Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018
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Lord Tunnicliffe (Lab)
My Lords, I, too, welcome this statutory instrument and thank the Minister for introducing it. I also endorse what the noble Baroness, Lady Drake, has said, particularly her questions. I will not repeat what she said, but just observe that the regime will involve the Senior Managers and Certification Regime. I am sorry to hear that it is not as yet being used effectively. Perhaps the Minister will reduce our concerns. Perhaps it would be more top-of-mind if the reversed burden of proof originally in the scheme had been retained. Certainly, it is meant to be a regime which makes managers very clear of their duties, if not fearful. I endorse the idea of six bundled areas of responsibility being expressly divided into seven. I think that the noble Baroness, Lady Drake, asked whether there should be more than seven. It is a bit unfair of me, but I feel that the ombudsman becoming the financial ombudsman gives me a feel that he will be steelier and more effective.
The solicitor exemption depends on the exclusion that the activity is being carried on as part of their ordinary legal practice. The trouble is that we are talking about solicitors. They are paid to get around regulations. Who will be policing that boundary? Who will have responsibility for understanding what a particular solicitor is doing and saying, “Sorry, that should now go into the financial control”? The solicitors doing this work in the ordinary course of their business nevertheless need proper regulation. Is the Solicitors Regulation Authority up to the job?
Lastly, I understand that the CMRU staff will be redundant at a point when the FCA will, we hope, looking for similar skills. I would like to know the Government’s plans at a practical level for those staff.
Lord Bates
I thank noble Lords for their scrutiny of this SI and for their general welcome. I will try to address some of the key points and questions which have been raised.
First, the noble Baroness, Lady Drake, asked about estimates of numbers. According to the CMRU, there are current 1,238 authorised CMCs in operation. The overall number of authorised CMCs has been reducing on average by 10.9% per year for the past four years. The FCA’s modelling shows that it expects to take on 906 firms in 2019.
The noble Baroness, Lady Drake, and the noble Lord, Lord Tunnicliffe, mentioned the solicitors’ exemption and concern about potential regulatory arbitrage. The SRA and the FCA are in the process of updating their memoranda of understanding to ensure that the sector is closely monitored and properly regulated. The order contains a provision which disapplies the exemption from regulation by the FCA, should a CMC seek to avoid FCA regulation by employing a solicitor. That CMC will continue to be regulated by the FCA.
The noble Baroness, Lady Kramer, asked about solicitors, and not other regulated professionals, being exempt. Solicitors are already regulated by the Solicitors Regulation Authority. I understand the point that she made about that authority. The work of a solicitor advising on a claim is the same as, or very similar to, the work of a CMC seeking compensation for a consumer. As solicitors are regulated by the SRA for their usual activity, appropriate regulatory oversight is already present.
The Government have retained the other existing exemptions; we consider it correct that these bodies are not subject to regulation. That point was made by the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Drake. The FCA will continue to monitor exemption from claims management regulation if it moves or migrates into other activities. Of course, it will also retain the right to come back with further suggestions.
The noble Baroness, Lady Drake, asked about the exemption for trade unions.
Lord Bates
My Lords, I was just touching upon the code of practice for trade unions, in response to a point made by the noble Baroness, Lady Drake. The Treasury proposes to maintain the code for trade unions and will replace the MoJ on the monitoring board. The Treasury is working with the Trades Union Congress and Scottish Trades Union Congress at an official level and will publish the code in due course. The code is being amended, mainly to update it to reflect the transfer of regulation.
The noble Baroness asked about CMCs moving into other sectors. We will carefully monitor the effectiveness of CMC regulation and work with the FCA, the SRA and others to ensure that the sector is benefiting its customers. On the estimate of how many CMCs will not get authorisation from the FCA and what will happen to their cases, the number of CMCs has been declining, and I gave some statistics on that at the beginning.
The noble Lord, Lord Tunnicliffe, asked what will happen to the highly qualified CMRU staff. The CMRU and the FCA are currently agreeing the transfer of staff as part of their transfer scheme under the Financial Guidance and Claims Act. The details are still subject to discussion.
The noble Lord and the noble Baroness, Lady Kramer, asked whether the Solicitors Regulation Authority was up to the task. The SRA is subject to oversight by the Ministry of Justice and provides strict professional regulation. A memorandum of understanding between the SRA and the FCA is being reviewed.
Lord Tunnicliffe
My question was: who can call a halt and say, “No, it must transfer”? If you have a solicitor who is growing like Topsy, who will know that by now they should stop doing that and reregister as a proper claims organisation?
Lord Bates
That is something that I think the FCA would be liaising on. If it felt that its activities were aligned with a CMC then, as I mentioned earlier, that would mean it would have to continue to be regulated by the FCA. On the specific point, unless there is any inspiration on its way, I will write with clarification to the noble Lord.
The noble Baroness, Lady Kramer, asked if any action had been taken on CMCs doing their due diligence on data under GDPR. The FCA is in the process of updating and publishing its rules for the CMC regime. It will be working closely with the Information Commissioner’s Office, which is responsible for the oversight of data protection laws, to ensure that CMCs comply with the order, FCA rules and data protection legislation.
The noble Baroness asked whether the SRA was an effective regulator. The MoJ is responsible for the oversight of the SRA. The FCA and the SRA are currently reviewing their memorandum of understanding, and their conclusions will be published in due course. I think that covers most of the points.
Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018
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Baroness Kramer (LD)
My Lords, I will be relatively brief on this statutory instrument. Again, it makes sense, but I have a couple of questions. One was raised by the Minister’s comment: I think he said we could be in a situation where we had an EEA entity effectively being supervised by the UK regulator, but its deposit guarantee scheme would be an EEA scheme. That sounds like a recipe for serious trouble. Surely one would expect the deposit guarantee scheme and the supervision to go together. Perhaps he could enlighten me as to whether I misunderstood that point.
Noble Lords will be aware that the reason there is a single, cross-EU level of deposit guarantee is to stop countries competing with each other. I think that Ireland at one time provided unlimited guarantees, so deposits flooded from across the EU, including the UK, into Ireland to take advantage of that greater level of protection. This was to try to bring everybody into a fairly narrow range, so that that unhealthy competitive element would not be there distorting the financial markets. Is it the Government’s intention to stay in line, basically, with the EU in this arena? If so, we come across a couple of curiosities. At the moment the UK guarantee is fixed at £85,000. If I understand the SI and the Minister correctly, that remains the level until a review in 2021. Of course, since that period we have had a devaluation of sterling, so if one was to do a current valuation of the €100,000 cap, it would be something more like £87,500. I understand that there is no need to review that till 2021, but a discrepancy is building.
I note that the Statutory Instrument says that:
“The first review … must not commence before 2021 unless unforeseen events necessitate an earlier review”.
Many people would say that a no-deal scenario would inevitably lead to a very sharp devaluation in sterling. Would that be considered an unforeseen event? I think it might be considered to be a foreseen event by many people, but for the purposes of this would it be considered an unforeseen event such as would necessitate an earlier review? It would be helpful to know, and to understand the intent that sits behind all that. Will the Minister help me with those issues?
Lord Tunnicliffe (Lab)
My Lords, unlike with the previous SIs, I feel that I actually understand what the regulations do, and the Minister has said nothing to shake my faith in that belief. They seem to have fallen within the overall government assurances, in introducing no policy change but smoothing the scenario, and I have nothing more to add.
Lord Bates
I suppose it passes as a small victory for the Front Bench when it is said that they have not actually said anything to shake the confidence of the spokesman for Her Majesty’s loyal Opposition. That is how we want to keep it: we want to keep the confidence of all parties that we are prepared and ready for all eventualities through this complex process of negotiation.
The noble Baroness, Lady Kramer, asked for some points of clarification. She asked how the €100,000 actually corresponds across. She said that there had been a devaluation of sterling, but that was not an instrument of government policy; it may be something that happened over time, as currencies fluctuate. The Prudential Regulation Authority already has a role in setting and keeping track of that link between the guarantee sums, and we envisage that that will continue. She asked how the Financial Services Compensation Scheme protection will be affected in general by EU exit and whether anyone will lose. The SI does not deal with consumers who are protected by the FSCS. However, I can confirm that FSCS protection for customers here in the UK being served by businesses of a UK-authorised firm will not change as a result of exit. What will change is deposit protection for customers in the EEA who have business with EEA branches of UK firms in future. It will be the relevant EEA authorities who are responsible for ensuring that these customers are protected. Details of the scope of FSCS coverage are set out in the rules by the PRA and the FCA.
The noble Baroness asked about our plans to keep ourselves in line with the level set for deposit guarantees. There are no plans for the coverage level to depart from the current level. The PRA stands ready to review in the event of any urgent circumstances which make such a review necessary. With those brief clarifications, I thank noble Lords again for their contributions.
Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018
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Lord Tunnicliffe (Lab)
My Lords, I thank the Minister for introducing these SIs. They are two of the 70 that we have to deal with and it is a rare privilege to do so in such a crowded Chamber. Normally, the noble Lord, Lord Bates, and I are allowed the privacy of the Moses Room along with one representative from the Liberal Democrats and no others. During debate on an earlier SI, I talked about the value of these meetings, because at the end of the day the Minister knows, as do I, that we will not oppose these statutory instruments. However, I made the point that they create a record that might help the people who use the regulations to understand them. However, so far this SI presents the biggest challenge when it comes to understanding, and my further comments might reveal that I have totally failed to understand it. I look forward to the tutorial in the Minister’s response.
My understanding is that the sorts of things we are talking about are BACS, CHAPS, LINK, the NICC, Mastercard and Visa Europe. I understand that these are regulated in the United Kingdom by the Payment Systems Regulator, which works to a set of standards, directives or frameworks that are the UK manifestation of EU directives and so on. Therefore, my first question is: who will set the standards after exit day? I think that the Minister said that it would be the FCA, but does that mean that effectively, wherever there is a reference to the EU, this SI takes it out and puts in the FCA?
Then we have the complication of who sets the standards for EU firms trading in the UK. Once again, I assume that that is a passporting issue that will die on exit day if we have no alternative agreement. Therefore, what does the instrument do for EU firms after exit day? The Minister says there is a temporary regime, but could he perhaps expand a little on what it does? As I understand it, the temporary regime is time-limited, so what happens at the end of the temporary period? I did not get the sense—as the noble Baroness, Lady Kramer, did—that it was extendable.
Turning now to SEPA, it seems that the Government’s aspiration is to retain membership of it, even if there is no deal, but this is slightly different from the pure no-deal situation, in the sense that it will require international agreements between the UK and other SEPA members. Could the Minister expand a little on how the SI facilitates such agreement? More importantly, could he explain the consequence of no agreement? It is, presumably, theoretically possible that we will not be able to achieve a third-country—or whatever the right term is—membership of SEPA. What will that mean, in practical terms, to UK citizens in their day-to-day lives and their desire to use various means of transport in EU countries?
I turn now to what I loosely call the big picture. If we get a Brexit deal, as I understand it, we do not need these SIs. They are essentially no-deal SIs, but I cannot see in them how they are revoked. Are there articles deep in these pages that allow the SIs to be revoked? The commencement paragraph actually specifies the time when they become active. I will now make my standard moan on these occasions: that there is no impact assessment. The value of impact assessments, quite apart from the actual numbers, is that they usually speak in fairly plain language about who is affected and the level of impact on those institutions. Can we try to ensure that the promised impact assessments for these SIs are available before we debate the instruments themselves?
Because I could not understand the SI in any depth, I worry if it really is just about translating three or four simple ideas into fact. I notice that it is 24 pages long. It strikes me that it is like a bit of computer software, with lots of lines. As we all know from our experience with Microsoft, every now and then it does not get it right. What systems do the Government have to assure themselves that these SIs actually work? While they seek to introduce a number of relatively straightforward ideas—I hope they are; I hope not to be told that I have none of it right—they take an awful lot of articles to do that. Is there a checking mechanism to make sure they work? They are going to have to work at a moment in time. If they do not, the chaos could be frightful.
I repeat my request, to which I have not yet had an answer from the last set of SIs, that those of us involved—I am sure my Liberal colleagues would agree—have a fully updated and amended copy of the Financial Service and Markets Act 2000. We are often told to go to commercial copies of these things. There is a commercial organisation—called Westlaw, I think—and I looked up the Financial Services and Markets Act in its system. Because it records every change since the year 2000, the document is 1,569 pages long. I put it to the Minister that that is not user friendly.
Finally, I echo the welcome for this SI from the noble Baroness, Lady Kramer—
Lord Kirkhope of Harrogate
I am sorry to intervene, but the noble Lord is making a point about an impact assessment. If he looks at page 27, he will see that there is a specific reference to an impact assessment. However, I will say that, when I tried to find it on the appropriate website this morning, it was not there.
Lord Tunnicliffe
I thank the noble Lord for that.
The Minister knows exactly what I am going to say. On page 6 of the Explanatory Memorandum, paragraph 12.6 and beyond states:
“An Impact Assessment will be published in due course on the legislation.gov.uk website … The Treasury’s decision to publish the regulations without a final Impact Assessment aims to ensure that industry and regulators have as much time as possible to familiarise themselves with the regulatory changes”.
The reason the Minister and I are familiar with those two paragraphs is that they have appeared in every Explanatory Memorandum on Treasury SIs so far; and on every SI so far, the Treasury has failed to produce an impact assessment, despite the fact that it is promised in the body of the document. For the life of me, I cannot see why it would bother, given that we will have approved the SI by the time it arrives.
Let me turn back to the good news for the Minister. We are certainly not going to challenge this SI. I echo the view of the noble Baroness, Lady Kramer: it is good to see, as far as one can because of the sheer complexity of it, that it sticks with the Government’s commitment to make only the necessary changes to have a smooth transition. I cannot detect any effort from the Government in this SI to try to introduce any policy changes.
Lord Bates
My Lords, I thank noble Lords for their questions and their scrutiny. The noble Lord, Lord Tunnicliffe, is typically assiduous, as he is on all these matters—he has even gone through the 1,569 pages of the FiSMA, which is some achievement. We appreciate that, and we appreciate the noble Baroness, Lady Kramer, stepping in for the noble Baroness, Lady Bowles, at such short notice. Let me start by dealing with as many of the questions for which it is possible to get immediate answers, and I will then review the debate and write to noble Lords if necessary.
All three noble Lords who contributed commented on what is happening with the impact assessments. Five impact assessments have been prepared across the financial services SIs. Noble Lords will be familiar with the process for this: they go before the Regulatory Policy Committee, which is the non-departmental public body under BEIS, and it assesses the impact of the regulations. What we are trying to do is save British consumers and businesses the costs that would come into effect were we to leave with no deal and not have these statutory instruments in place. That would imply a cost. We are not being as bold as to say that the effect of the SI is to make a saving, but that is the reason why the attempts to quantify this have been challenging. However, they are under way, as I said.
Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018
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The Earl of Lindsay (Con)
My Lords, I want to ask my noble friend a couple of questions on the CCP side to clear up any confusion, in my own mind at least. The first refers to the requirement in the Explanatory Memorandum for,
“non-UK CCPs (including CCPs established in the European Union)”,
to apply to the Bank and receive recognition from the Bank in order to continue their activities after Brexit day. The paragraph thereafter refers to the opportunity for temporary recognition, and there it refers only to third country CCPs. I assume that third country CCPs include CCPs established within the European Union, but the slightly different terminology used in those two paragraphs left a doubt in my mind as to whether there was some distinction. If indeed the temporary recognition is not available to CCP establishment within the European Union, what is the reason for that? From the way the memorandum is written, it could conceivably be that the term “third country CCPs” does not apply to European Union-established CCPs.
My second question, which reflects a question raised by the noble Baroness, Lady Bowles, is about the length of the temporary recognition timeline. If I understand it correctly, it is set initially at three years and can be extended by 12-month intervals. Is it envisaged that a non-UK CCP can, at the end of three years, still be operating under a temporary recognition regime and can continue thereafter to enjoy 12-month extensions to its—as it were—permitted activities in the United Kingdom?
Lord Tunnicliffe (Lab)
My Lords, I will speak to these two instruments in the order they appear on the Order Paper. I found these two instruments difficult to understand and therefore have consumed considerable intellectual effort in actually understanding them, which has left very little effort in reserve to produce an elegant speech. I would like to thank two officials: Greg Stump, for his tutorial on the CCPs, and Richard Lowe-Lauri, for his tutorials on the passporting. I have to say that the disadvantage of having an excellent tutorial is that all the questions I could have asked have largely been answered, so I will not be making a very long speech.
One of the biggest problems in understanding the instruments is that they, particularly the one on passporting, refer frequently to the Financial Services and Markets Act, which we all know as FiSMA. I do not have available a fully amended version of it to refer to so I want to ask the Minister something; I definitely do not want a reply because he will have to take this back to the ranch. Some years ago, a precedent was established when a 50-page Bill came from the Commons and left the Lords 150 pages long—it involved introducing bail-ins, et cetera—and the Treasury was good enough to provide an electronic copy of FiSMA, fully amended. That made understanding what the revisions of the instruments were doing much easier. I request formally that the Treasury does that again. Clearly the Government have a fully amended copy of FiSMA available on their machines because otherwise the creation of the instruments would be virtually impossible.
The regulations on passporting seem very simple. Basically, they say that an EEA CCP can continue trading in the UK, initially under a temporary recognition before moving into permanent recognition. It is as simple as that. As I understand it, this cannot be done unilaterally because moving CCPs into a full recognition environment will be dependent on memoranda of understanding with the host nations of those CCPs. I would value confirmation of that if it is true. Even in an extreme no-deal scenario, there will still need to be international understandings between nations in that situation.
There is no reciprocity in the instruments, as I read them. We have a situation where we are saying to EU CCPs, “Please carry on as before”, and to UK-based CCPs, “We have secured nothing to allow you to continue your business in Europe”. In the case of CCPs, not continuing on a reciprocal basis will be very difficult for both Europe and ourselves. I believe that there is some discussion in Brussels about there being reciprocity, even in a no-deal situation. I would value any news the Minister may have on the development of such a reciprocal understanding.
In the event of a loss of recognition by a foreign-based CCP, it is not clear what the enforcement mechanism would be. For instance, would the loss of recognition mean that trade contracts would become ultra vires or lead to a very messy situation? The statutory instrument contemplates the loss of recognition but does not set out how that would be managed. I would value anything that the Minister might be able to tell me about what would happen.
Equally, my understanding of the passporting instrument is, once again, that it is extraordinarily simple. It means that EEA firms can carry on trading in the United Kingdom on virtually the exact same terms as they do now. In other words, a no-deal situation has no negative consequences for non-UK firms because the mechanism for a more or less automatic granting of temporary authorisation, and then the transition to permanent authorisation, is set out in this instrument. The converse is not there; as far as I can see, it does nothing for UK firms. The Minister may put me right on this but, as far as I know, there are no effective World Trade Organization rules for services that would allow UK firms to trade in Europe.
Lord Bates
I thank noble Lords for participating in this debate. It has lasted for 46 minutes, of which my introductory remarks were 13 minutes. In the 33 minutes, noble Lords have, by my calculation, managed to generate 24 questions which I will attempt to work my way through. I simply flag that up for colleagues on the Front Bench who are waiting for immediate business.
These are crucial issues. Noble Lords are quite right to raise them and seek further clarification. I commence by saying that I agree with the noble Lord, Lord Tunnicliffe, in this respect: this is not the outcome we are seeking or that we want or desire. It is not the outcome that we expect. We expect to secure a deal that will allow us to continue to have a good trading relationship in financial services with the European Union. We believe that that is in the interest of not only the UK but the EU as well. We are working very hard to secure that.
Lord Tunnicliffe
I want to explore that question a little bit further. Surely the test would be whether this is, in its elements, reciprocal to the privileges that EU firms will have as a result of this instrument.
Lord Bates
I do not want a 25th question; I will keep it at 24 and work my way through to that one. I have some remarks to address that particular point.
The noble Baroness, Lady Bowles, asked whether there could be a scenario in which a firm cannot be authorised within three years, which would extend the time limit. The answer is yes. The position is that although the PRA and the FCA have credible working estimates of the number of EEA firms that will apply to them for authorisation, there is an unavoidable degree of uncertainty about this process. That, coupled with the varying degrees of complexity in some of these firms’ applications, means that a power to extend the length of time is necessary. This will be crucial to mitigate the potential scenario in which some EEA firms cannot be authorised within three years from exit day, which could force the regulators to reject authorisation for the firms’ applications. Clearly, we do not seek that outcome.
The noble Baroness also asked whether there is enough flexibility to make equivalence decisions for CCPs. The powers in the EU withdrawal Act limit the fixing of deficiencies to retain EU law when the UK leaves the EU. It does not allow for policy changes beyond this element. The aim is to provide certainty to non-UK CCPs and their UK users during the period immediately following withdrawal from the EU. The criteria for recognition of non-UK CCPs will remain unchanged and will be onshore. This would allow recognised non-EU CCPs to resubmit the application used for EU recognition.
The noble Baroness then asked about the process for the joint assessment by the regulators. As set out in the statutory instrument, the PRA and the FCA would need to submit to the Treasury a joint assessment outlining the effect of extending or not extending the time period on the regime, on firms in general, on the UK financial system and on the ability of the regulators to discharge their functions in a way that advances their statutory objectives. That assessment would need to be submitted to Her Majesty’s Treasury no later than six months before the end of the regime. The Treasury would then make regulations to extend the duration of the regime only if it considers them necessary on the basis of the assessment.
The noble Lord, Lord Tunnicliffe, asked what protections would be available following exit day to UK customers who currently have access to the Financial Services Compensation Scheme. No one should lose FSCS protection as a result of this SI. If a UK customer is currently protected by the FSCS, they will be protected as long as the firm enters the temporary permissions regime.
The noble Lord also asked about the consequences for UK customers if a firm is denied authorisation. Any firms in the temporary permissions regime that are denied full UK authorisation by the UK regulators will lose their temporary permissions. Further legislation will be laid before Parliament at a later date to enable such firms to wind down their UK-regulated activities in an orderly manner. This legislation will ensure that the existing contractual obligations of these firms with UK customers can continue to be met. UK customers would no longer be able to enter into new contracts with these firms unless the firms had successfully reapplied for authorisation from UK regulators.
The noble Lord then asked what a firm being denied authorisation says about the passport regime and whether it suggests that it is not equitable, let alone equivalent. The EEA passport regime system is underpinned by the co-operation of EEA member states’ competent authorities. Each member state’s competent authorities supervise the activities of firms under its jurisdiction, even if those activities take place elsewhere in the EU. Once we leave the EU, we cannot rely on this co-operation continuing. We are therefore making these preparations.
Lord Bates
We may have misunderstood the point that the noble Baroness was making. I am very happy to undertake to write to her on that specific point and copy it to members of the Committee.
The noble Baroness asked why a CCP might not have been recognised within the initial period. While the Bank of England has credible working estimates of the number of CCPs that will apply to it for recognition, there is an unavoidable degree of uncertainty about this.
My noble friend Lord Lindsay asked whether third-country CCPs includes EU CCPs. EU CCPs will be treated as third-country CCPs post-exit. EU CCPs and third-country CCPs will be eligible for the temporary recognition regime if they were permitted to operate prior to 29 March 2019.
My noble friend Lord Kirkhope asked whether the regime could be extended continually each year. It is in everyone’s interest for firms to transition from the current system of EEA passporting rights to full UK authorisation as quickly and efficiently as possible. There would be no circumstances in which it would be desirable for the regulators or the Treasury to extend the length of the regime on a continuous basis. He also asked whether the negative procedure is an appropriate instrument. I respect the work of the Secondary Legislation Scrutiny Committee, whose report we have before us today. I addressed this in my opening remarks. We believe that the choice of procedure is appropriate, given the overall powers being scrutinised now through this affirmative instrument. The negative procedure would just be an extension of that. The power to extend the time period is not a provision which relates to fees and so would not, if made alone, attract the affirmative procedure under Section 8 of the Act, to which my noble friend referred. He also spoke about the process for registration with the PRA and its ability to deal with the volume of applications. I reiterate what I said to the noble Baroness, Lady Bowles: I am confident that the PRA and the FCA are making adequate preparations to deal with the scale of the challenge which they face, but it is a significant challenge.
The noble Baroness, Lady Bowles, asked whether the regulators may ask firms to apply for authorisation sooner than the two-year deadline set out in the statutory instruments if they so choose. The EEA Passport Rights (Amendment, etc., and Transitional Provision) (EU Exit) Regulations will give regulators the ability to direct firms to make an application for authorisation during a specified period within two years from exit day if they have not already applied for authorisation. This will help regulators manage the flow of applications in a smooth and orderly manner. I draw the Committee’s attention to the FCA’s recent consultation paper published on 8 October, in which it set out its intention to allocate each firm a three-month landing slot within which that firm will need to submit its application for UK authorisation. It plans to issue a direction shortly after exit day setting out which firms have been allocated to which landing slot.
The noble Baroness, Lady Bowles, asked how the two-year application period will operate. I dealt with that earlier but I did not cover one specific point: the two-year deadline for applications to be received cannot be extended.
The noble Lord, Lord Tunnicliffe, asked whether this is a one-sided arrangement and whether there will be any reciprocation. The Government are only able to take legislative action in relation to EEA firms’ passport rights to the UK; they cannot through unilateral action influence the status of UK firms. That is why we are seeking to agree a deep and special partnership with the EU, as well as an implementation period, so that important preparations can take place in an orderly manner.
The noble Lord asked what the impact on the financial services sector would be if there is a no-deal exit. Reaching a deal is in the mutual interests of both sides. We are focusing on the negotiation of the right future partnership based on a proposal published in the White Paper on 12 July. That White Paper outlined the Government’s position on financial services and Brexit. We propose a framework for financial services that will provide stability for the EU-UK ecosystem, preserving mutually beneficial cross-border business models and economic integration for the benefit of businesses and consumers in the UK and the EU.
The noble Lord asked what it says about the regime if a firm is denied authorisation. Once we leave the EU we cannot rely on this co-operation continuing and therefore we are making these preparations. It is important that these regulations go ahead so that consumers in this country have confidence in the financial services put forward here.
I have addressed the Financial Services Compensation scheme and I will now deal with one or two points relating to central counterparties. The noble Lord, Lord Tunnicliffe, made a point on the memorandum of understanding with the host state. Yes, there are a number of necessary steps for a non-UK CCP to be recognised in the UK. These include that the Treasury must determine that the relevant third country’s regulatory and supervisory framework is equivalent to EMIR; the bank must agree supervisory co-operation agreements or memorandums of understanding with relevant competent authorities of the CCP applicant; and the non-UK CCP’s application for recognition to be assessed by the bank must include information on its financial resources, internal procedures and various other relevant information.
The noble Lord asked what would happen if the central counterparty is not recognised. If a non-UK CCP were to continue to provide clearing services to UK firms without recognition, it would be in breach of a general prohibition under the Financial Services and Markets Act, which prohibits anyone carrying out a regulated activity unless they are authorised or exempt. The CCP would be guilty of an offence and subject to a fine or imprisonment. However, further legislation will be laid at a later date to enable such firms to wind down their activities in an orderly manner by being treated as being recognised for a short period.
I hope that has addressed many of the questions.
Lord Tunnicliffe
In the unlikely event that the Minister has missed anything, will he review his answer and, if he has missed the odd point, send a letter covering it?
Lord Bates
I am happy to give an undertaking to do that. We are in uncharted territory here—we have not been through this process before. The Economic Secretary to the Treasury, John Glen, is being incredibly diligent in engaging with the regulators on a regular basis and being guided through this process. That is why the announcement was made in December. We will continue to keep this under review. The noble Baroness, Lady Bowles, made a suggestion about how we might keep the House informed of developments and made particular reference to perhaps involving the Select Committees. If I may, I will take that back to the Economic Secretary to the Treasury because, in some of these areas, once we know the lay of the land—we hope it will not come to that but if it does—then we will clearly need to review these provisions. I am happy to take that suggestion back and include it in my answer to the noble Lord, Lord Tunnicliffe, which I will copy to my noble friends Lord Lindsay and Lord Kirkhope.
Online Marketplaces: VAT Evasion
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Lord Tunnicliffe (Lab)
My Lords, is this not a problem of HMRC resources? Is it not very difficult now to reverse the cuts that have been made in HMRC over the years? This is a clear example of loss of revenue to the Exchequer and the damage it does to the high street.
Lord Bates
I do not accept the premise that we are reducing the amount of money going into HMRC. Since 2010, as I said earlier, we have spent some £2 billion on closing that loophole. The increased yields which that has brought into the Exchequer are evidence that it is working.
Building Societies Legislation (Amendment) (EU Exit) Regulations 2018
Lord Tunnicliffe Excerpts(5 years, 8 months ago)
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Lord Wrigglesworth (LD)
I am grateful to the Minister for managing to get through the presentation of this SI to us. He might think of going into juggling at some stage. I want to raise a number of very important issues that affect millions of our fellow citizens. There is no more self-evident part of the financial services industry that impacts on so many people than the building societies. I will therefore return to the discussion we had a few moments ago about impact assessments.
Once again, we have no impact assessment of how this will affect those societies. I refer to the millions of people involved, but they are not all people with mortgages. There are also people saving in building societies and they want to know what the impact of all this will be on their savings. What will be the impact on the balance sheets, profitability and liquidity of building societies? Their resources may be at risk as a result of changes of this sort being made. The importance of the impact assessment for this SI is tremendous; it cannot be exaggerated.
In that context, I also want to return to the question of this being time-limited under EU legislation, which could have a direct bearing on the impact it will have on people—a point made by the noble Lord—and the fact that it will fall away two years after exit. When will our exit take place? Here we are, with the Cabinet not knowing on this very day where it is going and whether there will be a deal, discussing alternatives that will impact upon very many people. What impact will a no-deal scenario have on when this statutory instrument comes into effect? What will happen with the transitional period? Will we leave on the date forecast? It raises profound questions that will affect the livelihoods, savings and mortgages of millions of our fellow citizens. This is just one example of where the Government have a tremendous responsibility to make things as clear as possible to building society customers. I hope that the Minister will address the issue of the impact of this when he responds.
Can the Minister also say something about the impact of this SI, if it is agreed to, on the members of buildings societies who will no longer necessarily be able to become members if they borrow overseas? As I understand it, the position is that as soon as they get a mortgage with a building society, they become members of it; in the future, under this statutory instrument, that may or may not be the case. What position will those people be in? It has been well understood that membership of a building society comes with being a customer in that way. It would be helpful if the Minister could make it clear whether people can, and will, become members of building societies if they do business in that way in the future.
What will be the position of people if they wish to borrow money from building societies to buy overseas? A lot of people might be contemplating buying a property in France, Italy or somewhere else in Europe. Will they be able to borrow from a building society and what will the status of their mortgage be? What happens from the building society’s point of view if the customer defaults on an overseas property? If the building society cannot regain the property and set it against the debt, that will have an impact on its financial position. Can the Minister tell us how many of these loans there are, whether they can be rolled over and what the impact on building societies will be if these changes take place? How will their business be affected in the future?
If any changes are to be introduced—this is the same question as on the previous SI—can we have an assurance from the Minister that the building societies will be consulted? I assume from his previous remarks that they will be as a matter of course. But clearly, like so many other institutions in the country, they are wondering what the devil is going to happen in the coming months. If they at least know that they will be consulted if changes are taking place, I think they will be consoled to a certain extent. Because so many people—people with very modest means, in many instances—could be involved if these changes take place to their detriment, I hope that the Minister will be able to respond to these questions and that the Government will be able to reassure us that that will not be the case.
Lord Tunnicliffe (Lab)
My Lords, I join the noble Lord, Lord Wrigglesworth, in his comments on an impact assessment. I have to admit that rather than knowing that there is not one, I could not find it—but that may be a lack of skill on my part. I hope that the Minister’s answers may cover my concerns. On a lighter note, can the Minister confirm that paragraphs 7.1 to 7.8 of the Explanatory Memorandum are identical to the same paragraphs for the previous instrument? From my reading, they are. Will it be standard procedure for all Treasury SIs to have identical paragraphs 7.1 to 7.8? If they are to be identical, it will save an awful lot of time in reading them if I know that to be true.
An impact assessment would have been useful because it tends to use plainer language. It would have been particularly useful in this case because I took an entirely different view of this instrument from that of the noble Lord, Lord Wrigglesworth. I did not put much effort into it because it seemed pretty benign and reasonably consequential. I did not see the risks, so perhaps I may ask the questions that the noble Lord asked—but rather more bluntly. What will happen if there is a deal, as this document’s commencement date is the exit date? Will it therefore still be alive or be deleted? Will all contracts in force on exit date between a building society and its members be secure thereafter? If they are entered into before exit date, will they continue in force after it? My reading was that they would, but it is an absolutely key point that they should. If you have foreign property as a result of a loan from a building society, is your security in the relationship and all that sort of stuff unchanged by this instrument? Does it refer only to new loans or not?
My reading of the instrument was that it would not have an immediate impact on a building society’s balance sheet, because the composition of that balance sheet would be unchanged by it. The instrument starts to impact on the balance sheet only as new contracts are commenced, which will then have different weightings and so on. Will all UK consumer protections stay in place, so that consumers will in no way have less protection as a result of the instrument?
Lord Bates
I thank noble Lords for their questions. Perhaps I may make one top-line comment at the outset, in order to assist. We are effectively seeking here to ensure that there is absolutely no change in the situation of the building societies in relation to their members and mortgages. The whole purpose behind this provision is to bring onshore that legislation which currently operates while we are members of the European Union, and to ensure that there is no break in or interruption to that work.
It is not anticipated that this SI will have any impact on savers or mortgage holders. On the question of the impact on balance sheets, which the noble Lord, Lord Tunnicliffe, asked, the SI will have no direct effect on either side’s balance sheets on day one. However, EU exit could more broadly impact on both sides’ businesses, in which case we could see changes reflected in balance sheets over time—but of course that depends on a number of factors, including the nature of a future relationship and future deal.
With regard to the wider impact on savers, the Government published a series of technical notices explaining what the consequences of a no-deal exit would be for most UK-based customers. We stated clearly that UK-based customers would not be affected. Where customers will be affected, firms including building societies will be expected to communicate that at the appropriate time. I stress again that building societies overwhelmingly deal with lending against properties and savers based in the UK, and that the provisions in relation to the treatment of property and land on which mortgages are granted in non-EEA states and EEA states are to ensure that there is consistency of treatment in future so that differences and problems will not arise.
Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018
Lord Tunnicliffe Excerpts(5 years, 8 months ago)
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Lord Tunnicliffe (Lab)
My Lords, we all know that there is no chance of anybody voting against this SI or any of the other SIs the Government bring forward, because we all know we are not going to start a constitutional crisis at this time. There are enough of them being generated by the Government as it is.
We now know that there are 70-plus SIs that we are going to have to consider, and I know that I am going to have do all 70 of them, so I have had a look at why we are here. What do we achieve? We do not have massive attendance in Grand Committee, and even if we had been on the Floor of the House we would not. This is what I think we should be doing. Of course, the great thing about SIs and the House of Lords is that you can get away with more or less anything. As a result, one can take an SI and lay a political point on it. I do not criticise the noble Lord for doing that; it is what we do. But with 69 SIs in front of me, I do not want to make 69 searing political points. What will be useful? I think what is useful is to give the Minister a hard time. That is not because I enjoy the spectator sport of Ministers squirming through lack of knowledge, but because the Minister is responsible for the machinery that generates the SI, the Explanatory Memorandum and the elusive impact assessment.
My experience of organisations is that they perform better when they know that their leader is going to come under scrutiny than when they do not. I believe that the process of scrutinising and questioning the SIs that come in front of us is constructive in its own right in encouraging quality both in drafting and right the way through the process. I also think the process of questioning SIs and Hansard reporting the conversation is useful to the industry that they impact on. It allows people who read the raw SI to look at the debate and on occasion get a better view of the nuances. I believe it is also useful to those people who will have to draft the advice, regulations and so on that flow out of the SIs. I am talking about the generality of it.
Lord Bates
I thank the noble Lords, Lord Wrigglesworth and Lord Tunnicliffe, for their questions. I guess that the noble Lord, Lord Tunnicliffe, and I are going to be spending many happy hours in this Committee over the next year, and I know that the noble Lord is always assiduous in the way that he prepares for these matters and in the questions that he puts. He is also right to say that this is an opportunity to provide scrutiny for these regulations and what is being put forward.
Many questions have been raised and I will go into a bit of detail in responding to each of them. The first issue is in relation to impact assessments. This statutory instrument would have no cost to business as it deals with the transfer of responsibility from the Treasury to the regulators. As a whole, these SIs will significantly reduce costs to business in a no-deal scenario. Without them, the legislation would be defective and firms would be left to deal with an unworkable and inconsistent framework that would substantially disrupt their business.
In making these changes we have attempted to minimise the disruption to firms and their customers and to maintain continuity of service provision. However, it is inevitable that firms will need to prepare for changes made by these SIs and the Government have committed to providing the UK regulators with the power to phase in regulatory requirements that change as a result of exit. This will substantially mitigate the costs to firms and give them more time to implement the changes.
On the issue which, I suppose, is at the heart of this initial—
Lord Tunnicliffe
It seems to me that the Minister has just given a précis of the impact assessment, which is designed to satisfy us when we do not need one. I would have been much more comfortable if the document had said, “We do not intend to produce an impact assessment because the argument is simple,” and then printed his explanation, rather than receiving a document that says, “We do not have an impact assessment because we have not finished doing it yet and we will publish it later”.
Lord Wrigglesworth
I wonder whether the Minister will mind if I emphasise the importance of this. We are dealing with thousands of businesses whose procedures are possibly going to be changed as a result of this. Not only are businesses going to be affected: millions of customers may possibly be affected. It is tremendously important that they and their customers know what impact this will have, so that if necessary they can change their forms and procedures, move their money and do whatever they want to do in the light of the impact of this. If changes are in the pipeline as a result of this, and they are going to affect businesses, it is vital that businesses know about them as soon as possible.
Lord Tunnicliffe
On the same point, I draw attention to page 33 of the statutory instrument:
“Explanatory Note (This note is not part of the Regulations)”.
The final paragraph states:
“An impact assessment of the effect that this instrument will have on the costs of business, the voluntary sector and the public sector will be available from HM Treasury, 1 Horse Guards Road, London SW1A 2HQ and published alongside this instrument”.
I apologise for this, but if we are going to get impact assessments, the Government have to realise the irritation it causes to the Opposition and our colleagues in the Liberal Democrats if we do not have them published on time.
Lord Bates
I fully accept the point the noble Lord is making. There is no need to apologise, because the point is that there should be scrutiny. I am trying to explain that this SI would not be expected to have an impact on business for the reason that I have set out. Other SIs will have impact assessments published. This SI has been published in draft form and we have been engaging in consultation with the Financial Conduct Authority and the regulators. The Financial Conduct Authority and the regulators interact most with businesses and consumers and therefore they have already commenced work on that part of the process to ensure preparedness.
On that point, the noble Lord, Lord Wrigglesworth, asked how industry will be involved in the regulators’ role. The regulators will consult on their deficiencies fixes. The Financial Conduct Authority has published its first consultation and the Bank of England will follow.
On the key issue of where the powers in the SIs are derived from, it is Section 8 of the European Union (Withdrawal) Act. That Act was subject to considerable debate in Parliament, including debate on the nature and scope of the deficiency-fixing power delegated to Ministers. Part of that debate considered whether it would be appropriate for Ministers to subdelegate the power to non-ministerial bodies. Parliament decided to leave open the possibility of subdelegation. Subdelegation of the powers is provided for in this SI so that UK financial services regulators can fix deficiencies in EU technical standards and regulator rules in time for exit. Section 8(6) of the Act provides for the transfer of EU functions to an appropriate UK body.
On the amendments to principal financial services legislation, which the noble Lord, Lord Wrigglesworth, asked about, some deficiency fixes will be put into primary legislation through SIs. These will not change policy but will be technical in nature.
On how we have consulted industry in drafting these SIs, we have not carried out a formal consultation on these particular SIs. What they can do is strictly limited by the enabling power of the EU withdrawal Act to fixing deficiencies. Therefore, there are limited policy choices. We discuss EU exit preparations regularly with the industry. This engagement has been invaluable for understanding the impact of these SIs. We share draft legislation with the industry to allow stakeholders the opportunity to familiarise themselves with our approach and to test our understanding of the likely impact. We are also, where possible, publishing draft legislation in advance of laying it.
The noble Lord, Lord Tunnicliffe, asked how the regulatory changes will be put in the public domain. The regulators are committed to a fully transparent process for fixing deficiencies in EU technical standards. The FCA has already issued its first consultation on this. The regulators are required to publish all the instruments in which they will make regulatory changes to ensure that they are brought to the public’s attention. In practice, they will do so by publishing them on their website.
The noble Lord also asked whether there was any requirement for the regulators to report on how they are exercising these powers. All regulatory deficiency fixes will need to be approved by the Treasury. I accept the point he made about the circumstances and tests, and whether there was an impact on the Exchequer, but the EU withdrawal Act requires an annual report on the exercise of the powers under the Act. The regulators will provide this on their use of the deficiency-fixing power and on their post-exit responsibility for technical standards. Parliament will be able to scrutinise and question the regulators on the use of these powers through the Select Committee system, as it does now across a range of regulatory functions.
Lord Tunnicliffe
I do not know whether the Minister feels that he has answered the question, but does the Treasury have a supervisory responsibility other than through or in relation to the two reasons he just outlined?
Lord Bates
I have an answer to that and it will be ready in just a couple of minutes. It was on how the powers will be used.
The noble Lord also asked how regulators would co-ordinate with EU regulators after exit. This statutory instrument does not deal with the co-operation arrangements between the UK and EEA regulators. However, if the UK leaves the EU without a deal, the UK will fall outside the EU’s legislative framework for supervisory co-operation. The EU has confirmed that the UK will be treated as any other non-EEA country in this scenario. Common legislation will no longer be the basis for co-operation between UK and EEA regulators, but the UK’s firm intention is to maintain the current high level of co-operation that we have with EEA authorities. UK statutory powers have this under the FSMA. As some of the world’s most important regulators, the Bank of England and the FCA are well-established co-operation partners with non-EEA regulators.
The noble Lord asked what would happen to the statutory instrument in the event of a deal. These regulations will come into force on the day after they are made. This will allow regulators to prepare for exit day by making these changes. However, if we reach an agreement on the implementation period, for the duration of that period the UK will remain subject to EU law, including binding technical standards. It will also generally not be necessary to fix deficiencies in regulators’ rules until the end of the implementation period. The withdrawal agreement Bill will include provision to delay, amend or revoke SIs made under the powers of the EU withdrawal Act.
On the supervisory point the noble Lord asked about, the regulators may make an instrument to fix deficiencies using the powers delegated by this statutory instrument and an EU exit instrument only with the approval of the Treasury. In this case the Treasury can approve the EU exit instrument only if it is satisfied that the instrument makes appropriate provision to fix deficiencies arising from the UK’s withdrawal from the EU—in other words, that the EU exit instrument is not doing anything which could not appropriately be done by the Treasury using its own powers under Section 8 of the EU withdrawal Act. Similarly, the regulators may make an instrument to exercise any powers to make technical standards transferred to them by other SIs made under the 2018 Act only if the instrument is approved by the Treasury. For standards instruments, the Treasury may refuse to approve a standard instrument only if the regulators believe it would affect public funds or the instrument would prejudice international negotiations.
On the point which was made about resources—clearly we are placing a heavy responsibility on the regulators—the Treasury is confident that the financial services regulators are making adequate preparations ahead of 2019 and have an appropriate level of resources to manage their new responsibilities. We have worked extremely closely with the regulators in preparing this legislation. The current business plans of the FCA and PRA set out their priorities in preparing for EU exit and their plans for ensuring operational readiness. The regulators have considerable experience in this area. This means that the responsibilities of EU bodies can be reassigned effectively and efficiently, providing firms and their customers with confidence after exit. The FCA has published its first consultation on the changes it proposes to make using these powers.
The noble Lord asked about the sunset clause. Under Section 8 of the EU withdrawal Act, no government department would be able to make any regulations after 11 pm on 29 March 2021—that is, two years after exit day. Under regulation 3(3) of these regulations, Section 8(8) also applies to the regulators, so they will not be able to make any EU exit instruments to fix deficiencies after this date. This relates to a question which I dealt with in my previous remark. However, in supervisory situations—I have said this—regulators may make an instrument to fix deficiencies using the powers delegated by this SI only with the approval of the Treasury.
I hope my responses have gone some way to addressing the points and concerns raised by noble Lords in the course of this debate. As I said, this is the first of many debates on these issues, but this first statutory instrument is crucial and I commend it to the Committee.
Taxation (Cross-border Trade) Bill
Lord Tunnicliffe ExcerptsTuesday 4th September 2018
(5 years, 9 months ago)
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Lord Tunnicliffe
As an amendment to the motion that the bill be now read a second time, at end to insert “but expresses grave concern that the Government agreed to accept, without detailed Parliamentary scrutiny, substantial measures that contradict both the United Kingdom’s stated negotiating position and commitments already entered into with the European Union; and that the bill introduces additional barriers to securing a United Kingdom–European Union customs union.”
Lord Tunnicliffe (Lab)
My Lords, I turn first to the Bill, which will be needed in any sensible Brexit scenario. As a supply Bill, it is not the role of this House to hinder its passage. Nevertheless, it is appropriate to set out the criticisms that we have of this legislation and the context in which we are having this Second Reading debate today.
Once again, as the Government have done in all previous Brexit Bills, powers from Europe are being repatriated, not to Parliament, but to the Executive. Labour opposes those clauses that give the Treasury huge amounts of delegated power to set regulations and future customs duty tariff rates through the back door. Parliament, not the Executive, should have the final say.
Labour supports the creation of a truly independent Trade Remedies Authority to help protect UK industry and advise the Government on how best to tackle the dumping of state-subsidised goods on the UK market. However, the Bill also provides the Secretary of State with a veto to prevent adoption, against the advice of the TRA, if he determines that it is not in either the economic interest or the public interest, both of which remain undefined. Overall, Labour is concerned about the lack of detail in the Bill to protect UK manufacturing and business. The proposals are pitiful, to say the least. They are weaker than those currently in the EU and those in most developed trading nations, and they will put manufacturing jobs at risk.
However, it is to be welcomed that the Government have made a number of concessions to Labour amendments. Of particular note are concessions that strengthen the role of the TRA, introduce sunset clauses for delegated powers and give Parliament a vote on the raising or lowering of import duty and excise duty and on the raising of VAT.
The Government must resource and staff HMRC to guarantee the successful implementation of the new customs and tariff regime. Its staffing levels have been cut by 17% since 2010 and are set to be cut further this year.
I turn now to the White Paper, The Future Relationship between the United Kingdom and the European Union, Command Paper 9593, which is now more popularly known as “Chequers”. Although it represents a move away from the type of proposal advocated by many Tory Brexiteers, the proposals stop well short of the comprehensive customs union that Labour has called for. We believe that, instead of floating a complex and bureaucratic customs fudge, the Government should focus on negotiating a comprehensive customs union for all goods and on securing a proper position for services.
I now turn to my amendment, which in summary is addressed to the amendments tabled by the European Research Group, but let us once again look briefly at the White Paper. Labour cannot endorse it but one has to admit that it is better than nothing. It could conceivably move the process along and it is the first document to acknowledge that compromise is necessary. However, it was two years in the making and it was blown out of the water within a few days of publication. I am referring not to the resignation of two Cabinet members—individuals whose promotion few of us could understand in the first place and whose absence from the Cabinet can only but improve its overall capability—but to the fact that it was torpedoed in this Bill by amendments tabled by members of the ERG.
Let us look first at the two amendments that relate to a customs union. Labour believes that we should seek to negotiate a new, comprehensive UK-EU customs union. For that reason, we were pleased to see Clause 31 in the Bill. Before amendment by the ERG, it provided a potential vehicle to negotiate a customs union. Now, encumbered by Clause 31(5), it will be difficult to use in the frighteningly few weeks left. Add to that the deletion of paragraph 14 of Schedule 8—a power that is essential for a customs union—and the amendments all but cut off this essential area of compromise.
However, the biggest torpedo of them all is new Clause 54. Turning back to the White Paper, its biggest idea is set out in paragraphs 13 to 21 of point 1.2.1 under Chapter 1, starting on page 16. Of particular note is paragraph 17a. In effect, it says to the EU: “We want to be part of your free trade area but set our own overseas tariffs. If our tariffs are less than yours, we will collect your tariffs for goods destined for the EU. We will not, however, expect you to collect our tariffs at your border if they are greater than yours. A simple compromise: we will protect your external tariff regime; we are not asking you to set up a complex system to protect ours”. This compromise, as I said earlier, has been blown out of the water by new Clause 54—an amendment proposed by Priti Patel, Jacob Rees-Mogg et cetera.
The new clause specifies reciprocity. The Government would be allowed to collect EU tariffs at our borders only if the EU were required to collect UK tariffs at its borders. There was only a limited possibility that the EU would accept the White Paper compromise but, burdened with reciprocity, as it now is, I put it to the House that the probability is now negligible.
How did these damaging amendments get into the Bill? Were they introduced in Committee in the other place and carefully debated and scrutinised? No, they were introduced at the last possible moment on Report. Why did they get through? They got through because the Prime Minister gave in to the ERG. A Back-Bench group of Tory Brexiteers now effectively has control of the Brexit negotiations.
That brings me to the sorry performance of Theresa May. I, like many, breathed a sigh of relief when she became Prime Minister—a sigh of relief because the alternatives were Boris Johnson, David Davis or Michael Gove—but her performance has been lamentable. We should not be surprised. She was, after all, the Home Secretary whose actions brought us the present crime wave, the hostile environment and the Windrush scandal. She clearly has no understanding of negotiation. Negotiation is a process whereby two sides explore each other’s positions and motivations to seek common ground as a basis for agreement. It is not, in general, aided by going behind the back of the other side’s nominated representative. Negotiation is a remarkably personal affair where respect and empathy are crucial. Her colleague, Dr Fox, has opined that a no-deal exit is a 60:40 probability. A no-deal exit would be a disaster for all our citizens. If it happens, she will have been responsible for the worst political event of the last 45 years.
I do not intend to divide the House on my amendment. Success would have no effect and would be represented in the Brexit press as this House exceeding its authority. However, I hope the debate will cause the Government to pause and think again; to listen to the proposals from across the House, and particularly from the Labour Party; to wrest control from the ERG, and to deliver a Brexit deal for all our citizens. I beg to move.
Lord Tunnicliffe
My Lords, we put down our amendment to create a framework for the debate. We wanted to assure ourselves that it would not be a simple, formal, dry debate on the supply Motion. We have been successful in that, in the sense that this afternoon’s debate has been excellent and thoughtful and has created many, many questions. I am afraid that in my judgment, and I suspect in that of many others in the House, the Government have failed to produce credible answers that are internally consistent and capable of execution. In particular, they have failed to answer the question: have the ERG amendments to the Bill effectively destroyed the Chequers solution?
The Labour Front Bench will not be able to support the amendment from the noble Baroness, Lady Kramer, because it is not presently the policy of the Labour Party to support a second referendum. With that, and in accordance with my introduction, I beg leave to withdraw the amendment.
Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) (Amendment) Order 2018
Lord Tunnicliffe Excerpts(5 years, 11 months ago)
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Baroness Kramer (LD)
My Lords, as a member of the Parliamentary Commission on Banking Standards, I am a very strong advocate of ring-fencing. I am pleased that the process is now well under way. Obviously, I remain vigilant for any opportunity for any person to try to find a way either under or over the ring-fence. Therefore, I would look very carefully at any change or exemption. In this case, the order seems entirely logical and a suitable way in which to deal with the conflict between two good pieces of legislation, finding the simplest path to reconciling them.
I have two simple questions for the Minister. Can he give us some sense of the scale that we are talking about? To be honest, I have little idea of how many accounts are sanctioned at any typical time. I do not know if we are talking about six accounts or 6,000. The reason why I ask is that it makes a difference in monitoring—that is, whether it is a relatively small number or a challenging number. I just have no idea. I do not know if the Minister will be able to throw light on that.
There has also always been a concern, in particular from the sanctions perspective, that people who do bad things—and, typically, if you are going to be sanctioned, you will have been doing something that we think is a bad thing—will look at the opportunity to use aliases, false names and so on to front their various accounts. There is always the possibility that, if those accounts are not recognised as being linked to the individual who is to be sanctioned, they can end up being moved over into the ring-fenced bank. With accounts in two locations, it may become much harder to recognise that they are the accounts of the same individual and ought to be treated in the same way. I am fairly sure that those who are sanctioned will look for any mechanism possible to escape it, but I have no idea if there is a mechanism within all this that provides us with some comfort that we are alert to the use of this particular change as a mechanism that might make life a little easier for those who wish to avoid the sanction that they are due.
Lord Tunnicliffe (Lab)
My Lords, I thank the Minister for introducing this order and the noble Baroness, Lady Kramer, for asking at least one of the questions that I had in mind, particularly on scale. I do not have quite the exalted background of the noble Baroness as being a member of the banking commission but, because I failed to duck, I have been involved with this legislation since 2010. I saw it through and feel a certain loyalty to it. When this conflict arises, like the noble Baroness, I want to see that conflict resolved. However, I did think, “Why are they going to spoil this beautiful banking legislation, which I have sought to understand over the past several years? Why can we not change the sanctions legislation?” I decided to try to understand the sanctions legislation to see if there was a way in which it could provide the flexibility rather than the banking legislation. I dived into Section 143(4) of the Policing and Crime Act 2017, but I have to say that, at that point, I hit a brick wall. For the life of me, I could not understand from that how the sanctions regime functions. I hope that the Minister can shed light on how the regime works—or perhaps he will write to me at some point.
To what extent has the alternative way of solving the problem been considered—creating flexibility in the sanctions regime to allow movements across the ring-fence that are required for other legal purposes and hence keep the accounts hosted on the right side of the ring-fence?
Lord Bates
My Lords, I thank noble Lords for their broad welcome for the order, and I recognise the expertise which they bring to this matter. I shall seek to address the points they have raised.
On the numbers and scale, which the noble Baroness, Lady Kramer, asked about, there is on the website a list of persons who are subject to financial sanctions. It has a long URL address, but it is helpfully set out on page 2 in the Explanatory Memorandum that accompanies the order. It does not list the numbers, but it does show where that information can be found. We are currently trying to get some numbers, because it is a perfectly reasonable question to ask.
The noble Baroness, Lady Kramer, also asked about the mechanism potentially to escape the sanctions. Clearly, we need to be very vigilant. The accounts are not moving; they are staying outside the ring-fence. As such, we believe that the opportunity for the kind of nefarious activity that has been suggested is minimised, but not totally removed.
The noble Lord, Lord Tunnicliffe, asked for beautiful banking legislation to be referenced in the Official Report, perhaps for the first time. He asked whether we could amend the sanctions legislation rather than banking legislation. We assessed whether there was a licensing option under existing sanctions legislation to resolve the issue, but concluded that there was not. Further financial sanctions legislation includes directly applicable EU regulations, which the UK does not have the power to amend unilaterally. In addition, it was important that this change was made to come into effect before 1 January 2019 so that banks will not be in technical breach of the ring-fencing regime once the legislation comes into effect.
On the need for specific legislation itself, as referred to by the noble Lord, Lord Tunnicliffe, we are committed to implementing a robust and successful regime. That means that we will act if we spot problems with the regime that cause conflicts in existing legislation. The Treasury and the Prudential Regulation Authority will continue to monitor closely the relevant banks’ implementation plans to ensure that they are robust. I think that those were the principal two points that were raised. I apologise for not having the information referred to by the noble Baroness, Lady Kramer, at my fingertips, but I hope that it can be found from another source.
Lord Tunnicliffe
Is there a possibility of the Minister sending us a letter on either of our points to develop his answer a little more?
Lord Bates
I can certainly do so. Noble Lords are very kind and courteous. It would be a courtesy to do it the old-fashioned way and send an email with summary statistics, rather than pointing to a URL address. That goes for any other points that have not been covered, of course.
Financial Exclusion
Lord Tunnicliffe Excerpts(5 years, 12 months ago)
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Lord Bates
Again, as another member of the ad hoc Financial Exclusion Committee, my noble friend initiated an important debate on the digital economy. We do believe that fintech, in which the UK is a leading force in the world, can be a powerful way of introducing significant change in this area for the benefit of those who need it.
Lord Tunnicliffe (Lab)
My Lords, the Financial Conduct Authority estimates that 2.7 million people are stuck with permanent overdrafts and are using them more than 85% of the time, thus incurring higher and higher charges. Can the Minister tell us what measures the Government are putting in place to end the cycle of persistent debt and whether they will commit to imposing a cap on overdraft fees?
Lord Bates
We have done a lot in that area, such as capping payday loans—those egregious payments. The Financial Conduct Authority has looked at the whole issue of buy to rent and is considering whether a cap is necessary. We have also done a number of things to try to help those with low incomes to improve their situation. My noble friend Lord Young took the Financial Guidance and Claims Act, which created a new single financial guidance body, through this House. All these measures are designed to improve the situation. We also announced our ambition to increase the number of people who have access to credit unions in this country from 2 million to 3 million.