Financial Services (Implementation of Legislation) Bill [Lords]

Alison Thewliss Excerpts

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 11th February 2019 Commons Chamber

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to be in the big room today, rather than up in a small Committee Room, debating these important issues of financial regulation.

I would like to correct the Financial Secretary slightly. He mentioned lots of cities but not my home city of Glasgow and its contribution to financial services. It was a shocking omission, not least because I am sitting across from him and because of its importance to Glasgow and to Scotland. Scotland’s financial sector outstripped London’s last year when it came to jobs growth. It grew by 6.6%, to 161,000 employees in Scotland. Many of my constituents, as well as others across Scotland, rely on the sector for their jobs and businesses, as do many secondary businesses.

The financial sector is also important because of the increased tax base it brings to Scotland. All citizens in Scotland benefit from the funding for public services to which the financial services sector contributes. It makes up 8.9% of the Scottish economy and provides a crucial source of funding for schools, hospitals and local government. It is vital that the sector is allowed to continue to flourish and that the appropriate regulatory safeguards are upheld to ensure we do not see a repeat of the 2008 financial collapse.

It is important to understand the context in which the Bill is operating. The in-flight legislation is part of regulatory reform that resulted from the 2008 crisis and its purpose is to prevent history from repeating itself. We in the SNP cannot allow any watering down of regulation as a result of Brexit, and I am concerned that the Bill may be too broad and sweeping and could leave gaps that could be exploited by those who wish to do so.

I appreciate that we are, in effect, doomsday planning here this afternoon in the event of a no-deal Brexit but, as we see with the continuing chaos in the UK Government, that doomsday clock is getting a good deal closer to midnight every day. Applying rushed legislation to a bad scenario will not help matters. We need to get this right and, if there is not time to get it right, the Government must face the reality of the situation we face. It is within their power to avoid a no-deal Brexit by extending article 50 and ruling out a no-deal Brexit until adequate protection is in place.

There is a good deal of vagueness in the Bill—this point was made in the Lords and has been made again today—because it grants UK Government Ministers worryingly wide scope to legislate. Clause 1(1)(a) grants the Treasury the power to make provisions “corresponding, or similar, to” provisions in EU financial services legislation. Which is it—is it corresponding or similar to? The phrasing leaves space for policy changes beyond the scope of what secondary legislation should be able to do.

Clause 1(1)(b) gives the Treasury powers to make adjustments to the specified legislation it considers appropriate. What criteria are being used to scrutinise and judge the appropriateness of a policy? The wording also leaves the door open for unscrutinised discretion on the part of Ministers and organisations that they may delegate these powers to. The standard is not good enough, given the importance and impact of the Bill and what it is trying to achieve.

The Bill gives Ministers wide latitude to make policy changes using delegated legislation. That conflicts with the position laid out in the EU withdrawal Act, which prohibits such changes because they greatly reduce the opportunity for Parliament to scrutinise policy. The Government have acknowledged that passing legislation without a substantive debate in Parliament is undesirable. We cannot allow this to slip past.

There is a legitimate concern that the Bill leaves scope for regulators to diverge from European technical standards, which could ultimately contribute to the undermining of the EU principle of equivalence. Many businesses rely on meeting these requirements to access EU markets. The Financial Markets Law Committee has raised that issue directly with the Treasury, along with wider concerns about the potential market uncertainty caused by the unreliable nature of British technical standards as a result of this legislation. The Treasury has attempted to address some of those concerns in its policy note, which outlined the safeguarding mechanisms for the Bill, but sadly those still fall woefully short of what is expected.

Subjecting SIs to the affirmative resolution procedure is no substitute for bringing primary legislation before Parliament because there is no scope to amend them. The Treasury has also committed to engaging with key stakeholders, but, as the Opposition spokesperson mentioned, if previous efforts are anything to go by, this is not reassuring. We have all sat in Delegated Legislation Committees where it feels like the only stakeholder engagement is asking the opinion of a select few. We cannot ignore the needs of businesses and the wider public at such a precarious time.

More care should be taken to gather the experiences of the business community and the wider population before making decisions that could impact on them. It has been difficult throughout this process to gather evidence because statutory instrument Committees cannot take evidence, and we will not be taking evidence on the Bill either, meaning that we will lack the ability to scrutinise this in many different respects.

It has been said many times inside and outside the House that leaving the EU is the will of the people. That is definitely not the case in my constituency or the rest of Scotland, which voted 62% to remain, but even if it were, I would find it difficult to accept that people who voted for Brexit want this—there are gey few Brexiteers here today trying to defend this policy. Tory Ministers are being given unfettered power to legislate with no parliamentary scrutiny, which is way outside any mandate the Government feign to have.

The Bill makes a mockery of the leave campaign promises of taking back control, because this Parliament and each of us as MPs will have less control than we had before. It allows for the creation of new laws via statutory instruments, but these will be adjusting or augmenting primary legislation passed not by this House but by the institutions of the EU. The Chair of the Treasury Committee made an excellent point in her letter about the measures in the Bill that will allow the Government to choose to implement only those EU files, or parts of those files, that they deem beneficial to the UK and to make adjustments to legislation to fix deficiencies and take account of the UK’s new position outside the EU. That sounds like a policy choice—choosing to implement only those files, or parts of files, deemed beneficial to the UK. It would involve the Government deciding which files are beneficial to the UK and so allow them to do what they said they would not do.

After Brexit, the UK Government will have no seat at the European table, as these in-flight directives proceed, on issues that will impact on businesses across these islands. Weirdly, we are delegating scrutiny of these policies to the EU when we are not going to be members any longer. We have heard in Delegated Legislation Committees about how the UK is a great leader in financial services with great expertise, and we have heard how influential and involved our officials have been in making regulations for financial services—the Economic Secretary referred to this in his letter—but this influence is being chucked away for glib slogans on the side of a bus.

We will be losing influence on matters that will disproportionately affect financial services in this country, adopting legislation from another jurisdiction that we have chosen actively not to be a part of and then leaving it up to the Treasury to decide what we take and what we leave, and perhaps not even the Treasury—perhaps the Financial Conduct Authority or some other organisation whose work we are even less able to scrutinise. It is completely unacceptable, and I see no Brexiteers here willing to defend it—not one bit of it. Where are they now?



The UK Parliament, and our own elected representatives in this place, will not have a say in the detail. We are passing into the hands of Treasury officials the ability to determine the position at some point in the next two years. If we want to continue to operate in the EU market, we will have to comply with those rules. Nothing, absolutely nothing, that we introduce—deal or no deal—will be as good, as seamless and as hassle-free as the passporting deal that financial services have now, while the UK is a full member state of the EU. The Treasury cannot deny that fact.

Scotland has worked hard to get to where we are now. In Edinburgh, in Glasgow and in places throughout Scotland, financial services firms are working hard, investing and doing so much to promote their talents. There is no doubt in my mind, and in the minds of the hundreds of constituents who have emailed me, of their concerns about Brexit. They believe that things would be better all round if the Government acted in the best interests of the country, and revoked article 50.

I strongly agree with the hon. Member for Stalybridge and Hyde (Jonathan Reynolds). The principled position is to oppose the Bill. The Government are taking plenty of powers unto themselves, which is outrageous in the context of “taking back control” and all the other glib utterances that we heard at the time of the EU referendum. They say, “Just trust us, and it will be fine.” I am sure I can trust them, and perhaps it will be fine, but we cannot be assured of that. We should not give up our own role as Members of Parliament, which is to scrutinise all these matters.

--- Later in debate ---

[John Glen]

I am happy to respond to my hon. Friend’s intervention. I acknowledge his expertise in this area and his excellent article in the Investors Chronicle this week. I would point out that, just last summer, the FCA issued a call for input and sought industry views on the next steps for packaged retail investment and insurance products—PRIIPs. That consultation closed on 28 September and the FCA is reviewing the responses carefully. It will publish a statement in the first quarter of this year. When I next see the chief executive of the FCA, I will challenge him on that publication date.

Let me turn to the substantive thrust of the concerns raised in the debate. The first relates to the desirability of no deal. As I have said, we do not want a no-deal scenario, but we need to be responsible and to plan for all eventualities. Our priority remains getting approval for the deal that we have negotiated with our European partners, which will deliver on the democratic choice of the British people.

Turning to the other preparations, we have now laid 50 statutory instruments before Parliament. The allegation from the hon. Members for Oxford East (Anneliese Dodds) and for Stalybridge and Hyde (Jonathan Reynolds) was that there had been no coherence to the Government’s work, but as the hon. Lady will know, we will have had 53 statutory instruments. We have more debates tomorrow and on Wednesday, and I think several more next week. We are addressing the deficiencies in all the major EU files and the relevant domestic legislation. This will ensure that we have a functioning financial services regime at the point where we leave the EU in a no-deal scenario. Our aim throughout this work has been consistently to minimise disruption for firms and their customers and to provide a smooth transition when we leave the EU.

The hon. Member for Glasgow Central (Alison Thewliss) made a point about the breadth of the power in this legislation. We have worked hard to ensure that this is a clearly defined power and that changes cannot be made such that the implemented files depart in a major way from the original legislation. However, the Government will retain some flexibility to make adjustments to take account of the UK’s new position outside the European Union. The amendments proposed by the Government require the Treasury to publish draft SIs at least one month in advance of laying, as well as a report detailing where there have been omissions and changes and giving the justification for those changes. We believe that the report will allow parliamentarians to scrutinise the changes before the SIs are laid. If the UK were forced to take on EU legislation either in whole or not at all, it is likely that we would be able to domesticate very few of these files in good time, so even the positive aspects of the reforms would be delayed. This is a pragmatic measure to deal with the reality of a very undesirable situation, and our approach has been endorsed by the industry, with which we have engaged in the preparation of the Bill.

[Alison Thewliss]

The Minister talks in his letter about how things are deemed to be beneficial for the UK, but he and I will have very different opinions on what would be beneficial for the UK, or indeed on whether Scotland should be part of the UK, so how can he say that that is not a policy decision?

[John Glen]

We are talking about a no-deal scenario, which we cannot fully anticipate or set out in legislation. However, there would be a full discussion and additional legislation in those circumstances.

For the benefit of the House, I want to clarify the industry engagement that has been undertaken on this Bill. The Treasury engaged with industry ahead of the introduction of the Bill, and the financial services industry has been expecting many of the files for some time. For example, the industry will be generally supportive of the changes that will be implemented with the European market infrastructure regulation regulatory fitness and performance programme—EMIR REFIT—file, which introduces changes to regulations for clearing and reporting requirements, to make them more proportionate and to provide further clarifications. We have been engaging to deliver what the industry expects.

With respect to accepting EU laws after exit, the Bill is not about accepting such laws wholesale. We will be able to implement only those pieces of legislation that are beneficial to the UK, because we will be able to choose the files, or specific provisions within those files, that we are going to implement. For those files that we have already agreed at EU level but not yet implemented, we will be able to fix deficiencies similar to what was done in relation to the European Union (Withdrawal) Act 2018. For those files on which negotiations will be ongoing at the point of exit, we will be able to make some adjustments to them to take account of the fact that we will not be around the negotiating table when they will be finalised.

Moving on to the model for financial services regulation more generally, the Government of course recognise that this legislation should apply only for an interim period while we consider a sustainable, longer-term approach that balances the need to ensure appropriate parliamentary oversight of financial services legislation after leaving the EU with the need to maintain the flexibility and competitiveness of our regulatory regime. That is why the model in the Bill would apply only for a temporary, non-extendable two-year period post exit, specifically in a no-deal scenario, and to specified EU files only. The Government will take forward our approach for a sustainable long-term model in due course.

Turning to the points made by the hon. Member for Wakefield, the UK has publicly led on the development of sustainable finance, as she set out, and the Government are committed to the sustainable finance agenda and are a leader in green finance. That is why we have included these files in the Bill. We recognise that the files form part of the EU’s response to the Paris climate change agreement and the UN sustainable development goals. The Government support the aims of the files and do not consider them harmful to industry at their current stage of development. As such, we were pleased to add them to the schedule to the Bill, and we thank the noble Lords who recommended their inclusion.

I stress again that this legislation involves a temporary measure, with the delegated power limited by a two-year sunset clause and subject to the affirmative procedure in each and every instance of its use. Following constructive engagement in the other place, the Bill is clearer about the power contained within it and has much stronger reporting requirements than at its introduction.

I thank all right hon. and hon. Members for their contributions to this debate. I am sure that we can agree on the importance of continuing to support the UK’s world-leading financial services industry in any future scenario. I look forward to discussing the Bill further in Committee, and I commend it to the House.

Question put, That the Bill be now read a Second time.