Prospectus (Amendment etc.) (EU Exit) Regulations 2019

Anneliese Dodds Excerpts

Tuesday 8th October 2019 General Committees

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve on this Committee with you, Mr Paisley, in the Chair. As ever, I am grateful to the Minister for his explanatory remarks. As he indicated, the instrument tries to deal with some of the issues relating to passporting to the extent that these have changed with what are essentially updates to the prospectus regulation on the EU side. As he set out, it creates a transition period of 12 months for prospectuses passported into the UK. It makes provisions that mean EEA issuers wishing to issue securities in the UK will be required to secure approval of their prospectus from the FCA. Most of the changes appear to be technical, but I would like to probe a couple of issues a little further with the Minister. He has already mentioned some of them and can probably anticipate the ones that I want to ask about.

My first question is about the issue that the Minister mentioned a moment ago—the provisions in regulation 32 that extend exemptions of certain public bodies in EEA states to the same set of public bodies in both the UK and all countries outside the UK. Obviously, in various other instruments the Government have chosen to apply exemptions to countries only with equivalent regulations to those adopted by the UK. The explanatory notes suggest that restricting the exemption to UK public bodies only was the only other possibility considered. I am curious to know why that is the case. Even under World Trade Organisation rules it would have been possible to adopt the same approach overall, which would have been to say that there would be an assessment of equivalence. It is not necessary to have a free-for-all.

Will the Minister outline what analysis has been done of the different options for this exemption and the potential impact of opening this up to all countries? It seems to constitute a material change and it is questionable whether it is coherent with the withdrawal Act. I accept that I lost that argument before, but it would be helpful to understand whether the Government have done more work on that, because it seems to me to be a major issue.

Secondly, I am confused about the process for ensuring the equivalence of accounting standards, which seems to be going round in circles. I am sure the Minister will remember that back in February, I raised the point that it appeared that the Government were not going to carry over the presumption that international financial reporting standards would be sufficient. That would potentially have placed a big burden on Ministers, who would have had to work through whether those standards would be sufficient and assess different accounting standards and so on.

The Government seemed to acknowledge that situation in April, which was great. As the explanatory note lays out, the Government

“laid a Direction in Parliament stating that IFRS as adopted by the EU would be considered equivalent...for the purpose of preparing a prospectus”

and so forth. However, the explanatory note also notes that

“this Direction will be amended to refer to the EU Prospectus Regulation”

and that

“this amendment is not contained within this instrument.”

More work still needs to be done to clarify that it will be possible to continue to assume that IFRS standards as adopted by the EU will be equivalent. Will the Minister enlighten us on when the amendment referred to in the explanatory note will be laid? As I am sure the Minister is aware, his Government have imposed a particular timetable.

Finally, as the Minister mentioned, the regulations create a 12-month transition period for approved prospectuses and registration documents approved by an EEA regulator. That clearly gives a 12-month breathing space, but we still do not appear to have a clear indication from the Government about their long-term view of passporting and seeking equivalence. The Minister referred to legal uncertainty for issuers. I would argue that that uncertainty is already there in the concern about what will happen after a year.

I am sure the Minister is aware of recent research that indicates the fastest and deepest fall in financial services over the last few months since the time of the global financial crisis. That is linked to some of the issues about regulatory equivalence tied to market access. I would be grateful to hear about that from the Minister; we did talk a little about it last night. Will he provide an indication of the Government’s thinking on equivalence on financial services into the future? That is the context; the regulations are clearly trying to set up an interim situation for one year, but I am sure that any issuers and others involved in financial services will be saying, “Well, we really need to know what the situation is going to be after a year.” We have not had an indication on that from the Government as part of their description of the current negotiations that they are having with the EU. As I have already said, financial services did not seem to be really mentioned at all last week.