Draft Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019

Alison Thewliss Excerpts

Wednesday 20th February 2019 General Committees

[Alison Thewliss (Glasgow Central) (SNP)]

It is nice to see you in the Chair, Sir Henry, and to be with all my colleagues again as we hurtle towards Brexit. It is a joy.

I will pick up where my colleague on the Labour Front Bench, the hon. Member for Stalybridge and Hyde, left off: the consultation process is not clear. The draft explanatory memorandum to the draft instrument says:

“HM Treasury has not undertaken a consultation on the instrument, but has engaged with relevant stakeholders on its approach to Financial Services legislation under the EUWA—

EU withdrawal Act—

“including on this instrument”.

Does the Minister have a list of those he has consulted, and is he able to share it with the Committee? It would be useful to get an idea of just how broadly the Government have consulted, to see if anything has been missed or if there are other organisations that would have liked to contribute to the drafting of the instrument. Without a formal way for the Government to tell us those things, we have to take their word for it that it has been done as thoroughly as it could have been, as I have said before.

As the Minister probably expects—it is my usual refrain when more powers are moved to the FCA and the Treasury—it will be useful if he can tell us how many staff are involved in this and what the scrutiny mechanisms for MPs will be as we go forward. It is not really taking back control if we take powers back from ESMA and from the EU and hive them off to the FCA and to the Treasury, with MPs losing any kind of control over the process. That is not adequate at all.

According to the explanatory memorandum, first, changes for firms resulting from the UK PRIIPs KID regulation are expected to be minimal, and secondly, the UK regime will be operationally equivalent to the EU regime, so that firms manufacturing or advising on PRIIPS for sale to UK investors will continue to be subject to the same obligations as currently. The Government propose to achieve that by making minor, technical amendments to UK PRIIPs KID regulation to make it effective in the UK and to limit its scope to PRIIPs made available to UK retail investors.

However, there will be minor differences in the content of the KID between the two regimes. For example, the UK regulation specifies that references to the “competent authority” of the PRIIP manufacturer in the KID is deleted, and that the mandatory statement on the impact of tax legislation on the investor’s pay-out must specifically refer to UK legislation, as opposed to a more generic reference to the retail investor’s home member state. It also seems likely that the difference between the two regimes will widen with the passage of time after exit day. How does the Minister intend to continue alignment in the years ahead? Maybe there will be more clarity on that when the consultation comes back.

For that reason, it appears that, after Brexit, PRIIP manufacturers will need to prepare two KIDs for the same PRIIP where there that PRIIP is made available to retail investors in both the UK and the EU, which seems to me to be additional red tape. The Brexiteers railed against all this terrible red tape, but here we are tangling ourselves up in yet more of it. In some ways, it seems an overly onerous requirement for businesses. I am also worried about any dilution of measures designed to improve fair competition and consumer welfare.

It is ridiculous that the Government continue to play Brexit out and move us closer to the cliff edge, with the Prime Minister unable to give a date for when she will bring anything—in whatever form—back to the House. Meanwhile, we continue to plan for a no-deal Brexit, which seems to get closer to reality by the day. I urge the Minister to use what I am sure is his considerable influence in Government to act in the national interest and extend article 50 until more robust plans are in place.

[John Glen]

I thank the hon. Members for Stalybridge and Hyde and for Glasgow Central for their thorough examination of the matters. I will endeavour to give them a thorough response.

I acknowledge the concerns that both hon. Members expressed about the consultation or engagement process with industry. I cannot fortify the Committee with a list of individual companies that have been consulted, but it is worth explaining that engagement process.

Although we did not formally consult on the measures, we established a cross-sectoral working group with representatives from the financial services sector to discuss the European Union (Withdrawal) Act 2018 and financial services onshoring issues. That group is chaired by TheCityUK and has representation from several trade associations that cover different parts of the financial services sector across the United Kingdom. It also includes a number of law firms.

In the time I have been doing this job, my strong determination has been that TheCityUK is a highly respected trade association—it is really a trade association of trade associations—so is well placed to co-ordinate the group, given that its remit covers all sectors of the financial services and related professional services industry, including banking, insurance, asset management, legal services, advisory, market infrastructure, private equity and wealth management. We are confident that through that engagement through TheCityUK, we have reached all the major sectors of the financial services sector.

[Alison Thewliss]

The Government’s impact assessment says that

“between 3,000 and 4,000 PRIIP manufacturers (UK, EU and third country) operate in the UK on a regular basis”.

That is a considerable number. Is the Minister certain that they are well covered in the organisations that he mentioned?

[John Glen]

Yes I am. The green impact assessment, which was issued on 8 February, also identifies that the familiarisation costs will be £150 per firm and that there will be a range of costs between £510,000 and £680,000.

I concede that this is an unique exercise in preparation for an outcome that the Government do not wish to have, and I hope that it will not need to be used. We had to take a view, however, about how to do it efficiently in a relatively compressed time period and I am convinced that we have done the best that we could have done in the circumstances.

We have shared working drafts of the legislation as it has progressed to identify any unintended consequences and to help industry to understand how the sector would need to respond. We have published almost all our statutory instruments before they have been laid on a dedicated section of our website with contact details for stakeholders to contact us. I am not saying that it is perfect, but I draw the Committee’s attention to the remarks of Miles Celic from TheCityUK, who noted that there is an industry-wide recognition that all parties—industry, Government and regulators—are operating in an uncertain and time-constrained environment where doing nothing is simply not a feasible option, and that these are exceptional circumstances that require a unique response.

On some of the other points, there was sensitivity about the transfer of functions to the FCA. As the national competent authority, the FCA has been instrumental in making strong representations on PRIIPs. It formally rejected the early iterations and delayed the implementation of the first draft that came out in 2016, so it was implemented on 1 January 2018. I set that out in detail to the Front-Bench colleague of the hon. Member for Stalybridge and Hyde. Frankly, the FCA is capable, as it is now doing, of responding to last year’s call for evidence, looking into the key concern of the industry around the methodology for calculating the information displayed in a KID—particularly relating to performance information and risk estimation, as well as transaction costs—and coming forward with suggested changes.

On the hon. Gentleman’s point on equivalence and the appropriateness of the changes to the Financial Services and Markets Act, in a situation in which we leave the EU without a deal, we cannot favour EEA countries of the basis of our close proximity. We will have to treat all third countries the same way. The hon. Lady’s point on the need to resist duplicate but different regulatory requirements is wise. Whatever happens, it is my determination to try to avoid that, because the common framework that exists in this area holds a lot of value for the industry.

I also point out that EU national competent authorities collaborated fully in the construction of these regulations, and the FCA was one of the leaders in that. Any amendments to fix the exit deficiencies would have to be made known to the Treasury, and any new binding technical standards derived from this ongoing review will also have to come from the Treasury and will have to be laid under the affirmative procedure.[Official Report, 18 March 2019, vol. 656, c. 4MC.]

I think I have covered most of the other points made. The FCA’s resources have been covered in previous Committees, but for the record the FCA set out in its 2018-19 business plan the proportion of its resources to be used for forthcoming exit work. As of December 2018, it has 158 full-time employees working on Brexit. I cannot break that down, because I do not think that the FCA has, but that is a significant increase from 28 nine months earlier. It will bring forward a new plan in 2019-20.