Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020

Baroness Bowles of Berkhamsted Excerpts

Wednesday 2nd September 2020 Grand Committee

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I refer to my interest set out in the register as a director of the London Stock Exchange.

I thank the Minister for introducing the regulations, but I admit that I got off to a bad start when looking at them. Helpful though it is to have tables in the schedule, I found it very awkward to have the regulations themselves drafted as an adjunct to a table that requires simultaneous viewing on different pages. I thought that I was in a puzzle book and having to take a cheat peek at the answers at the back.

First, I must consult the Schedule 1 list in the 2019 SI, and then I must cross-reference to table 1 in Schedule 1 of this SI—although it is unclear from reading Regulation 3 whether this refers to Schedule 1 of the 2019 instrument, as has just been referenced, or, as happens to be the case, Schedule 1 of this SI. I can find that out by discovering that Schedule 1 of the 2019 SI does not have a table. I must then repeatedly consult the table and look at each column to find out which paragraph of Schedules 2 and 3 and Schedule 1 of the 2019 SI are relevant. All of these instructions distract greatly from the clarity of Schedules 2 and 3, which really did not need all this obfuscation.

Aside from the structure, the SI seems to do what is necessary—although I reckon that it should have been part of the 2019 regulations to give regulators clarity. Unfortunately, this is all part of a patchwork that replicates, and makes even more confusing, the already tangled web of EU equivalence provisions that has evolved over time.

I hope that one day soon an overarching policy will be outlined on how the UK will balance openness, competitiveness, security and public interest in our future equivalence regime. This must reflect the needs not just of financial service companies in large countries but also the real economy companies that they serve, and encompass issues such as enabling trade at reasonable cost for the less developed countries. There can be a lot more to equivalence than first meets the eye, as was eventually realised with EMIR. At times, the benefits of equivalence may be needed within the country giving equivalence rather than the country gaining equivalence.

A similar point can be found in one of the fixes in today’s SI, which creates equivalence-determining powers so that where EU legislation says a third country has to have a recognition regime, we have one that qualifies. For us, this is fine, but the subtext of the EU requirement is a reciprocity requirement, and it is the sort of provision that needs care before imposing in any generic way, should that idea arise in the future.

It has been discussed previously, and in the context of authorisations, that regulators have been busy making various co-operation arrangements with third-country regulators where they did not already exist. It would be good to have an update on the progress of those agreements and how complete they are, including the business volume covered and the countries or instances where requirements are being waived.

Finally, a lot of energy and time has been expended researching, debating and hoping for a broad equivalence deal with the EU on financial services. Maybe that kept some in the City sweet and had to be heard and tried, but it has always been my informed view that that was unrealistic. Taken collectively, and in practice, equivalence for the EU is not really a matter of co-operation; it is yielded only when essential or aimed at promoting EU regulatory prevalence. Both those tendencies meant that resisting giving the UK equivalence was always going to be tested to destruction. It is what rises from the destruction that will be interesting, but it is not a sit-and-wait game.