Draft Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018 Draft Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018

Alison Thewliss Excerpts

Tuesday 13th November 2018 General Committees

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to join you and everyone else in the Committee today, Mr Hanson.

I reiterate the concerns expressed by the hon. Member for Stalybridge and Hyde about this process and the necessity for it. From the Scottish National party’s point of view, whatever processes and procedures we put in place, all of these regulations will fall woefully short of what we have at the moment as a member of the European Union and the customs union. The Government cannot hide from this: regardless of what deal comes back, it will not be as good, effective or efficient as the system we have at the moment as a full member state. However the Government try to dance around that, it is the reality.

I appreciate what the Minister said in his statement this morning, but there is still an awful lot of uncertainty around this issue. Membership of SEPA is not a done deal and we will not know for some time when it will be a done deal. It would be incredibly useful if the Minister elaborated on the timescale, because we do not even fully know what it will look like to be an adjunct or extra member of this scheme. The reality is that we will have to continue to align with the scheme. We will be a rule taker, accepting all that comes as part of being an additional member of SEPA, without having much influence over how its rules work and how they affect us.

That is detrimental not only for financial services, but for consumers, who have seen the huge benefits of being able to make transactions in euros easily and efficiently, almost without thinking about it. We all see that when we go abroad on holiday and use our credit card or whatever else. We no longer have to have travellers cheques and things are no longer difficult when we go away. Financial transactions have become something that we do not need to think about, because they happen so easily and quickly, whether online or in person. That has been a huge benefit of being in the European Union. I do not think we have talked enough in the debate on the EU referendum about the simplicity that this has brought to people. They no longer need to think about these technical matters—these things just happen.

In moving out of the regime, we will have to set things up ourselves. The Minister mentioned that the FCA will take on some of the financial regulatory framework and standards, and that HM Treasury will take on other matters to do with credit transfers. Again, that creates further burdens on Government, such as the costs of setting up the regimes and ensuring, as I have mentioned previously, that we have the necessary staff, expertise and continuing engagement with the SEPA regime to ensure that we are not caught out if something else changes that we are not involved in setting up. We will have to take whatever comes, or we will risk falling out of the system altogether.

The Minister mentioned that we could offer to share our information on a discretionary basis. Is the reverse also true? Will the regimes under SEPA engage with us on the same basis? We do not know that yet. I ask the Minister to clarify that. It is all very well saying, “We will do our bit and we will help,” but if there is no reciprocal arrangement, it is pretty much worthless.

Finally, it would be worthwhile if the Minister outlined clearly the full implications of not being in SEPA. Will it mean, in a no-deal scenario, that transactions will cease? That would have a detrimental impact across all industries and areas. We have to know absolutely clearly what the implications are of no deal and not getting some kind of membership arrangement with SEPA, because if we do not have that, the impact on our economy will be hugely detrimental. We need to know what kind of catastrophe we may face.

[John Glen]

I will respond to the substantive points raised by the hon. Members for Stalybridge and Hyde and for Glasgow Central. First, I remind the Committee that these statutory instruments are needed to ensure that the regulatory regime that applies to payment institutions, electronic money institutions and account information service providers works effectively if the UK leaves the EU without a deal or an implementation period, and to maximise the prospects of the UK maintaining participation in SEPA.

The hon. Member for Stalybridge and Hyde spoke about the undesirability of this process. I acknowledge that going through 30 or so debates in this place is an interesting experience, but we are doing it to ensure that, in the unlikely scenario of no deal, we have a comprehensive regime in place.

On the overall situation with financial services, the negotiations are ongoing. I acknowledge the speculation over whether we have reached a deal. I am not able to confirm anything, but we are seeking to establish a strong bilateral relationship with EU regulators to fully mitigate the risks of being subject to equivalence decisions that are, at the moment, inadequate. I cannot comment further on that, nor on the progress on the deal as a whole. Members will appreciate that, as a relatively junior Minister at the Treasury, I am not privy to that information.

I can comment on some meaningful points. Concerns were raised about changes to consumer safeguarding as a result of the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations. The Payment Services Regulations 2017 require that payment and electronic money institutions safeguard consumer funds to protect consumers in the event of an institution becoming insolvent. The most prevalent method used to safeguard funds is for the firm to hold them in a segregated account with a credit institution. A significant number of UK firms hold safeguarding accounts in the rest of the EU, and they will still be able to do so once the statutory instrument comes into force. They will also have the option of using safeguarding accounts based elsewhere in the world, subject to adequate guarantees of consumer protection. That is in line with existing practices for protecting client assets in investments.

On the consultation undertaken, the hon. Member for Stalybridge and Hyde quite reasonably said that the usual process has been somewhat truncated. None the less, the draft regulations were published on 5 September and laid on 9 October. Consultation took place with key lobby groups in the industry, in particular UK Finance. We held a series of bilateral conversations with banks, FinTechs, payment providers such as PayPal and lawyers to verify the credibility of the statutory instruments. Although we have not undertaken a formal consultation on the statutory instruments, we have submitted them for approval in terms of the impact assessment and we expect that to come through imminently—next week, I hope.

I was asked about the impacts if the UK loses access to SEPA. SEPA enables efficient, low-cost euro payments to be made across participants. If, as expected, the UK secures a withdrawal agreement from the EU, EU law will be applicable in the UK during the implementation period and the UK will automatically remain within the geographical scope of SEPA. The Government’s approach to onshoring legislation is designed to maximise the prospects of the UK maintaining participation in SEPA in a no-deal scenario.

On the determination of the application to SEPA, which was raised by the hon. Member for Glasgow Central, UK Finance has made an application. Applications from non-EEA countries are determined by the European Payments Council, which is an international not-for-profit association; it is not part of the EU institutional framework. I cannot give the hon. Lady a categorical assurance over the timetable, because it is a matter for the EPC. UK Finance is in dialogue with it and has made the necessary provisions to do that in a timely way.

The hon. Lady also raised the impact of the UK losing access to SEPA. I think I have covered that.

[Alison Thewliss]

No, you have said what the impacts are if we stay in.

[John Glen]

I am sorry: what are the impacts if the UK loses access to SEPA? In the unlikely scenario that the UK does not maintain participation in SEPA, UK consumers could face higher transaction costs and longer transaction times when making euro payments. That is precisely why we are making these provisions and I am happy to concede that. That is what underpins the whole of this legislative effort through statutory instruments.

The hon. Member for Stalybridge and Hyde asked why safeguarding goes beyond the EEA. In order to protect consumer interests, we wanted to make it possible for firms to use as wide a range of safeguarding accounts as possible. Restricting them only to UK accounts could place a burden on firms and restricting them only to EEA accounts would not be legally viable under World Trade Organisation rules on a most favoured nation status.

I hope that I have answered all the questions that were raised. There are two more, possibly. The hon. Member for Glasgow Central asked if the EU will engage with UK authorities on the same information sharing basis. Obviously, that is ultimately a matter for the EU and will be determined by EU law after we leave, but we hope that the UK authorities and the EU authorities maintain a constructive working relationship. Having visited two EU countries last week, I think there is a lot of good will towards the maintenance of that relationship, and that underpins our approach to the negotiations.

We should not assume that in a no-deal scenario there would be outright hostility to the UK; we hope we would be able to manage that. [Interruption.] I am seeking to be as constructive and reasonable as possible. I do not mean to be flippant about it. We are doing everything that we can to ensure that those relationships are as strong as possible. Throughout the last 40 years, we have played a leading role in influencing the regulation of financial services and many are uncomfortable with us leaving, but that means that the dialogue can still be very constructive in terms of our influencing future regulation.

Finally, the hon. Member for Stalybridge and Hyde asked about the prioritisation of the SEPA measure. It is a priority, as part of the Government’s approach to onshoring legislation. It is designed to maximise the prospects of the UK maintaining participation in SEPA. We are having a complex series of engagements in these Committees, but I am reassured that we have had a full discussion. I hope that the Committee is reassured and has found the sitting informative, and that we will now be able to support the regulations.

Question put and agreed to.

DRAFT ELECTRONIC MONEY, PAYMENT SERVICES AND PAYMENT SYSTEMS (AMENDMENT AND TRANSITIONAL PROVISIONS) (EU EXIT) REGULATIONS 2018

Resolved,

That the Committee has considered the draft Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018.—(John Glen.)