Breathing Space Scheme: Consultation Response

Debate between Lord Young of Cookham and Lord Sharkey

Wednesday 19th June 2019 Lords Chamber

[Lord Sharkey (LD)]

My Lords, I thank the Minister for repeating the Statement. We on these Benches very much welcome the introduction of the breathing space and the statutory debt repayment schemes, although we do have a few questions about execution.

To debtors, this reform may seem to have been quite a long time coming: I can recall discussions in Parliament in 2015, as well as outside long before that. The proposal was, of course, included in the Conservative Party’s 2017 manifesto. Many people and organisations have played a part in getting us to this stage. I particularly want to mention StepChange and the noble Lord, Lord Stevenson of Balmacara. The critical point in getting the Government to do something arose during the passage through this House of what is now the Financial Guidance and Claims Act 2018. The amendment to the Bill by the noble Lord, Lord Stevenson, about breathing space now appears as Section 6 of the Act. This section encouraged and enabled the Government to do what they have announced today.

Turning to the schemes themselves, we are pleased that the Government have in most cases followed the advice they were given in the consultation—which seemed to be a model of its kind, unlike some of the other consultations that the Minister and I have had to discuss in this Chamber. We believe that the eligibility criteria for the breathing space scheme are broadly right, although we have doubts about the restriction to only once in 12 months. We encourage the Government to think again about this and—as they say they are minded to—to include provision for joint debts to qualify for inclusion in the scheme.

We are also happy to see that local and central government debts are to be included in the new scheme and very pleased to see the inclusion of small sole-trader debts, which we think is a vital element. We especially welcome the unlimited extension and repeated entry to the scheme for those in mental health crisis.

The Government’s very helpful consultation and policy response paper does qualify the inclusion of universal credit advances and third-party deductions from universal credit. The document is very vague about the timing of their eventual inclusion. I ask the Minister to give the House a little more detail and encourage him to speed up the process of including these two elements.

When it comes to which ongoing bills should be paid during the breathing space, I think that the Government have it about right in giving debt advice agencies the discretion over whether to remove people who do not keep up specified ongoing payments from the scheme.

Debt and debt repayment continue to be severe problems for millions of people in this country. As the Minister noted, the Money and Pensions Service has estimated that around 9 million people are overburdened with debt. We also now know that real incomes have started to fall again.

The Government’s proposals are a significant step forward in addressing problem debt, and we welcome them. However, we are disappointed with the timetable for the introduction of these measures. Early 2021 seems a very long way off—probably an intolerably long way off if you have unmanageable debt. All the Government’s proposed measures can be introduced by SI. Parliament is not currently overpressed with business. Why can we not use some of that time to bring forward the implementation date?

[Lord Young of Cookham]

I thank both noble Lords for their generous welcome to the announcement, in particular the noble Lord, Lord Stevenson. I remember the forceful case he made during the passage of the Financial Guidance and Claims Bill, drawing on his experience in StepChange, which drew on research showing that schemes such as this stop people getting into a cycle of debt and end up with the creditors getting more than they would, had such a scheme not been available. As the noble Lord, Lord Sharkey, said, his amendments to the Bill enable us to make progress. As he said, I was a co-pilot with my noble friend Lord Freud on the Bill—the two intellectuals Freud and Young took that Bill through the House.

I take the point from the noble Lord, Lord Stevenson, about 60 days possibly being not long enough. He will know that that is more than the six weeks pledged in our manifesto and more than the six weeks available in Scotland. We believe we have that right. I agree entirely with what he said about the Insolvency Service’s register being private and not public. I take his point, which was also made by the noble Lord, Lord Sharkey, about trying to speed things up.

I take the point that the 9% top slice that the agencies will get is less than the 13% currently available, but by contrast this is guaranteed in a way the 13% might not be. Also, we believe it will be on a much broader base. Of course we will keep the revenue stream under regular review, but we think we have it about right.

On loans, the FCA has announced a tough new package of measures on high-cost credit. It has the powers to introduce caps, but perhaps I can make more inquiries about that specific point. I have no hesitation in agreeing to a meeting with the noble Lord, Lord Stevenson, which I welcome. Perhaps it would make sense to involve the Economic Secretary to the Treasury, who has prime policy responsibility for the subject matter.

I am grateful to the noble Lord, Lord Sharkey, for his welcome of the scheme. The once-only ability to go into the breathing space does not apply to those with mental health problems. We wanted the first time to have a sustainable, long-term solution to the debt problems and there was an anxiety about the possibility of abuse if people could go on applying. We will look at that. He has a valid point about joint debts. Likewise, often a small trader’s personal finances are inextricably involved with the business. It makes sense to have eligibility for small traders up to the VAT limit.

On universal credit, any overpayments will be stopped immediately, although there is an IT issue that prevents the same process being applied to other payments. Perhaps I could write to the noble Lord, but the objective is to address those IT problems as soon as possible.

Finally, the noble Lord mentioned the timetable. This was raised in the other place. He might have followed the exchanges. The Economic Secretary said that he had had discussions with his officials to try to drive the timetable through as quickly as possible. There are some IT issues about making sure the public sector interface with the Insolvency Service can react to people entering and leaving the breathing space. We want to get it right, but I will certainly tell the Economic Secretary that both noble Lords expressed anxiety about the timetable and asked whether it could possibly be accelerated.

Banks: Cash Withdrawals

Debate between Lord Young of Cookham and Lord Sharkey

Tuesday 11th June 2019 Lords Chamber

[Lord Young of Cookham]

My noble friend is quite right; they are used not just for cash withdrawals but often for deposits or balance queries. I very much hope that banks respond to my noble friend’s suggestion that if they have to close the last branch in a town or village, they ensure that they leave behind a free-to-use ATM that will replace at least some of the facilities that it used to provide.

[Lord Sharkey (LD)]

My Lords, at the end of March there were 924 deprived areas without access to free-to-use ATMs, and this was a 12-month high. On 1 April LINK promised to address the problem by increasing payments to operators. It also said that if that did not fix the problem in two months, it could directly commission free-to-use ATMs in these deprived areas. The two months are up. Have the increased payments worked? Has LINK commissioned any free-to-use machines in these 924 deprived areas?

[Lord Young of Cookham]

The noble Lord is quite correct that LINK is directly commissioning ATMs in areas that do not have one but need one. If he has a particular area in mind that needs an ATM but does not have one, I am sure he will let LINK know. The company has tried to ensure the viability of free-to-use ATMs in deprived areas by increasing the transaction fee that the ATM owner gets to £2.75 per transaction, against the standard fee of 25.9p. LINK’s policy is that where it has to shrink the estate, it does so by removing ATMs that are close to another one—73% are within five minutes’ walk of another one—but maintaining free-to-use ATMs in remote or deprived areas.

Securitisation (Amendment) (EU Exit) Regulations 2019

Debate between Lord Young of Cookham and Lord Sharkey

Monday 25th February 2019 Lords Chamber

[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?

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

Debate between Lord Young of Cookham and Lord Sharkey

Monday 25th February 2019 Lords Chamber

[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 ---

[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.

Subordinate Legislation: Transparency and Accountability

Debate between Lord Young of Cookham and Lord Sharkey

Thursday 21st February 2019 Lords Chamber

[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.

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

Debate between Lord Young of Cookham and Lord Sharkey

Monday 4th February 2019 Grand Committee

[Lord Young of Cookham (Con)]

My Lords, as this instrument has been grouped, I will speak also to the Financial Markets and Insolvency Amendment and Transitional Provision (EU Exit) Regulations 2019.

As with the instruments we have just debated, these two instruments are also part of the same legislative programme 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.

Turning to the substance of the over-the-counter derivatives, central counterparties and trade repositories SI, many noble Lords will be familiar with the European market infrastructure regulation known as EMIR, which the EU implemented in 2012. It is Europe’s implementation of the G20 Pittsburgh commitment in 2009 to regulate over-the-counter derivative markets in the aftermath of the financial crisis, reduce risk and increase transparency in derivative markets. It should be noted that EMIR, and the financial markets and insolvency SI which we will come on to in a moment, concern activities that mainly take place on financial markets. EMIR imposes requirements on firms that enter into any form of derivative contract and establish common organisational, conduct-of-business and prudential standards for trade repositories and central counterparties. Central counterparties, for example, stand between counterparties in financial contracts, becoming the buyer to every seller and the seller to every buyer. They guarantee the terms of a trade, even if one party defaults on the agreement, thereby reducing counterparty risk.

This SI addresses deficiencies within EMIR and related UK legislation to ensure that after the UK has left the EU an effective legal supervisory and regulatory framework for over-the-counter derivatives, central counterparties and trade repositories remains. This instrument is the last of three key SIs that fix deficiencies in EMIR, and it follows two SIs which have already been debated in your Lordships’ House and which have subsequently been made: the central counterparties SI and the trade repositories SI.

Firstly, the SI continues key requirements of EMIR that include the clearing obligation, which requires firms to clear certain types of derivative contracts at a CCP, the reporting obligation, which requires firms and CCPs to report derivative trades to a registered or recognised trade repository, and margin requirements, which compel firms to put forward money to cover the costs associated with trades. In order to have a framework in place to facilitate these requirements the relevant functions are transferred from the European Commission to the Treasury, and from the European Securities and Markets Authority—ESMA—to the UK regulators, namely the Financial Conduct Authority or FCA, the Prudential Regulatory Authority, known as the PRA, and the Bank of England.

Secondly, the power of granting equivalence decisions for non-UK trade repositories is transferred from the European Commission to the Treasury and functions for recognising non-UK trade repositories are transferred from ESMA to the FCA. The SI also transfers powers from the Commission to the Treasury with regard to equivalence decisions on over-the-counter derivative requirements and whether non-UK markets are recognised for the purpose of trading exchange-traded derivatives.

Thirdly, a temporary intragroup exemption regime provides continuity by ensuring that exemptions from EMIR requirements for intragroup transactions will continue after exit day. The regime will last three years from exit day to allow time for consideration of an equivalence decision by the Treasury and for the FCA to determine a permanent exemption. This period can be extended by the Treasury if necessary. Under the MiFID II legislation, there is an exemption from clearing and margining for certain energy derivative contracts, and this exemption is maintained by this instrument. Finally, EU processes which will become redundant are removed and replaced with equivalent UK processes.

I turn now to the financial markets and insolvency SI. This instrument, broadly speaking, concerns insolvency-related protections that are provided to systems and central banks under the EU settlement finality directive, or SFD. Systems are financial market infrastructure, such as central counterparties, central security depositories and payment systems, which provide essential services and functions relied upon by the financial services sector.

Currently, if an EEA-based system is designated under the SFD and receives funds or securities from a system user—for example, a UK bank—those funds or securities cannot be clawed back in the event of the UK bank being subject to insolvency proceedings. Importantly, this framework also benefits system users, who could receive services on less favourable terms, or not at all, if the EEA system were not protected from UK insolvency law. In certain cases, membership of a system is contingent on these protections. Designation is therefore important as it facilitates the smooth functioning of, and confidence in, financial markets.

In order to become a designated system, a system must be approved by its designating authority—the Bank of England, in the case of the UK. The Bank then informs ESMA, which places it on the EU register of designated systems. The SFD provides similar protections to central bank functions across the EEA. Collateral received by an EEA central bank in accordance with its functions, such as emergency lending, cannot be clawed back if the relevant counterparty to the central bank is subject to insolvency proceedings.

The relevant EU laws—the SFD and the financial collateral arrangements directive—are implemented in the UK via the Financial Markets and Insolvency (Settlement Finality) Regulations 1999, the Companies Act 1989, the Financial Collateral Arrangements (No. 2) Regulations 2003 and the Banking Act 2009. Should the UK leave the EU without a deal or an implementation period, there will be no framework for the UK to recognise systems designated in EU member states, which in turn may risk continuity of services from those designated systems for UK firms.

This SI therefore establishes two main measures to mitigate these risks and ensure that settlement finality protections continue to operate effectively following the UK’s withdrawal. First, this SI establishes a UK framework for designating any non-UK system, while maintaining existing designations for systems that were designated by the Bank of England before exit day. To do this, the Bank of England’s powers to designate, and charge fees to, UK systems will be expanded to non-EEA systems, such that they can be designated under UK law. Moreover, the Bank will be able to grant protections to non-UK central banks, including EEA central banks, which already receive protections under the SFD. This will help maintain the effect of the current framework, providing continuity to UK firms accessing systems and central banks, while assisting UK firms in accessing the global market.

Secondly, the SI establishes a temporary designation regime. This provides temporary designation for a period of three years to existing designated EEA systems that intend to be designated under the UK’s framework. The purpose of temporary designation is to allow time for designation applications to be processed by the Bank of England while ensuring continuity of access for UK firms to relevant EEA systems immediately after exit day. The SI also gives the Treasury the power to extend this regime should more time be required to consider these applications.

The Treasury has been working very closely with the regulators in the drafting of the instruments. It has also engaged the financial services industry on these SIs and will continue to do so going forward. The Treasury published these instruments in draft alongside Explanatory Notes to maximise transparency to Parliament, industry and the public. That took place on 22 October and 31 October 2018 respectively for the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 and the Financial Markets and Insolvency (Amendment and Transitional Provision) (EU Exit) Regulations 2019. Furthermore, the Treasury published the impact assessment that accompanies these SIs, providing further transparency regarding the reasons behind, and foreseen impacts of, these proposals.

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

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

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

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


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

Paragraph 7.12 of the EM states:

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


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

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

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

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

--- Later in debate ---

[Lord Young of Cookham]

I plead guilty as charged. As I said a moment ago, we recognise the importance of parliamentary scrutiny. We will try to do better and make sure that the relevant impact assessments are available in time.

[Lord Sharkey]

I asked about the absence of the impact assessments from the Printed Paper Office. That is the route by which most of our colleagues get the information. They were transmitted electronically to some noble Lords on 29 January, but they were not available in printed form until this morning. That seems a very odd lapse.

[Lord Young of Cookham]

Again, I take that seriously. Would the noble Lord allow me to make some inquiries within the machinery of government in this House to find out what exactly went wrong there? I understand that they were delivered to the Printed Paper Office on Friday.

Financial Guidance and Claims Bill [HL]

Debate between Lord Young of Cookham and Lord Sharkey

Committee: 2nd sitting (Hansard - continued): House of Lords
Wednesday 6th September 2017 Lords Chamber

[Lord Young of Cookham]

I thank all those who have taken part in this debate for these amendments on the specifics of the pensions guidance function.

Amendment 42B, tabled by the noble Lord, Lord Sharkey, and my noble friend Lady Altmann, seeks to ensure that people have taken guidance or regulated advice before accessing their defined contribution pension pot. The pension flexibilities introduced in 2015, which a number of noble Lords who have taken part in the debate have spoken about, gave people the freedom and choice to decide how to access their defined contribution pension savings. The flexibilities give people control of their money and allow them to make choices which tailor their approach to their own particular circumstances. As has been mentioned in the debate, at the point of introduction, this provision was not there.

Since 2015, we have provided Pension Wise as a source of free and impartial guidance to help people make more informed decisions. There have been over 5.3 million visits to the Pension Wise website since launch and there have been more than 154,000 appointments. Customer satisfaction with Pension Wise remains very high. In 2015-16, Pension Wise delivered 61,000 guidance appointments. In 2016-17, this had increased to 66,000. By the end of July this year, there had already been nearly 27,000 appointments. This clearly demonstrates that the work we and the industry are doing to promote Pension Wise guidance is working.

It is important that people know that help is available when making important decisions about their pensions. Clause 3 ensures that the Government’s guidance guarantee will continue to be met by the new body. It is also important, however, that people have the freedom to choose sources of information, guidance or regulated advice that are right for them before making a decision about their pensions. It is not immediately clear that such an intervention at this point in the journey would be effective in changing people’s behaviour, and it might serve only to frustrate people who have already made the decision about accessing their money. As has been mentioned, such an approach would not be without cost, which would fall on the firms that pay the levy. Additional costs would need to be justified with clear benefits in terms of better outcomes for people.

Pension schemes and providers are required by law to signpost people to Pension Wise guidance. We know that this is working: pension providers are consistently cited by around half of the people who contact Pension Wise as the place they first heard of the advice. We are working with providers to ensure we continuously improve the effectiveness of signposting. We are also working with a number of employers, locally and nationally, to promote the Pension Wise service.

The FCA’s Retirement Outcomes Review: Interim Report found that take-up of Pension Wise was low. However, it also highlighted a number of mitigating contextual factors which should be considered. It found that 53% of pots had been fully withdrawn, but that the vast majority of these were small pots—60% were smaller than £10,000 and 90% were smaller than £30,000. It also found that 94% of people making full withdrawals had other sources of retirement income on top of the state pension, and so the FCA did not see this as evidence of people squandering their pension savings. Lastly, some people who did not use Pension Wise decided that financial advice was the right route for them. Between October 2015 and September 2016, sales to people who took regulated financial advice accounted for 37% of annuity sales and 70% of draw-down sales.

Having said all that, I find this all quite difficult. As noble Lords have suggested during this debate, it may well be the case that people could benefit from using more guidance. However, the landscape is somewhat complex and bears further scrutiny. I am not persuaded that the amendment in front of us is the right way to go. I listened with interest to a number of the alternative suggestions that were made.

I return to my script. The interim report to which I referred a moment ago has raised a number of issues, and the FCA has proposed a number of remedies. It has invited views and is actively engaging with government, regulators, industry and consumer bodies before delivering its final report in the first half of 2018. The right way forward may be to wait for the full report of the FCA and consider its recommendations, which may pick up some of the points made in this debate, in light of all of the information and evidence. This will ensure that we make the right interventions at the right time, which help people make the right choices for their circumstances.

Amendment 42C—which I was never attracted to—tabled by the noble Lord, Lord Sharkey, would require the new body to report annually on the usage of pension guidance and regulated financial advice by members of the public accessing their pension pots. The noble Lord made it clear that, on reflection, he thought that this might not be the best way to proceed, so it might be for the interest of the House if I skip the next four paragraphs of my remarks, as I think that the noble Lord indicated that this may not be the best way to go forward. There is already a robust process in place in this area, and we should not seek to duplicate work which is already in train and well advanced. The FCA has already identified a range of indicators that are intended to give a snapshot of the market for financial advice and establish a baseline.

I think that I have dealt with the points that have been raised in the debate; if I have not, I would like to write on them. However, against the background of what I have just said, I hope that the noble Lord may feel able to withdraw his amendment.

[Lord Sharkey]

My Lords, I thank the noble Baroness, Lady Altmann, and the noble Lord, Lord McKenzie, for their contributions to the debate. In a way, I am not quite certain where this leaves us. I listened quite carefully to what the Minister said, and I can understand the merit in having this completely underworked, over-resourced FCA carry out yet another inquiry in its spare time into this again. However, I can also understand the merits of doing something fairly concrete, fairly soon, about what I think we all agree is a problem. I am also puzzled about why it is quite so difficult, in the sense that this is what happens when you take out a mortgage. It seems to me perfectly reasonable to suggest this is also what should happen when you access your pension.

In passing, I should say that, first, I am quite grateful for the Minister’s speedy dispatch of the second amendment—I will not dwell on that—but I disagree with him when he talks about Pension Wise working. That is not right or accurate; it is misleading. A more accurate view is that it works exceptionally well for the very small number of people who use it. That is a better statement than the blanket statement that Pension Wise is working. That is one of the roots of the problems that we face here.

In the face of the lack of absolute enthusiasm for the first amendment, I will withdraw it. However, we should continue the conversation about this and not just wait for the FCA to opine. There is perhaps room for a more round-table general discussion about what advances we can make without waiting for whenever—shortly or in due course—the FCA will publish its findings. However, in the meantime, I beg leave to withdraw.

Tax Havens

Debate between Lord Young of Cookham and Lord Sharkey

Thursday 6th April 2017 Lords Chamber

[Lord Sharkey]

To ask Her Majesty’s Government what steps they are taking to curb the use of tax havens.

[Lord Young of Cookham (Con)]

My Lords, the Government are committed to a regime where tax is fair, competitive and paid. The UK is at the forefront of global action to tackle harmful tax practices through implementing the agreed base erosion and profit shifting project outcomes, the OECD’s new common reporting standard and the development of new beneficial ownership information standards.

[Lord Sharkey (LD)]

I thank the noble Lord for that Answer. Last week, Oxfam’s report revealed that last year five UK banks made £9 billion in profit in tax havens, which was 67% of their global profits. Half a billion pounds of this profit was made in UK-linked tax havens, where the banks paid just 7% in tax. What estimate have the Government made of the loss to the Exchequer of profit shifting by UK-based companies?

[Lord Young of Cookham]

My Lords, I do not have the estimate of the amount lost but the noble Lord will know that we are taking steps to avoid the diversion of profits through country-by-country reporting. This means that we tend to tax the activity in the country where it takes place—so, if the activity takes place in the UK, companies will be taxed in the UK. We have also introduced a diverted profit tax, so if people seek to divert their profits to another country, a higher rate of tax can then be paid. Therefore, we are taking measures to plug the loopholes that the noble Lord has identified.

Bank Recovery and Resolution Order 2016

Debate between Lord Young of Cookham and Lord Sharkey

Monday 12th December 2016 Grand Committee

[Lord Sharkey (LD)]

My Lords, I will address myself to the order that is 56 pages long. I agree with the points made by the noble Lord, Lord Tunnicliffe—and I thank him for sharing with me the letter of 24 November from the Minister—but unlike him I am not convinced that the order should progress as it stands. It was discussed in the Commons a week ago and there was concern there about Article 15.4, which amends Section 48Z of the Banking Act 2009. In particular there was concern about the insertion of new subsection 6(b). This subsection, as Lord Tunnicliffe has pointed out, would give wide, apparently unlimited discretion to the Bank or HMT to decide which instruments were to be bailed-in.

The 24 November letter addresses the question but does not seem to provide certainty. It simply notes:

“The exceptions in the amendment of section 48(z) will only apply to a narrow range of contracts where doing so would add to the authorities’ efforts to meet the special resolution objectives”.

The Minister repeated that earlier this afternoon. The Minister went on to say the following in his letter:

“The government will provide further guidance in Chapter 7 of the Special Resolution Regime Code of Practice on which type of contracts could include clauses that are activated by the use of a crisis prevention or management measure”.

This inevitably raises the question of why we are being asked to approve this order, or at least consider it here, without seeing the guidelines. Would not it be much more sensible to wait until we have the guidelines in front of us? They are the substance of this issue, and Parliament should have the opportunity to discuss them. Perhaps in the absence of them, the Minister can help us by characterising the type of contracts that will be affected.

Then there is the question of timing. When will the guidelines be published? If it is to be soon, why not withdraw parts of this order and re-present them with the guidelines? If it is not to be soon, does this not unnecessarily prolong market uncertainty?

There is another area in which further guidance is promised. The order provides the power for the Bank to resolve branches of third-country institutions operating in the United Kingdom independently of the third-country resolution authority. The Explanatory Memorandum to the order notes that respondents to the consultation were “broadly supportive” of this power, but some were concerned about the broad definition of the “business of the branch”. It goes on to say that further guidelines—again, guidelines—will be provided in the code on how the bank will judge whether,

“conditions for the use of these powers are satisfied for branches”.

Without these guidelines, this part of the order can only generate considerable uncertainty. Again, surely it would have been more sensible to debate the order with the guidelines. As things stand, Parliament is being asked to give the bank powers without having a clear view of how they will be exercised. The same questions of timing arise. If the guidelines are to be published soon, would not it be better to postpone discussion on parts of this order until they are published? If they are not to be published soon, does this not create unsatisfactory uncertainty in the market?

On the whole, I feel that the uncertainties generated by the absence of these two sets of guidelines make this order significantly flawed. It would be much better to withdraw it now and re-present it when we have the guidelines before us, or to withdraw Article 15 and Part 3 and re-present when the guidelines are available. I suggest that course of action to the Minister.

I have one final point. The order is very long. It is also very technical, as the Government explicitly acknowledged in the Commons. Consolidation would help Parliament to debate it more efficiently and to understand future references and amendments. In his 24 November letter, the Minister said that the Government have no plans to consolidate the legislation and points out that consolidated versions can be bought from commercial providers. The Explanatory Memorandum repeats that consolidated versions are commercially available but adds that,

“given the limited amount of Parliamentary time available, there are currently no plans to consolidate the legislation amended by this Order”.

Is there, in fact, a limited amount of parliamentary time available, in any non-trivial sense? The current schedules suggest not, at least not up until the end of March. In the interest of the sanity of current and future parliamentarians, will the Minister reconsider consolidation?

[Lord Young of Cookham]

My Lords, I am grateful to both noble Lords who have spoken in this debate. It is a complex subject and I am grateful for what the noble Lord, Lord Tunnicliffe, said about the meetings that we arranged. I certainly found that the learning curve in understanding this had a fairly steep gradient. I am also grateful for what the noble Lord said about officials at the Treasury and the Bank of England. To put the measure in context, the heavy lifting was done back in 2015 when the BRRD was transposed into legislation. Today, we are looking at relatively minor improvements to that broad structure in the light of a review that has taken place over the last two years. As I think I said, there has been broad approval for the proposals that we have in mind. I will go through the particular issues that the noble Lord raised, starting with the powers to suspend the board of directors. The position at the moment, as set out in the Explanatory Memorandum, is as follows:

“The Order also gives stand-alone powers to the PRA and the FCA to require the removal and replacement of directors and senior managers in accordance with Article 28 of the BRRD, and to appoint temporary managers in accordance with Article 29”.

So the regulators already have the power to undertake these early intervention measures. The stand-alone powers we are discussing this afternoon provide greater clarity on the scope of those powers.

As the noble Lord said, these are serious powers of intervention. He raised a number of questions about whether they would be exercised in a fair and proportionate manner. The new stand-alone early intervention powers are proposed with procedural safeguards for the firms, banks and individuals affected, and the powers may be exercised only if the conditions set out in Section 71D are satisfied. The PRA is required to give notice of its intentions to the firm, the directors and the senior executives who would be affected by the proposed use of these powers, and to give them time to make representations to the PRA. If, having considered any representations made to it, the PRA still decides to exercise these powers, the firm and any directors or senior executives affected have a right to have the decision reviewed by the Upper Tribunal, which will be completely independent of the regulators. The PRA’s general governance procedures should also ensure that these powers are exercised in a fair and proportionate manner.

In non-urgent cases, which in practice means in the vast majority of circumstances, decisions will be taken by the appropriate PRA decision-making committee, made up of at least three people. In urgent cases, if it is necessary to take a decision before a recommendation can be made to the appropriate decision-making committee, the PRA will require decisions to be made by at least two persons. In that case, the decision will be taken only if the two decision-makers are unanimous. At least one of the two individuals will not have been directly involved in establishing the evidence on which that decision is based.

Both the noble Lords, Lord Tunnicliffe and Lord Sharkey, raised issues about Article 15 and asked to which categories of contracts the amendment in Article 15 would apply. As I said when I introduced this debate, the amendment in Article 15 would apply only to a narrow range of contracts. To date, the Bank of England has identified two categories of contracts for which the amendment would be likely to apply. One category, mentioned by the noble Lord, Lord Tunnicliffe, is contractual bail-in instruments: debt instruments that qualify for the minimum requirement for own funds and eligible liabilities where the contract specifies that the instrument may be written down or converted to the extent required on the occurrence of a specified event, for example, when the bail-in tool is applied. I think that the noble Lord, Lord Tunnicliffe, accepted that that was a reasonable provision. With foreign law-governed debt instruments, it is necessary, for example, to ensure that the bail-in will take effect on a contractual basis because the application of the statutory bail-in power may not be enforceable on a cross-border basis.

The other category is certain service contracts specifying the terms on which services will continue to be provided following a resolution. These contracts therefore support operational continuity in an institution following resolution. Service contracts would also include certain contracts with financial market infrastructure, such as payment and settlement systems, where it is important to ensure that they continue to offer access to a firm after it has entered resolution.

Both noble Lords asked why Article 15 was not more specific about the categories. The answer is that resolution planning is an iterative process and banks are complex. It is possible that additional types of contracts could be identified at the advanced planning stage, where the Bank of England is preparing for the failure of a particular bank, so a broad formulation of the new power that Article 15 inserts into Section 48Z is appropriate.

--- Later in debate ---

[Lord Young of Cookham]

The noble Lord raises an important point, which I will of course pass on to the Bank of England. It is an independent body, but I am sure that it would like to respond to his point about updating the guidance, which, as he said, is now a little old.

Will the legislation be consolidated? Again, I am afraid, there is disappointing news. As a former Leader of the House, I can say that there was always enormous pressure on parliamentary counsel to draft legislation—it is a scarce commodity. Given the limited amount of parliamentary time available, there are currently no plans to consolidate the legislation. Stakeholders who are directly affected by the legislation and will therefore need a more granular understanding will be able to purchase consolidated versions of the legislation from commercial providers. In addition, HM Treasury’s special resolution regime code of practice will be updated to reflect the changes made by the order.

On the issue of third countries and the independent resolution powers, the powers that we are taking are in line with the Financial Stability Board’s “Key Attributes of Effective Resolution Regimes for Financial Institutions”. These key attributes recognise the need for resolution authorities to have, as a fallback option, the ability to take independent action with respect to local operations of foreign banks in certain circumstances, although, as I said at the beginning, every effort will be made for resolution by co-operation.

The noble Lord, Lord Sharkey, asked about the code of conduct. It will be published in the new year. I think that I covered the contracts under Article 15 in my introductory remarks.

The noble Lord, Lord Tunnicliffe, talked about the macroprudential issues and said that he would be happy to have a response to those in a letter, an offer that I gratefully accept. Now that the in-flight refuelling has arrived, I can say, on the macroprudential measures, that the FPC has included all previous recommendations and directions in the statements that follow its meetings. Implementation will depend on the specific direction and the regulators must consult on any rules that would implement these powers. The FPC may make recommendations regarding the timing of implementation. As I said when I introduced these instruments, we have already put on the statute book a similar regime for owner-occupiers, with whom I imagine the same sorts of issues have already arisen. Broadly, the same regime will apply for buy-to-let.

The noble Lord, Lord Tunnicliffe, asked about the cost. The cost reflects enhanced data collection, which is necessary for the regulators to monitor compliance with these powers and other prudential requirements.

I hope that I have covered most of the issues raised.

[Lord Sharkey]

When the Minister says that the guidelines on the definitions of the business of branches will be available in the new year, does he mean January or sometime in 2017? Also, I do not think that I heard him give a date for the guidelines for Article 15.

[Lord Young of Cookham]

At this stage I am not sure that I can take it any further than I did in my earlier remarks. However, I would like to make further inquiries and, if it is acceptable to the noble Lord, I will write to him when I have definitive information on those timelines.

High-Cost Credit and Debt Management

Debate between Lord Young of Cookham and Lord Sharkey

Monday 10th October 2016 Lords Chamber

[Lord Sharkey]

To ask Her Majesty’s Government what assessment they have made of the harm to consumers caused by unsolicited real-time promotion of high-cost credit and of debt management solutions.

[Lord Young of Cookham (Con)]

My Lords, the Government have transferred responsibility for the regulation of high-cost credit and debt management firms to the Financial Conduct Authority. This more robust regime is helping to protect consumers better. The Financial Conduct Authority is currently reviewing its consumer credit rules in relation to cold calling, particularly to high-cost credit and debt management, and expects to publish the outcome of the review by the end of the year.

[Lord Sharkey (LD)]

Cold calling is a huge problem. The FCA acknowledges that many of the 30 million cold calls selling fee-paying debt management services were misleading and damaging, and affect the most financially disadvantaged in our society. As the Minister said, the Government promised that the FCA’s review of cold calling will be published before the end of the year. Will the review look at why cold calling for mortgages has long been banned but not for high-cost credit or fee-paying debt management services?

[Lord Young of Cookham]

The answer to the last part of the noble Lord’s question is in relation to what happened with the introduction of the right to buy, back in the 1980s. There was some mis-selling by mortgage brokers, targeting council house tenants who had the benefit of a huge discount. They were not really interested in the creditworthiness of those people as mortgage borrowers and that is why that measure was introduced. On cold calling, the Government will introduce legislation through the Digital Economy Bill which will place, via the Information Commissioner, a statutory obligation on a code for cold calling. In this year’s Budget, additional provision was made to protect particularly vulnerable people from cold calling.