Public Record, Disclosure of Information and Co-operation (Financial Services) (Amendment) (EU Exit) Regulations 2019

Debate between Lord Sharkey and Lord Tunnicliffe

Monday 18th February 2019 Lords Chamber

[Lord Sharkey (LD)]

We support this statutory instrument, but I have a couple of quick questions. In paragraph 2.7, the EM notes that:

“In certain exceptional instances, a similar requirement to seek consent from the originating regulator applies where the confidential information originated from a third-country regulatory authority”.


That seems a little opaque. I could not find anywhere in the SI what these exceptional circumstances might be. That may well be my fault but I would be grateful if the Minister could point me at the relevant parts of it or, even better, explain what these circumstances are.

Finally, I was puzzled as to why the SI’s introduction of transitional provision, described in paragraph 2.16 of the Explanatory Memorandum, was necessary. That paragraph says:

“In addition, this instrument introduces a transitional provision so that any confidential information that was received on or before exit day will continue to be treated in line with the relevant provisions in EU regulations and directives as they had effect before exit day”.


That raised two questions for me. The first is one of necessity. Would this eventuality not be covered by the general transposition of EU law into UK retained EU law? The second is to do with the wording of the paragraph in the EM, which refers to information received on exit day. But we are scheduled to leave the EU at 11 pm on exit day, so what happens to confidential information received between 11 pm and midnight on exit day?

[Lord Tunnicliffe (Lab)]

My Lords, looking through this statutory instrument to see whether there were any policy shifts, as far as I can understand it, the EEA countries have better protection for their confidential information than third countries do. This statutory instrument takes that special protection away and then requires agreements to be concluded. That would seem to be the wrong way around. I would have thought that the protection which the EEA states have—that before the information can be passed on, permission must be sought from the originating country—would be better extended to other third countries. This would be a better position for the management of confidential information than what is referred to in the Explanatory Memorandum as a series of agreements, followed by instructions to staff. It is a bit late to have a debate on such an obscure point but if the Minister were to read Hansard tomorrow and send me a letter on this point, I would value that.

Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018

Debate between Lord Sharkey and Lord Tunnicliffe

Monday 4th February 2019 Grand Committee

[Lord Sharkey (LD)]

My Lords, as the Minister noted, the first SI—dealing with OTC derivatives, CCPs and trade repositories—was published in draft on 22 October last year. The second, dealing with financial markets and insolvency, was published in draft on 31 October last year. The impact assessments for these SIs are contained in a consolidated batch of nine HMT impact assessments, which themselves rely occasionally on references to IAs for other SIs. That batch was published on 29 January, three months after the publication of the drafts and two working days before we were scheduled to debate them. Even one working day beforehand, last Friday morning, the IAs were not available in the Printed Paper Office. Can the Minister explain the very late appearance of the SIs and why the PPO did not have copies by Friday? Can he reconcile this late publication of IAs with giving Parliament proper time for scrutiny? Can he assure the Committee that future Treasury IAs will be published in good time and lodged with the PPO?

The consolidated IAs contain a headline assessment of cost and benefits. As to costs, there are three headings: “Total Transition”, “Average Annual” and “Total Cost”. In each case, the IA estimates the costs as “Unknown: likely significant”. This is unsatisfactory and raises the question of whether HMT understands the role that IAs play in parliamentary scrutiny. It is of no help that the consolidated IA reckons the benefits to be “significant” but declines to attempt to quantify them. In the remaining 52 pages of the impact assessment there is no real detailed examination or quantification of likely costs and benefits, apart from a reading time-based estimate and a passing reference to the trade repositories SI where costs are estimated, apparently, at £500,000 per TR. I say “apparently” because there is a typo in the cost reference for these TRs, so it is not clear whether the figure is meant to be £50,000 or £500,000. Perhaps the Minister can clear that up. I think that it would help the Committee in its scrutiny of future Treasury SIs if consolidation was avoided and we returned to individual impact assessments in proper form for each SI.

Turning to each SI, I found it quite hard in parts to follow the EM for the OTC derivatives, CCPs and TRs SI. I would be grateful for some clarification from the Minister. In paragraph 6.1, the EM notes that the SI revokes two pieces of delegated legislation. Will the Minister expand on what these are and why they are being revoked? The EM does not say why—or if it does, I could not find it. In paragraph 7.7, the EM explains that:

“As a general principle, the UK would need to default to treating EU Member States largely as it does other third countries, although there are cases where a different approach would be needed including to provide for a smooth transition to the new circumstances”.


The EM does not explain what these cases may be or what the different approach might be. Will the Minister tell the Committee what these cases are, or may be, and what different approaches will be needed, and why?

Paragraph 7.12 of the EM states:

“Where the Commission has taken equivalence decisions for third countries before exit day, these will be incorporated into UK law and will continue to apply to the UK’s regulatory and supervisory relationship with those third countries—with the exception of those taken under Article 25 EMIR as set out in the CCP Regulations”.


Will the Minister explain what these exceptions are and why they exist?

In paragraph 7.16, the EM notes that the SI introduces a power that allows the FCA to suspend the reporting obligation for up to one year, with the agreement of HM Treasury, where there is no registered UK TR available. Surely the Treasury must know how likely this is and who it will affect. Again, the EM and the impact assessment do not help—or at least did not help me. Will the Minister say how likely this suspension is, who it will affect and what its consequences and impact might be?

I turn briefly to the second instrument, the financial markets and insolvency regulations, which is, by comparison, a model of clarity and straightforwardness. My only question relates to paragraph 1.76 of the impact assessment, which explains that the relevant EEA systems will be required to notify the Bank of England, before exit day, to enter the regime. What happens if they do not? What risks does this generate, and what procedures are in place to mitigate them?

I realise that I have asked quite a few quite detailed questions, and if the Minister prefers to respond in writing I would be happy, as long as we have the answers before the SIs reach the Chamber. I emphasise that I feel strongly that the consolidation of IAs makes proper parliamentary scrutiny significantly more difficult, and the very late production of IAs, as in this case, really does not help.

[Lord Tunnicliffe (Lab)]

My Lords, there is much that I would support in the intervention by the noble Lord, Lord Sharkey. I particularly like the way he sneaked in the fact that he got to page 41 of the IA.

The first instrument is on an area that I knew little about before I read it. With that limitation, it seems generally to make sense. It is clear about the transfer of functions, who will be responsible for equivalence decisions and information exchange—data comes over with a discretionary relationship. It is clear that the object of the exercise—at least this is how I read the Explanatory Memorandum—is to retain the discipline of EMIR. In view of its importance, I was surprised that a UK name for EMIR was not created, as was done in a previous SI, so that we would all know what we were talking about, given that the E in EMIR stands for European.

Going a little way into the detail, as the noble Lord pointed out, paragraph 7.16 allows a reporting obligation to be suspended for one year. From what I understand of the overall regime that this is part of, its very essence is open reporting of transactions. That is what the G20 came up with to create this regime. Will the Minister give us some feel for what risks are being taken by Part 2 of the instrument, which creates an opportunity for reporting to be suspended for up to one year? It also has what seems a fairly reasonable exemption for intragroup activity. It is a classic three years, plus however often the Treasury wants to extend it. It also has an exemption for energy derivative contracts up to 3 January 2021, but I could not see where that date came from; perhaps it is something to do with an international agreement.