Draft Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019

Alison Thewliss Excerpts

Tuesday 12th February 2019 General Committees

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to see you in the Chair, Sir Edward, and to join everyone here today.

I share a lot of the Opposition’s concerns. They have been well expressed in previous Committees and yesterday on the floor of the House. We are concerned about the Government giving themselves more powers under this SI. This is a pattern in all these SIs and the Bill yesterday. The Government are giving themselves more powers and taking that power away from us as MPs. This is by no means taking back control, but giving themselves all the control and giving the Treasury very specific powers as well.

I have a couple of questions. The Minister said that equivalence cannot be assumed, but I would argue that the SI should have assumed that the UK would automatically grant equivalence to EU regulations in the absence of any kind of practical reasons standing against that. Failing to provide that automatic reassurance is another example of the UK Government’s sowing mistrust in our European partners. The EU can revoke equivalence at any time, so it would be an act of good faith for the Government to say that for their part they would not do so, and that might be of some assistance.

Further to that, there is an additional burden on the Treasury, the Prudential Regulation Authority and the Financial Conduct Authority. Can the Minister tell me how many staff are working on equivalence assessments within those institutions? Knowing how many people are working on it would give a good idea of the Government’s intention to use these powers. If there is nobody working on it, or one person in a cupboard at the back of the hall somewhere, perhaps one could say that they are not going to be looking at it, or they are not going to be using these powers, but if there is a squad of 50 working on it, that is quite different, not least because of the additional expense that that would impose.

It seems a little like the instrument, because it is not specific and is a bit broader, is intended to paper over the gaps that other statutory instruments might have left. Is its purpose to cover things in a more general sense?

We are running out of time, getting closer and closer to Brexit. The rhetoric around no deal is ramping up, which is certainly not helping to reassure businesses in Glasgow Central, Scotland or anywhere else. We have to face the reality that the UK Government are not ready to leave. Article 50 must be extended. We are running out of road here, and the risk is that we will end up with no legislation to cover things that need to be covered in the event of no deal, which seems increasingly likely.

[John Glen]

I thank the hon. Members for Stalybridge and Hyde and for Glasgow Central for their observations. I will first attend to the general points about readiness and the intention of the Government, which is clearly to secure a deal.

I assure hon. Members, as I have on previous occasions, that there is no secret agenda in the Treasury to grab power. The SI is about contingency arrangements for the unwelcome outcome of no deal. We take this responsibility very seriously. An impact assessment was published on 7 February stating that there will be no new operational requirements for firms owing to the draft instrument.

I will now seek to address the specific points raised by Opposition Front-Bench Members. The hon. Member for Stalybridge and Hyde asked, in essence, why we need these extraordinary powers to grant EU and EEA equivalence on exit day. It is important to stress that this temporary power is intended only to mitigate cliff-edge risks and to support UK market activity and the continuity of cross-border business. The power is time limited; it will expire 12 months after exit day, which was determined following engagement with the industry and regulators. Thereafter, any further equivalence decisions regarding the EU and EEA will need to be made by regulations via the negative procedure.

The hon. Gentleman asked about the resources in the Treasury. The Treasury has been preparing to take on these additional functions and is well equipped, given its existing responsibility for financial services policy. We have worked closely with the FCA and the PRA during the development of the draft instrument, and we are confident that we are well placed to make future equivalence decisions.

The hon. Gentleman asked about the appropriateness of the Treasury making equivalence decisions, rather than the regulators. Under the EU’s equivalence framework, the European Commission is responsible for making jurisdiction-level equivalence decisions. The European supervisory authorities are responsible for providing technical assessments to the Commission when requested and for making firm-level recognition decisions on third country firms. Our approach will ensure that there is a functioning equivalence framework in the UK after exit that mirrors the current split in responsibilities between the Commission and the ESAs, with the Commission’s function transferring to the Treasury and the ESAs’ functions transferring to the relevant regulatory authorities. That is consistent with what we have done in the other SIs.

The hon. Gentleman asked whether a central register of equivalence decisions will be created. All decisions will be laid in Parliament and published on gov.uk, so they will be publicly available. There are no plans at this point to have a central register, but the process is intended to be completely transparent.

The hon. Member for Glasgow Central asked whether Parliament would be consulted on a decision to revoke equivalence. In the future, equivalence decisions will be made and revoked by regulations subject to the negative procedure. This is a well-established procedure that allows Parliament to scrutinise proposed secondary legislation and to object if it has concerns, including about any decision to revoke an equivalence decision.

The hon. Lady asked about good will towards the EU and what will be the best decision. Clearly, we share a common heritage; the United Kingdom as a whole, including the excellent financial services located in Glasgow and Edinburgh, has contributed richly to the development of the EU regulations. We will obviously start from a common starting point. However, decisions around equivalence will be matters for both sides to come to terms with, and we will seek to do the best thing for the UK financial services industry in whatever prevailing conditions exist. We cannot anticipate that degree of co-operation, so we cannot make decisions proactively, as we might wish to do had we a deal and an implementation period, which would allow us to work such things out—as we intend.

[Alison Thewliss]

I understand what the Minister is saying, but surely it is in our interest—ours and the EU’s—if we want to continue to interact as we do now, to do things in a similar way.

[John Glen]

Absolutely it is, but what we cannot do until we have a deal is to determine what no deal would look like. It is therefore appropriate for me, as the Minister responsible for the UK financial services industry, to seek to reserve those powers, as the Commission is doing now—largely.

The hon. Lady caught me out, as she has often done before, when she asked about the number of people working on equivalence at the regulators. All I can say is that the Treasury is confident that the regulators have in place the resources to meet that function and they have devoted significant time to preparing for changes. I do not have a specific figure, but I am confident in their overall provisioning for that programme of work. I draw attention to schedule 1, which sets out the files in question.

The statutory instrument is needed to ensure that the UK has a clearly defined equivalence framework once outside the EU and is able to support the continuity of cross-border business in any scenario, and that the legislation functions appropriately if the UK leaves the EU without a deal or an implementation period. That is not our intention, but I am confident that, given the engagement we have had with the regulators and the industry, the SI is required. I hope that the Committee has found our sitting informative and will now support the draft regulations.

Question put and agreed to.