Securitisation (Amendment) (EU Exit) Regulations 2019

Debate between Lord Deben and Lord Sharkey

Monday 25th February 2019 Lords Chamber

[Lord Sharkey (LD)]

My Lords, I have only one brief question, which is to do with the transparency SI. I accept that we should approve both the SIs before us, but I regret that there has been no consultation on either instrument. As I remarked earlier, the engagement noted in both EMs is not a satisfactory substitute. However, I was happy to hear the Minister’s response to my suggestion of a more informative account of engagement becoming part of future EMs.

Reading the EM and the impact assessment for the transparency SI highlights one issue: the usual question of reciprocity. The EM for the transparency SI makes it clear that the Treasury can decide which third-country entities can access data on SFTs held in UK trade repositories. I assume that this provision means that all EEA entities currently with access will be allowed continued access. But what about the other way round? As things stand, if we crash out of the EU with no deal, will the UK still have access to data held in the three EEA trade repositories? If not, would it have significant implications for our financial services industry? Have the Government made any estimate of what the consequences of non-reciprocity might be? What assurance have the Government had from the EU, if any, that the UK would be allowed continued access after 29 March?

[Lord Deben (Con)]

My Lords, in the absence of the noble Earl, Lord Kinnoull, I want to declare my interest as chairman of PIMFA, the organisation representing wealth managers and independent financial advisers, and to say to my noble friend that these are two very important SIs which we have to have—there is no doubt about that. This is a branch of our financial industry which was not, as my noble friend said, properly cared for. It did not have the transparency which it needed and it now does. Very sensibly, that was done over the whole European Union, because that is the area over which much of this—not all of it—is served.

It is crucial that we get reciprocity; it would be a serious blow to the industry if we did not. My noble friend reminded us with such elegance that this measure is here only should we crash out of the European Union. Every day, we recognise what a nonsense that would be and how unaware of the facts those who seem to want it really are, but we should not miss the opportunity of reminding the House of this fact.

My noble friend mentioned that all these powers will go largely to the Financial Conduct Authority but that some will go to the Prudential Regulation Authority. Yet again, we have a series of jobs being given to people without any price on them. I am sure that my noble friend will say what he has said on other occasions, which is that the authorities concerned are perfectly aware that they are able to cover this within their current budgets. I am beginning to wonder whether their budgets are not too generous, because they appear to be able to cover so many things without any extra costs. I merely say to my noble friend that it is becoming difficult for the House to recognise how this can be. If those authorities manage to get by for a relatively short period, I have no doubt that they will then ask the industry to pay the cost thereafter.

Again, it is perfectly reasonable to say that the industry is paying the cost towards the European Union at the moment and it will be in much the same place if we bring this to a British system. I have two things to say about that. First, I would rather like to know what that place is, because we do not seem to be told. Secondly, the industry is not in the same place. At present, it is paying towards a system which gives it access to the whole of the European Union. We are now suggesting that it should pay for one which will only give it access to itself. It would have been valuable to see what the difference in cost was there.

Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019

Debate between Lord Deben and Lord Sharkey

Monday 18th February 2019 Lords Chamber

[Lord Sharkey (LD)]

My Lords, the equivalence SI shares the same consolidated impact assessment with the next three SIs. I am grateful that this was published in advance of today’s debate and was available in good time in the Printed Paper Office. That is a significant and welcome improvement on last week’s lamentable performance. I would have preferred individual impact assessments, rather than this consolidated one. However, consolidation has the merit of making absolutely clear the unsatisfactory vagueness about the costs and benefits of these SIs and that this arises chiefly from the lack of consultation.

The summary sheet in the IA for this package of SIs notes that the likely cost for all of them is “Unknown: likely significant” in all three defined categories. The benefits are also unquantified, but are said to be “significant”. This rather dramatically illustrates the point made by the noble Lord, Lord Adonis, in his later amendments. There has been no real consultation on any of these instruments. This is unsatisfactory and is entirely the Government’s fault. Had the Treasury started preparing these entirely predictable SIs earlier, consultation would have been possible. Why has the Treasury left things until the last moment? Although I sympathise strongly with the spirit of the amendments in the name of the noble Lord, Lord Adonis, I hope he will not press the fatal ones to a vote as we would not support him in a Division. It is critical to the functioning of our financial services that we make the changes—no matter how unhappily—set out in these SIs.

I turn to the detail of the consolidated impact assessment. The first 40 paragraphs are clear, but some questions arise in subsequent paragraphs and apply generally to all the SIs. Paragraph 44 explains that,

“it has not been possible to discuss the impact of the full package of changes with firms as this impact assessment was being produced, and has therefore not been possible to produce a monetised estimate of their full impact at this stage”.

This is more than a pity: it is tantamount to a dereliction of duty. It would not be the case if the Treasury had started the process earlier. It has had plenty of time to do this: the deadline can hardly have come as a surprise.

Paragraph 50 acknowledges explicitly that the impact assessment,

“is not able to fully quantify the potential impact of these SIs on industry”.

It undertakes, as a result of this self-generated inability, that if these no-deal SIs come into effect in March,

“it will at the appropriate time complete further analysis considering all of the relevant SIs as a package”.

The word “appropriate” is very vague; what does it really mean? Does it mean, for example, in less than three months after a no-deal Brexit?

I do realise that the promised analysis is shutting the stable door long after the horse has bolted, and even longer after the horse gave notice that it would bolt. Nevertheless, Parliament should still have a chance to review the real impact of these SIs on industry. Could the Minister help the House with an explanation of the limits implied by “appropriate” and confirm that Parliament will be given an opportunity to debate the subsequent analysis?

[Lord Deben (Con)]

I wonder whether the noble Lord is being a little too kind to the Government. Is not the reason we have not had these figures—and we have not had them because we did not start to do the figuring early enough—that when you actually add up the figures you discover that the cost of Brexit is enormously greater than anybody has pretended, and therefore it is to the convenience of the Government and of those who want Brexit not to provide the figures? Does he know of any other occasion when the Government have proposed huge changes and not provided at least some estimate of the bill?

[Lord Sharkey]

I am grateful for that intervention. The short answer to the final question is: no, I do not. I shall try to be slightly less kind as I move on.

Paragraph 52 of the consolidated impact assessment notes that each of the SIs covered,

“contains provisions with indefinite effect and this is the majority of the content. For this reason, we have concluded that the standard 10 year appraisal period is appropriate”.

This seems to me an entirely perverse conclusion. Ten years is far too long for an appraisal of the effects of instruments containing such wide powers in a complex and critical field, which were produced in very great haste and which lack proper consultation or impact assessment. It would make more sense, and reduce any inadvertent harm, if we were to appraise after, say, two years. I am sure that if the industry were eventually consulted, it would agree with this timing. I would be grateful if the Minister would say why he is proposing 10 years for appraisal and what is wrong with two. Will he reassure the House that he will reconsider the timing of the appraisals? Perhaps he will write to us with his conclusions.

Finally, paragraph 73 of the consolidated impact assessment deals with the impact on the public sector:

“Where changes to the regulators’ rulebooks, or to EU technical standards, are required as a result of leaving the EU, the regulators intend to consult on these changes wherever possible”.


This “wherever possible” is alarming, especially in view of the Treasury’s failure to consult in the preparation of these SIs in the first place. Can the Minister give examples of situations in which it would not be possible to consult on the changes to the rulebooks or the technical standards?

[Lord Deben]

My Lords, I declare my interest as chairman of the organisation that represents financial advisers and those who manage other people’s money. I come back to the point that the noble Lord has raised. It is very difficult for the industry to understand why the Government have not found it possible to talk in a lot more detail about the costs that are going to be placed upon the industry. After all, the industry pays these costs.

I am a great believer in regulation: I think good regulation is very important. I do not like the way that people sometimes mix bad regulation with the need to have no regulation, but if we are to have good regulation, there are two very important elements. First, it must be clearly understood, and, secondly, the cost must be clearly adumbrated so that people can make proper provision. I agree with the noble Lord who spoke last that it is unacceptable that, first, we do not know in advance; secondly, we will not know until after we have passed these things; and, thirdly, we will have to wait 10 years until we know whether or not we got it right. I have enormous respect for my noble friend, as well as enormous concern, given the difficulties he faces.