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

Lord Tunnicliffe Excerpts

Monday 18th February 2019 Lords Chamber

[Baroness Kramer]

I can only agree. We have major transparency problems. I am working on the Trade Bill; it is unconscionable that we do not have available to us information that the EU would not only put automatically on a website but constantly report back on, with discussion between the Commission, the Council and the Parliament.

Let us set that aside so I can move on with this particular instrument. I reinforce the concerns about the impact assessment. I must say that the consolidated impact assessment discussed by my noble friend Lord Sharkey contains three pages dedicated exclusively to this SI—I am sure that the Minister will point that out—but anyone who cares to read it will discover that, although it is usefully descriptive, telling us a bit more about the instrument, what used to happen in the EU and what will happen under this instrument, it cannot be called three pages of impact assessment. It does not even attempt to monetise the impact and give us a sense of the costs and the value of the benefits—that is beyond it—and it never deals with the risks in any way. Never in my commercial life have I seen impact assessments that did not assess risk—but these do not even begin to do so.

That is very disappointing, particularly for the businesses which will be picking this up. They want to make sure that this SI goes through, because anything that reduces uncertainty in any area where there is not a cliff edge will be of great value to the relevant businesses—but, my goodness, they would have welcomed something much richer in terms of the discussion to give them some forward vision rather than one that just deals with the very short period of time that will immediately follow departure under a no-deal scenario. I find that very frustrating and a real weakness in the way in which impact assessments are being dealt with here.

That takes me to perhaps the last issue that I will address, which was touched on to some degree by my noble friend Lady Bowles. There is very little discussion in any of this about what I call reciprocity. In order for equivalence for the industry to be able to function without any kind of cliff edge in no deal, not only does the UK need to provide equivalence but the EU needs to grant equivalence as well. In many instances it has not done so, but it may do so in the future. My interpretation is that at the moment it is doing so only in areas where it thinks that not granting equivalence would cause financial instability, rather than looking at broader market access issues.

I take this as a real shot across the bows that we need to take on board, framing the EU intent as to where it will take future negotiations in this area. That is important and I am rather concerned that the Government do not deal with those kinds of issues in this impact assessment, because an honest discussion of that is crucial for businesses as they use the product and everything that we are printing to try to understand what the context is going forward. It has made me feel very gloomy that we will see a much more fragmented set of financial services. I am sure that London will remain a crucial global centre, but I can see the way in which the pattern is developing. It will have some very significant rivals that will take away very significant pieces of business. Over the long term that has real consequences for the UK.

In all that we have here there is one last issue which perhaps the Minister would address, because it could be my deficiency in reading all of this. At the moment we know that third countries operate, as it were, within the EU because the EU has granted them equivalence. As I understand it, the UK will be granting identical equivalence under this SI for the day that we leave if it is a no-deal scenario. But I am unclear about how many of those third countries are granting us reciprocal equivalence. Not only do we have questions about in which areas the EU is granting us third-country equivalence, I am not clear where we stand, for example, in terms of the US. Will we be granting the US equivalence using exactly the same pattern as that of the EU currently? It is not clear whether the US is granting us equivalence and on what terms—and that is just one of the many different countries with which we have built up a kind of network through mutual equivalence that has been established over the years.

Equivalence is extraordinarily complex. It is not a matter of a simple one-hour discussion about four or five easy to understand factors. It is exceedingly complex, it often comes with conditions and it may be limited in a whole variety of ways such as by time and by content. It may have many issues attached to it, and therefore negotiating new equivalence arrangements from scratch would concern me a great deal. I say that in particular because of what we have seen with some of the trade deals, where Liam Fox was absolutely confident that we could take existing trade deals between the EU and the 71 other countries with whom we had free trade agreements and roll them over. He has now been woken to the fact that most of those countries see this as an ideal opportunity to improve their position and to renegotiate. It has become a much slower, much more difficult and much more complex process. I want to try to understand where we are with our equivalence agreements, because potentially the situation is exactly the same. It is very different having an equivalence agreement to have access to the market in the UK from having access to a market of 500 million people. I do not know how many of these equivalence agreements are in play.

[Lord Tunnicliffe (Lab)]

My Lords, I shall be brief on this instrument and brief to the point of extinction on some of the others. I wish I thought that that would have any significant impact on the length of the debates we are going to have, but I fear that my brevity may be somewhat wasted tonight.

Every time we look at a bunch of these instruments, I hope to be forgiven for making the simple, formal statement that I regret being here doing these SIs. Her Majesty’s Government should rule out no deal. The Prime Minister is behaving irresponsibly in not doing so, but unfortunately no deal seems increasingly possible. From my limited understanding of history, most bad things that have taken place were by accident. Unfortunately we have a Government who are playing a game of chicken and hoping that the EU will blink first without realising that one of the outcomes of a game of chicken is mutual disaster. Accordingly, we will not obstruct Her Majesty’s Government’s legislation in preparing for no deal because it is a genuine probability. It was good that at least one speaker in the debate—I think that it was the noble Earl, Lord Kinnoull—pointed out that industry needs these SIs in order to get on with its business.

Virtually all the Treasury SIs have three parts. They tend to transfer functions, to transfer references, and to have a little policy where a decision has to be made if it is not self-evident where the status quo lies. This SI is similar. Its substance is set out in Regulation 2(1), which states:

“The Treasury may, by direction”,


and so on. In the Explanatory Memorandum there is a very important statement on this power:

“It provides ministers with a temporary power, for up to twelve months after exit day, to make equivalence directions and exemption directions for the EU and EEA member states. This power is intended to be used only in cases where it is necessary to make equivalence decisions for the EU and EEA member states quickly and efficiently to support UK market activity and the continuity of cross-border business”.


Unfortunately, nowhere in the SI is that assurance made. There is no limitation on the powers in the statutory instrument itself. As a minimum I hope that the Minister will repeat the essence of what is in the Explanatory Memorandum and assure us that this power is designed to be very limited. As I understand it, the power can be and in fact will be used after exit day. What I would value is if the Minister could explain the parliamentary process that will be associated with it because, so far as I can see, it boils down to nothing. I assume it just boils down to a Written Ministerial Statement. I hope that he can give us some more comfort that whenever this power is used, we will know about it and that he will be making a statement of some kind.

Finally, towards the end of Regulation 2—one usually runs out of energy before one gets to the end of these—paragraph (6) states:

“The power of the Treasury under paragraph (1) includes the power to revoke or vary an equivalence direction at any time”.


Could the Minister make it clear whether that paragraph dies after 12 months, like the power in paragraph (1)? The power to revoke or vary an equivalence direction—which seems almost as powerful as the power to create a direction—is pretty important and should die at the same time as the power in Regulation 2(1).

I will not make any other general comments, other than to note that all the SIs this evening, as far as I can tell, do not have reciprocity. The whole issue of the negative impact that leaving without an agreement brings is that there is no reciprocity. All we can do is create the rules that allow us to make the move towards the EU, and we have to hope the EU sees the sense in making reciprocal powers. This is just one more reason why crashing out of the EU is a thoroughly stupid thing to do.

--- Later in debate ---

[Lord Tunnicliffe]

Will the noble Lord consider my point on paragraph 2.1 of the Explanatory Memorandum? It assures us that these powers will be used in a narrow way to manage the transition and not to introduce new policy. That is quite a strong statement, but it is nowhere on the record and there is nothing in the instrument to limit the use of the powers mentioned in paragraph 2.1.

[Lord Bates]

The noble Lord did ask me to assure that that will apply, and I am happy to do so. With those assurances, and conscious that we will touch on many of these matters again later in the evening, I beg to move.