Draft Financial Regulators' Powers (Technical Standards Etc.) (Amendment Etc.) (EU Exit) Regulations 2018

Alison Thewliss Excerpts

Wednesday 10th October 2018 General Committees

[Alison Thewliss (Glasgow Central) (SNP)]

I will not go into the same level of detail as the hon. Member for Basildon and Billericay, but I will touch briefly on some of the issues behind the draft regulations. As far as the Scottish National party is concerned, neither the draft regulations nor the way Brexit is proceeding should mark the end of cross-channel co-operation on financial regulatory enforcement. As was said, we are 10 years on from the financial crash. Some of the issues that came out of that crash have not, for us, entirely been resolved yet. My great fear relates to some of the chat that is around about Brexit being a means of deregulation, and of watering down very important financial regulations that came about through the EU.

The hon. Member for Oxford East talked in some technical detail about how we got to this point and how the regulations were formed. We are passing a lot of the regulations straight from one unaccountable body, as the Brexiteers would have it, to other unaccountable bodies—the FCA and others—with very little scrutiny from Parliament, now or in future. There is no detail on how Parliament will have any control over them.

Regulation 10 of the statutory instrument states:

“A standards instrument may be made only if it has been approved by the Treasury”,

and there are two conditions on which the Treasury may refuse to approve a standard. The first is if it would have “implications for public funds”. Perhaps the Minister will give more detail on that, but it seems to be pretty political. The other is if it would

“prejudice any current or proposed negotiations for an international agreement between the United Kingdom and one or more other countries, international organisations or institutions.”

Again, that is more of a political thing; it is entirely in the hands of the Treasury to approve or not approve it. It worries me that some of the regulations may be watered down in order to get those trade deals—that the very high standards that we have managed to achieve through the EU could be watered down at the expense of trade deal with countries that are not quite as well developed in their regulations, or that have a different regulatory approach from ours.

I echo the points made by the hon. Member for Oxford East about capacity and timescale. To break down the long list of regulations that will be transferred over, the FCA gets 77, the Prudential Regulation Authority gets 26 in its own right and the Bank of England gets 20, but jointly, the PRA and FCA together get 51, and the FCA and the Bank of England get 10 together. The Payment Systems Regulator gets only one to look at, so it will probably be okay, but who knows?

I am not clear whether the communication lines for joint co-operation exist already in each of the 61 areas in which co-ordination is proposed, or whether they are yet to be set up. Are the mechanisms in place for that co-ordination and co-operation? That needs to be done correctly. The lines of communication need to be open and well understood. Mechanisms may well need to be in place, so if the Minister has any more detail on how those mechanisms will operate, that would be useful and reassuring.

There has been a lot of chat about how the City of London will be affected. The BBC quoted the Minister on the Bank of England estimate that 5,000 jobs will be lost in the City. That figure does not appear to be in dispute, and he does not appear to be greatly worried about that. I am deeply worried about it, because there are implications beyond the City: Glasgow has a financial sector that employs around 30,000 people. Our financial services district has grown immensely over the past decade; Barclays has invested in the River Clyde site. We have the biggest insurance centre outside London, which goes back to the 1700s and employs around 8,500 people. They need to know about the regulations and how they will be affected.

In Edinburgh, around 40,000 people are employed in the financial sector, with more than 30 banks having operations there, and three of the UK’s leading insurance companies having their headquarters there. This is not just a City of London debate; it profoundly affects Scotland. I am interested to know what discussions the Minister has had with his counterparts in Holyrood about the risks—or opportunities, if that is what he feels there will be—for Scotland in all this.

For us, it is a retrograde step to lose the European Banking Authority; we have lost the influence that helped us to set up a lot of the rules. The explanatory memorandum stresses that

“UK regulators have the necessary expertise and resource”

to maintain them, because we were part of setting up a lot of the rules and regulations. We are losing not only involvement but influence in that. The EU will continue to make its own rules, create directives, and collaborate and co-operate. We will be playing catch-up with that if we still want to have any engagement with it. We will continue to be rule takers, rather than rule makers. We are losing out because of Brexit, and will lack influence thereafter, which is hugely frustrating. I deeply regret that Scotland is being shackled to that because we are not independent. We would be part of the EU, and want to have a part in all this. We would not want to turn our back on the co-operation that has been so good for the Scottish economy.

I seek reassurances from the Minister, because I am deeply worried about that loss of influence and what it will mean for jobs in my constituency and Scotland. I am deeply worried about the watering down of regulation after Brexit and the overall loss of control from this place that we will see. If only a limited amount rests in the hands of Treasury Ministers, and all this goes to the FCA and other institutions that we do not have direct control over, we will lose any influence that we might have, and the system that we might want to set up. We will face the economic issues that we had in 2008 if we cannot be assured that we have the control, and the tight and robust regime, that will protect us all.

--- Later in debate ---

[Mr Jones]

So basically the Minister is saying, “Take ‘EU’ out and stick ‘UK’ in.” If that is the case—

[Alison Thewliss]

What is the point?

[Mr Jones]

That says a lot about a lot of these things. As this SI goes through, therefore, have those various bodies that will get these powers got the necessary technical expertise to be able to determine that, or is that a Treasury decision?

[John Glen]

They have been given the responsibility where their technical expertise is formed and known, and where their role currently is to deal with this stuff. It is not exclusively about a language change, but I am just trying to give an indication of the lack of policy innovation that is going on here.

[Alison Thewliss]

Will the Minister give way?

[John Glen]

I was trying to bring clarity, but I seem to have done the opposite. I am happy to give way.

[Alison Thewliss]

Let us see if we can get some clarity. The Minister is saying that recommendations will be made by the regulatory authorities to him as the Treasury Minister, but he can overrule that, if that will cost him money or it will cost him in a trade deal.

[John Glen]

Where there are deficiency fixes that the regulator has proposed, they will be subject to approval, but I will be scrutinisable on those decisions, through Select Committees and the normal mechanisms of Parliament.

--- Later in debate ---

[John Glen]

The purpose of this process and this statutory instrument is to provide the framework to onshore the binding technical standards that are needed. Turning to my hon. Friend’s point, I will ensure that the FCA is aware of the issues that have been raised—I am sure it already is. I am told that this summer, it launched a call for input to seek feedback for consumers and firms, which closed on 20 September. Next time I see Andrew Bailey—I see him regularly; I saw him just last week—I will ask him to consider that.

I will come on to the other points and the broader principles. Some of the considerations about where we will be in the future are subject to the deal that we end up with. Again, I do not want to be drawn into hypotheticals at this point. I will come back to my hon. Friend’s point in a minute.

The hon. Member for Oxford East raised a number of other issues about resourcing. The right hon. Member for North Durham also raised this, in terms of the regulators having enough resource. In my travels to Indonesia, Malaysia and Japan over the summer, I have seen that UK regulators are highly regarded and among the most important and most respected in the world. They have the resource and expertise, and the Government are confident that they are ready and able to do what has been asked of them. The hon. Member for Glasgow Central was also concerned about this point. I have had no indications from my conversations with the PSR, the PRA or the FCA that there is a resourcing issue. If that changes, I am sure they will be very keen to come and talk to me about it.

[Alison Thewliss]

Nobody is questioning their expertise. The concern is more about whether we have enough people with the expertise. What assessment has the Minister done of that?

[John Glen]

Given the relationship that the Treasury has with the different regulators, it is for them to raise concerns with me with respect to the resourcing. All parties are intimately involved in a dialogue around the construction of the process. It is not done unto them by me or the Treasury. In terms of the adequacy of the resources, at the moment I have no concerns about that—it is matter that they would need to raise with me.