Draft Central Counterparties (amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018

Alison Thewliss Excerpts

Monday 5th November 2018 General Committees

[Alison Thewliss (Glasgow Central) (SNP)]

It is a joy to be here with everyone again this afternoon.

I echo the comments of the hon. Member for Oxford East about the whole process and about the way in which the measure is being scrutinised. I too have huge concerns about how close we are to the point of Brexit, which is 144 days today—not very much time at all. It is quite worrying to hear that the Bank of England is only now consulting, with 144 days to go; that seems a little late in the day, considering how far we now are from the point of the vote.

There are still many, many more SIs to come before us in this time and I am concerned about the burden that puts upon everybody—on financial firms, on Government, and on the Bank of England and other institutions—when they could be doing far better things with their time. They could be regulating and reforming the financial services sector, trying 10 years after the crash to fix the problems that we have not yet fully repaired. Instead, all we are doing is copying and pasting, and spending a huge amount of time and effort doing these things when we could be doing something far more useful.

I remind Members that Scotland did not vote for this. Scotland voted to remain by a considerable margin, and we would very much like to remain in the EU single market and customs union as the best worst option, as it seems to be the only mechanism by which the financial sector would be able to continue with market access and with the connected jobs investment. That would be the greatest means of reducing the risk of Brexit.

I remain concerned about the lack of certainty, and I am not the only one. Mark Carney has also been clear that there is not a great deal of certainty about the relationship between the EU and the UK over future derivative trading. In June, on the publication of the Bank of England’s financial stability report, Bloomberg reported:

“Firms may find themselves unable to service insurance policies and as much as 96 trillion pounds…of cleared and uncleared derivatives contracts”.

That is deeply worrying, and I would be grateful if the Minister gave us an update on what is being worked on with the EU in that respect. The temporary recognition regime relies on co-operation with the EU, with the EU making good on its side of the bargain. The Government’s own Brexit paper states that

“without EU action, EEA clearing members and trading venues will no longer be able to use UK CCPs to provide their clearing services. In addition, EEA customers could no longer meet the requirement to centrally clear for some products that are in scope of the clearing obligation by clearing through UK CCPs, such as interest rate swaps.”

That is from the UK’s own no-deal Brexit publication, and it remains very worrying that that is the case.

I am also concerned, as I have previously mentioned, that we are burdening the Bank of England with an extra layer of responsibility in addition to the regulatory responsibility in the other SIs—we saw the huge list of responsibilities in a previous SI Committee. I seek further reassurance that the Bank of England has not just the skills but the staff it requires to meet the obligations, to ensure that the resources are in place in good time and that everything runs smoothly. There would be nothing worse than having the regulations and no one to enforce them. That would be a huge concern.

I note that regulation 26 states:

“The Bank of England may require central counterparties to pay fees in connection with the discharge of any of its functions under this Part.”

I would be interested to know what the scale of fees might be and whether they could lead to a lessening of competition or to further barriers to markets as we leave the EU—perhaps we will become a less desirable place to do financial services. Putting an additional financial burden upon firms as a result of the Bank of England fees could create a serious problem. I wonder whether the fees are to meet the cost of the extra staff and legislation, and everything else that is being done, and I seek clarification on that.

Finally, paragraph 17 of the impact assessment states:

“Transitional relief could be granted to particular firms, classes of firms, or to all firms to which a particular onshoring charge applies, including firms that are entered into one of the transitional regimes referred to above. Firms would not need to apply for transitional relief…regulators will issue ‘directions’… It will be within the regulators’ ‘discretion’ as to how to exercise this power.”

I seek clarification on that; it sounds a little woolly.

I am concerned about enforcement. If there are many other things to do, will that aspect of enforcement and regulation go by the wayside and we will let firms get on with it? We need to be robust and to ensure that when things move over, regulation and enforcement move along with them, so we do not end up as we did with the crash, due to light-touch regulation. We cannot use Brexit as a means of moving away from the regulations that the financial services sector needs to have in place.

We need more clarity about the detailed points that the hon. Member for Oxford East and I have raised, and the concerns of Members in the Lords. It is a matter of concern that such measures come along with great regularity, with huge questions being unasked, and with little underlying scrutiny.

--- Later in debate ---

[John Glen]

To be honest, I will have to write to the hon. Lady to clarify that detail. The essential point is that the statutory instrument is for a no-deal scenario; if we get a deal, we will not need the SI because we will be in a close working partnership and we will have the implementation period. I will need to write to her about the precise mechanism that we would use to get rid of the SI or withdraw its provisions, but that is my attempt to answer her six questions.

The hon. Member for Glasgow Central asked about fees and, quite reasonably, echoed a number of other points. There has been dialogue with the industry on the fees, which will be proportionate to the process that the Bank of England will need to go through. In practice, these firms do not exist in massive numbers. I cannot give her the cost in pounds and pence, but it will be aligned to industry expectations and will not impede the choice to register.

[Alison Thewliss]

Can the Minister give any indication whether the fees will start straight away, or be phased in over a longer period?

[John Glen]

On the fees that will be necessary to go through the process of authorisation with the Bank of England, it would be best if I wrote to the hon. Lady to give clarity on how they will be applied.

I have had conversations with the relevant people in the Bank of England and am confident that it is making adequate preparations and effectively allocating resources ahead of March 2019. As demonstrated by the letters published in December 2017 and in March and October this year, the Bank will continue to work closely with CCPs to provide guidance on applications with a view to making the process run as smoothly as possible.

The hon. Lady made a wider point about resourcing and skills. I have checked the position, after previous debates in which the right hon. Member for North Durham made similar reasonable points, and there is provision for regulators to extend their resources if required.

I hope that I have adequately responded to points raised, that the Committee has found this afternoon’s sitting informative, and that it will join me in supporting the draft regulations.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018.