Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019
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Lord Bates
That the draft Regulations laid before the House on 31 January be approved.
Relevant document: 16th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee A)
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, this statutory instrument will fix deficiencies in the Financial Services and Markets Act 2000 and subordinate legislation made under FiSMA, which is an important part of the UK’s regulatory framework for financial services. This instrument has already been debated and approved by the House of Commons.
A key function of this legislation is to define the regulatory perimeter which sets out the activities and financial institutions that are in scope of UK financial services regulation. In a no-deal scenario, the UK would be outside the EU’s supervisory and regulatory framework, resulting in deficiencies in the existing legislation. Specifically, many provisions in this legislation set out the scope of regulated activities based on firms being authorised and operating across the single market, or by referring to definitions in EU law, which will no longer be workable after exit. In particular, the UK is currently part of the EEA’s financial services passporting arrangements, which allow EEA firms to freely provide products and services throughout the EEA. Once outside the EU, the UK will no longer be part of these arrangements.
As your Lordships will be aware, the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018, which Parliament has approved, begin the process of removing legislative provisions which facilitate passporting in the UK, as well as providing for a temporary permissions regime allowing EEA firms to continue their activities for a limited period after exit day, giving them time to become UK-authorised. Although the statutory instrument being debated today does not alter the underlying policy of the UK’s legislative framework for financial services, many of the proposed changes in this SI are necessary to complete the task of removing passporting-related provisions, and to define the UK’s regulatory perimeter as a regime operating outside the EU.
Many of the definitions for regulated activities in FiSMA, and in the 2001 regulated activities order made under it, include the EEA in their scope and rely on definitions in EU law to operate. To reflect the UK’s new position outside the EU, the SI will amend the territorial scope of these definitions where needed so that they only apply to the UK after exit. Some of the changes proposed in this SI are also needed so that UK regulators can continue to carry out their existing statutory functions. As mentioned already, this SI will complete the process of removing passporting-related provisions. This will mean that some firms and fund managers will face new requirements as a result of these necessary changes. The SI therefore creates some transitional arrangements to mitigate disruption to those EEA firms and their consumers. For example, some of the transitional provisions relate to certain financial instruments, financial documents, or contracts which have been issued or entered into pre-exit, ensuring that they continue to operate effectively after exit for an appropriate period.
I will use the rest of my opening remarks to focus on the temporary transitional power in Part 7 of this SI—a very significant part of the no-deal preparations—to which some of your Lordships are paying particularly close attention. This power is a significant delegation of responsibility to the UK regulators so it is quite right that noble Lords have been scrutinising this power in detail. The Economic Secretary and I are very grateful for the constructive meeting which we had with the noble Lords, Lord Tunnicliffe and Lord Sharkey, and the noble Baroness, Lady Kramer, last week to discuss the temporary transitional power. My opening speech will be longer than normal as a result of that meeting, at which they invited me to put on record some remarks to make the nature of those transitional arrangements clear.
Despite the specific transitional arrangements which we are putting in place through a number of SIs, firms will still be faced with a large volume of regulatory changes to which they will need to adapt in a no-deal scenario. This could cause significant disruption to the financial services sector, and consumers, immediately after exit. To prepare for this scenario, this SI creates a temporary transitional power, which allows the UK regulators to defer or modify changed requirements for firms. While I acknowledge that this is a broad power to delegate to UK regulators, in a no-deal scenario the regulators will need flexibility to ensure that firms can reach compliance with onshoring regulatory changes in an orderly way and to respond to unforeseen pressures on firms. Given their supervisory responsibility for firms, the regulators, using their supervisory judgement, are best placed to decide how to phase in onshoring regulatory changes.
This is not intended to be a crisis intervention power to deal with failing firms or financial instability. UK regulators already have a comprehensive range of crisis intervention tools available. Rather, the power is intended to give the regulators flexibility to smooth the regulatory adaptation challenge for firms, to prevent instability and disruption from arising in the first place. While the power is broad in terms of the regulatory requirements it can apply to, the purpose for which it can be used is very specific. It can be used only to prevent or mitigate disruption that may reasonably be expected to arise for firms as a result of legislative changes made under the EU withdrawal Act. Also, the regulators can use the power only to delay or modify financial services requirements which they are responsible for supervising. Onshoring changes on accounting standards, for instance, are not the responsibility of financial services regulators and would be out of scope of this power.
Given that firms have been preparing on the basis that there will be a withdrawal agreement, this temporary power is designed to replace the adjustment time that firms would have if the implementation period in the proposed withdrawal agreement were ratified. For this reason, the temporary transitional power is available for two years from exit day. The power, and any directions made under it, would therefore automatically expire at the end of this two-year period, after which firms would have to comply with all new requirements set by Parliament in legislation. If, for any reason, the Treasury subsequently took the view that more time was needed for firms to adapt, we would need to return to Parliament with new legislation. This SI does not provide for any extension of the transitional power.
Lord Bates
I thank my noble friend Lady McIntosh, the noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, for their contributions and engagement through this whole process. I am particularly grateful to my noble friend Lady McIntosh for participating in the debate and for opening it up with some perspectives on this. She said it was unclear what the post-exit requirements for derivatives were. We have made several onshoring SIs relevant to trading and issuing of derivatives already. I think we are currently up to SI number 40. Within that batch of 40, there were some specifically on that. I will certainly write to my noble friend to explain exactly how this regime will operate post exit.
She also asked about the direction of the transitional power. The power is available to regulators for two years from exit. It is then for the regulators to propose appropriate delay or phasing in of requirements within the two-year period. She also asked about the impact assessment—I applaud her for her scrutiny in getting to that level of detail in the specific tables. Let me populate some of the information from them. As outlined in the impact assessment, while the overall familiarisation costs were estimated at £110 million, the cost per firm was estimated at £1,900. The number of firms affected was based on the fact that FiSMA applies to all firms regulated by the PRA and FCA, which amounts to approximately 58,000 firms. It is also estimated that there will be an additional 1,200 firms entering into the temporary permissions regime, which then brings the total to 59,200. While FiSMA applies to all firms regulated by the PRA and FCA, many of the effects of this SI result from the loss of passporting rights at exit. I note that the remarks she made were drawn from considerable experience of how hard-fought those rights were. Of course, that is a consequence of decisions taken ultimately by the British people. This means that changes made by the SI will, in terms of the number of firms affected, predominantly affect those 1,200 firms entering the temporary permissions regime.
Moving to the remarks made by the noble Baroness, Lady Kramer, I again thank her for her input on this. She asked whether we could map all the onshoring changes. She made that request at the meeting with the Economic Secretary to the Treasury. Although we recognised that there were some challenges in doing just that, we felt that it was a very reasonable request when we met last week. I can confirm that we are working on this and will be in touch, I hope with a positive mapping exercise to share with her.
Lord Bates
I am very happy to do that. I should also say that all these changes are being made because of the quite brilliant Economic Secretary to the Treasury, John Glen. He is an outstanding Economic Secretary, and takes his duties very seriously. As a more senior person, I find it encouraging to see young Ministers who are so diligent in the way they engage with Parliament and the department. He is an example to others in how he does it. The noble Lord, Lord Tunnicliffe, found a polite way of saying that he found it refreshing to be talking to the butcher, not the block. I absolutely get the point, and he could not be engaging with a better metaphorical butcher in this regard.
The noble Baroness, Lady Kramer, asked me to comment on the significance of the Bank of England exemptions regarding the FSCS rules. The regulators have judged that bringing in these requirements immediately is important for the financial stability. The Treasury was consulted and agrees with this. We do not anticipate that this will change.
On the point made by the noble Lord, Lord Tunnicliffe, on the use of unpublished directions, on which again, we had a substantial and useful discussion, it should be stressed that the Treasury and the regulators would want to avoid unpublished directions as the power is to be used broadly across a large range of firms. Unpublished directions would not be effective—as I read that out I thought that the noble Lord was ahead of us in that he was not asking for the unpublished directions but was rather seeking an engagement on matters after the fact. I certainly know that the Economic Secretary is taking that seriously.
I thank noble Lords again for their engagement on this, particularly my noble friend Lady McIntosh. I also thank the Opposition and Lib Dem Benches for the constructive way in which they have engaged with the Government on this, as a result producing a better outcome for regulation.
Mortgage Credit (Amendment) (EU Exit) Regulations 2019
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Lord Bates
That the draft Regulations laid before the House on 19 December 2018 be approved.
Motion agreed.
Gibraltar (Miscellaneous Amendments) (EU Exit) Regulations 2019
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Lord Bates
That the draft Regulations laid before the House on 7 February be approved.
Relevant documents: 17th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee B)
Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019
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Lord Bates
That the draft Regulations laid before the House on 22 January be approved.
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, as this instrument is grouped, I will speak also to the draft Gibraltar (Miscellaneous Amendments) (EU Exit) Regulations 2019. As with the previous instruments we have just debated, these SIs are part of the same legislative programme under the EU (Withdrawal) Act that aims to ensure that, if the UK were to leave the EU with neither a deal nor an implementation period, there would continue to be a functioning legislative and regulatory regime for financial services in the UK.
Gibraltar holds a special place within the British family, not only because of our shared history, which stretches back over 300 years, but also because of the priorities and values we share today. The UK Government are committed to maintaining our close relationship, and this will remain unchanged following the UK and Gibraltar’s parallel withdrawal from the EU. In March 2018, at the joint ministerial council with the government of Gibraltar, the UK Government guaranteed that Gibraltar financial services firms’ access to UK markets will continue as it currently is until 2020, in any scenario. These instruments deliver on the commitment made at that council.
In a no-deal scenario, both the UK and Gibraltar would be outside the EEA and outside the EU’s legal, supervisory and financial regulatory framework. Since the current market access arrangements between UK and Gibraltar are, in part, underpinned by the EU framework, without these SIs the UK-Gibraltar framework would also be disrupted. These SIs update existing UK legislation and make amendments to other EU exit legislation to make special provision for Gibraltar and to ensure that UK legislation relating to Gibraltar works properly in a no-deal scenario.
The first SI, the draft Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019, deals primarily with the Financial Services and Markets Act 2000 (Gibraltar) Order 2001, known as the Gibraltar order. This legislation, along with Section 409 of FiSMA, modifies EU passporting rights to allow market access for authorised financial services firms between the UK and Gibraltar. This applies to a range of authorised firms and, importantly for Gibraltar, includes those in the insurance industry. As a result, since this domestic legislation is derived from EU law, in a no-deal scenario, passporting arrangements between the UK and Gibraltar will become deficient.
The draft regulations amend domestic legislation, including the Gibraltar order and Section 409 of FiSMA, to retain the existing passporting framework between the UK and Gibraltar after we leave the EU until at least 2020, in line with the Government’s previous commitment. These provisions are therefore sunsetted and will cease to have effect on 31 December 2020. Currently, EEA firms passporting into Gibraltar can also onward passport into the UK, and vice versa. Consistent with the general removal of EEA passporting provisions in the event of leaving without a deal, the SI also removes provisions enabling this level of access. This will have no impact on UK or Gibraltarian firms.
At the joint ministerial council in March 2018 that I mentioned earlier, the UK Government announced that they will work closely with the Government of Gibraltar to design a long-term permanent framework for market access beyond 2020. This will similarly be based on shared high standards of regulation, enforcement, and regulatory co-operation. While the duration of market access in the SI is contingent on the introduction of a replacement framework, the UK Government are committed to preventing a potential cliff edge in Gibraltar-based firms’ access in 2020 and to providing clarity to Gibraltar’s market. Accordingly, the SI includes a power to extend existing market access arrangements by one year at a time from the end of 2020. This will be supported by a ministerial Statement on progress towards the replacement framework between the UK Government and the Government of Gibraltar.
The second SI, the draft Gibraltar (Miscellaneous Amendments) (EU Exit) Regulations 2019, relates to other, non-passporting arrangements between the UK and Gibraltar in financial services that support market access arrangements. Various references across legislation in retained EU and UK law treat Gibraltar as if it were an EEA state in relation to such arrangements. For instance, Gibraltar, like other EEA states, has home state responsibility in the event of a Gibraltar-based firm becoming insolvent in the UK. Gibraltar-based firms are also included within existing treatments for policyholder and deposit protections, as well as in the EU payments regime for euro transactions.
Following the UK’s withdrawal from the EU, the arrangements between UK and EEA states will change to reflect the new relationship, but we need to ensure that existing arrangements with Gibraltar are not affected by this but maintained.
Lord Beith (LD)
With regard to these regulations and the previous ones, as they are quite complicated and relates to the transitional period, if there is one, can the Minister clarify what would happen to these two SIs if there were an agreement under the rapid withdrawal Bill that would have to be passed if there is an agreement? Would these SIs remain as they are now, if carried tonight, or would they have to be wholly or partially suspended?
Lord Bates
As regards the other SIs we have been dealing with, we have been saying that in the event of no deal, there would not be an implementation period. If there were a deal—we all hope there will be—there would be an implementation period, and at the end of that period, potentially some of the SIs could come into effect if they were still relevant. However, the point I was making was on the specific commitment that the Government have given to Gibraltar to work up a special arrangement which we hope will be in place before that period, and if it is not in place before that period, there would be the potential to extend these provisions for one year at a time. That is where we are at the moment. Perhaps I will say some more about that, if it would be helpful to the noble Lord, in winding up in response to the debate.
Specifically, these provisions ensure that UK-based firms, Gibraltar-based firms, Gibraltar trading venues and provisions related to arrangements between the UK and Gibraltarian regulators continue to be treated in UK law as they were before exit day. These broad savings provisions also allow the rights or obligations that are dependent on the function of an EU body to instead be performed by the appropriate UK regulator or the Treasury.
Lord Tunnicliffe (Lab)
My Lords, we have no objection to these two SIs, but I have two or three brief questions. The position is summed up in the Explanatory Memorandum to the first set of regulations, paragraph 7.21 of which surprised me. It states:
“The UK government will work closely with the government of Gibraltar to design a long-term permanent framework”.
My impression until I got to that sentence was that the provisions here would change the situation into a stable framework. I would be grateful if the Minister could give us a feel for the extent of difference between the UK system and the system in Gibraltar that means that this bespoke framework is needed, and particularly what will happen if it is not agreed by the end of 2020.
The Minister can respond in writing to my second comment if he would like to do so. I refer to the first bullet point in paragraph 7.15 on the second set of regulations. This is really a cry of anguish because one has slogged through so many of these SIs and has to read every one, and then one reads this final sentence:
“This framework will not apply to the automatic recognition procedure of resolution actions between the UK and Gibraltar”.
I do not have the faintest idea of what that means and not the faintest idea of how to find out what it means. I ask the Minister as a matter of sheer curiosity what it means, and I will accept a letter.
Lord Bates
I thank all those who have participated in the debate. Let me try to put a little more flesh on the bones of this process for the noble Lord, Lord Beith, and my noble friend Lord Deben. In the event of no deal we will be left without the necessary legislative framework because the European Communities Act will have been revoked and therefore the body of law will not apply in the UK. We need to make sure that we onshore the current law so that we get a measure of continuity. If that applies to the UK, of course it also applies to Gibraltar. The Gibraltar Parliament has therefore also had to pass its own version of the EU withdrawal Act and is having to go through the process of the onshoring regime, which is what we are doing here. We are in a sense being treated as two sovereign entities.
Let me put a little more structure on to my initial answer to the noble Lord, Lord Beith. As set out in the White Paper on the EU withdrawal agreement Bill, the Bill will amend the European Union (Withdrawal) Act 2018 so that the conversion of EU law into retained EU law will take place at the end of the implementation period instead of on exit day. While the UK remains subject to EU law and before the conversion of EU law into UK retained EU law, there is no requirement for most instruments relating to our exit from the EU to be in force. The intention is therefore that the EU withdrawal agreement Bill will contain provision to delay all relevant SIs that enter into force on exit day until the end of the implementation period. The Bill will also ensure that Ministers can revoke or amend SIs as appropriate so that they effectively deal with any deficiencies arising from the end of the implementation period.
Lord Beith
My Lords, that is helpful and it is in the language that we have heard used for other statutory instruments. What it does not tell us is whether these two instruments are among those which can be wholly dispensed with or set aside during the transition period, or whether they will be partly in force even if there is a deal.
Lord Bates
To give the level of clarity that the noble Lord seeks, I may have to write to him on that point and copy the letter to others. As I stated earlier, that is our intention. I was at the Joint Ministerial Council as the representative of DfID on that body when those discussions took place. The agreement was that we would have a bespoke piece of legislation dealing with respective access to financial services firms from Gibraltar to the UK market in place by then. That is why the provision was introduced. It says that in the event of it not being in place, there will be the potential to extend the period. However, I will put that in writing.
My noble friend Lord Deben asked how the Government of Gibraltar are preparing for the deal. They passed their own EU withdrawal Act in January 2019 and they are preparing to pass their own programme of EU exit SIs through Parliament to ensure that UK firms currently operating in Gibraltar will retain their market access. The Government will adopt a similar approach to their own EU exit SIs to ensure that Gibraltar has a functioning regulatory framework in a no-deal scenario with mirroring rights and obligations.
Lord Deben
How can we make sure that the measures we take here in this House and in the other place and the measures taken in Gibraltar are in fact congruent? That is really quite important. Who is responsible for that connection so that we make sure that no part of it falls out of line? As my noble friend has said, mistakes do happen. Perhaps I could be told exactly how this is done.
Lord Bates
This happens predominantly through the Treasury. It is engaging with the Government of Gibraltar and of course with the Executive there to ensure that the process goes through. It is run through the Treasury at present, but obviously in careful consultation with the relevant regulators in both entities.
My noble friend asked whether we had consulted Gibraltar on the SIs, which is in part relevant to the previous point. Throughout the EU exit process the UK Government have been committed to engaging with the Government of Gibraltar. On the ministerial level that engagement has been largely structured through the Joint Ministerial Council on Gibraltar-EU negotiations. On contingency preparations, the Government of Gibraltar have indeed received both SIs very positively. There have been discussions at both the ministerial and the official level on the onshoring approach taken in the two SIs.
Lord Deben
I have one final point. What would happen if the Gibraltarians did not like what we are doing? Is it really that we are deciding it, they are doing it, and that is it? Alternatively, could they say, “Frankly, we would like it done in a different way”? I think it is quite important to know what the relationship with Gibraltar actually is.
Lord Bates
It is a very close relationship. How would Gibraltar react to the deliberations in this House? I hope that it would respect them as being the work of Parliament. However, we also realise the crucial importance of financial services to both entities and therefore we want to ensure that Gibraltarian firms can continue to access UK financial services and that UK firms—
Lord Deben
I am so sorry, but I should have declared my interest as the chairman of PIMFA.
Lord Bates
I thank my noble friend. Similarly, we want to ensure that UK financial services have access to the Gibraltar market as well.
The noble Baroness, Lady Kramer, commented on the recently signed tax treaty. The UK, Spain and Gibraltar have concluded a treaty to improve tax co-operation between them and secure the protection of their financial interests. The treaty provides rules for resolving tax residency conflicts and administrative co-operation. The UK signed the agreement as the state responsible for Gibraltar’s international relations. Whereas this means that the UK will ratify it in due course, the Government of Gibraltar will take forward all domestic legislation required for it to have effect in Gibraltar.
On the follow-up question the noble Lord, Lord Tunnicliffe, asked, on the status of the SIs in the event of a deal, I say that the two SIs will not be needed during an implementation period. He also asked about automatic recognition of resolution actions. The framework referred to relates to the jurisdiction controls in relation to winding-up proceedings. This will not apply to the recognition of the actions taken to resolve a failing bank without winding it up. No firms will qualify for automatic recognition. I hope that is clearer.
The noble Lord, Lord Tunnicliffe, also asked why we needed the long-term replacement framework. I think we dealt with that. Will the replacement framework be ready for 2020 and what will happen if it is not? Again, I think I dealt with that. The Treasury is working with the UK regulators and the Government of Gibraltar to design a replacement framework for 2020. Its implementation will depend on progress between both Governments on this framework. Crucially, we do not want to create a cliff edge in Gibraltar’s access to the UK in 2020. The Treasury has therefore included a temporary extension framework in the Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019. This will extend market access through a new negative SI by one year at a time from the end of 2020.
The noble Lord, Lord Deben, asked what would happen if the Gibraltarians did not like what we are doing. Gibraltar is content with our onshoring approach to the two SIs. To ensure a mirrored and functioning financial services regime, Gibraltar is onshoring its own financial services legislation in the event of no deal.
With those explanations, I again thank noble Lords who have taken part in this and beg to move these two SIs.
Financial Services (Distance Marketing) (Amendment and Savings Provisions) (EU Exit) Regulations 2019
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Lord Bates
That the draft Regulations laid before the House on 28 January be approved.
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, as this instrument is grouped, I will also speak to the draft Mortgage Credit (Amendment) (EU Exit) Regulations 2019 and the draft Financial Regulators’ Powers (Technical Standards etc.) and Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2019.
The three SIs are part of the same legislative programme under the EU withdrawal Act to ensure a functioning legislative and regulatory financial services regime in a no-deal scenario. These instruments fix deficiencies in UK law relating to the regulation of distance marketing of consumer financial services and the regulation of consumer buy-to-let mortgages. The final instrument ensures that recently adopted binding technical standards continue to operate effectively and that the markets in financial instruments SI effectively addresses deficiencies in retained EU law if the UK were to leave the EU without a deal or implementation period.
I turn to the substance of the first SI, the Financial Services (Distance Marketing) (Amendment and Savings Provisions) (EU Exit) Regulations 2019. This will fix deficiencies in UK law related to the distance marketing of consumer financial services. The UK distance marketing regulations derive from the EU’s distance marketing directive. This requires firms to provide information to consumers prior to the conclusion of a financial services contract at a distance, sets out consumers’ rights of cancellation and provides that consumers who receive unsolicited distance financial services are not subject to any obligation, including to provide payment. The DMD operates on a country-of-origin basis. At present, EEA financial services firms undertaking distance marketing to UK consumers from an establishment in an EEA state are not subject to the UK’s distance marketing regime, on the basis that they are subject to regulation in their home state. Consequently, the distance marketing regulations, as well as relevant FCA rules on distance marketing, currently apply only to firms undertaking activity from a UK establishment. Firms undertaking unregulated activity from an establishment in the UK are subject to the distance marketing regulations, while firms undertaking regulated activity are subject to equivalent FCA rules. However, some distance marketing regulations apply to all activity, whether regulated or unregulated.
In a no-deal scenario, the UK would be outside the single market and the EU’s legal, supervisory and financial regulatory framework. Retained EU and domestic law relating to the regulation of distance marketing of financial services therefore needs to be amended to ensure it continues to operate effectively. This ensures that consumers continue to receive the information they need to make decisions about the financial services products they may seek out.
Broadly, this instrument will maintain the current distance marketing rules set out in the distance marketing directive, but address deficiencies stemming from exit. The draft regulations remove EU references that will no longer have any legal effect following our leaving the EU. More substantively, this SI will expand the current scope, where necessary, of some of the distance marketing regulations. To remedy any potential loss of consumer protection when the UK leaves the EU, the onshored distance marketing regulations will cover certain EEA firms that will operate in the UK post exit under one of the temporary permissions regimes previously debated by this House. The FCA will amend its rules where appropriate to ensure complete coverage of distance marketing requirements to EEA firms operating in the UK post exit. On 12 December 2018, the Treasury published the instrument in draft, along with an explanatory policy note to maximise transparency to Parliament and the industry.
I turn now to the Mortgage Credit (Amendment) (EU Exit) Regulations 2019. These concern the regulation of consumer buy-to-let mortgages. Many noble Lords will be familiar with the Mortgage Credit Directive Order 2015, which implemented the mortgage credit directive 2014 in the UK. The order established a national framework regulating consumer buy-to-let mortgage contracts. A consumer buy-to-let mortgage is a loan that can be offered to a borrower letting out their home not for the purpose of business or as an investment. Here, the borrower can be thought of as an accidental landlord. In a no-deal scenario, the UK would be outside the EEA and the EU’s legal, supervisory and financial regulatory framework. The Mortgage Credit Directive Order therefore needs to be updated to ensure the provisions work in a no-deal scenario.
The SI makes three main changes to the regulatory regime for consumer buy-to-let mortgages. First, the responsibility to update the remarks and assumptions that accompany the calculation for the annual percentage rate of charge, the APRC, is transferred from the EU Commission to the Treasury. The APRC is a standardised calculation of cost of credit that provides the borrower with the total cost of mortgage credit over its full term. It is necessary to confer this power on the Treasury to ensure the APRC remains accurate post exit.
Secondly, the SI amends the territorial scope regulated by the current consumer buy-to-let lending so that in future it applies only to lending related to property in the UK and not in the EEA. This will apply to a very small number of loans and will not affect consumer buy-to-let lending relating to land in the EEA that was entered into before exit day, which will continue to be covered by FCA regulation.
Thirdly, the SI amends the rules for consumer buy-to-let foreign currency mortgages. A foreign currency mortgage is a loan denominated in a different currency from that of the borrower’s income or assets.
This SI provides lenders which lend to UK borrowers with a consumer buy-to-let foreign currency mortgage with the option to meet the requirement to protect borrowers from exchange rate risk by allowing borrowers to convert their loan into pounds sterling. Currently, the 2015 order prescribes that where a lender protects a borrower from exchange rate risk by allowing borrowers to convert the loan into a different currency, that currency must be the currency of the EEA state where the borrower is resident, or the currency in which the borrower holds their main income or assets. Once the UK leaves the EU, pounds sterling will no longer be an EEA currency, and so this provision has been made to ensure that a UK borrower with this type of loan can continue to convert their loan into pounds sterling. On 22 November 2018, the Treasury published the instrument in draft, along with an explanatory policy note to maximise transparency to Parliament and to the industry.
Lord Tunnicliffe (Lab)
My Lords, we have no objection to any of these SIs. I have read them through as far as I was able, and they seem to be logical.
The distance marketing SI particularly caught my attention, because many citizens are subject to distance marketing that perhaps they do not really want. I note that the Explanatory Memorandum at paragraph 7.30, “Criminal offences”, states that various failures to abide by the rules of the regulation we are creating will be a criminal offence and that those guilty of it will be,
“liable, on summary conviction, to a fine not exceeding level 3 on the standard scale”.
I have a dilemma because, on the one hand, I am going to say that that does not sound very threatening, especially if you are a large firm—I think this relates to firms as well as to natural persons—and I would value it if the Minister would write me a letter on that. I also recognise that, if the SI sought to change that, I would argue that it was smuggling through a policy change. I am not suggesting that it should, but can the Minister clarify whether this is genuine consumer protection that firms fear or whether the punishments for offences are too low to be impactful?
Lord Bates
My Lords, having spent the past six months with the noble Lord in Grand Committee and here, I can assure him that the last thing I would ever attempt to do is to try to smuggle through some policy under his astute watch, because I would never succeed—and we would never attempt it, of course.
The noble Baroness, Lady Kramer, made a good point on this. It gives me an opportunity to put some additional remarks on the record—I know she was talking particularly about buy-to-let properties, but the principle will hold. By extending the scope of the distance marketing regulations to EEA firms in a temporary permissions regime, we are ensuring that UK consumers will continue to be protected by appropriate distance marketing regulations. Firms in the temporary permissions regime will be seeking authorisation, and it is therefore in their interests to comply with the UK’s marketing regime—that is not the answer. I am sorry about that. I will get an answer for her. I absolutely got what she was asking.
Baroness Kramer
Picking up on the point made by the noble Lord, Lord Tunnicliffe, on direct marketing, illegal cold calling into the UK happens frequently. We know that Nigeria is often the major source of illegal cold calls and illegal contacts through emails and so on. One of the frustrations for UK authorities has always been that they cannot enforce against such illegal calls because they are at a distance and they have no locus. Will an equivalent situation arise after leaving the EU so that, if there are inappropriate or illegal cold calls into the UK from an EU-based entity, there will be no mechanism for enforcement against them? If that is the case, that might be something we need to think about.
Lord Bates
I touched on that in my introductory speech and said how they would be treated. I could do a good follow-up letter on dispute resolution, consumer protection and seeking redress in the context of these SIs, which may have wider applicability. If that is acceptable to the noble Baroness and the noble Lord, I will do that.
Motion agreed.
Financial Regulators’ Powers (Technical Standards etc.) and Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2019
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Lord Bates
That the draft Regulations laid before the House on 29 January be approved.
Relevant document: 16th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee B)
Motion agreed.
Women’s Rights: SheDecides Day
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Lord Oates (LD)
My Lords, I beg leave to ask the Question standing in my name on the Order Paper, and in doing so I refer to my interests as published in the register.
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, the UK’s development, diplomatic and defence work promotes our values of gender equality and secures women’s rights around the world. Upholding women’s rights is fundamental to lasting poverty reduction, and to building prosperous, resilient economies and peaceful, stable societies.
Lord Oates
My Lords, I thank the Minister for his response. Will he join me in congratulating the SheDecides movement, on its second anniversary, on championing the rights of women and girls to take decisions about their own bodies and lives?
In view of the UK’s strong record of supporting sexual and reproductive health and rights around the world, will the Government join countries as diverse as Afghanistan, France, Germany, the Netherlands, Senegal and South Africa by appointing a Minister as a global champion of the principles of SheDecides?
Lord Bates
I am very happy to pay tribute to the work of SheDecides. Its launch was attended by a UK Minister, Rory Stewart. It is directing a lot of funding towards the United Nations Population Fund, the UNFPA, of which the UK is a major supporter.
As for appointing a Minister, I cannot think of anyone better than our current Secretary of State, who is not only Secretary of State for International Development but Minister for Women and Equalities.
Lord Collins of Highbury (Lab)
My Lords, the sad fact is that when Harriett Baldwin replied to a similar Question she was unable to acknowledge that the organisation exists. I hope the Minister will take the suggestion seriously, because the good thing about this organisation is that it is about empowering women and its diverse nature enables politicians from Africa and Europe to work together to address this fundamental issue. I hope that the Government will take this seriously, not necessarily by appointing a Minister but by ensuring that we have people across government who are able to give support to this organisation in its ongoing work.
Lord Bates
I am very happy to do that. The noble Lord and I are aware that it is a leading ambition of the global goals. Afghanistan and everywhere else have signed up to implementing global goal 5 by 2030. I am very happy to give an undertaking that we will seek to do that. The Secretary of State will make a major speech this week in the lead-up to the UN commission on women next week. On International Women’s Day, which is on Friday, we will set out more of our strategy in this area.
Baroness Jenkin of Kennington (Con)
My Lords, my noble friend has confirmed that the UK is one of the most generous donors in family planning and sexual and reproductive health for women and girls. The family planning summit last year put the UK at the centre of all this. Will my noble friend confirm that every programme DfID funds will have this at the heart and soul of its work?
Lord Bates
I am very happy to make that commitment. We also have our gender equality strategy, which was published in March last year, which influences every programme we undertake. Some 17 million people have had access to safe methods of family planning since 2015. We want that record to be built upon in future.
Baroness Sheehan (LD)
My Lords, do the Government recognise that while spending on family planning is good, it falls far short of the SheDecides goals? For women and girls to be truly able to choose for themselves, the neglected areas of safe abortion, adolescent sexual and reproductive health and rights, gender-based violence and infertility must all be addressed. Surely our Government see the need to step forward and commit money and a SheDecides UK champion to meet that essential UN SDG.
Lord Bates
This is an area that we have been at the forefront of for some time, even going back to the coalition and the work done by the noble Baroness’s colleague, the noble Baroness, Lady Featherstone, to raise this issue up the agenda when she was at the department. Violence against women and girls is something we have taken a lead on. My noble friend Lord Hague was at the forefront of raising the issue of preventing sexual violence in conflict. These are areas in which we have a proud tradition, but the need and the cases are still so widespread that we need to take action.
Viscount Waverley (CB)
My Lords, the Istanbul convention will have a real impact on women’s lives in Europe, but what is the current status of progress reports, and what will be the status of the convention vis-à-vis Brexit?
Lord Bates
The convention at the World Humanitarian Summit set out a number of ambitions in this area. We have incorporated those into our global strategy for our work with our intentional partners, which is unaffected by the events of Brexit.
Baroness Uddin (Non-Afl)
My Lords, will the Minister accept that, in upholding women’s rights globally, we have fundamentally failed the women of Syria, of whom 8,000 are being raped and tortured in unlawful detention? As well as the great work of SheDecides and Plan International, is he aware of the Conscience Movement’s work, and will he ensure that it is supported in its endeavours to release the women detained unlawfully in Syria?
Lord Bates
I am very happy to give a commitment to look at that. We have been at the forefront of work with our partners on the UN Security Council to document what has been happening in Syria to women and girls who have been subject to appalling violence to ensure that those crimes are thoroughly investigated and those who are responsible are brought to justice.
World Bank: Selection Process for President
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Lord Stern of Brentford
To ask Her Majesty’s Government whether they can confirm that nomination by the government of the United States does not constitute grounds for giving a candidate special priority for the position of President of the World Bank; and whether they are committed to an open, merit-based and transparent selection process for that position.
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, Her Majesty’s Government are committed to the open, merit-based and transparent process for selecting the next World Bank President agreed by the World Bank Board, including the agreed criteria against which candidates should be assessed.
Lord Stern of Brentford (CB)
My Lords, I thank the Minister for his reply. The perpetuation of the de facto monopoly by the USA and Europe of the positions at the head of the IMF and the World Bank undermines confidence in those institutions and in internationalism, and is surely unacceptable in a world that has changed radically since the founding of those institutions seven decades ago.
First, will the Minister now clearly and strongly on behalf of Her Majesty’s Government encourage good candidates from across the world to come forward for nomination, recognising that the past monopoly and the current signalling from Europe in relation to this appointment is a real deterrent? Secondly, will he recognise that the sustainable development goals agreed at the UN in September 2015 and the UN Paris climate agreement of December 2015 are at the core of the World Bank’s agenda and therefore recognise that the absence of commitment to this agenda is a serious weakness in the candidate nominated by the US, a weakness compounded by his lack of experience in managing a financial institution?
Thirdly—
Lord Bates
In answer to the first question, yes, there should be an open process and suitable candidates should come forward. When the noble Lord was at the World Bank, there was an anointing of the US candidate; since 2011, there has been a process, which we welcome. Secondly, we are absolutely unequivocal in standing by our commitments on climate change, which are an integral part of the role of the World Bank and have been shaped in great part by the noble Lord’s work, for which we are all grateful.
Lord Collins of Highbury (Lab)
My Lords, irrespective of the outcome of this open and transparent process that the Minister is talking up so much, I have no doubt that the outcome will be Malpass, the US nominee, getting it. However, what are the British Government doing to ensure that we have the fullest representation at the World Bank, with people there to influence its decisions—more than simply the head of the bank?
Lord Bates
Our key representative serving on the executive board is Richard Montgomery, our executive director. I am in regular contact with him, and he makes a great contribution in this area. Of course, the application process is still under way: it is open until 14 March, so other candidates may come forward and we will evaluate them, as we have before.
Lord Wallace of Saltaire (LD)
My Lords, what will Her Majesty’s Government do if the United States continues to nominate a candidate who, according to many people—including, I suspect, some within the British Government—does not meet the criteria for the post?
Lord Bates
That is the process that is under way at the moment. The only formal candidate to have been nominated currently—Under-Secretary Malpass—is in London today to meet the UK Governor of the World Bank, the Secretary of State for International Development. She is making very clear the importance we attach to the World Bank’s commitments, particularly in relation to climate change.
Baroness Couttie (Con)
My Lords, does my noble friend the Minister agree that the recent announcement that Norway’s sovereign wealth fund, currently valued at around $1 trillion, will shortly increase its stake in Britain—currently 8.5%, which is significant in its own right—is a strong vote of confidence in the UK’s economy post Brexit?
Lord Bates
Absolutely. I am grateful to my noble friend for drawing that to the House’s attention. I am sure that noble Lords will welcome not only that vote of confidence in Britain but Forbes magazine’s assessment of the UK as the top place in the world to invest in and do business in, and its continuing to be the number one location for foreign direct investment in the European Union.
Lord Judd (Lab)
My Lords, the Government repeatedly say that they are committed to a proactive foreign policy following Brexit, in which we will play a full part in building a constructive, peaceful world based on human rights and the rule of law. Despite whatever the Minister may say in good faith, the perception worldwide is that certain traditional powers see these key posts as a carve-up for them. How is that acceptable, and why is the world not given the opportunity to find the strongest possible candidate, committed to the UN objectives, at such a crucial time?
Lord Bates
These Bretton Woods institutions were set up in 1944-45 on the basis of shareholdings. The United States has a shareholding of 16%; ours is some 3.8%. It is natural for the largest shareholder to represent the money it put on the table to get the Bank off the ground. We should consider their putting forward a candidate a good thing.
Lord Bruce of Bennachie (LD)
My Lords, if the World Bank is to be the champion of the world’s poor and leave no one behind, is it not important for the President of the World Bank to command the confidence of the world’s poor?
Lord Bates
We attach great importance to the legitimacy of the open, merit-based process that is now in place for making that appointment.
Lord Hain (Lab)
My Lords, in assessing which candidate will succeed, will the Minister take account of the policies advocated by them? Along with the IMF, the World Bank has had a reputation in recent decades for pursuing a destructive, neoliberal policy, which has recently failed in Georgia, as it has elsewhere. Privatisation, marketisation, small government and cuts in public spending have become a religion, instead of a sensible policy to allow these countries to grow and succeed.
Lord Bates
I do not accept that description of the World Bank’s work. It does an incredible amount for the world’s poor through investing in infrastructure and food—for example, for the Rohingya population. It is absolutely committed to eradicating extreme poverty around the world, which is why we support it.
Lord Hodgson of Astley Abbotts (Con)
My Lords, once the nomination process has closed, will my noble friend let the House know when he expects the shortlist of candidates to be published?
Lord Bates
The nomination process will close on 14 March. The candidates will then be assessed by the executive board of directors and a decision will be made ahead of the spring meetings in Washington between 12 and 14 April.
Lord Whitty (Lab)
My Lords, if the outcome of the shortlist is that the only remaining candidate is someone who appears to deny climate change and to adopt policies meaning that the good work the World Bank has done on sustainable development would be reversed, would the Government be prepared to veto such an appointment in those circumstances?
Lord Bates
The World Bank has undertaken a very major commitment: between 2021 and 2025, a significant increase—some $200 billion—will be devoted to climate change projects. That is fundamental to the work of the World Bank. We have made it clear that we expect that work, which has already been agreed, to be continued under whoever is the president.
Transparency of Securities Financing Transactions and of Reuse (Amendment) (EU Exit) Regulations 2019
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Lord Young of Cookham
That the draft Regulations laid before the House on 28 January be approved.
Investment Exchanges, Clearing Houses and Central Securities Depositories (Amendment) (EU Exit) Regulations 2019
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Lord Young of Cookham
That the draft Regulations laid before the House on 17 January be approved.