Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019 Debate
Full Debate: Read Full DebateLord Beith
Main Page: Lord Beith (Liberal Democrat - Life peer)Department Debates - View all Lord Beith's debates with the Department for International Development
(5 years, 5 months ago)
Lords ChamberMy 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.
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?
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.
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.
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.
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.