards. We are one of the leading countries, helping the IMO to deliver even higher standards, and the hon. Gentleman will be pleased to know that ILO 188, which raises standards for seafarers and fishermen, was delivered by this country this year. We were the first country to deliver that ILO standard. Once again, the UK is the leading champion for our maritime sector.
The regulations make only necessary changes to adapt a system for marine equipment conformity assessments that was designed on behalf of the EU member states into a UK system. With your permission, Ms Buck, I commend the regulations.
Mr Sheerman
On a point of order, Ms Buck. The fact of the matter is that we are racing through this. There is almost resentment on the Government Benches; a feeling that we have to get through this, get out and get on with our day job. Our job as an Opposition is scrutiny, and I am not able as a Member of Parliament in this Committee to scrutinise the regulations sufficiently.
The Chair
Order. That is not a legitimate point of order. It was for the hon. Gentleman to make a speech if he wanted. We will move on. Has the Minister concluded her remarks?
Draft Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulations 2019
(5 years, 10 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulations 2019.
May I start by saying what a pleasure it is to serve under your chairmanship, Mr Gray?
As the Committee will be aware, the Treasury has been undertaking a programme of legislation to ensure that, if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning legislative and regulatory regime for financial services in the UK. The Treasury is laying statutory instruments under the European Union (Withdrawal) Act 2018 to deliver that, and a large number of debates on the SIs have already been undertaken in this place and in the House of Lords. The SI being debated today is part of that programme and was debated and approved by the House of Lords on 18 January.
The SI will fix deficiencies in UK law relating to the regulation of financial benchmarks, to ensure that it continues to operate effectively post-exit. This legislation is important for the regulation and integrity of financial markets in the UK. The approach taken aligns with that of other SIs being laid under the European Union (Withdrawal) Act, providing continuity by maintaining existing legislation at the point of exit, but amending where necessary to ensure that it works effectively in a no-deal context. The benchmarks SI makes amendments to retained EU law on financial benchmarks, known as the EU benchmarks regulation—the BMR—and ensures that the UK continues to have an effective framework to regulate financial benchmarks.
Benchmarks are publicly available indices used in a wide range of markets to help set prices, measure the performance of investment funds or work out amounts payable under financial contracts. They play a key role in the financial system’s core functions of allocating capital and risk, and impact huge volumes of credit products and derivatives. The EU BMR sets requirements on benchmark methodology, transparency and governance.
Benchmarks must be approved in order to be used in the EU after the conclusion of the EU BMR’s transitional period at the end of 2019. To provide benchmarks for use in the EU after that, benchmark administrators located in the EU may apply for authorisation or registration. Third-country administrators or benchmarks may be approved through equivalence, recognition or endorsement. Approved administrators and benchmarks are placed on to the public register maintained by the European Securities and Markets Authority: ESMA.
In a no-deal scenario, the UK would be outside the European economic area and the EU’s legal, supervisory and financial regulatory framework. The UK legislation implementing the BMR and related legislation therefore needs to be updated to reflect that and ensure that the UK’s benchmarks regulation operates properly in a no-deal scenario.
The draft regulations therefore make the necessary amendments to the retained EU legislation to ensure that the regimes are operable in a wholly domestic context. First, this instrument amends the scope of the BMR to apply to the UK only. From exit day, benchmarks and administrators outside the UK will be subject to the onshored third-country regime, and must be approved via recognition, endorsement or equivalence for use in the UK.
Ms Angela Eagle (Wallasey) (Lab)
Could the Minister give the Committee an idea of how many people will have to be put through the system, which interacts with our very large financial sector? How many are involved in what he is talking about now? Will it be a big issue for the Financial Conduct Authority or will it be a tick-box exercise? How many countries and organisations are involved?
John Glen
Since 2015, the FCA has allocated £16 million to its Brexit onshoring exercise, which has ramped up to 158 full-time staff since March last year, when it had only 28. Following scrutiny from the Secondary Legislation Scrutiny Committee and further dialogue with the FCA, we in the Treasury are convinced that the FCA has the resources to continue to do that work. Publicly available machine-to-machine software onshores those approved through European national competent authorities to the FCA so that they are completely up to date. We foresee no difficulties in that process, but resources have been added. The hon. Lady asks about the number of countries involved. I cannot give her that information now—I do not have it available to me—but I will be able to write to her with it.
Secondly, the instrument establishes a requirement for the Financial Conduct Authority to create a UK benchmarks register, which it will maintain from exit day. Following the transitional window in the BMR, supervised entities may use a benchmark in the UK only if either the relevant administrator or the benchmark is on the FCA register. The instrument will ensure that benchmark administrators that the FCA has already authorised or registered ahead of exit day are automatically migrated from the ESMA register to the FCA register on exit day. It will do the same for third-country benchmarks or administrators that the FCA has already recognised or UK firms have endorsed.
Thirdly, the instrument includes a new transitional provision that takes EU and third-country administrators and benchmarks that appear on the ESMA register at exit day as the result of an approval under the BMR outside of the UK, and temporarily migrates them on to the FCA register for 24 months, beginning with exit day. That will enable continued use of those benchmarks in the UK for a 24-month period, unless and until an application for approval in the UK is refused, or unless they are removed from the ESMA register during that time. That will provide continuity for administrators and users, and minimise market disruption. Administrators and benchmarks subject to that transitional provision must become approved by the FCA under the third-country regime to enable their continued use in new contracts in the UK after that period.
Additionally, the SI removes obligations in retained EU law for the FCA to co-operate and share information with EU regulators as, with no guarantee of reciprocity, those obligations would not be appropriate as of exit day. However, the FCA will still be able to co-operate with EU regulators through the existing framework in the Financial Services and Markets Act 2000, as it is currently able to with all other third countries.
Furthermore, certain regulatory functions under the BMR are currently carried out by EU authorities—primarily the European Commission and the European supervisory authorities, including ESMA. Once the UK leaves the EU, EU bodies will no longer have a mandate to carry out those functions. Therefore, the SI transfers the functions of the Commission to the Treasury, including the power to adopt delegated Acts based on the underlying legislation. The SI also transfers to the FCA the functions of ESMA, such as the function to maintain a register of benchmarks and the power to make binding technical standards. That delegation is in line with the way we have conducted similar SIs across the board.
Finally, the SI makes further minor amendments to retained EU legislation to ensure that the UK’s benchmarks regime operates effectively once it leaves the EU. Taken together, these measures will ensure that the UK retains an effective framework to regulate financial benchmarks. The Treasury worked very closely with the Financial Conduct Authority in drafting the instrument. It has also engaged the financial services industry on the SI, and it will continue to do so. On 8 January, the Treasury published the instrument in draft along with an explanatory policy note, to maximise transparency to Parliament and industry.
In conclusion, the Government believe that the changes made by the instrument are necessary to ensure that the UK has an effective regime for regulating benchmarks and that legislation functions appropriately if the UK leaves the EU without a deal or an implementation period. That is not the Government’s expectation or desire, but it is consistent with the preparation we are doing. I hope Members will be able to support the draft regulations, which I commend to the Committee.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to serve on the Committee with you in the Chair, Mr Gray. I am grateful to the Minister for his explanatory remarks.
Once again, the Minister and I are here to discuss a statutory instrument that makes provision for a regulatory framework after Brexit in the event that we crash out without a deal. On each of those occasions, I and my Labour Front Bench colleagues have spelled out our objections to the Government’s approach to secondary legislation. The volume of EU exit secondary legislation is deeply concerning for accountability and proper scrutiny. The Government have assured the Opposition that no policy decisions are being taken. However, establishing a regulatory framework inevitably involves matters of judgment and raises questions about resourcing and capacity.
Secondary legislation ought to be used only for technical, non-partisan, non-controversial changes because of the limited accountability it allows. Instead, the Government continue to push through far-reaching financial legislation via such vehicles. As legislators, we have to get it right. The regulations could represent real and substantive changes to the statute book and they need proper in-depth scrutiny. In that light, the Opposition would like to put on the record our deepest concerns that the process regarding the regulations is not as accessible and transparent as it should be.
I will now pose four questions to the Minister that I hope he will respond to in his later remarks. My first question concerns timing and the relationship between this SI and the legislation recently passed on in-flight financial services legislation. As the Minister referenced in his remarks, we are currently within a transitional period for the benchmarks regulation, with its coming fully into force only from the start of next year. Only after that point will there be an outlawing of benchmarks that have not been approved for use by one of the routes set out in the EU regulation. Why was the regulation not included within the in-flight process? It has clearly been agreed at EU level, but formally speaking is not yet implemented. I thought that such measures were covered by the in-flight process; hopefully, the Minister can illuminate me if I am wrong.
Secondly, I want to press the Minister on a detail related to the transitional period. The regulation, as with other SIs laid by the Government, provides for a system of deemed equivalence for the transitional period. Effectively, it suggests that EU27-approved benchmarks can be used in the UK and will be assumed to be equivalent, as if they had been examined by the UK’s regulator. However, there is a strange aspect to the regulation in relation to the process if an EU27 national competent authority decides to remove a benchmark or if an administrator is removed from the register, or if that is undertaken by the college of regulators that assesses critical benchmarks. This regulation states that even if such a benchmark, or a benchmark administrator, is removed in the EU27, it can still be maintained on the UK list during the transition period if
“the FCA considers that doing so would not be compatible with the FCA’s strategic objective or would have a material adverse effect on the advancement of the FCA’s operational objectives.”
That appears to be beyond the scope of the withdrawal agreement’s empowerments, because continued placement on a benchmark register, or a register for benchmark administrators, is not dependent on whether national competent authorities believe that is compatible with their objectives as regulators—it surely depends only on what is in the benchmark regulation that set out the criteria for the benchmarks to be approved. I do not really understand why such language has slipped into the UK regulation. Will the Minister explain?
Thirdly, I want to question the empowerments for the FCA within the regulation. It gives the FCA, with Treasury oversight, exclusive powers over critical benchmarks—a change that I will go on to talk about in a moment—but that is on top of all the other empowerments within the regulation that the Minister rightly referred to. The FCA will have to keep a register of benchmarks and benchmark administrators, develop a code of conduct and so on.
As I am sure Members are aware, there have already been questions about the FCA’s role in the enforcement of benchmark regulations. In 2017, the complaints commissioner partially upheld cases against the FCA brought by two former UBS traders caught up in the LIBOR-rigging scandal. The commissioner criticised the FCA for serious errors. Indeed, it has been commented that in some cases the junior traders have been the ones who face prosecution rather than those further up the food chain, who were well aware of what was going on. In that context, surely it is important for the FCA’s role to be properly scrutinised.
I want to focus on the arrangements for critical benchmarks, which, as I said, under EU law are undertaken by a college of national regulators under the overall overview of ESMA. This SI removes the UK from such arrangements, and places determinations on criticality entirely under the purview of the FCA, albeit it with reporting obligations to the Treasury. When making those determinations, the FCA must consider whether the benchmarks concerned pass certain thresholds of use. Will the Minister explain a little more about how that process would work? Will the FCA be able, within the time provided, to determine those benchmarks, given that the SI refers to the FCA’s having to review thresholds
“in the light of market, price and regulatory developments and the appropriateness of the classification of benchmarks with a total value of financial instruments, financial contracts, or investment funds referencing them that is close to the thresholds”?
We heard in relation to the markets in financial instruments directive and no-deal regulations that calculating thresholds would require up to four years. That came after a suggestion from Her Majesty’s Treasury that all that was needed for those no-deal preparations was a simple shift in roles and responsibilities from EU to UK actors. A number of us were sceptical about that claim, and we were proved right. Of course, the determination of thresholds for a relatively small set of benchmarks will be much less onerous than that for hundreds upon hundreds of commodities contracts, but some indication of the FCA’s view of the difficulty of the process, or otherwise, would be helpful.
There is likely to be a major shift in the use of critical benchmarks. Members will be aware of the LIBOR scandal, and arrangements for the reporting of interbank rates are changing. The Bank of England will not require banks to submit those rates beyond 2021, and it will therefore not be possible to calculate LIBOR anymore. A whole proliferation of critical benchmarks appear to be on the way, from the eurozone’s euro short-term rate, ESTER, to the UK’s reformed version of the sterling overnight index average, SONIA—they all have interesting acronyms—and some are obviously being developed by the US, Switzerland and Japan. That suggests that the process of assessing different benchmarks, especially critical benchmarks, could become quite onerous for the FCA, with a greater plurality of widely used benchmarks beyond LIBOR. It would be helpful to hear how and whether the FCA is prepared for such an eventuality.
On the point made by my hon. Friend the Member for Wallasey, the use of such benchmarks is incredibly widespread in terms of the people it would affect and the impact it might have on markets. Estimates of the use just of LIBOR vary from between $200 trillion to $370 trillion of financial contracts across the world, particularly with interest rates swap contracts, and the benchmarks are enormously important.
Finally, in regulation 5(9) the statutory instrument provides a definition of “commodity”. The definition seems fine, but I do not believe that it is in the EU benchmark circulation and it would be helpful to know why it has been provided. Is that because there is not the same inter-relationship with other pieces of no-deal legislation as there is with existing EU legislation? It would be helpful to know about that, and it is fine for the Minister to write to me on that point of detail.
Ms Eagle
It is a pleasure to serve under your chairmanship, Mr Gray—I think for the first time. It is important for us to do a little translation of this highly technical set of instruments that are before us in the event of no deal; I presume that when he replies to the debate, the Minister will confirm that these changes will automatically become defunct if there is a deal.
What we are really talking about with benchmarking is the price of particular assets and contracts being swapped, traded or changed. As my hon. Friend the Member for Oxford East so pointedly observed, this is about trillions of pounds swilling through various international markets in—
Ms Eagle
In assets, cash, pensions, contracts, swaps and all the things that currently make up our global trade in such issues. As the Minister points out from a sedentary position, many people’s future retirement plans are crucially dependent on getting this right.
These kind of EU regulations came into being in the first place because of the LIBOR scandal and the evidence of significant cheating in creating the prices of these benchmarks for these trades to happen. Until the LIBOR scandal, nobody had really looked at how international benchmarks such as LIBOR were generated. Everybody thought it simply happened according to market mechanisms, and that absolutely nothing nefarious was going on.
However, we then discovered that a great deal of nefariosity—I do not know whether that is a word—was going on, and that people’s rewards for indulging in that nefariosity were colossal. That is why all these regulations had to be immediately generated. That is the first thing. This is about a hugely important area of potential market manipulation and cheating, the risks of which, until we became aware the LIBOR scandal, were tiny and the rewards from which, if one indulged in it and got away with it, were colossal.
We also need to think not only about the individual market manipulation that might happen if we get this wrong, but about financial stability itself. If 2008 taught us anything, it was that these very complex and increasingly complicated global money and asset markets, for which these benchmarks effectively represent what is meant to be a market-generated price, are the weakest and least-regulated points across the world. The regime that is the most hands-off becomes the weakest, and—at the same time, paradoxically—the strongest defence against manipulation and disaster.
We know disasters such as the global financial crash affect real people’s lives across the globe. The draft regulations might look like very dry, boring, technical changes that the Minister has brought before us, but they are actually crucial. They are about real issues of financial stability, potential market manipulation and cheating. If we do not get this right, we will become the weakest link.
It is therefore absolutely and utterly crucial that, if we are to establish this kind of regime, we had better be sure that we are doing it correctly, that we have the time to do it correctly and that we have enough people in the FCA with enough sophistication to do it correctly. I worry about the size of our market—£130 billion in gross value, according to the Minister’s own figures. With the sudden ramping up from a mere 28 employees at the FCA to 158 full-time staff, which the Minister talked about, they are going to have to be some of the most sophisticated people on this earth. I hope he is paying them properly—[Interruption.] Not him personally, but the Government, of whom he is the representative in Committee. They had better be good at their jobs. I want the Minister to reassure us about that.
Is the FCA up to it? I do not mean to be horrible, but the Minister is suddenly giving it a lot of responsibility, with new staff: if we get it wrong and there is regulatory arbitrage to be exploited in the way the system works, we know that it will be. That might include leaving loopholes for huge market manipulation and enrichment at the expense of customers, pensioners and the people who are investing in the instruments, who will be traders. If the Minister does not get it right, the consequences will be huge.
How big is the risk? The impact assessment does not really talk about how big it is or the likely costs of the changes. I congratulate the Minister on being one of the few Ministers who has managed to produce an assessment to put before one of these statutory instrument Committees, which we are attending in great numbers at the moment. Large numbers of his ministerial colleagues have not been able to do that, which is a disgrace. That is the way in which the Government are dealing with the situation we find ourselves in.
The costs that the Minister puts before us are described as “unknown: likely significant” or “significant”. There is an inability to quantify the cost to business and to those who are in the market of the sudden change and the no-deal scenario. At a macro level, it is significant but unknowable, but at a micro level, in annex A, the Treasury has come up with a ridiculous little formula for the familiarisation costs for individual companies—as an ex-Treasury Minister, I am familiar with that kind of thing.
The Treasury has decided that the familiarisation cost of a statutory instrument for one firm is the number of words in the statutory instrument divided by the number of words that one can read in a minute—as if being able to read the statutory instrument means that one automatically understands it. In one of the most complex areas of regulation and statutory authority, that is the best that HMRC can come up with.
By the way, that figure has to be multiplied by one over 60 and by the hourly wage rate, which is £330 for a solicitor or legal executive with more than four years’ experience. What a joke! Is the Minister really suggesting that if one could read the statutory instrument at so many words per minute, one would automatically understand what it meant? I have been in the House for 27 years, and I can read quite a few words a minute, but I must confess that I have never come across a statutory instrument that I can automatically understand just because of that, especially in such a complex area.
Carol Monaghan (Glasgow North West) (SNP)
As a qualified maths and physics teacher, I think that the formula is frankly ridiculous. The number of words read per minute is what we could call a variable, because it can vary greatly. We might find plenty of lawyers who, in an attempt to increase their fees, become extremely slow readers.
Ms Eagle
I agree, but what worries me more about the formula than the variable that the hon. Lady talks about is the idea that somehow reading equals full comprehension of technical subjects. The Minister ought to go back and have a closer look at that, and the Treasury officials who are accompanying him certainly ought to come up with a more sophisticated formula for trying to see what the costs will be.
To sum up, we do not know what these things will cost. My hon. Friend the Member for Oxford East has posed some very important questions about how all of them mesh together and whether there have actually been changes in definitions—sneaky little changes that have gone beyond what the withdrawal Act allows in terms of just transposing issues from EU law into UK law. We would like to know the answers.
I would also like the Minister to tell us a little about the risks that he thinks this regime poses if the FCA really cannot get through to organising these benchmarks and transposing them in practical terms into UK law in the appropriate time scale, in what is a very changing situation—regulating an industry that we know will exploit every tiny bit of regulatory arbitrage that it can come across for its own profit.
John Glen
I am grateful to the hon. Members for Oxford East and for Wallasey for their scrutiny of this measure, and I shall endeavour to answer the points made.
On the general opening remarks of the hon. Member for Oxford East, all I can say to her is that the Government are not taking any powers beyond those that exist within the withdrawal Act. To the points made by the hon. Member for Wallasey, I say that there has been an attempt at every juncture to be thorough in the way that we have examined the optimal way to transition and onshore these powers, that we have engaged with industry and the regulator, and that we have done that with their consent and allowed scrutiny through that process, even in a condensed period.
I will now address the four points that the hon. Member for Oxford East raised. The first one was around the issue of the relationship with the in-flight files and the fact that there are ongoing challenges to this regulation, which is in the process, essentially, of being fully adopted.
There is a European supervisory authorities review file in the in-flight files Bill, but that is separate and additional to this onshoring process; the regulation is in force already, but it is in a transitional phase. Many requirements in the regulation already apply. It is simply the case that some benchmark administrators are not required to apply for authorisation until 2020. However, on the broader issue, if subsequently the ESA file that is in-flight then makes an EU-wide update, then—in a no-deal scenario—we would have to make that decision at a future point.
The second point that the hon. Lady raised was about deemed equivalence of the EU27. I responded to the hon. Member for Wallasey earlier with respect to the publicly available machine-to-machine software, to ensure that at the point of a no-deal moment—not what the Government expect—at the end of March, we would be completely up to date with decisions made across national competent authorities across the EU at that point.
The hon. Member for Oxford East referred in her remarks to a transition period. Well, we would not have that transition period in a no-deal situation, so it would not apply. I sense that she wants to intervene and I am very happy to give way.
Anneliese Dodds
I appreciate the Minister’s sincerity in trying to respond to my comments, and I apologise: I do not think I expressed myself clearly. I was referring to the fact that there could be a divergence between the benchmarks still approved in the UK during the 24-month period—I probably used the wrong language to describe that—and what applies in the EU27, because this regulation says that a benchmark can be retained in the UK even if it is not in the EU27, if the FCA considers that taking it off would not be compatible with its strategic objective and so on.
John Glen
On the maintenance of benchmarks if they have been dropped from the ESMA register, I was going on to say that this SI enables the FCA to exercise judgment. It does not have to follow ESMA decisions. The FCA objectives are in place to protect UK markets and consumers. In a no-deal situation, that is a function that the FCA would have to take on.
I have set out the transition mechanism for decisions that have already been made, but in a no-deal situation we would absolutely face a very challenging environment. I am sympathetic to the comments of the hon. Member for Wallasey about the resourcing of the FCA in that situation; it would be significant. In this corpus of 53 SIs, I am concerned about making the transition process clear. There would be a lot of legislation to pass and work to be done in a no-deal situation subsequent to this process.
Anneliese Dodds
I know that the Minister and his officials are doing the best they possibly can in the extremely difficult situation that they should not have been put in, but I want to press him on this. These regulations are described as putting into practice the EU benchmark regulation; they are not described as dealing with any eventualities that could come out of no deal. In that situation, surely if we are just following the EU benchmark regulation, we should use the criteria that ESMA uses on benchmarks, not other criteria for the FCA’s objectives. That falls outside the scope of these regulations.
John Glen
I think, with the greatest respect, that the hon. Lady is getting two things muddled up. At this point, we are onshoring what already exists. We have a 24-month transition period during which, in a no-deal situation, there would be considerable engagement with industry and regulators about how we would adopt the criteria as a national body independent of the European supervisory authorities. If we were in that situation, we would clearly need to develop a new framework altogether for regulation. How we would harmonise with other bodies outside the UK would depend on the basis of that no deal. If the hon. Lady is asking me whether I am setting out in this SI a comprehensive regime for an independent verification of benchmarks over the next two years in a no-deal situation, I should say that no, I am not.
Ms Eagle
It is difficult to think of scenarios that we hope will not happen. We all hope that at some stage sense will break out and there will be time to do this disentangling. Will the Minister reassure me that if there is no deal, the regime that these changes will put in place will be in place the day after no deal, and that there will not be large numbers of loopholes through which very rapid trading, which can be instantaneous, can occur, leading to huge profiteering?
Anneliese Dodds
The Minister is being enormously generous in giving way. I appreciate his comments, but I would like this put on the record. What I take from his remarks is that these regulations are hybrid. They are not just about onshoring the existing regime, because if they were they would not include the reference to the FCA deciding on these matters because of its strategic objectives. Rather, they are partially about the creation of a new regime. As such, they depart from what is allegedly the template for these regulations.
John Glen
I am grateful for both points. I will first respond to the hon. Member for Wallasey. I assure her that the regulation will onshore and will not create any cliff-edge risks around the loopholes that she refers to. We have worked very closely with the FCA, which provides the technical expertise. I will address her point about the resourcing of the FCA in a moment.
For the record, I do not accept the characterisation of hon. Member for Oxford East of the regulations as hybrid. In a no-deal situation, there would need to be a lot of extra work to create a new permanent regime. In terms of the divergence between the UK and the EU27, the FCA will not necessarily know why a benchmark has been removed from the ESMA register after exit. It is therefore prudent to give the FCA the discretion to make its own assessment so it is able to protect UK markets and consumers. In a no-deal situation, we would be in a world very different from the one we are used to and we take the view that the provision fixes a deficiency caused by our withdrawal.
The hon. Member for Wallasey raised the importance of the benchmarks being regulated, and I absolutely agree. The SI will ensure that the regulatory regime in the UK will operate effectively in a no-deal scenario. I reassure her that the SIs in the programme have passed through the usual quality control procedures and we have engaged extensively with the FCA in drafting them.
Based on my earlier comments about the additional full-time equivalents that the FCA has had this year in preparing effectively to manage the programme, I am confident that it has adequate resources. Regarding the future pressure, the FCA is not funded by the Government but by a levy on industry, so it will be up to the authority to bring that forward in its plan, which it will do shortly for 2019-20.
I note the observations about the familiarisation costs and the mechanism to calculate them. To be clear, the SI has been assessed to result in an estimated one-off familiarisation cost of £8,300, which, shared between the 16 UK benchmark administrators authorised under the regulations, is £518 each.
John Glen
I will, however, write to her to explain how we have used it. I acknowledge her scepticism about the situation.
The hon. Member for Oxford East raised a point about the definition of “commodity” not being in the EU regulation. As I cannot respond here and now, I am grateful for her graciousness in allowing me to write to her.
On the LIBOR points that the hon. Member for Wallasey raised, the UK did have eight domestic benchmarks but they were superseded by the EU’s more comprehensive range. The regime we are now part of is more thorough than it was 10 years ago.
The hon. Member for Oxford East asked whether it was appropriate for the FCA to assess the critical benchmarks. Just to contextualise that for the benefit of the Committee, I should say that the FCA carries out its assessment against the conditions relating to critical benchmarks set out in the benchmarks regulation. The FCA will present its conclusions to the Treasury. The Treasury must make regulations designating a benchmark as critical if the FCA makes a recommendation in accordance with the requirements of the amended provisions. The FCA is the appropriate body to carry out that assessment due to its technical expertise. That is consistent with the current split of functions between the Commission and ESMA, and it has been onshored appropriately.
The hon. Member for Wallasey asked about the wider impacts. I acknowledge her recognition of a green impact assessment, published on 8 February. Impact assessments for the SIs focus narrowly on the changes that the instruments make and on how businesses will need to respond. I concede that they do not deal with the broader economic impact of leaving the EU. There is considerable debate about what that would mean in a no-deal scenario and my judgment is that there would be a significant impact, in the short term particularly.
The impact assessment of the European Union (Withdrawal) Act 2018 deals with the impact of the parent Acts, and the Government have also published analysis, as the hon. Lady will know, of the potential economic impact of a range of scenarios. I must stress that the SI mitigates the impact of leaving the EU without a deal, and if it were not in place industry would face greater disruption and cost.
In conclusion, the changes are needed to ensure that the UK has an effective regime for regulating benchmarks and that the legislation functions appropriately if the UK leaves the EU without a deal or an implementation period. I believe that I have dealt with Opposition Members’ points. I hope that the Committee has found the sitting informative and will now join me in supporting the regulations.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulations 2019.
Draft Import of and Trade in Animals and Animal products (Amendment etc.) (EU Exit) Regulations 2019
Draft Trade in Animals and Related Products (Amendment) (EU Exit) Regulations 2019
(5 years, 10 months ago)
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The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (David Rutley)
I beg to move,
That the Committee has considered the draft Import of and Trade in Animals and Animal Products (Amendment etc.) (EU Exit) Regulations 2019.
The Chair
With this it will be convenient to consider the draft Trade in Animals and Related Products (Amendment) (EU Exit) Regulations 2019.
David Rutley
It is a pleasure to serve with you in the Chair, Mr Sharma. There are two sets of regulations for members of the Committee to consider. These statutory instruments are made under the enabling power in the European Union (Withdrawal) Act 2018 to amend provisions related to imports, and transit through the EU, of live animals including horses; animal products including meat; genetic material used for animal breeding, such as semen, ova and embryos; and to the non-commercial movement of pet animals.
I emphasise that the instruments make purely technical changes to animal trade legislation to ensure that it continues to operate effectively when we leave the European Union. They do not introduce new policy, and they preserve the current regime for protecting the UK’s biosecurity. The instruments are closely linked and so have been grouped together, with your permission, Mr Sharma, to facilitate a single overarching discussion on animal trade.
The first instrument makes technical amendments to directly applicable EU regulations and decisions. As hon. Members will see, this instrument is substantial.
David Rutley
I am delighted to hear that. The instrument includes amendments to nearly 50 pieces of EU legislation. Members of the Committee will be pleased to hear that I will not go through every regulation—[Hon. Members: “Go on.”] I will, but not today. Now, I will outline the most important aspects of the legislation.
The instrument makes technical amendments to ensure the continued operability of 14 EU instruments concerning imports of live animals or reproductive products; 17 concerning imports of animal products intended for human consumption; six that lay down protective measures against the introduction of particular diseases; two that cover the EU pet travel scheme; and seven that relate more generally to the import regime for animals and animal products. This instrument also contains minor technical amendments to references to fees in two domestic instruments.
The amendments ensure the continuation of veterinary controls and other import conditions that safeguard animal and public health. They allow for authorisation of businesses to continue and for the maintenance of health certification and transport requirements, and allow appropriate actions to be taken in cases of reported non-compliance or disease outbreaks in other countries. Furthermore, they provide for the continuation of the existing health and documentary requirements for the non-commercial movement of pets into the UK under the EU pet travel scheme.
In addition, the amendments transfer certain powers and functions from the European Commission to our respective UK Ministers. The amendments give Ministers the power to take appropriate action in relation to trade restrictions resulting from disease outbreak. Regulation 3 of and schedule 1 to the instrument provide the power for the appropriate UK Minister and Northern Ireland Department to draw up lists of third countries approved as having equivalent official disease controls for continuing trade with the UK in live animals and animal products.
The Trade in Animals and Related Products (Amendment) (EU Exit) Regulations 2019 make technical amendments to EU-derived domestic legislation. Importantly, this instrument amends our main English animal trade instrument—the Trade in Animals and Related Products Regulations 2011. That is key legislation for the import of these commodities into England. It establishes a system for trade in live animals and genetic material with other EU member states, and for imports of animals and animal products from outside the European Union.
The measure also amends two related instruments that regulate the non-commercial movement of pet animals into Great Britain: the Non-Commercial Movement of Pet Animals Order 2013, and the Rabies (Importation of Dogs, Cats and Other Mammals) Order 1974. The instrument will allow these laws to continue to work after EU exit, for instance, by removing redundant references to EU bodies, functions or legislation, and replacing them with domestic equivalents. It will also amend phrases that would no longer be correct, such as changing “legislation of the European Union” to “retained EU law”.
Taken together, the two instruments that we are considering ensure the continuation of appropriate certification, sufficient pre-notification of imports, checks of certain consignments, and isolation and vaccination facilities. That safeguards our current strong biosecurity standards for imports of animals and related products, and provides for the continuation of the existing legal framework around the movement of those trade commodities and pet animals.
These instruments have different territorial extent and application, and the devolved Administrations were closely engaged in their development. The first instrument applies to the whole of the UK; in the second instrument, part 2 applies to Great Britain and part 3 applies to England only. The devolved Administrations are tabling their own versions of the amendments in the second instrument, which relate to their own “mirror” legislation and are being laid as separate affirmative instruments.
As stated, these instruments make technical amendments to maintain the existing standards, and no impact is anticipated. As they do no more than is necessary to enable domestic legislation to be operable immediately after EU exit, there is no statutory requirement for public consultation. Formal consultation and impact assessments have not been performed, as these amendments will not introduce additional requirements or costs for stakeholders.
Sir Geoffrey Clifton-Brown (The Cotswolds) (Con)
I am sorry to interrupt my hon. Friend, particularly as I wholly approve of these instruments, because they are a significant consolidating measure. He has said two or three times that the measures will have no financial impact on users. Would he therefore say what arrangements will be made for consultations on any fee increases?
David Rutley
As I said before, there will be no extra costs or fee increases.
Sir Geoffrey Clifton-Brown
I am grateful to my hon. Friend for that explanation, but paragraph 6.1 of the explanatory notes says:
“This instrument amends…forty-six directly applicable pieces of EU legislation…It also introduces amendments to the domestic powers to recover fees in relation to activity relating to imports of animals and animal products from the EU.”
That presages the prospect of fee increases, does it not?
David Rutley
With my hon. Friend’s permission, I will proceed with my speech and then, when I conclude, I will address that point in more detail.
As I was saying, the Department for Environment, Food and Rural Affairs has engaged with various major stakeholders, including the Food and Drink Federation, the International Meat Trade Association and the National Farmers Union, on the subject of these instruments, and those stakeholders raised no concerns with DEFRA’s approach.
In relation to the wider effect of leaving the EU on animal trade and pet travel more generally, DEFRA has of course made extensive engagement. In relation to the equine sector and pet travel, DEFRA has engaged with key stakeholders, who are also content with the proposed approach to equine movements and pet travel.
These instruments are required to ensure that the UK’s statute book continues to function correctly after EU exit. Each year, products of animal origin and live animals imported to the UK are valued at over £19.3 billion, of which 80%—about £15 billion—comes from trade with the EU. If these amendments are not made, there would be considerable disruption to the UK’s imports system, resulting in a threat to the UK’s biosecurity, and a lack of clarity for industry and non-commercial pet travel, which would be likely to lead to additional costs for importers and stakeholders.
Although the UK is under no legal obligation to adhere to EU rules for trade following EU exit, failure to do so could result in the UK being unable to trade in animals and their products with EU member states and third countries. The Government’s policy is therefore to maintain current standards, legislation and arrangements relating to such trade on the day the UK leaves the EU.
Regarding the EU’s pet travel scheme, the amendments are required to ensure that safe pet travel without quarantine can continue into the UK. Currently, 300,000 pet animals move into the UK each year, through the pet travel scheme. If these amendments were not made, EU pet passports for pet animals travelling from the EU would no longer be valid in the UK, which could cause travel disruption. The UK’s ongoing application to become a listed third country for the purposes of pet travel between the UK and EU member states also depends on maintaining EU minimum health standards.
In conclusion, the trade in animals and animal products that do not constitute a risk to human or animal health is of significant importance to the UK’s food security and economy. The technical amendments in these instruments are essential for the continuation of the UK’s current trade and import regime, and for minimum disruption to pet travel. They will also ensure that our strict biosecurity controls on animal trade are maintained at their current levels when we leave the European Union. I commend the statutory instruments to the Committee.
Dr Drew
I am delighted to serve under your chairmanship again, Mr Sharma. I am also happy that this Committee Room is more suited to the number of Members here than Committee Room 14, where we met the other day. We will be in the Chamber tomorrow. This is one of three days when I will be taking part in the great scrutiny of statutory instruments.
I will put my usual caveat in place: this is not the way to pass legislation—we are doing things in a great hurry. As the Minister himself says, we are expected to scrutinise the legislation. We could go through it page by page; I am sure that the civil servants have done a wonderful job of cutting and pasting the European regulations, but we will know exactly what we will end up with only after we leave in March, or whenever. It is important that the Opposition do their best to find out what the Government are doing, why they are doing it and whether they are doing it in the right way. That, however, is problematic, given the background: we are trying to keep on top of so many SIs that are coming our way.
I will begin with a couple of general points before I ask a number of questions of the Minister, including about the point made by my neighbour, the hon. Member for The Cotswolds. I have argued that for each of the SIs there should have been regulatory impact assessments, because these do have an impact on business and communities, but we have had none—so we do not know what the cost implications are. If the Minister does not answer the hon. Gentleman’s question, I will try to.
We need to keep our finger on the pulse. There will be implications: we are not just taking across a series of regulations in the form of an SI, but we have to make changes and employ people to undertake them. That will cost something. Someone is going to pay; if it is not the Government, it will have to be the people on whom those changes are imposed.
Darren Jones (Bristol North West) (Lab)
I thank my hon. Friend and neighbour in the south-west for giving way. Does he agree that we need to understand the implications for our constituents? Many of us receive correspondence asking whether the regulations will prevent the import of lesser-quality animal products from countries such as the United States as part of a trade deal and whether constituents have to do anything to make sure that their pet passports continue to apply so they do not get stuck at the border. The regulations do not give us clear answers about any of that.
Dr Drew
That is helpful. My hon. Friend puts his finger on something important. To some, this is a very dry subject—about semen, ova and embryos—but we are also discussing pet passports; some of us, in our previous incarnations, had a bit to do with getting those introduced. With the best will in the world, that issue will not necessarily be plain sailing if and when we leave the EU. Most people who take their pets abroad go somewhere in the EU and it will be problematic, to put it mildly, if they want to move there for work or study. They may find additional difficulties with the pet passport situation.
I want to make four general points. The regulations clearly have a lot to do with post-Brexit agreements and trade relations. We have to do what we can to make sure that there are no unnecessary barriers, otherwise trade will suffer, whatever one’s views on what trade there should be and with whom. As a backdrop, there is the key issue of animal welfare. It would be a tragedy if the high standards that we have introduced were threatened in any way, and it would be economic madness if we allowed things like rabies to come in because we did not have enough people to check as a result of having a different process for allowing animals with such diseases to come in. It is frightening to think what diseases might be coming our way, as I said in a previous statutory instrument Committee, so we have to be on our guard.
If we have different standards, it is not just the immediate impact that we need to consider. There will be a longer-term impact on our ability to work with other countries, because they will react against us if we have lower standards, which will have a huge impact on the agricultural sector. One of the questions I want to ask the Minister stems from the debate, which was quite testy, I think it is fair to say, with the Secretary of State about where we are today—this is from the National Farmers Union conference—with regard to the UK becoming a third country in relation to the EU. How are those negotiations going? It appears that they are stuck in transit, as I gather that the Secretary of State did not have the easiest time answering questions at the NFU. One of the key concerns was when we would be able to say that that relationship was properly embedded.
Finally—this point is not to be ignored—this has a huge impact on science, innovation and research, because many materials that come in are used by our research laboratories in tandem with our colleagues in the EU. Clearly, that may not necessarily continue, but we have to look at ways in which we can try to make that as seamless as possible. I suppose that that is an example of frictionless trade.
On the draft Trade in Animals and Related Products (Amendment) (EU Exit) Regulations 2019, the pet passport is something of which we should be very proud. It took a long time to put it in place. It would be useful to know exactly how the Government intend to make sure that the measure passes into practical operation as seamlessly as possible. A lot depends on what relationship we have with the EU, but as page two of the explanatory memorandum identifies, various highly pathogenic avian influenza strains and Nipah disease in cats and dogs are ever present, and we need to understand how, when pets move around, the passport can be used to make sure that there is proper control and enforcement. It will be useful to know what the Government are doing in relation to that.
That came up in the Lords, which asked for the affirmative procedure. Originally, this was to be dealt with under the negative procedure, but the Lords thought that the issue was important and needed the affirmative procedure route. Following the intervention by the hon. Member for The Cotswolds, I have touched on the need for a regulatory impact assessment—that theme always arises in relation to these SIs.
I have some questions for the Minister. He may not be able to answer them all, but he can write to me later. The NFU’s main concern is about shipments from other parts of the world—the example it gives is south American beef arriving in Rotterdam that is found to be not fit for human consumption—and what involvement the UK will have in such a decision. At the moment, that is a pan-European decision, but it cannot be for us if we are not in the EU. Do we put officers alongside those in Rotterdam or must we have our own checks this side of the border?
Food safety and harmonisation have a lot to do with who we sign free trade deals with. Some of us have grave concerns about signing one with the US, for the reasons we know about—chlorinated chicken, antibiotics and the rest of it—but it would be useful to know how many additional staff the Government intend to employ to guarantee that food safety will not be sacrificed. That links to the issue of antimicrobial resistance. Last week, I went to an interesting drop-in about the impact on human beings of AMR; I am sure that other Members went as well. I raised the point that the issue also affects animals. How do the regulations relate to AMR? At the very least, we should be doing more; if nothing else, we should be investing in science and technology to make sure that we are ahead of the game.
NOAH, or the National Office of Animal Health—an organisation well known to the Minister—has asked about animals and derivative products used in biomedical and veterinary research. How can we continue with existing research—again, that is pan-European? That is crucial to continuity in the life sciences sector. What analysis have the Government done about what happens after March—what needs to be rethought and what can carry on, hopefully, seamlessly?
The supply of animals and animal-derived products cannot in any way be delayed, because that would invalidate their use in science and have huge animal welfare implications. Although NOAH welcomes both sets of regulations, we come back to the crucial issue, which I have raised in previous SIs: where are we in relation to the TRACES database? So far, the Government have not been able to answer that. Are they looking for special dispensation? Are they willing to pay to be part of the database or will they have to investigate setting up their own one? Previously, the Government have said that they are putting money into setting up their own IT system, but with the best will in the world that will not happen before the end of March, when we might have a no-deal scenario.
My last point, about the Balai directive, which we have signed up to as part of our commitment to the convention on international trade in endangered species, has been raised by various organisations. At the moment, we sign up as a member of the EU. What contingencies do the Government have in place to make sure that we do not just drop out but continue with our clear statement of intent on the directive?
Many of these points have been reiterated in the material I received from the European Animal Research Association, which really stresses how important the import of animals and animal materials are to the life sciences sector. Its worry is that no deal will not only add to the time it takes to get the materials in, because of the additional checks that would almost certainly have to be done, but increase transport costs. What analysis have the Government made of potential additional transport costs resulting from the greater time taken because of more checks on what will no longer be an open border? The association clearly stresses its worry about a no-deal scenario and what the Government intend to do about that
The main concern of the British Veterinary Association is about who will do some of the checking. We have a shortage of vets. We will need more vets. Where will they come from? What level of skills will they have? The BVA wants a guarantee that the role of the veterinary professional will remain key to the whole process of trade. It would therefore be useful to know how that will continue at a level at least equal to now, although one would always hope that animal welfare requirements could be improved.
A very specific question to the Minister is on the tripartite agreement between the UK, France and the Republic of Ireland that allows the relaxation of procedures required under Council directive 2009/156/EC. It largely relates to the free movement of horses. My hon. Friend the Member for Bassetlaw (John Mann) was rather concerned, as a devout Brexiteer, about whether racehorses will be racing at Aintree in the grand national if anything gets in the way. Do the Government intend to carry on with that tripartite agreement?
I am sorry that I have asked a number of questions, but they are important and are about seamless trade. The trade is out of sight, and most of us do not know what goes on. When I made a trip to Heathrow when I was a member of the Select Committee on Environment, Food and Rural Affairs, I was shocked by the things that came through illegally. We went to look at the illegal trade in baboons, monkeys and so on—it was quite frightening—and who brought that in. That is one extreme of the trade, and it is illegal. There will clearly be continuity in regulation, one would imagine.
The regulations are about the legal aspects of what animals and animal products are allowed in, and it would be useful to know how the Government are approaching research and how we work on a pan-European basis. We are approaching the end of February and the particular date that we all dread for one reason or another. It is important that we know what contingencies the Government have in place, and that goes wider than the two SIs that have been put together—I do not demur from that.
There are some detailed undercurrents that we as the Opposition need to know about. The wider agricultural sector certainly needs to know, because it is its stock in trade. It needs to know with some certainty what the impact will be. We dread crashing out, but even if we have a deal or perhaps a realignment of our relationship with the EU, what are the long-term implications? The Government have to be very clear on that. As I go through these different SIs, I am not sure whether we have clarity or more confusion. Perhaps it will all come right on the day.
Marion Fellows (Motherwell and Wishaw) (SNP)
It is a pleasure to serve under your chairmanship, Mr Sharma. I will be brief. It is a great pleasure to follow the hon. Member for Stroud and his masterful questioning of the Minister. He has a real grasp of the regulations. I would not want for one moment to attempt to emulate that, but the lack of impact assessments is not good. In fact, it is very bad. What will happen is that a separate set of regulations will be created, which could lead to congestion with live animals on board ships or whatever and with their transfer on to lorries. That is not good for animal welfare.
Finally, there is a simpler way to avoid this rush before 29 March, and that is to extend article 50 while we get this sorted out through agreement cross-party and with the EU. It would also be preferable to stay in the single market and the customs union.
David Rutley
I thank hon. Members who have contributed to the debate. As I said, the draft regulations will ensure that the robust certification, pre-notification and biosecurity standards for imports of animals and related products set out in EU legislation will be maintained. That is an important point, and one not lost on Members who have spoken in the debate.
I am grateful to the hon. Member for Stroud. He showed his characteristically thorough approach, and I will try to answer his many questions briefly. First, however, I will respond to a concern expressed by my hon. Friend the Member for The Cotswolds about fee increases. Fees are set out in other domestic legislation, so would require parliamentary oversight and prior industry consultation before any amendment. That is not part of this legislation; it is separate. The amendments in regulations 4 and 5 are simply enabling powers to allow fees to be charged for imports from the EU in future.
Sir Geoffrey Clifton-Brown
I am sorry, I do not want to cause the Minister any additional difficulties, but in the Cotswolds, which my neighbour, the hon. Member for Stroud, and I represent, we have a large sheep industry. Most of that sheepmeat, whether dead-weight or light-weight, goes to the continent. Currently, it is not subject to checks; in future, it will be subject to checks, and the farmers involved will have to pay the charges. That will have quite a severe impact on certain sectors of the economy. I would be grateful if my hon. Friend—if not now, some time—set out in detail the Government’s impact assessment of that.
David Rutley
I will gladly follow up on that. We are discussing the draft regulations, however, and the points that my hon. Friend has just made, good as they are, are outwith the narrow confines of the legislation—although we have discussed a lot today. Some of the checks that he is concerned about relate to what will happen in the EU, rather than in the UK. Nevertheless, I will give him the specifics and follow up on his points in detail, ensuring that they are fully considered.
Consultation and impact assessments were raised by the hon. Members for Stroud and for Motherwell and Wishaw. Again, notwithstanding the fact that there will be significant changes to how we deal with exports and to some extent imports—we are trying to have a friction-free approach to imports from the EU—those changes and impacts are outwith what we are discussing today. Yes, there have been impact assessments and consultations on other aspects, but the specific draft regulations—
Mr Mark Harper (Forest of Dean) (Con)
I am listening carefully to the Minister and, I confess, I should really have intervened on my neighbour across the River Severn, the hon. Member for Stroud. Both statutory instruments, as made clear in the explanatory memorandums, include no substantive policy changes. Is that not the reason why there are no impact assessments? We are not changing policy; we are simply tidying up to ensure that the existing law works when we leave the European Union, if we do so without a withdrawal agreement. There is no impact assessment because we are not changing any policy.
David Rutley
That is absolutely correct. I thank my right hon. Friend for clarifying the point so well. The draft regulations are about trying to keep things as similar as they can be. The Government’s approach is continuity where at all possible and, as a result, there is no need for consultation or an impact assessment.
Dr Drew
Page six of the explanatory memorandum of the draft trade in animals and related products regulations states categorically:
“There is no additional impact on small businesses (employing up to 50 people) because this instrument maintains the status quo and does not introduce any policy change.”
Absolutely right, as my neighbour the right hon. Member for Forest of Dean said, but that is for “up to 50 people”. What will happen to businesses that employ more than 50 people? Will there will be an impact, yes or no?
David Rutley
That is a way of describing different—[Interruption.] Hold on; let me finish my thought. That is a way of describing different types of businesses. If it does not apply to those, it will not apply to bigger ones either. Genuinely, as has been set out by my right hon. Friend the Member for Forest of Dean, these are very small changes. We are just trying to maintain continuity.
On the points raised by the hon. Member for Bristol North West, separate exit SIs will be tabled by the Food Standards Agency to deal with food hygiene and safety measures, which will be debated shortly under the affirmative resolution procedure. That will address some of his concerns about welfare standards, which we do not want to water down. We have talked about this at length in similar debates in the past.
There was discussion about why the Lords Committee suggested that one of the draft instruments should be debated under the affirmative resolution procedure, as opposed to the negative. Its concern was about reciprocity. However, as I have explained, our approach seeks continuity, to minimise the disruption to businesses. Even the Lords Committee observed that reciprocal agreements with the EU covering these issues would be the outcome of future negotiations.
The hon. Member for Stroud discussed our situation regarding third-party status with the EU. The UK will be treated by the EU as a third country if we leave without a deal. In order to be prepared for all possible outcomes, the UK has submitted its application for listing as a third country to continue exporting live animals and animal products to the EU after EU exit. Without listed status, no exports to the EU can take place. Several technical discussions are taking place with the EU Commission on the detail of receiving expedited approval for the export of live animals and animal products. DEFRA officials are currently providing detailed evidence to satisfy the Commission, but we cannot be certain of the timing of such approval. However, those are active discussions.
The hon. Gentleman also raised concerns about food hygiene and unfit meat from South America. The FSA’s hygiene regulations will deal with that particular issue. I will gladly talk to him about that after the sitting. He also raised concerns about AMR. The FSA is committed to ensuring that imported food continues to be safe for consumers, including looking at AMR, which will include maintaining a robust and effective regulatory regime for the safety of imported food. We will continue to focus on that.
The hon. Gentleman also raised concerns, as have other Opposition Front-Bench spokespeople, regarding the capacity and capability of vets to cope with the extra work before them. He raises that sincerely, and I fully understand the concerns about vet shortages, which we are working hard to address. As I have said previously in similar Committees, DEFRA has provided evidence to the Migration Advisory Committee strongly supporting the return of veterinary surgeons to the shortage occupation list. The MAC is due to report in spring 2019.
We will work closely with the Home Office to ensure that there is a long-term strategy for the veterinary workforce as part of our future immigration policy. We have created a new role—certification support officer—to provide administrative support to official vets, so that they can more easily process the new export health certificates.
There were concerns about the grand national. [Interruption.] Everybody is listening now. There is no question but that those horses will be able to come into the UK. However, because of the timing of the grand national, new processes will be in place for them to leave the UK. Those arrangements are available on Government websites and so forth, and we will make sure that they are fully available.
The hon. Gentleman also raised the Balai directive. We will continue to trade under the directive because it has been transposed into UK law by our Trade in Animals and Related Products Regulations 2011. The final point that he made was on research. Research animals will continue to enter the UK under current controls when the UK leaves the EU. The UK does not currently require research animals entering the UK from third countries to enter via a border inspection post and intends to continue that arrangement.
I think and hope that that answers the detailed questions that were asked. For the reasons set out during the debate, and hopefully through the answers to some of those questions, I trust that hon. Members understand the need for these amendments. They will ensure that the strict import standards currently in place will be maintained after we leave the European Union without placing additional burdens on importers or barriers to trade. I once again commend the draft instruments to the Committee.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Import of and Trade in Animals and Animal Products (Amendment etc.) (EU Exit) Regulations 2019.
Draft Trade in Animals and Related Products (Amendment) (EU Exit) Regulations 2019
Resolved,
That the Committee has considered the draft Trade in Animals and Related Products (Amendment) (EU Exit) Regulations 2019.—(David Rutley.)