Draft Central Securities Depositories (Amendment) (EU Exit) Regulations 2018 Draft Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018

Alison Thewliss Excerpts

Tuesday 4th December 2018 General Committees

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to see you in the Chair, Mr Evans, and to join the Committee for another session as we hurtle towards EU exit. As I have said in other such debates, it is not something that the Scottish National party wanted to see or that voters supported in Scotland, where 62% voted to remain. However, I will play my part in these things and call for the Government to answer some questions.

As always, I have concerns about a potential reduction in regulatory standards. I seek assurances from the Minister that that will not occur and that at the very minimum we will keep to the standards outlined in current EU legislation. We know the long-term impact that the financial crash has had on our economy; I do not think that anyone would argue that lack of regulation was not a major driver of it. We cannot veer back towards that situation; that would be terrible for all our constituents throughout the UK.

Let me address the central securities depositories regulations first. I note from the impact assessment that the familiarisation cost is £400 per firm—£4,400 to all firms affected. That is a further burden to business from making these changes for Brexit. I am sure that nobody told businesses at the time of the referendum that they would incur such costs as a result of Brexit; it is one of those things that is hidden in the detail.

The Minister mentioned Sir Jon Cunliffe’s letter of 25 October to CSDs. Can he tell us what reply he has received from them? I appreciate that the number of CSDs is rather small, but it is not unreasonable to expect some response. It would be good to have a little more detail about what they are saying about the draft regulations.

I note that there is nothing in the impact assessment about monetised non-familiarisation costs of the central securities depositories regulations, whereas that information is provided about the trade repositories regulations. Is that because the costs are not known, or because there are no costs, as the central securities depositories regulations do not have an impact in the same way?

On trade repositories, will the Minister give us more information about the UK’S future relationship with ESMA? Clearly, ESMA will continue to function, make regulations and do things. How much notification will there be of obligations to apply the rules set up so that we continue to have a relationship? Is there any indication of what formal agreements or other types of arrangements might be put in place?

I note that there is a draft registration form on the FCA website, as well as a consultation on fees, which runs until January for the trade repositories. Will the Minister give more detail about that process? Does a draft registration form become a formal registration form at the point that the UK wishes to leave the EU, or before then? What is the process? Is there much point in those trade repositories that wish to fill out that form doing so in draft if they can do so in a permanent form? Will they have to do the paperwork twice? Will the Minister indicate what level of fees the Government feel are reasonable for the process? If people are asked how much they would like to pay, I am sure that most people will say that they would like to pay no fee, but the Government might have a different idea.

The impact assessment quotes familiarisation costs of the trade repositories regulations as £150 per firm, which is £1,200 for all impacted firms, as there are only eight. However, the wider impact of the monetised non-familiarisation costs to business, as outlined on page 47 of the impact assessment, is quite different, as they could run to £10,000 to £15,000 per trade repository—a total of £80,000 to £120,000. There would also be a cost of £5,000 per firm accessing trade repositories, with an unknown total cost, because it is about changing IT systems and internal processes. If we read the start rather than the end of the document, we get quite a different picture of the impact of the regulations.

The impact assessment states, at the bottom of page 47, that trade repositories are

“currently regulated by ESMA, so the UK regulators do not have direct access to information relating to clients of trade repositories.”

We therefore do not know how many will be affected. Will the Minister tell us a wee bit more about what conversations he has had with ESMA? Is ESMA unable or unwilling to give him that information? Has information been requested? It is difficult to get an idea of the total impact if we do not know how many are currently regulated, so we should be able to access that information.

The Minister will expect me to raise my usual concerns that both sets of regulations put more burden on the FCA, the Bank of England and other regulators, and that we do not have the specialists to deal with it. Registering is a new thing, so will the relevant functions and IT be in place in good time to allow all that to happen?

--- Later in debate ---

[John Glen]

The regime that we would be onshoring for the future recognition of third countries would be a matter for us to consider, on the same basis that we would be onshoring EU entities that would have a new legal entity in the UK. It will be the same process, but one that we would essentially have to do domestically, rather than relying on the ESMA framework.

I now turn to the points of the hon. Member for Glasgow Central. I acknowledge the recurrent but appropriately made comments about her party’s position. All I can say is that I have tried to conduct this in as professional a manner as possible. The regulators have the resources available. They have a supervisory framework and, through the levy, they have the ability to make the appropriate resources available.

The hon. Lady asked about the temporary registration regime, which is intended to allow existing EU trade repositories to continue to provide services to the UK. It allows the new UK legal entities, which are part of an ESMA-authorised group, to submit an application. In terms of the process for that application, she mentioned the drafts on the site. I cannot give her the responses to the letter of 25 October, but I undertake to write to her on that. I need to speak to the regulators to understand where they are with that.

The hon. Lady also made a point about the degree of engagement that we have had with the EU. We have had a wide range of discussions with our EU counterparts—I have not personally, but my officials have—on matters relating to our withdrawal from the EU and this matter.

The UK Government and regulatory authorities will continue to do everything we can to ensure a smooth adjustment for firms and customers on both sides. Unfortunately, as with many of these matters, we cannot determine the EU’s response. That has been a challenge over this period. It is inevitable that, in a no-deal scenario, hostility will break out. It is in the interests of all market participants, regulator-to-regulator, Government-to-Government, to continue to work closely together, because that is in the interest of stability.

I believe that has addressed most, if not all, of the points raised.

[Alison Thewliss]

On the point about not knowing the exact number of firms affected, I draw the Minister’s attention to paragraph 124 on page 32 of the impact assessment, which says:

“As the volume of firms affected is so large, and both financial counterparties and non-financial counterparties are affected by the reporting obligation, it is difficult to provide an estimate of the number of firms affected.”

Will he tell me more about what can be done to raise awareness among the firms that may be caught up in this? If they do not know about it, they will not know about their obligations to comply.

[John Glen]

The existing reporting obligations for both statutory instruments are enduring and have been established for a long time. The issue of reporting into a different legal entity would come to pass following the enablement and the enacting of this regime.

The hon. Lady referred to the different parts of the impact assessment and the wider cost of familiarisation. She is absolutely right to draw attention to the undesirability of this additional cost and expense. That is why we do not advocate a no-deal scenario. I am not in a position to give her any more information, because I do not possess it. It will be incumbent on the regulator to send out timely information updates on what will be required. There is no meaningful change in what a market participant will need to do, in terms of the information they will need to share.

I hope the Committee has found this afternoon’s sitting informative and that it will support these regulations.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Central Securities Depositories (Amendment) (EU Exit) Regulations 2018.

Draft Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018.

Resolved,

That the Committee has considered the draft Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018. —(John Glen.)