Interserve

Lord Young of Cookham Excerpts

Wednesday 20th March 2019 Lords Chamber

[Lord Wallace of Saltaire]

To ask Her Majesty’s Government what changes they are considering to the outsourcing of public services as a result of Interserve entering into administration.

[Lord Young of Cookham (Con)]

My Lords, nothing in Interserve’s refinancing will affect the delivery of public services. No staff have lost jobs and no pensions have been affected. The company has executed a contingency plan it had prudently developed in case the shareholders rejected the proposed refinancing deal. However, we have already announced changes to how we outsource; these are captured in the Outsourcing Playbook, which outlines a range of measures designed to ensure that outsourcing projects succeed.

[Lord Wallace of Saltaire (LD)]

I am glad the Government are investing in playbooks—I am not sure what sort of play is intended. It seems to be time for an overall review. Can the Minister confirm that of the 29 strategic suppliers the Government list for outsourcing, five have now run into severe financial difficulties, and that in several cases, as with Interserve, US hedge funds shorting the shares have contributed to that, putting British public services in peril? Can he confirm also that Interserve was a general supplier of probation services, the updating of sewers, waste management, bus station refurbishment, hospital cleaning and security, motorway repairs and the like, and that the record therefore—as with probation services, of which it was the largest supplier—suggests that its expertise is relatively limited?

[Lord Young of Cookham]

On the first point raised by the noble Lord, it is important to understand that what happened to Interserve was totally different from what happened to Carillion, for example. Carillion went bust. Pensioners took a hit. Creditors took a hit. People lost their jobs and there was discontinuity in services. None of that happened with Interserve. It was done with the approval of the pension trustees and the lenders, who wrote off the debt and put £100 million in. There was no discontinuity in services and nobody lost their job. That is important to understand.

The noble Lord asked whether we would have a general review. I announced that we have learned from past lessons; the document to which I just referred has 11 key policy areas in which we can come to better decisions and create a healthier outsourcing market.

The noble Lord is right that Interserve has a general portfolio—it protects the pandas in Edinburgh Zoo. The issue of probation services goes far wider than Interserve, as the noble Lord will know; the MoJ has announced a review of community rehabilitation services, with a view to improving outcomes and better integrating public sector, private sector and third sector providers.

[Lord Browne of Ladyton (Lab)]

My Lords, the annual revenues of Interserve were £2.9 billion, two-thirds of which it got from the public sector. The debt holders got this business for approximately £600 million, and will undoubtedly sell off its profitable parts for more than they were owed. However, the unsecured creditors have been left fighting over £600,000. Were the Government part of that deal? How much was owed to these creditors? Why do the Government think that that amount of money is safe? These people will lose lots of money and many of them are small or medium-sized businesses.

[Lord Young of Cookham]

There is no reason why trade creditors of Interserve should lose any money. The hit was taken by the shareholders and the lenders who wrote off their debt and converted it into equity. The subsidiary companies providing goods and services to the public and private sectors are wholly unaffected by what has happened to the parent company, which has simply changed ownership. The creditors of the subsidiary companies are in exactly the same position as they were before the transaction over the weekend.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I will pick up that issue. This is a pre-pack administration, is it not? In a pre-pack, the people who lose out are the trade creditors and the people who survive are the owners of the original company, who walk away with a new company unencumbered by the debts its previous creditors allowed. How can the Minister defend that? As my noble friend said, this involves thousands of SMEs, which will lose jobs and supply of cash, and be worse off. The Government reviewed this whole process in 2014. They accepted the recommendation of the Graham review to take powers in the Small Business, Enterprise and Employment Act 2015 to make sure that pre-packs were properly regulated. What is the progress on that?

[Lord Young of Cookham]

On the first point, it is important to understand that Interserve was in two halves. The subsidiary companies provided services to the public and private sectors, looking outwards towards the market, whereas the parent company looked backwards at the shareholders and the banks that were lending it money. What happened over the weekend was that the parent company went into administration and immediately, as the noble Lord said, went into a pre-pack and is now owned, in effect, by the lenders. It is the banks of those lenders, not the trade creditors, which are out of pocket as a result of the transaction.

I will write to the noble Lord on the second question, because it affects another department.

[Lord Fox (LD)]

My Lords, the Minister shows great calm, as usual, on these issues. In fact, this squabble was played out across the City pages for weeks. The players in that squabble were the banks, the bondholders and the hedge funds. The Government had no part in that. The fact that Interserve lives to continue is nothing to do with the Government, it is the fortune of what happened out there—it was luck.

The Minister talks about a playbook. How does that playbook affect retrospectively all the services that the companies currently carry out? It is all very well looking forward to future services, but it is services today that were let many years ago that are still threatened by this kind of problem.

[Lord Young of Cookham]

The Government keep all the contracts under review. We have developed arrangements with all the major contractors. We have continuity arrangements known as living wills should there be, by any chance, any corporate failure. As I announced, looking forward, there will be a number of policy changes to ensure that better decisions are taken in future. We believe it is important to have a robust outsourcing market. The fact that Interserve has survived means that we still have a larger number of suppliers in this market than would have been the case had it gone out of business.

[Lord Grade of Yarmouth (Con)]

Would my noble friend the Minister agree that perhaps there is a lesson in procurement here? Taking the lowest bid in a tender process is not necessarily the best long-term value for money.

[Lord Young of Cookham]

I entirely agree. The Government want to get the right mix of quality and effectiveness at the lowest possible price over the lifetime of the contract. There is certainly flexibility in our current rules to ensure that a higher-quality bid is successful even though it may cost more than other bids.

Small and Medium-sized Enterprises: Clydesdale Bank

Lord Young of Cookham Excerpts

Tuesday 19th March 2019 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, with the leave of the House, I shall repeat in the form of a Statement the Answer to an Urgent Question asked in the other place earlier today. The Statement is as follows:

“Mr Speaker, the Government are committed to ensuring a strong, diverse and dynamic economy, where small businesses can access the credit they require in order to prosper and grow. As such, we expect the highest standards of behaviour across the financial sector, which is why we have introduced a number of necessary changes to restore public trust in financial services, such as the senior managers and certification regime. While it would be inappropriate for me to intervene in individual cases, particularly while they are subject to ongoing legal proceedings, we must always remember the human element to each case. That is why the Government have been consistently clear that, where there has been inappropriate treatment of SMEs by their bank, it is vital that these businesses can resolve their disputes and obtain fair redress.

At the Budget last autumn, the Government set out their support for the FCA’s plans to expand eligibility to complain to the Financial Ombudsman Service to small businesses as well as microenterprises. This will ensure that, from 1 April this year, well over 99% of all UK businesses will have access to fast, free and fair dispute resolution. The Government have also been clear that banks need to work hard to restore businesses’ trust in their institutions, and have welcomed the banking industry’s commitment to establish two independent voluntary ombudsman schemes to resolve SME disputes.

I am extremely pleased that last week my honourable friend the Member for Thirsk and Malton agreed to sit on the steering group responsible for implementing these schemes, alongside Nikki Turner from the SME Alliance. That follows several months of intense engagement with the APPG here in Parliament. While eligibility for the scheme to address historic complaints will need to be determined on a case-by-case basis, I encourage all SMEs that believe they are eligible to apply once it is up and running in September.

I am pleased that the sale of loan portfolios to third parties is now covered by the standards of lending practice—overseen by the Lending Standards Board—to which Clydesdale is a signatory. This means that it is now committed to ensuring that third parties that buy loans have demonstrated that customers will be treated fairly, and to allowing customers to complain to the original lender if there is a dispute which cannot be resolved. I can also confirm that Andrew Bailey of the FCA has spoken to Clydesdale about the case in question.

The Government are not complacent about this serious matter. We will monitor the implementation of these new or expanded dispute resolution schemes, and we will continue to remind banks of the importance of restoring SMEs’ trust in them”.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am grateful to the Minister for repeating the Statement made in another place in response to an Urgent Question. The overall impression one gets from listening to him is a sense of slight panic in the Government’s ranks and an attempt to try to catch up with a situation that seems to have got out of control. It has been understood for some time that the way that our banks deal with SMEs has been a cause of real concern, and there was also an issue about whether there was an appropriate way of getting redress on a fair and appropriate basis. Some of what he said is helpful—I acknowledge that. However, I still wonder why it took the Government quite a number of months—in fact, almost years—to change from limiting the redress from microenterprises to SMEs; after all, we believe that SMEs are the future of much of our economic growth in this country. There is still the question of whether historic cases are being dealt with on a voluntary basis. Is that really the case? On what basis will the Lending Standards Board, which he mentioned, be able to act? Will that also be on a voluntary basis? If the answer is yes, when can we expect to see the regulatory framework?

[Lord Young of Cookham]

I am grateful to the noble Lord for his response. It makes sense to wait for the expansion of the financial ombudsman’s scheme, which I and he referred to, and which comes into effect next month. I also believe that the two voluntary schemes to which he referred are better than the alternative—a statutory independent tribunal, which the Treasury Select Committee considered. We gave that serious consideration, but agreed with Simon Walker’s conclusion that that would not be the right approach. It would involve primary legislation, setting up a tribunal and probably costs for the SMEs that wished to access it. I think a dispute resolution system, as outlined, would be much quicker, much less expensive and not constrained by a narrow interpretation of the law. An ombudsman could see whether a contract was fair and reasonable, for example.

The noble Lord asked whether the standard lending practice was voluntary. Yes, it is a voluntary scheme. It sets the benchmark for good lending practice in the UK, outlining the way registered firms are expected to deal with their customers throughout the entire product life. We believe that this is the right approach to resolving complaints, but we have not ruled out other options if it does not deliver.

[Baroness Kramer (LD)]

My Lords, do the Government recognise that people have been waiting for more than six years for justice? Those SMEs were maltreated by Clydesdale, RBS and Lloyds. They were viable companies paying their loans that were put into bankruptcy so that their assets could be stripped for profit and advantage, and the Government have at every step of the way dragged their feet, as has the regulator. Now, rather than the limited, partial voluntary schemes that the Minister proposes for the future, will the Government understand the reality of the experience of so many people, take a much firmer hand following the Australian example, do a complete retroactive review and ensure that everyone is compensated by the Government’s initiative, not wait for people who have been badly damaged to come forward to battle yet again?

[Lord Young of Cookham]

If there was inaction for the past six years, that covers a period when we were both Ministers together in the coalition Government. The noble Baroness asked whether it was fair to ask people to wait. What we propose would bring a swifter solution to those who have already waited a long time—as I agree—than the alternative of a statutory scheme which, as I said, requires primary legislation, regulations controlling SME lending, which is not regulated at the moment, and then possibly expensive access to the tribunal through legal representation for SMEs.

The banks have a good record of observing the recommendations of the financial ombudsman scheme, so we should let them have the opportunity to show that they will also honour the recommendations of the two schemes being announced today, which will be up and running in the autumn—far sooner than a statutory scheme.

[Lord Stevenson of Balmacara]

As there is a gap, I return to ask another question. Am I right in my assumption that the Minister would accept that the issue that has given rise to this Question is not limited to one bank: there is a broader, possibly systemic issue affecting the way in which banks relate to SMEs? Taking up the point made by the noble Baroness, Lady Kramer, does he think it might be worth looking further at some of the measures used by the banks to attract new customers, particularly interest rate exchange mechanisms, which seem very complicated and difficult to understand? They involved swapping of rates, which was not perhaps fully disclosed to those borrowing the money, and the question of tailor-made loans, the details of which were also rather obscure.

One would be tempted to suggest that an element of criminality was sometimes drawn into those issues, for which a voluntary scheme will be hopelessly inappropriate. As the noble Baroness said, perhaps it is necessary to have a properly organised review carried out by, say, the FCA, to ensure that the practices driving those issues are driven out.

[Lord Young of Cookham]

I recognise that there are more cases than the one that has generated the interest. There has been a lot of press interest in some RBS schemes. Looking at the FCA estimates, we estimate that the expansion in eligibility for the FOS scheme will result in no more than an additional 1,300 cases from businesses on top of the existing 6,000 cases from microenterprises. To put that in context, the employment tribunal received over 109,000 cases in the financial year. We think the FCA’s planned expansion of the FOS to include small businesses is the right and proportionate response. We look forward to the next steps and to these vital pieces.

The noble Lord then asked me a number of questions about the incentive loans or interest rates that banks sometimes offer and some of their other practices. I am not sure whether they fall precisely under the remit I have just announced but, if the noble Lord will permit, I will write to him when I have received further clarification.

[Baroness Kramer]

My Lords, since I can now follow up with another question, I remind the Minister that during the coalition years Vince Cable, in his role at BIS, commissioned the first investigation into the many complaints against RBS, its abuse and its behaviour. As a consequence the FCA, as it is now—the regulator—was asked to act. The regulator commissioned a consultant called Promontory to produce a report, which was utterly damning—but we did not know that, because it was not published—and the summary the FCA produced was 180 degrees different from the underlying report. It was only its leakage and its exposure that brought this to much wider attention. Essentially, Members on all sides of this House—and in the other House—have been dragging this Government to try to deal with this and to get the FCA and the other regulators to deal with their underlying responsibilities. Would it not be appropriate to make sure that, where an institution is to any degree regulated by either the FCA or the PRA, they take fundamental responsibility for its ethical behaviour and not limit themselves to the narrow regulatory perimeter behind which they hide?

[Lord Young of Cookham]

I do not disagree with the recommendation the noble Baroness made at the end: that they should have a broader remit in their responsibilities and not confine themselves to the narrow remit that may be set out. Again, perhaps I can write to her, as she has strayed just a little from the rather narrow case that brought me to the Dispatch Box. She raises an important point about the broader responsibilities of regulatory bodies, which I will write to her about.

Non-Domestic Rating (Rates Retention and Levy and Safety Net) (Amendment) and (Levy Account Basis of Distribution) Regulations 2019

Lord Young of Cookham Excerpts

Monday 18th March 2019 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Regulations laid before the House on 21 February be approved.

Relevant document: 19th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee B)

[Lord Young of Cookham (Con)]

My Lords, the regulations before the House do a number of things, the most of significant of which are to give effect to the new 75% rates retention pilot authorities that we are creating for 2019-20, and to set out how we will share £180 million of the levy account surpluses between authorities. They also make a number of more minor changes to the administration of the business rates retention scheme, not least to reflect the changes to the structure of local government that will come into effect from 1 April.

The regulations are highly technical, but what they do, as opposed to how they do it, can, I hope, be easily explained. The Government have a clear commitment to giving local authorities more control over the local tax income they raise. In 2013-14, for the first time since 1990, we allowed authorities to keep a proportion of locally collected business rates and to then benefit from the growth in their local tax base. Subsequently, we announced that we would increase the proportion of business rates kept by local government, and we have set out our intention that, from 2021, authorities should be able to keep 75% of local business rates.

Pre-shadowing that wider reform, as part of the recent local government finance settlement we announced that we would create 75% business rates retention pilots for 2019-20. We are creating these pilots in London and 15 other areas. In those areas, authorities will keep 75% of the local business rates they collect in 2019-20, instead of the 50% they would normally keep under the rates retention scheme. Based on authorities’ own estimates of the business rates income they expect in 2019-20, those 75% pilots—the GLA, the London boroughs and 122 authorities outside London—will have additional revenue of £490 million in 2019-20, compared to what they would have received under 50% rates retention.

For this to happen, however, we need to make changes to the regulations that govern the day-to-day administration of the business rates retention scheme. The regulations before the House today make the necessary amendments; principally, to the relevant percentages of business rates income due respectively to central and local government and to the percentages due to billing and major precepting authorities. The percentages set by the regulations for 2019-20 are those proposed by the pilot authorities themselves at the time they applied for pilot status in the autumn, and have been confirmed with them subsequently. They will ensure that the 75% pilots operate as we, and local authorities, intended. They reflect the budgets those authorities have set, on the strength of which they have set the level of council tax set out in the bills being sent to council tax payers.

Under the rates retention scheme, authorities are entitled to a safety net payment if their business rates income falls below a certain level. The cost of safety net payments is met by charging authorities a levy of up to 50% of any business rates growth they achieve. In the past, we have also top-sliced an amount from the settlement to supplement the levy income and ensure that there is sufficient funding from which to make safety net payments. Since 2013-14, we have top-sliced a total of £255 million that would otherwise have been distributed to authorities through the settlement.

The top-slice and all the levy and safety net payments are made into, or from, a levy account which is kept by central government. The primary legislation that provided for the levy account requires that any surplus in the account should be distributed to local government or carried over until the next year. At the end of 2018-19, the levy account will have a surplus of £188 million. We announced at the 2019 local government finance settlement that we would distribute £180 million of that surplus to the sector.

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[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, as the Minister said, the regulations are technical and in that sense I am happy to support them as they stand. I concur with the comments of the noble Lord, Lord Shipley, and my noble friend Lord Beecham and I am sure the Minister will respond to the points raised.

The only issue I want to raise concerns Northamptonshire being in the list of council areas that are involved in this scheme. I know the county council is the precept authority, or the collecting authority, but equally it is a council in crisis. The local government reorganisation is happening because the county council has effectively almost gone broke. Is the Minister confident that we should be doing this in this area, in view of the problems that have been widely reported over the past year? That said, I am very happy to support the regulations.

[Lord Young of Cookham]

My Lords, I am grateful for the contributions of all three noble Lords. As the noble Lord, Lord Shipley, said, this is the first non-Brexit SI, although I noticed it emptied the House as I rose to my feet. He mentioned that the announcement of £180 million going back would be popular with local government. We are always seeking to court popularity with local government, although we do not always achieve it. I am grateful to hear that on this occasion, we have.

The noble Lords, Lord Shipley and Lord Beecham, raised slightly broader issues about the pressures confronting local authorities, which I recognise. We have had to take difficult decisions on public expenditure over recent years, and they have impacted on local authorities and government departments. There will be an opportunity to discuss that.

Finally, the noble Lord, Lord Kennedy, mentioned Northamptonshire. The change in Northamptonshire is relatively minor and switches responsibility for one service from A to B. I do not think it detracts from the more structural changes that are now having to take place in that county.

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[Lord Kennedy of Southwark]

I, too, forgot to remind the House that I am a vice-president of the Local Government Association.

[Lord Young of Cookham]

I was a vice-president of a preceding local government association, but I was expelled when I introduced rate capping.

Motion agreed.

House of Lords (Hereditary Peers) (Abolition of By-Elections) Bill [HL]

Lord Young of Cookham Excerpts

Report stage (Hansard): House of Lords
Friday 15th March 2019 Lords Chamber

[Lord Hunt of Kings Heath (Lab)]

My Lords, I wonder whether the Minister might help the House understand what is actually taking place.

[Lord Young of Cookham (Con)]

Well, let me have a go. I think my noble friend Lord Trefgarne was hoping to intervene on the Motion moved by the noble Lord, Lord Grocott, that Report be now received. However, the question was put, the House agreed and my understanding is that we should now move to the first amendment. It may be that some latitude could be extended on the first amendment for my noble friend to make the point that he was in the process of making.

Clause 1: Overview

Amendment 1

Moved by

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[Baroness Hayter of Kentish Town]

There were several others but, as we know, the figure has gone down from four to one; that is why I said that, with one exception, they are all men. For most on the list, as we have already heard, we are talking about men; in a House of only 400 or 500 active Members, 91 places will always be held for men. That may not make others ashamed, but it makes me ashamed and I am not even one of the people who are here by virtue of my father, grandfather, great-grandfather, great-uncle or anyone else, noble though those people were in their own right. I did not come here having inherited that right through the attributes of some earlier generation. That is what those who stand in the way of this Bill are trying to retain. They are trying to preserve, with some exceptions, the right of sons of people whose attributes 100 or 200 years ago were notable to have a seat in Parliament.

I do not believe that is the right way for us to choose anyone. I do not believe Picasso’s child should be recognised as a top painter simply because their father was. I do not know whether the noble Baroness, Lady Bull, has children, but surely they should not be considered a top ballerina just because their mother was. Yet we think that legislators should be here by virtue of their fathers, grandfathers or earlier forebears. I am not embarrassed by this, but I am embarrassed for those who are here for that reason now—nothing in this Bill will alter the position of those here at the moment—that they should seek to preserve a system whereby, with some exceptions, the sons of people whose forebears were given a seat here should have it, and that they should try to continue this ludicrous system.

We in the Opposition say: this Bill has our support. What we are seeing is a filibuster to try to undermine, talk out and stop the Bill, which will alter something fundamental to our constitution. That is not good enough. It belittles this House, and I think it belittles the hereditaries who are here to vote for the continuation of this system.

[Lord Young of Cookham]

My Lords, perhaps I could intervene briefly at this stage to restate the Government’s position on the Bill. I begin by commending the noble Lord, Lord Grocott, on steering his Bill through the obstacle course in Committee and reaching Report, where there are still a number of hurdles in front of him. I say to the noble Lord, Lord Campbell-Savours, that I am a life Peer but a hereditary Baronet. I hope that does not confuse his rather binary approach to these issues.

It is clear that many noble Lords wish to see the end of the by-elections, but, despite the oratory of the noble Lord, Lord Grocott, he has not achieved total unanimity. A number of my noble friends, and in earlier exchanges some Cross-Benchers, believe that hereditary Peers should remain, in line with the commitment given at the time, until we have comprehensive reform. I pay tribute to the role that the hereditaries play in our proceedings, as they have a higher participation rate than us lifers.

As the Bill has proceeded through your Lordships’ House, the Government have not obstructed it, nor will we. On the contrary, my noble friend the Chief Whip has been exceptionally generous in the amount of time he has allocated to this Private Member’s Bill, in a field where there are many contenders. While we have some reservations about the Bill, our position is actually academic, as the chances of it reaching the statute book in this Session are, frankly, small, however many meaningful votes are held. The Government’s view is that our energies would be better spent in taking forward the recommendations of the Burns report, as mentioned by my noble friend Lord Elton, which I believe is a more effective way of getting our numbers down than abolishing the by-elections. The Prime Minister has assisted in this process by showing commendable restraint in her nominations to your Lordships’ House, which has caused a lot of distress among former Members of Parliament.

On this particular amendment, noble Lords will know that the House of Lords Appointment Commission was established in 2000 to make nominations for membership of your Lordships’ House to the Cross Benches. It is also responsible for vetting the propriety of all nominations to this House, including candidates for party-political membership. We believe that it does an excellent job and have no plans to make it statutory. As was said earlier, I do not think that amendment sits easily with the main purpose of the Bill. Having set out the Government’s position, I do not plan to intervene again, unless provoked beyond endurance.

[The Earl of Erroll]

My Lords, to avoid an unnecessary intervention by a politically appointed Peer, I am a hereditary Peer who believes firmly in a democratically elected Parliament in both Houses. I have absolutely no financial interest to declare as to whether the by-elections continue or not. There is no financial interest at all.

It is basically a failure of the democratic principle for the head of the Executive branch of the Government—in other words, the Prime Minister—to be able to influence the appointment of people to a part of the legislature that passes the laws that should be controlling him or her. That is the basic problem. The proposal of an appointments commission, when combined with Amendments 58, 59 and so on, goes some way to correcting that dangerous anomaly in our form of democratic government. It must be totally independent of the Executive, especially as many Members of the other place are Ministers—even more nowadays—and if they reduce the numbers there then the proportion will be even worse. It can be extremely difficult for them to know which hat they are wearing when they are passing legislation that will affect them. Are they legislators or members of the Executive? That concerns me.

I have always said that this House should be principally elected by the public. Many Members of another place agree with that principle; back in 1998, they held several votes on the subject and could not reach a decision on the question of appointed versus democratically elected. The real challenge is that the democrats want both Houses of Parliament to be elected but the Commons supremacists want this House to be appointed, because then they can take away its power as they are the ones with democratic authority, and this House will eventually lose its power over the years. The Prime Minister loses their power to reward people under both proposals, which is part of the problem.

Interestingly, the increase in the number of elections taking place now indicates that, were the Bill to pass, the hereditary Peers would die back to very few over a much shorter period than people seem to think. That would remove all incentive for what we were promised in 1999, which was further democratic reform of this House. All noble Lords who believe in the democratic principle should remember that, and therefore vote for something that does it. That is why the amendment is vital: it would give us an independent appointments commission that was totally outside any influence by the Executive of the Government.

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[Lord Young of Cookham]

My noble friend said that he wanted to speak to Amendment 6. That has been ungrouped and is in the next selection.

[The Earl of Caithness]

My noble friend is absolutely right, but I was trying for the convenience of the House to speed things up a bit. If we talked to both amendments now, as I have done, it might be helpful.

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[Lord Adonis]

My Lords, what we have seen today is a serious abuse of the procedures of the House by the noble Lord, Lord Cormack, to stifle debate on a matter of significant public moment. That is what we have seen. I never thought, having been in this House for 15 years now, that I would see this abuse of procedure in the House. The issue of how people are appointed to this House is not a side or minor issue, it is fundamental to the working of our Parliament. I congratulate the noble Lord, Lord Strathclyde, on putting this issue before the House and I completely agree with him that we should continue to raise these matters, because this squalid Bill that the noble Lord, Lord Grocott, has promoted to perpetuate a nominated House of Lords is fundamentally against the interests of the people.

[Lord Young of Cookham]

My Lords, I gently remind your Lordships that we are meant to be discussing Amendment 5, which is about Standing Orders and the replacement of vacancies among people excepted from Section 1.

[Lord Strathclyde]

My Lords, I think that that was as a result of an intervention from my noble friend, so perhaps I could just finish my remarks but also say how much I agree with what the noble Lord, Lord Adonis, said. The noble Lord, Lord Grocott, said that this is a short Bill of three clauses. The Maastricht Bill was four clauses long and that was debated for days and days in Committee on the Floor of the House in another place and then in this House, again for several days. The size of the Bill has no relevance to how much it should be debated.

As for the noble Lord, Lord Rennard, with his little lecture on amendments, I look forward to seeing his submission to the Procedure Committee to describe amendments in different ways. I accuse the Liberal Democrats of stretching every single sinew of the clerks’ patience in order to find ways of putting amendments down. I remind my noble friend Lord Cormack that this is the first time, the first day I have spoken on this Bill. He has spoken far longer than I have during the passage of this Bill.

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[Lord Rennard]

Will the noble Lord recall his own very deep anger, which I witnessed, against repeated filibusters during the passage of the Parliamentary Voting System and Constituencies Bill 2011? He decided then that perhaps we should change the procedures of the House to prevent such filibusters. I wonder whether he is still of that view.

[Lord Young of Cookham]

My Lords, I very gently repeat the encouragement I made a few moments ago that the House should address Amendment 5 in the name of my noble friend.

[Lord Strathclyde]

My Lords, I shall make one very short point: what the noble Lord, Lord Grocott, has misunderstood in all of this is that although I oppose this Bill, I am prepared to accept it in exchange for an appointments commission, which I think would be extremely sensible. With that, I finish my brief intervention.

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[Lord Young of Cookham]

I remind my noble friend of the instructions on page 130 of the Companion. They state very clearly:

“On report no member may speak more than once”,


except in some very constrained circumstances. I think that my noble friend does not fit into one of those exclusions.

[The Earl of Caithness]

My Lords, the noble Lord, Lord Grocott, prompted me to rise when I was not going to speak on this amendment. He quoted again the odds of becoming a Member of the House of Lords and said that the balance is tilted in favour of the hereditary Peers. Does he agree that once hereditary Peers are removed, the quickest and easiest way to get into this House is to become an MP? A third of the House are ex-MPs and that proportion will go up. Does he agree that that is an equally unjust way to fill the House of Lords, and that the right way is to hold elections?

Public Procurement (Amendment etc.) (EU Exit) (No. 2) Regulations 2019

Lord Young of Cookham Excerpts

Thursday 14th March 2019 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Regulations laid before the House on 11 February be approved.

[Lord Young of Cookham (Con)]

My Lords, the Government are committed to securing an agreement on the UK’s exit from the EU but we must be prepared for all outcomes, notwithstanding yesterday’s votes. It is for this reason that I am today bringing forward two sets of regulations for approval: the Public Procurement (Amendment etc.) (EU Exit) (No. 2) Regulations and the Public Procurement (Electronic Invoices etc.) Regulations. To be clear, in the event that the UK enters into a withdrawal agreement with the EU, the first of these sets of regulations will not be required.

The amendments in the Public Procurement (Amendment etc.) (EU Exit) (No. 2) Regulations do not amount to a material change in public procurement policy but, to all intents and purposes, maintain the status quo for UK contracting authorities with regard to their obligations towards certain non-UK suppliers. They will ensure that the UK’s procurement system continues to function as intended post-EU exit in the event of no deal, and grant certainty to UK contracting entities that they can continue to procure goods and services in the same way as they do now after exit day. In this way, the Government are ensuring that these entities continue to be able to obtain value for money for UK taxpayers.

As noble Lords will be aware, the UK Government are working to secure continuity agreements with a number of our international trading partners, which will replicate as closely as possible trade agreements to which the UK is currently a party via its EU membership. We have already laid before Parliament agreements with Switzerland, Israel and Chile. All these agreements contain substantial provisions on procurement, which will provide UK businesses with guaranteed access to lucrative procurement markets in those countries. Where the UK has entered into an agreement which contains provisions relating to public procurement, we must ensure that our domestic procurement legislation takes account of the obligations in that agreement.

In their current form the Public Procurement (Amendment etc.) (EU Exit) Regulations 2019, which were approved by this House on 20 February, would amend the existing procurement regulations so as to disapply, from exit day, the duties which UK contracting authorities currently owe towards economic operators from countries with which the EU has a trade agreement containing procurement provisions. Regulation-making powers in Clause 2 of the Trade Bill currently before Parliament would then enable the UK to reinstate these duties in such a way as to reflect the UK’s transitioned continuity agreements, rather than the EU agreements which these replicate and to which of course the UK will no longer be party after exit day.

As noble Lords will be aware, the Trade Bill is yet to complete its parliamentary passage. In the consequent absence of bespoke implementing powers in that Bill, we have had to look at other measures which would enable the UK to demonstrate compliance with the agreements that we have worked hard, and continue to work hard, to conclude. It is the duty of a responsible Government to ensure that, once we have left the EU, we continue to reap the economic benefits that these agreements bring. It is also our duty to uphold our reputation as a valued and respected trading partner, by ensuring that the obligations we have committed to maintaining after our withdrawal from the EU are adhered to.

I am therefore bringing forward this second EU exit instrument, which will amend the first such instrument before it comes into force so that, instead of removing from the procurement regulations the obligations owed by UK contracting authorities and other entities towards non-UK suppliers immediately on exit day, that first SI would preserve these obligations for a period of 18 months after exit day. The need for there to be a second, amending instrument was referred to during debate on the first EU exit instrument in the other place: specifically, during its consideration in the Delegated Legislation Committee on 13 February.

In practical terms, this preservation of obligations will have the effect of ensuring that, for a time-limited period, suppliers from certain non-EU trading partners will be afforded the same guaranteed rights of access to UK procurement markets that they enjoy now. This mirrors a similar provision already contained in the first SI in respect of suppliers from states which are party to the WTO government procurement agreement. That provision has already been approved by this House, but it is being extended so that it aligns with the other provisions in this instrument. By keeping alive the duties owed by contracting authorities as they exist already, the Government are ensuring that the UK can continue to meet its international procurement obligations. In turn, that will help to ensure that UK businesses continue to enjoy access to overseas public procurement opportunities and that UK contracting authorities can continue to obtain the best possible value for money when procuring, through robust supplier competition.

Noble Lords may at this point be wondering why, when the UK is leaving the EU, it is appropriate to preserve obligations arising from EU agreements to which we are no longer party, and whether doing so may produce any adverse effect on British businesses and authorities. The procurement obligations which arise from the UK’s continuity agreements are, in essence, the same as those which have arisen until now from the EU’s trade agreements, meaning that the amendments in this instrument represent a temporary technical solution to complying with the UK’s international procurement obligations until such time as the Trade Bill is enacted.

I reassure noble Lords once again that, in practical terms, the provisions in this instrument amount to a time-limited continuation of the status quo, which will create no additional burdens or costs for UK businesses or contracting authorities. Public sector contracting authorities and other covered entities across the UK will continue to be able to procure competitive goods and services from overseas suppliers as they do currently; and UK businesses will see no change as a result of this instrument in the way they go about bidding for and winning lucrative public contract opportunities, both in the UK and in countries with which the UK has a trade agreement. It is for this reason that it has not been necessary to publish an official impact assessment.

In summary, this instrument will ensure that the UK’s procurement system will continue to function as intended post EU exit in the event of no deal; that the UK can successfully ratify and comply with its international continuity agreements; and that UK suppliers and contracting authorities can continue to operate as they do now for the foreseeable future.

I now turn to the second of the two instruments: the Public Procurement (Electronic Invoices etc.) Regulations 2019. Unlike the other SIs which we have been debating today, we will need this if we secure an agreement—as I hope we will. In the event that the Government enter into a withdrawal agreement with the EU, we will be required, under the terms of this agreement, to continue to comply with EU procurement law during the implementation period. That includes this directive, which concerns electronic invoicing in public procurement. It is a short and simple measure which aims to promote the uptake of electronic invoicing in public procurement by requiring public bodies to accept electronic invoices from their contracted suppliers. Principally, this instrument is to transpose the e-invoicing directive; it also makes a small number of other technical corrections to the public procurement rules. There are numerous different types of e-invoice used across the EU. These varied formats cause unnecessary complexity and high costs for businesses and public bodies.

There are significant benefits to be realised in promoting the uptake of standardised electronic invoicing in public procurement, both in terms of a reduction in costs and administrative burdens for procuring entities and their suppliers and in terms of the environmental impact of a move away from paper-based invoicing. That is why, in 2014, the EU adopted Directive 2014/55 on electronic invoicing. This instrument transposes the e-invoicing directive into domestic law. It does so by amending existing procurement legislation applicable to the award of public contracts and contracts in the utilities sector. The Scottish Government have brought forward their own legislation to give effect to the directive, in similar terms to this instrument.

The directive contains one simple obligation for member states: to take the necessary measures to require public sector buyers and utilities to receive and process electronic invoices that comply with a common standard. Private sector suppliers, other than those privatised utilities remaining subject to public procurement rules, will not be obliged to use the e-invoicing standard unless they wish to do so. We are not imposing additional costs on suppliers. The measures we have introduced would oblige contracting authorities and other procuring entities to include within their contracts an express term requiring them to accept and process electronic invoices that comply with the standard where, of course, there is no dispute as to payment. In the absence of an express provision of the contract dealing with electronic invoicing, a term to that effect is to be implied. In that way, suppliers will be able to enforce their ability to invoice purchasers of goods and services electronically via the terms of the contract itself.

The European Committee for Standardization—CEN—was commissioned to draft the standard and the British Standards Institute was involved in its development. The standard was published in October 2017, following which the UK had 18 months to implement the directive’s requirements. The deadline for implementation is 18 April 2019. This falls after the date on which it is anticipated that the UK may leave the European Union. However, it remains the Government’s aspiration and intention that the UK will secure a deal with the European Union. We would then enter a period of implementation, as provided for in the withdrawal agreement, during which the UK would continue to be bound by most aspects of EU law, including the e-invoicing directive. This instrument is, therefore, expressed to come into force on 18 April 2019.

For sub-central contracting authorities, such as local authorities and utilities, the directive confers on member states the discretion to postpone the application of implementing provisions until 18 April 2020 and we have taken advantage of that derogation. It is right that we allow procuring authorities, other than central government authorities, time to adapt to the change, although there is of course nothing to prevent those authorities from accepting electronic invoices prior to that date. In the event of no deal being reached by 29 March, we are free to implement the European e-invoicing standard and we will consider the options available to us for this instrument. The UK will be free to set its own policy on electronic invoicing.

As set out in further detail in the Explanatory Memorandum, we have also taken the opportunity in this instrument to make minor amendments to the way in which the Public Contract Regulations 2015 and the Concession Contracts Regulations 2016 refer to offences under the Modern Slavery Act 2015. The aim of the amendment to the Public Contract Regulations 2015 is to ensure legal certainty as to which offences under the Modern Slavery Act constitute grounds for mandatory exclusion from award of a contract. More specifically, the amendment omits a duplicate reference to offences under Sections 2 and 4 of the Act. That duplicate reference was included in error in 2016.

For the Concession Contracts Regulations 2016, the amendment is to ensure that offences under Section 1 of the Modern Slavery Act 2015 are included within the mandatory grounds for exclusion from participation in a concession award procedure, and ensure consistency in the grounds for exclusion across the procurement regulations. With this instrument, therefore, we have the opportunity to provide real benefits to both the supplier community and the public sector, and I look forward to seeing it progress through both Houses.

I hope noble Lords will agree that both sets of regulations brought forward today are necessary for the UK to adhere to the commitments it has made, both in its trade continuity agreements and under the terms of the withdrawal agreement. I hope they will also agree that these instruments will provide benefits to the public sector and to UK businesses. I commend them to the House.

[Viscount Waverley (CB)]

I wonder whether the Minister’s notes allow him to comment on the following and, if not, he will agree to write. Currently, all UK public sector opportunities are published on Tenders Electronic Daily—TED—which is the EU service on which all public sector tender opportunities within the European Union are listed and updated, constantly. What might be the plan for UK public sector tender opportunities either to continue to be published on Tenders Electronic Daily or to be published separately? If so, where might they be published?

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[Lord Young of Cookham]

I am grateful to all noble Lords who have taken part in this debate. On the last question, the fast ball which the noble Baroness bowled, I shall have to take advice on the extent to which the Government use electronic invoicing when they invoice. Of course, under the regulations, we will be obliged to process e-invoices if they arrive, but it is a good question and I shall make inquiries on the extent to which we are up to speed on e-invoicing.

As I said, I am grateful to all those who have taken part and will try to go through the questions asked—not necessarily in order. The noble Lord, Lord Beith, asked what would happen if there was an agreement. The answer is that the SI would indeed be suspended, probably by the withdrawal Act. It would be switched off, as with a lot of the other no-deal SIs which have already been passed.

The noble Viscount, Lord Waverley, asked about the plan for the UK public sector and the arrangements for publication of notices on the OJEU TED. The withdrawal agreement provides for publication of notices on that site. If there is no deal, the UK has developed its own UK e-notification that will be ready for exit date if it is needed. This is called the Find a Tender Service—FATS. Details were set out in the Explanatory Memorandum to the first EU exit instrument and published in a procurement publicity notice, the latest of which was published on 7 February.

My noble friend Lady Neville-Rolfe asked what the impact of the SI would be. The basic thrust of the SI is to ensure that there is no change, so, to the extent that there already is a problem, it makes it neither worse nor better: it is neutral. On the issue of public consultation, because the SI imposes no new regulatory burdens on UK businesses and as, as I said, its purpose is to maintain, in so far as possible, existing obligations on contracting authorities as regards suppliers, it has no direct impact on the public sector or the private sector, so it has been unnecessary to undertake consultation with industry. I shall come to my noble friend’s other points in a moment.

The noble Lord, Lord Beith, asked why this will come into force immediately before exit day, whereas everything else comes into effect on exit day. This SI comes into force immediately before exit day because it needs to amend the first SI before that one comes into force at the start of exit day, so we need to cancel the SI to which the noble Baroness referred before it comes into effect. That is why that has to be done the day before, but we hope that none of this will be necessary. The provision will expire after 18 months, after which guaranteed access will cease for suppliers from countries with which we have not made a continuity agreement.

My noble friend Lord Arbuthnot asked about last night’s vote. I hope that the Government will respect the decision of the other place. As my noble friend knows, the legal default in UK and EU law remains that the UK will leave the EU without a deal unless something else is agreed. We are planning for all eventualities with this SI, but I very much hope, as I am sure my noble friend does, that there will be an agreement and we will not need to leave without a deal. As former Members of the other place—as are a number of those who contributed to this debate—I am sure that we hope that the view expressed yesterday there will be respected.

The noble Baroness, Lady Hayter, and other noble Lords raised the issue of EU funds being available to support. As she said, no small business will be obliged to use e-invoicing. I am afraid that I do not have a direct answer to her question. The Government have guaranteed that certain grants paid out by the EU before we leave will be funded by the Government up to a certain date. I do not have the details to hand to say whether that guarantee applies to this particular funding issue but I undertake to write to noble Lords with the details. On whether certain invoices would go further down the queue if they were not e-invoices but paper ones, we have very strict rules about the prompt payment of invoices, whether they are e-invoices or paper ones. Certainly as far as the Government are concerned, there would be no such discrimination.

[Baroness Hayter of Kentish Town]

Does that apply to the Cabinet Office, which I gather has a rather bad record on paying promptly?

[Lord Young of Cookham]

I did not catch the noble Baroness’s last words, but the Cabinet Office sets the targets so I would hope that it would be the first government department to ensure that it met them. If she has a specific invoice in mind, I will certainly make inquiries.

[Baroness Hayter of Kentish Town]

For the record, it was noted in the other place—this may well have been because of a glitch—that the Cabinet Office has one of the worst records on this matter. There were assurances that this would change but it is a bit frightening when the department supposed to be leading on prompt payments is not itself very good.

[Lord Young of Cookham]

I stand rebuked on behalf of my department. I will make further inquiries about our prompt payment record and write to the noble Baroness and noble Lords who took part in the debate.

I was asked what would happen to this SI in the event of Article 50 being extended. I think I answered that. The withdrawal Act confers powers to enable the Article 50 period to be extended pending further negotiations so that the definition of exit day can align with the date and time that the EU treaties cease to apply.

On the 18-month extension, if no deal with the EU is reached and we do not yet have powers enabling us to give effect to the UK’s obligations under its own international agreements, the 18-month extension of rights would begin from the new exit day.

My noble friend Lady Neville-Rolfe made the point that we may be more punctilious in enforcement than other countries, and asked how we can guarantee reciprocal access. As I said, the SI makes no change to the terms of trade she referred to, but we are working with other countries to agree continuity agreements. Many of our discussions are at an advanced stage; some have already been agreed. That will ensure that our access is reciprocated. We will also have guaranteed access to markets in GPA countries, which account for the majority of contract opportunities by value to which the UK currently has access. All our agreements contain provisions relating to remedies for suppliers that have been treated unfairly.

I have just received some in-flight refuelling concerning the serious allegation made by the noble Baroness, Lady Hayter, about prompt payment. She is absolutely right that there was a decline in Cabinet Office prompt payment, which was due to the adoption of a new invoicing system—straight out of “Yes Minister”. That problem is common in other departments. I think I updated either her or another Opposition Member in the House on our progress in that regard a couple of weeks ago. In fact, in recent months, we have come back up to standard in the speed of prompt payments, but I would be happy to write to her to set out those figures in detail.

Turning to whether we will still have access to EU procurement markets if we keep EU obligations, after exit, UK businesses will still enjoy guaranteed access to many of the same procurement opportunities in the EU covered by the WTO’s government procurement agreement through the UK’s GPA membership. This provides access to £1.3 trillion of contract opportunities annually. However, the EU-linked continuity obligations, which we are retaining in this instrument, are obligations towards non-EU countries and so do not have a bearing on UK suppliers’ access to public procurement opportunities in the EU.

The noble Baroness, Lady Hayter, asked when we are expecting formally to accede to the GPA. As I think she knows, the GPA committee formally adopted a decision on the UK’s accession to the GPA in its own right at a meeting in Geneva on 27 February. At the moment we are members through our membership of the EU. The Government intend to deposit their instrument of accession by exit day in a no-deal scenario. Once we have deposited the instrument of accession, there will be a period of 30 days before it takes effect. We are exploring solutions to mitigate the impact of any short gap in the UK’s GPA participation. That is the responsible thing to do and it aims to minimise to the greatest extent any impact on business. In fact, the Government are expecting the short gap in participation to have a minimal impact on UK businesses. In many cases, UK suppliers will have similar rights under the domestic laws of the relevant jurisdiction.

I was asked about the BSI and our continued membership of CEN. CEN is a European institution rather than an EU one. I have a press release from the BSI which states that,

“following the decision taken in the general assemblies of both organizations, BSI will continue to be a full member of CEN and CENELEC regardless of the conditions under which the UK leaves the EU, including in the event that the UK leaves the EU without an agreement”.

I hope that gives the noble Baroness the assurance she seeks.

[Baroness Hayter of Kentish Town]

My Lords, on CEN and CENELEC, I think the one that dealt with this was the standards one. If it is a different one, perhaps the noble Lord would care to write to me. I refer to the European Committee for Standardization as opposed to CEN and CENELEC, which deal with electrical safety. Some clarification by letter would be helpful.

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[Lord Young of Cookham]

My understanding is that the BSI will continue to be involved in any future discussions about e-invoicing and standards, but I will certainly write to the noble Baroness.

I think that I have come to the end of the issues raised by noble Lords, but if by chance I have left any out, I will of course write. I beg to move.

Motion agreed.

Public Procurement (Electronic Invoices etc.) Regulations 2019

Lord Young of Cookham Excerpts

Thursday 14th March 2019 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Regulations laid before the House on 31 January be approved.

Motion agreed.

Uncertificated Securities (Amendment and EU Exit) Regulations 2019

Lord Young of Cookham Excerpts

Monday 25th February 2019 Lords Chamber

Moved by

[Lord Young of Cookham]

That the draft Regulations laid before the House on 17 January be approved.

[Lord Young of Cookham (Con)]

On behalf of my noble friend Lord Bates, I beg to move the regulations. As the instrument is grouped with the draft Investment Exchanges, Clearing Houses and Central Securities Depositories (Amendment) (EU Exit) Regulations 2019, also laid before the House on 17 January, I shall speak also to that.

The Uncertificated Securities (Amendment and EU Exit) Regulations 2019 amend UK law as necessary in order to ensure that the directly applicable EU central securities depositories regulation, or CSDR, operates effectively in the UK. The instrument uses the powers in Section 2(2) of the European Communities Act 1972 to do this. Both instruments also use the powers in Section 8 of the European Union (Withdrawal) Act 2018 to prepare for a scenario in which the UK leaves the EU without a deal or an implementation period. The approach being taken in this legislation aligns with that of previous SIs that we have just debated.

First, I will cover the uncertificated securities regulations SI, which amends the uncertificated securities regulations 2001—or the USRs. This instrument concerns the electronic registering and transfer of securities such as bonds or shares, specifically on computer-based systems. Certain requirements within the USRs are also subject to the CSDR, which creates a common authorisation, supervision and regulatory framework for central securities depositories, or CSDs, across the EU. This SI makes the necessary changes to UK legislation to ensure that the EU regime operates effectively in the UK. In addition, the instrument contains provisions that address deficiencies in UK law and retained EU law that arise due to the UK’s withdrawal from the European Union.

The changes made to implement the CSDR will come into effect on the day after the instrument has been made in Parliament in any scenario. However, the changes made under the EU withdrawal Act to fix deficiencies in the legislation arising as a result of the UK’s withdrawal from the EU will come into effect on exit day only in the event that the UK leaves without a deal or an implementation period.

First, the SI makes amendments to ensure that the USRs align with both the EU regulation and the UK implementing legislation concerning the CSDR. This includes authorisation and recognition of CSDs and Article 49 of the CSDR. Article 49 of the CSDR allows issuers the right to issue securities into a CSD in any EU member state. Accordingly, amendments have been made to ensure that no provisions in the USR are incompatible with this right. By removing the duplication between CSDR and USR requirements for operators of relevant systems, the instrument provides clarity to the industry in this area. Further, USR operators can now gain operator status by virtue of gaining recognised CSD, EEA, CSD, or third-country CSD status for CSDR and FSMA purposes, not via the USR recognition regime, which is revoked by this SI.

Secondly, the SI provides transitional provisions to ensure that operators of systems approved as operators under the USR can continue to operate under the amended version of the USR, pending their authorisation or recognition as a CSD under the CSDR regime. The USR SI also inserts a provision into the CSDR 2014 regulations which grants the Bank of England the power to charge fees to third-country CSDs. This is considered necessary in relation to its new role in recognising third-country CSDs following exit day under the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018, which were agreed in this place.

Finally, the SI amends Article 15 of the short-selling regulation to change its current scope from the EU to the UK. This change is to ensure legal certainty about the scope of this provision in the regulation after exit day.

The investment exchanges, clearing houses and central securities depositories instrument addresses legal deficiencies in parts of the domestic legislation that outlines certain regulatory requirements for recognised investment exchanges—RIEs—EEA market operators, central counterparties, or CCPs, and CSDs operating in the UK. RIEs include firms such as the London Stock Exchange and the London Metal Exchange; EEA market operators include firms such as Deutsche Börse and Euronext Paris, which also provide services in the UK; CCPs include firms such as LCH, LME Clear and ICE Clear Europe; and the UK CSD is Euroclear UK & Ireland. These entities form the backbone of UK markets, facilitating the trading, clearing and settlement of financial instruments. Amendments introduced through this instrument are generally technical in nature and are not intended to make policy changes, other than where appropriate to reflect the UK’s new position outside the EU and to ensure a smooth transition to this situation.

I will now outline briefly the key amendments that this instrument makes to the Financial Services and Markets Act 2000, or FSMA. First, in a no-deal scenario the UK would be a third country outside the EU financial services framework and therefore outside the current passporting system, meaning any references to EEA passport rights would become deficient at the point of exit. The instrument therefore removes the FSMA provisions relating to the exercise of EEA passporting rights by EEA market operators into the UK and the provisions that allow recognised investment exchanges to make passporting arrangements into EEA states. This would mean that any EEA market operators currently operating in the UK via a passport would no longer be able to do so from exit day, just as UK recognised investment exchanges would no longer be able to passport into other EEA states.

Instead, EEA market operators who currently make use of passport rights can, if they wish, make use of the existing third-country regimes for investment exchanges that are provided for in UK law to carry on their activities in the UK. For instance, they can apply to the Financial Conduct Authority to become a recognised overseas investment exchange. The FCA published information outlining how firms should go about doing this on its website on 14 September 2018.

Secondly, the SI removes obligations relating to information sharing and co-operation with EU authorities, again to reflect the UK’s position outside the EU in a no-deal scenario. The Government took the same approach in a number of other financial services SIs previously approved by Parliament. As stated with those SIs, and as I said a few moments ago, this change does not preclude UK authorities co-operating with their EU counterparts in future through existing third-country frameworks, as they currently do with non-EEA regulators.

Specifically, the instrument removes the obligation on the FCA to inform the European Securities and Markets Authority—ESMA—and the competent authorities of EEA member states when it suspends or removes a financial instrument from trading on a venue that falls under its jurisdiction. However, the FCA will still be required to make such decisions public. In addition, the FCA will no longer be obliged to require venues under its jurisdiction to suspend or remove a financial instrument from trading if the FCA becomes aware that the same instrument has been suspended or removed from trading in an EEA member state.

Thirdly, a provision in FSMA that currently applies to the Prudential Regulation Authority is being extended to the Bank of England. The relevant provision places a duty on the Bank to take such steps as it feels are appropriate to co-operate with other persons, whether in the UK or elsewhere, with similar regulatory or financial stability functions. This provision is being extended to the Bank of England to ensure that co-operation can continue in relation to the new functions it is taking on as part of this legislation.

--- Later in debate ---

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for introducing these two SIs. I particularly thank the noble Baronesses, Lady Bowles and Lady Kramer, for their contributions. They were off the point but, nevertheless, they hit an important issue. Legislation, particularly financial services regulation, is impossible to understand because of its constant revision and the failure to have a process for regular consolidation. There are two problems: the sheer understanding of it and, because of its complexity, one cannot see whether there are interrelationships between the various activities that are being regulated, such that you end up with a systemic catastrophe.

Before the financial crisis many people—I assume genuinely—believed from the way in which the markets were structured that they were robust. In practice, they turned out to be far from robust. I particularly note the concern of the noble Baroness, Lady Kramer, about CCPs—we debated them several months ago, which probably means about a year ago—and, once again, although they seem to be institutions to reduce risk, there is a worrying possibility that they may concentrate risk.

Turning to the statutory instruments, the first seems to tidy up regulations to be compatible with the introduction of the CSDR and the subsuming of the uncertificated securities regulations role. It does that in the same way as most of these SIs by a series of regulations which touch on referencing, transfer, transition and information. I have two small points on these regulations. I have to concede that I rarely get beyond the Explanatory Memorandum but I study that with some care. On Page 4, paragraph 7.4 has unnumbered bullet points; the fourth states:

“Creating transitional provisions, to ensure that operators of systems that were approved as operators under the USR prior to 30 March 2017 can continue to operate under the current version of the USR, pending their authorisation as a CSD under the CSDR regime”.


Why was 30 March 2017 chosen? Most of these transitional things are on exit day and I can see no logic in 30 March. How long does this transitional waiver last before they must receive authorisation as a CSD under the CSDR regime?

At the bottom of the page is the eighth unnumbered bullet point. I think the Minister touched on this point. In the middle it says:

“This is necessary in connection with the Bank of England’s role after exit under the SCDR regime, which will include recognising and supervising CSDs in third countries”.


I have some difficulty grasping what,

“recognising and supervising CSDs in third countries”,

means. Does this mean that this law is extraterritorial? I am not sure I have got the word right, but I am sure the Minister has a sense of what I am concerned about. Or does it simply relate to their rules in so far as how they operate in this country?

The second statutory instrument seems to be picking up the usual format of references, transfers, information and so on. I was looking for transition. Most of these SIs provide for passive transition—that is people, institutions and entities doing certain things after exit day carry on for a period to allow them to register and adjust—but, unusually, this one does not. As the noble Lord pointed out, to operate in the UK one has to become a recognised overseas investment exchange. The FCA document on that published on 14 September and updated on 30 January 2019 states:

“The Treasury is not planning to put in place a temporary recognition procedure for EEA market operators in the event the UK leaves the EU without a deal and without entering an implementation period”.


Why did the Treasury exceptionally make that decision with this SI? Clearly it is important. Later under “How to make an application” the document states: “Market operators should contact”—then there is an email address,

“as soon as possible to make us aware of their plans in relation to any arrangements they intend to maintain in the UK”.

There is a sense that the FCA is worried about whether it has enough time to sort these things out.

[Lord Young of Cookham]

I am grateful to all noble Lords who have taken part in this debate and, again, I notice that there is no fundamental objection to the purpose of the two SIs. I shall try to deal with the issues that were raised.

On equivalence, the noble Lord, Lord Sharkey, asked about the Bank of England’s powers to recognise CSDs from overseas countries and, particularly, whether the waivers were intended primarily for EEA CSDs. These waiver provisions are in fact an existing feature of the FSMA, so they are not introduced primarily to assist the EEA CSDs, although of course they will welcome having them at their disposal. The waivers are subject to statutory conditions and are published. I hope that that answers the noble Lord’s point.

The noble Lord also raised a very good point about the distinction between engagement and consultation, expressing the hope that the results of engagement might be made public in the same way that the results of consultation are. As he recognised, we are reaching the end of the road on Treasury SIs, but it is a valid point that we could take on board if in future we decided not to go down the statutory consultation road but instead to go down the engagement road. It would be useful to bear in mind that we could do a little more to explain in what respect the engagement resulted in changes to the draft SI.

The noble Lord also asked whether we could clarify the nature of the consultation on the USRs. In December 2015, the Treasury published the consultation on implementing the EU CSDR. It closed in 2016 and it was then decided to implement it in stages: first, the Central Securities Depositories Regulations 2014; and, secondly, the Central Securities Depositories Regulations 2017. This is the third SI. We engaged with industry by sharing a draft of it on 24 October 2018 and we published a draft on 17 January this year.

The noble Baroness, Lady Kramer, raised a valid point about information sharing. Simply removing the legal obligation to share information does not necessarily mean that there will be any change in the quantity or quality of information that is subsequently shared. It would not be appropriate for the FCA to be obliged to follow the existing information-sharing arrangements with the EU authorities where there is no guarantee of reciprocity, or to be obliged to match suspensions—another feature that I mentioned. However, it will be able to co-operate with relevant EU authorities on a discretionary basis to share information, as it currently does with non-EEA countries. Therefore, the FCA will still be required to publish decisions—for example, when it suspends or removes a financial instrument from trading at a venue that falls under its jurisdiction—in a manner that it considers appropriate, and that information will then be available to the ESMA.

The noble Baroness also asked about requirements for the Bank of England to co-operate with other authorities when it does not have to do so now. The Bank of England will have a general duty, rather than a specific obligation, to co-operate with other authorities. That is introduced so that the Bank of England is subject to a duty under the FSMA to co-operate with other bodies that undertake similar functions in connection with the Bank’s functions.

The noble Baroness, Lady Bowles, asked whether the USR drafting had changed and whether the first draft was gold-plated. The Treasury has sought to take a proportionate approach to ensuring that issuers can exercise their rights under Article 49 of the CSDR. It was considered appropriate, first, to remove any provisions that were subject to both the USR and the CSDR, and, secondly, to remove those provisions in the USR that were incompatible with the Article 49 right. The current version is less extensive than the one published in 2015, while achieving those aims.

The noble Baroness, Lady Bowles, also asked about the accessibility of FSMA amendments. I know that this is a subject that she has raised before. If one looks at Schedule 5 to the EU withdrawal Act, it sets out that the Queen’s printer—as part of the National Archives—must make arrangements for the publication of “relevant instruments”, including regulations, decisions and tertiary legislation. These instruments will form the retained EU law from exit day and the National Archives is working to ensure that they are visible and accessible to ensure legal certainty and clarity post exit.

All pieces of EU legislation, as well as treaties, international agreements and case law, are currently being archived and will be made available to the public at the appropriate time. The noble Baroness may remember that on 19 April last year, during the passage of the EUWA, my noble friend Lady Goldie wrote to her setting out more detail about how the public would be able to access this EU law and the features that would be in place to ensure legal certainty and clarity post exit; a copy was deposited in the Libraries.

The noble Lord, Lord Tunnicliffe, asked about CSDs. I think it means CSDs from, rather than in, third countries, but I will write to him to confirm that. He asked also why there is no transitional passporting regime—such as the TPR that we have introduced in other parts of the post-Brexit scenario—for EEA market operators. The reason there is no temporary recognition for EEA market operators is that we have an already long-established and well-understood domestic regime for overseas exchanges. EEA market operators which currently make use of passport rights may wish to apply under this regime to become a recognised overseas investment exchange—ROIE. The FCA published a direction on 14 September clarifying how an EEA market operator can make an application to become an ROIE.

The noble Lord also asked about supervising third-country CSDs. Recognition is the process by which the Bank of England allows third-country CSDs to offer CSD services to the UK; supervising third-country CSDs refers to the Bank of England’s ongoing regulatory supervision to make sure the CSD continues to comply with its obligations.

The noble Baroness, Lady Kramer, raised a point about CCPs—an important point, which she has raised in earlier discussions. She is worried about the stability of CCPs and their possible vulnerability to total collapse. She will know that the current structure was put in place post the 2008 crash precisely to protect against the scenario that she outlined. CCPs are financial market infrastructures that take on counterparty credit risk between parties to a transaction. They do this by sitting between trades, as a seller to every buyer and a buyer to every seller. If the noble Baroness agrees, perhaps I could write to her in slightly more detail, setting out why we feel that the present position is robust and why we believe that the scenario she referred to may be unlikely to come about.

Finally, the noble Lord, Lord Tunnicliffe, asked about the transition provision for operators in uncertificated securities. Part of the SI is backward-looking to what has already happened and part is forward-looking. The 2017 reference is to operators approved under the USR 2001 prior to 30 March 2015, which will benefit from a transitional provision under this SI. These operators will retain such approval until they become recognised as a CSD for CSDR and FSMA purposes. I apologise for the acronyms; perhaps I could write to the noble Lord, Lord Tunnicliffe, explaining all this without using them.

[Lord Tunnicliffe]

That would be good. Perhaps the Minister could copy the letter to everybody who has taken part in the debate.

[Lord Young of Cookham]

Yes, I generously accept the suggestion made by the noble Lord, and I beg to move.

Motion agreed.

Securitisation (Amendment) (EU Exit) Regulations 2019

Lord Young of Cookham Excerpts

Monday 25th February 2019 Lords Chamber

[Lord Bates]

That the draft Regulations laid before the House on 23 January be approved.

Relevant document: 16th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee B)

[Lord Young of Cookham (Con)]

My Lords, on behalf of my noble friend Lord Bates, I beg to move that the House approves the Securitisation (Amendment) (EU Exit) Regulations 2019. As this instrument is grouped, I will also speak to the Transparency of Securities Financing Transactions and of Reuse (Amendment) (EU Exit) Regulations 2019.

As with the instrument debated earlier, these SIs are part of the programme of legislation under the European Union (Withdrawal) Act that aims to ensure that, if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning legislative and regulatory regime for financial services in the UK. These SIs will fix deficiencies in EU law on securitisation and securities financing transactions to ensure that they can continue to operate effectively after the UK leaves the EU.

The Transparency of Securities Financing Transactions and of Reuse (Amendment) (EU Exit) Regulations 2019 concern securities financing transactions, or SFTs. Broadly speaking, SFTs are transactions where securities such as equities are used to borrow cash or vice versa. A common type of SFT is a repo, or repurchase transaction, in which one party sells an asset to another at one price and commits to repurchase the asset from the other party at a different price on a later date. SFTs were not regulated before 2015 and there were major concerns around their effects on the economy, especially given the experience during the financial crisis where repurchase transactions were associated with increases in leverage, while exacerbating boom and bust cycles in the economy. After the Financial Stability Board identified significant risks associated with these instruments, the EU securities financing transactions regulation introduced a framework under which details of SFTs must be reported to trade repositories. Trade repositories are effectively databases for reporting transactions. Under the regulation, this information must then be disclosed to investors and national regulators are required to act where they identify risky practices by firms.

The Securitisation (Amendment) (EU Exit) Regulations 2019 concern securitisation: the practice of pooling financial assets such as loans into financial instruments called securities, which can then be sold to investors. Securitisation allows banks to transfer some of the risk associated with the assets they hold to investors. This frees up regulatory capital to facilitate further lending. Securitisations can themselves be used to finance business activities and reduce the concentration of financial stability risks. To respond to concerns around the opaqueness and complexity of securitisation programmes, the EU adopted the securitisation regulation, which is based on international standards agreed by the Basel Committee on Banking Supervision. The EU securitisation regulation simplifies and consolidates a patchwork of earlier rules, and introduces the concept of a securitisation that is “simple, transparent and standardised”, also referred to as an STS securitisation, whose use is to be incentivised.

Both regulations are therefore crucial to protecting financial stability while ensuring that the benefits of these instruments to firms and the wider economy remain available. They will be transferred to the UK statute book by operation of the EU withdrawal Act on exit day, but in a no-deal scenario the UK would be outside the EEA and outside the EU’s legal, supervisory and financial regulatory framework, so this legislation would no longer be operative. These SIs make the necessary amendments to ensure that the provisions continue to work properly in a no-deal scenario.

The transparency of securities financing transactions and of reuse regulations amend, first, the treatment of EEA branches of financial services firms in the UK so that after the UK leaves the EU, EEA branches operating in the UK must report their transactions to a UK trade repository. This means that EEA branches will be treated in the same way as other third-country branches operating in the UK, which is consistent with the approach adopted under other financial services SIs laid under the EU withdrawal Act.

Secondly, this SI amends the list of entities that will have access to data on securities financing transactions reported to UK trade repositories. EU bodies are removed, making the list UK-specific, to reflect the UK’s status as a third country outside the EU in a no-deal scenario. This does not, however, preclude UK entities from co-operating with EU entities in future.

Finally, this SI transfers the European Securities and Markets Authority’s responsibilities relating to the requirements for the registration of trade repositories to the FCA, and amends these rules so they continue to work in a domestic context. This is appropriate given the FCA’s current role in supervising and regulating securities financing transactions.

It is worth mentioning that one of the main provisions of the securities financing transactions regulation cannot be domesticated at this stage, due to limitations in the powers under the European Union (Withdrawal) Act. This provision is the requirement on firms to report details of SFTs to trade repositories. Depending on the type of institution concerned, this requirement does not apply until 12 to 21 months after the publication of relevant regulatory technical standards by the EU. However, these have not yet been published and the requirement could therefore not be included in this SI, as it is not, in the wording of that Act,

“operative immediately before exit day”.

The Government have introduced separate legislation, in the form of the Financial Services (Implementation of Legislation) Bill, to enable us to make sure that this requirement applies in a domestic context in due course.

Turning to the draft Securitisation (Amendment) (EU Exit) Regulations 2019, this SI amends, first, the geographical scope of the EU regulation under which, currently, all parties involved in an STS transaction must be located in the EU. The SI amends this to allow UK counterparties to continue to participate in cross-border STS securitisations where some of the parties are located in third countries, expanding the current scope. This approach is appropriate because most securitisations are structured across borders, and it ensures that third countries are treated equally in the event of a no-deal scenario. For the UK securitisation markets to have maximum depth and liquidity while being subject to the same strict requirements introduced by the regulation, it was important not to constrain the UK market by requiring all parties to be located in the UK. None the less, this SI requires at least one of the parties to a securitisation to be located in the UK. The overall effect of this change in scope is to support liquidity in domestic securitisation markets, while ensuring that UK supervisors retain effective oversight of the securitisation as a whole.

Secondly, this SI introduces a transitional regime for the recognition of EU STS securitisations in the UK during a two-year period after the UK leaves the EU. This ensures that UK investors can continue to participate in the EU market for STS securitisations for that limited period. Any STS recognised by the EU during this two-year period will continue to be recognised in the UK until its maturity. This ensures that UK firms will continue to have access to a major market for STS securitisations.

The draft SI also clarifies the definition of “sponsor” in the securitisation regulation to ensure that where a sponsor wishes to delegate day-to-day portfolio management to a third party, that third party can be located anywhere in the world—not just in the EU. The regulation currently limits the location of the delegated firm to the EU. The EU Commission has acknowledged that this is an unintended consequence and is currently seeking to resolve the issue itself.

Finally, this SI transfers several functions currently carried out by the European supervisory authorities to the Financial Conduct Authority and the Prudential Regulation Authority. Most importantly, the SI transfers responsibilities relating to the authorisation and supervision of trade repositories and the publication of STS notifications to the Financial Conduct Authority. This is appropriate given the FCA’s considerable experience in supervising securitisations. The Treasury has been working closely with the Prudential Regulation Authority and the Financial Conduct Authority in drafting these instruments. It has also engaged the financial services industry on these SIs, and will continue to do so going forward. On 19 December the Treasury published both instruments in draft, along with explanatory policy notes to maximise transparency to Parliament and industry; prior to publication, it also shared drafts with industry for technical analysis. The Treasury has incorporated this feedback into the final draft of the SIs.

In summary, the Government believe that the proposed legislation is necessary to ensure that the UK has workable regimes regulating securitisations and securities financing transactions, and that the legislation will continue to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope that noble Lords will join me in supporting the regulations. I beg to move.

[Lord Sharkey (LD)]

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

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

--- Later in debate ---

[Lord Tunnicliffe (Lab)]

My Lords, I studied these two SIs with great care and could not object to their general direction. I even managed to think of three penetrating questions, which the Minister unfortunately answered in his opening statement, so I shall not repeat them. I thank the noble Lords, Lord Sharkey and Lord Deben, for their contribution. The noble Lord, Lord Deben, was concerned about the FCA costs. To some extent, that does not worry me nearly as much is whether there are competent resources. I worry whether there are enough people who want to work in a regulatory atmosphere who have enough competence to take this mess called falling out of the EU, fit it all altogether and discharge all their responsibilities. I can only just bring myself to ask this as a question, because I know that the Minister has a standard answer.

Building on the comments made earlier, the facts of life are that this is a dreadful deal. There is nothing wrong with the instrument, but if you are going to get into a dreadful situation, there are dreadful consequences. Although the Minister may say, as I am sure he will, that the issue of reciprocity is not nearly as bad as we all make out because the other side will want to do reciprocal deals, my experience of negotiation is that it is not that straightforward. They hold the cards, and if reciprocal agreements are made, good, but I fear that they will be somewhat one-sided.

[Lord Young of Cookham]

I am grateful to all noble Lords who have taken part in this debate and I shall try to deal with the issues that have been raised. A common theme is the issue of reciprocity, first raised by the noble Lord, Lord Sharkey, and touched on by the noble Lord, Lord Tunnicliffe, and my noble friend Lord Deben. As a matter of EU law, it is for the EU to decide who gets access to data held in the EU and we cannot in the SIs tell the EU what to do. However, we hope that it will take steps to protect financial stability—the consequences would be serious if it did not—and the Government are working to avoid a no-deal exit.

In the meantime, we are taking steps to minimise the disruption for the UK, and there have been some helpful indications on the issue of reciprocity. We welcome the announcements that the EU and some individual member states have made to date, which indicate that they would take steps to mitigate some of the risks. The Commission has taken a positive step in legislating to give the UK temporary equivalence for CCPs in a no-deal scenario, and the ESMA announced last week that all three UK CCPs will be recognised, mitigating a key no-deal risk to stability. Certain other member states, such as Germany and Sweden, have also announced various contingency measures. We stand ready to intensify our engagement, engage in bilateral discussion wherever possible and co-operate with EU institutions on preparedness for all scenarios, because it is in our mutual interest to lessen the risk of disruption to households and businesses in both the UK and the EU.

My noble friend Lord Deben asked a question which I think he has asked before about the resources of the FCA. Each time a Minister has said that these are very small incremental obligations, he has asked: what happens if you add them all up? It is a good question. Under the EU securitisation regulation which has applied from January this year, the PRA and the FCA already carry out most of the functions conferred on them by this SI. The main responsibilities transferring to the FCA relate to the authorisation and supervision of a small number of trade repositories and the publication of STS notifications on its website. We do not honestly think that this will create a significant burden for the FCA, which has specialist expertise in place and has made extensive preparations, including training supervisors, in anticipation of the implementation of the EU securitisation regulation and the onshoring of its requirements.

--- Later in debate ---

[Baroness Bowles of Berkhamsted]

The bits taken out of Articles 6(7)(a) and (b) related to topics on which the regulator—that will now be the UK—is to make binding technical standards. However, they were deleted so the regulator will not now make them. References to “synthetic” have also been removed. Does this mean that this has already been discounted? I would appreciate it if the Minister could clarify that point in his written responses.

[Lord Young of Cookham]

The noble Baroness will know that under the withdrawal Act, we cannot make substantive policy changes using instruments such as this one, so whatever has happened should not be a major policy change. However, I generously accept her offer to write to her with a more detailed explanation of the changes she mentioned.

Motion agreed.

Money Market Funds (Amendment) (EU Exit) Regulations 2019

Lord Young of Cookham Excerpts

Monday 25th February 2019 Lords Chamber

[Lord Bates]

That the draft Regulations laid before the House on 24 January be approved.

Relevant document: 15th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee A)

[Lord Young of Cookham (Con)]

My Lords, I will speak on behalf of my noble friend. The Treasury has been undertaking a programme of legislation to ensure that, if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning legislative and regulatory regime for financial services in the UK. The Treasury is laying SIs under the EU withdrawal Act to deliver this, and a number of debates on these SIs have already been undertaken here and in another place.

This SI is part of this programme, and has been debated and approved by the other place. The SI will fix deficiencies in UK law on regulations for money market funds to ensure that they continue to operate effectively post exit. The approach taken in this legislation aligns with that of other SIs laid under the EU withdrawal Act, providing continuity by maintaining existing legislation at the point of exit, but amending where necessary to ensure that it works effectively in a no-deal context.

The European regulation on money market funds relates to their establishment, management and marketing. These funds invest in highly liquid instruments—such as Treasury bonds—and provide a short-term, stable cash management function to charities, local government, businesses and other financial institutions. They are predominately used by investors as an alternative to bank deposits. The regulations were introduced as part of the response to the 2008 global financial crash, to preserve the integrity and stability of the EU market, and to ensure that money market funds are a resilient financial instrument. This is achieved by having further rules on prudential requirements, governance and transparency for operators of money market funds.

Money market funds are structured as either an undertaking for collective investment in transferable securities or alternative investment funds. Consequently, they are required to comply with regulations that apply to UCITS or alternative investment funds. The regimes for UCITS and AIF managers have been separately amended to reflect the UK leaving the EU by the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 and Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019, which were made on Wednesday 20 February.

First, this draft instrument removes references to the European Union which are no longer appropriate, and to EU legislation which will not form part of retained EU law. These references will be replaced, to refer to the UK and to relevant domestic and retained EU legislation. Secondly, in line with the general approach taken in other instruments, this SI will transfer functions within the remit of EU authorities to UK institutions. All functions exercised by the European Commission will be transferred to the Treasury. These relate to creating rules on standards for money market funds, such as their liquidity and quantification of credit risk.

All functions exercised by the European Securities and Markets Authority will be transferred to the FCA. The FCA will become responsible for technical standards on how funds should stress test their funds, and for two operational powers to establish a register and reporting templates for money market funds. The FCA, as the UK’s regulator for investment funds and the current national competent authority for money market funds, has extensive experience in the asset management sector and is therefore the most appropriate domestic institution to take on these functions from ESMA.

As previously stated, money market funds must be structured and regulated as UCITS or AIFs. This instrument makes provision to ensure that EU money market funds are able to use the temporary marketing permissions regime, which lasts for three years, as legislated for in the regulations for collective investment schemes and alternative investment fund managers. Following an assessment by the FCA and submitting a Written Ministerial Statement to both Houses, the Treasury will be able to extend this by a maximum of 12 months at a time. The temporary marketing permissions regime will allow for EEA money market funds which are currently marketed into the UK, and any subsequent money market fund structured as a UCITS sub-fund, to be able to continue to market into the UK as an MMF for up to three years after exit day.

This instrument amends the scope of the regulation to apply to the UK only, with the effect of only allowing the marketing of UK-authorised MMFs, or MMFs managed by UK fund managers. However, additional amendments maintain the eligibility for EEA MMFs with temporary permissions to continue to market in the UK at the end of the temporary marketing permissions regime period, if they gain the required permissions to market as a third-country fund under existing UK domestic frameworks.

Money market funds structured as UCITS will be required to gain authorisation under Section 272 of the FSMA, while for those structured as AIFs, their managers will need to notify under the national private placement regime.

The UK currently has a very small domestic market of money market funds, so these provisions address the cliff-edge risks that could arise as a consequence of defaulting to a UK-only market. This will ensure that UK investors can continue to access their investments and to have a choice of money market funds to use for cash management.

The Treasury has worked closely with the FCA in drafting this instrument. It has also engaged the financial services industry. This has included engagement with the Institutional Money Market Funds Association, which is the main industry body for money market funds. The House should be aware of remarks by its secretary-general, Jane Lowe, who stated:

“We believe the current draft SIs deal adequately with current EU legislation and consider that the dialogue between HM Treasury and industry was helpful to identify and iron out issues that arose”.


On 21 November, the Treasury published the instrument in draft along with an explanatory policy note to maximise transparency to Parliament and industry.

To summarise, the Government believe that this SI is needed both to ensure that the regulatory regime for money market funds and their operators works effectively, if the UK leaves the EU without a deal or an implementation period, and to ensure continuity for the UK investors they serve. I hope that noble Lords will join me in supporting this instrument. I beg to move.

[Lord Sharkey (LD)]

My Lords, I was grateful for the clarity of the Explanatory Memorandum and the impact assessment for this SI. I understand that the changes are necessary for the proper continuation in business of UK MMFs in a no-deal scenario. I also understand the importance of the temporary marketing permissions regime in allowing continued UK access for existing EEA MMFs, and I note the £250 billion of UK investment in these funds.

I also note that, as set out in paragraph 157 of the consolidated impact assessment,

“this SI transfers the European Commission powers to make delegated acts and implementing acts to HM Treasury, as a power to make regulations”.

This refers, I think, to Regulation 18 of the SI, which states:

“Any power to make regulations conferred on the Treasury by this Regulation is exercisable by statutory instrument … Such regulations may … (a) contain incidental, supplemental, consequential and transitional provision; and (b) make different provision for different purposes”.


It also states that such regulations will all follow the negative procedure. I was not sure of the purpose of the phrase,

“make different provision for different purposes”,

or to what extent it extends the Treasury’s latitude in drawing up these SIs. I would be grateful if the Minister could explain why this additional power is necessary and whether its scope is as unlimited as it might seem at first sight. I would also be grateful if the Minister could explain the use of the negative procedure for the SIs generated by the power. Is there not a case for using the affirmative procedure to allow Parliament more rigorous scrutiny in this obviously critical area of our financial services industry?

--- Later in debate ---

Having said all that, I noticed the standard format: references are changed appropriately; scope is changed appropriately; functions are allocated appropriately; and then there is the old favourite of a temporary marketing permissions regime of three years and as many 12 months as the Treasury feels it needs. However, when you have read all the way through these things, the fundamental issue is that the provisions are asymmetric; they do nothing to allow UK firms to trade in the EU, which will be one of the many economically negative things that are coming out of this exercise.

[Lord Young of Cookham]

I am grateful to all noble Lords who have taken part in this short debate and hope that there is no substantive objection to the powers which are proposed in this statutory instrument. I will try to deal with the questions that were raised by noble Lords.

The noble Lord, Lord Sharkey, asked why there is an additional power to make regulations. The power to make delegated regulations simply transfers to the Treasury the power in the EU regulation, which lies with the Commission, to make technical standards such as specifying credit quality assessment criteria. As these are basically technical standards, we believe that the negative procedure is appropriate. I may stand to be corrected, but I do not think that any of the committees that scrutinise legislation in this House have suggested otherwise.

Both the noble Baroness, Lady Kramer, and the noble Lord, Lord Adonis, raised the question of removing the legal obligation to share information. I understand the concern, but I want to reassure both of them that this will not preclude UK supervisors from sharing information with EU authorities where necessary. I take the point that it is important that there is a good cross-flow of information between the UK and regulators in the EU, and there is already a good domestic framework for co-operation on information sharing with countries outside. We already have that, and the legislation allows for that. If you look at the Financial Services and Markets Act 2000 and the associate secondary legislation, all the necessary powers already exist for co-operation and information sharing with countries outside the UK, which will of course include the EU when we leave.

The noble Lord, Lord Adonis, asked about the impact assessment. The costs include a one-off cost for firms examining and understanding the instrument, estimated at £7,200, which will be shared between the 21 funds regulated under the MMFR in the UK.

Finally, the noble Lord, Lord Tunnicliffe, raised the point about reciprocity—I am sorry that he has had another bad day getting on top of these SIs. Of course, we cannot legislate here to make EU countries reciprocate what we are doing to them, but a series of bilateral discussions is under way to ensure that, in the unlikely event of no deal, essential relationships are preserved. I hope that I have answered all the issues raised by noble Lords.

[Lord Sharkey]

Before the Minister sits down, I may have expressed myself badly when talking about the negative instruments. The instrument we are discussing gives the Treasury the power subsequently to make other statutory instruments—that is partly what it does—and my question was about why all those subsequent negative instruments should come under the negative procedure. The Minister responded by talking about the sifting committees, but those committees will not get sight of those because of course they do not yet exist, and when they do, the sifting committees almost certainly will not. So that does not quite address the question I was hoping to put.

I was also not entirely certain about the answer to the point about making,

“different provision for different purposes”.

I am not quite sure I understood exactly what scope that gave the Treasury in drawing up a statutory instrument. However, if the Minister chooses to write to explain, I would be grateful.

[Lord Young of Cookham]

The Minister might indeed prefer to write. I think that it simply transfers existing powers which rest with the Commission to the Treasury, without changing the fundamentals.

On the sifting committee, I think that I am right in saying that wherever the sifting committee has recommended that statutory instruments under the EU withdrawal Act should be affirmative rather negative, the Government have agreed. I hope that that provides some reassurance to the noble Lord.

Motion agreed.

Subordinate Legislation: Transparency and Accountability

Lord Young of Cookham Excerpts

Thursday 21st February 2019 Lords Chamber

[Lord Lexden]

To ask Her Majesty’s Government, further to their response to the report of the Joint Committee on Statutory Instruments Transparency and Accountability in Subordinate Legislation, published on 12 June 2018, what additional consideration they have given to the conclusions and recommendations in the report.

[Lord Young of Cookham (Con)]

My Lords, the Government agree with the report’s main conclusions and continue to take steps to ensure that statutory instruments respect parliamentary processes and conventions, are drafted to a high standard and remain accessible to anyone at any time. The committee made one specific recommendation on the free issue procedure, and the Leader of the House of Commons continues to liaise with the National Archives to take that forward.

[Lord Lexden (Con)]

My Lords, diverting briefly from my campaign for justice for Sir Edward Heath, I put down this Question to draw attention to the work of the Joint Committee on Statutory Instruments, of which I am a member, and to the expertise of our quite excellent lawyers, who go through every instrument line by line—indeed, word by word. The committee has been increasingly concerned recently about the number of drafting mistakes being made by departments. Will my noble friend pursue that issue? In the report referred to in the Question, stress is laid on the importance of avoiding delays in publishing instruments and laying them before Parliament. Will Ministers impress on departments the need to ensure that delays do not occur?

[Lord Young of Cookham]

I pay tribute to my noble friend, those who with him work on the JCSI and the lawyers for their important if unglamorous work in scrutinising subordinate legislation, not least because their work rate has had to increase substantially due to the increased flow of SIs.

On corrections and errors, the Government have laid more than 1,500 SIs in the Session to date, not all related to Brexit. As of a recent report, the committee has for one reason or another reported on 136 of them. In nearly three-quarters of those cases, the Government either made a correction, provided further information or gave an undertaking to do so. On delays, of the 582 SIs considered by the committee since its report in June last year, only one has been reported for an unjustified delay and only one has been reported for an unjustified breach of the 21-day rule. Clearly, we hope to improve on both performances. More resources have been given to departments to improve their performance. I note that in its interim report on the current Session the committee states that,

“the overall percentage of errors in SIs has decreased”.

We are working hard to maintain progress.

[Lord Rowlands (Lab)]

My Lords, it has been a privilege to have served on this committee for a number of years; indeed, at various times I have chaired the committee and I was very much involved in the preparation of this report. As the Minister said, scrutinising statutory instruments can sometimes feel a rather remote, distant, especially technical thing to do, but one must never lose sight of the fact that a statutory instrument can seriously influence or affect a citizen’s rights or duties, so it is particularly important that statutory instruments are accessible. In our report we make specific recommendations to make sure that statutory instruments and the relevant documents are available and accessible to individual citizens. Paragraph 4.9 says:

“Accessibility to legislation is … of obvious importance for the maintenance of the rule of law”.


I hope that the Minister will impress upon the department the significance and importance of making these instruments and relevant documents accessible to citizens.

[Lord Young of Cookham]

I agree with that section of the report that deals with accessibility. Given their increasing availability on the internet, we hope that statutory instruments are more accessible than they were when they were available only in hard copy. We are in touch with the National Archives, which has responsibility for putting these SIs online, and we have taken on board the one specific recommendation in the report about making sure that those who originally had access to a document that was subsequently changed have access to the change without having to make special efforts to find it. I endorse the words of the noble Lord about the importance of SIs: that is why the JCSI and the Secondary Legislation Scrutiny Committee have a key role to play.

[Lord Sharkey (LD)]

My Lords, we see too many skeleton Bills. The Healthcare (International Arrangements) Bill is the latest example and one of the very worst. These Bills force us to use secondary legislation scrutiny procedures for what should properly be in primary legislation and subject to amendment. Then there is the flood of Brexit SIs, many laid without proper impact assessments or consultations. We debate but we cannot amend and we are unwilling to reject. We have in fact rejected only seven SIs in the last half-century and this does not lend itself to effective scrutiny. Does the Minister agree that we need a thorough review, both of the use of skeleton Bills and of our procedures for dealing with SIs?

[Lord Young of Cookham]

The noble Lord’s question goes slightly broader than the narrow Question about statutory instruments’ transparency and accountability. On his first point, it is a matter for the DPRRC to draw attention to primary legislation where, in its view, too many powers are being subjected to subordinate legislation. The House, as it knows, can amend legislation as it goes through, and the Government have indeed amended legislation in many cases where the House has expressed the view that too much has been delegated. The particular Bill the noble Lord refers to is being debated later today. On his other question, about a wholesale review of statutory instruments, that goes slightly broader than this Question and at the end of the day it is a matter for the House and not the Government whether it wants to change the way it scrutinises legislation.

[Lord Judge (CB)]

My Lords, the Minister was present when I suggested on Monday that it was something of a disgrace that it is 40 years—1979—since the House of Commons last rejected a statutory instrument. Can the Minister be persuaded to ask the Post Office to issue a commemorative stamp? That way, we will either remember the process and revitalise it or accept that it has been consigned to the dustbin of history.

[Lord Young of Cookham]

I am grateful to the noble and learned Lord. I was present in the House of Commons on that historic date but I cannot remember which side I was on, because I cannot remember whether it was before or after the general election in 1979. The noble and learned Lord’s suggestion of a commemorative stamp is a good one, but it might be subject to a statutory instrument.

[Baroness Smith of Basildon (Lab)]

My Lords, I add my appreciation of the Joint Committee for the work it does, which is hugely valuable, particularly when we have so many statutory instruments coming forward. However, the noble Lord and the committee rightly made much of avoiding delay, and I make a plea about accuracy. One of the problems with SIs, understandably, is that they cannot be amended. If, in the Government’s haste to get so many through in such a short time, they are not accurate, as my noble friend Lord Rowlands said, that has enormous consequences. Can the Minister consider—I do not know whether he knows the answer to this—how many days there are between an SI being published in draft form and its being debated? That is when there is an opportunity to pick up any inaccuracies. Does he think that sometimes, they come through a little more quickly than one would anticipate is necessary to allow proper scrutiny prior to their being tabled?

[Lord Young of Cookham]

Affirmative resolutions cannot come into effect until they have been debated in both Houses, while negative ones should be laid in draft 10 days before they are made and 21 days before their coming into force. Those 10 days are to give the committee time to recommend a change from a negative to an affirmative resolution. In the 48 cases where it has made that recommendation, the Government have agreed. On errors, as I said in response to an earlier question, the overall percentage of errors in SIs has decreased and we are working hard to maintain progress.