Uncertificated Securities (Amendment and EU Exit) Regulations 2019

Debate between Baroness Bowles of Berkhamsted and Lord Sharkey

Monday 25th February 2019 Lords Chamber

[Lord Sharkey (LD)]

My Lords, I accept that the two regulations in this group are closely linked and I have only one question and one comment. The question relates to the waivers that the Treasury may issue under the terms of the investment exchanges, CCPs and CSDs SI. Paragraph 117 of the impact assessment to this SI explains that, if the Treasury makes an equivalence decision on a third country jurisdiction and the Bank has recognised a third country CSD, this will mean that the third country CSD will be subject to Part 18 of FSMA. As the Minister has said, this will give the Bank the power to make rules requiring information about events specified in those rules and to require the third country CSD to give written notice to a regulator of a change to its own rules or guidance.

The Bank could also require a third-country CSD to give reports on the CSD services it provides in the UK and related statistical information. As the Minister said, the Bank may also inspect any branch of a third country CSD in the UK. There is also the rather threatening addition, “enforceable by injunction”. All of this seems eminently sensible. However, the impact assessment includes a provision which qualifies the use of these powers. It means that, for instance,

“the Bank may waive the above rules in respect of a third country CSD where it is satisfied that compliance with those rules would be unduly burdensome and the waiver would not result in undue risk”.

I take it that this waiver power is intended primarily to help the continued co-operation of CSDs within the EEA. My question is whether, if the Bank does make such waivers, they be will in the public domain and whether the Bank will explain the reasons for supposing the rules to be unduly burdensome and for supposing that exercising the waiver will not result in undue risk—whatever “undue” may mean in this context.

My comment has to do with paragraph 10 of the EM to this instrument. The paragraph explains in some detail, and with the appropriate references, the outcome of the consultation on the implementation of the CSDR. This was extremely helpful, and it illustrates a key difference between consultation and engagement. Noble Lords will know that many of the Brexit SIs laid by the Treasury have not been consulted on. The Explanatory Memorandums say when this is the case, and frequently follow this by noting that there has instead been extensive engagement with stakeholders. But in no case that I can recall have the EMs given any detail about the questions that arose in these engagements, the no doubt various views expressed by stakeholders or any modifications that may have been made to the draft as a result of these engagements. By contrast, as the current EM demonstrates, consultation gives a clearer, well-defined, comprehensive outcome and even demonstrates how government thinking has been changed. In this case, the three respondents were obviously very persuasive.

Engagement with no detail is a very unsatisfactory substitute for consultation. I realise that it is now too late to conduct consultations on the no-deal Brexit SIs that are before us and on those that will come before us. I think that we have only one more Treasury SI to consider—or at least very few. I ask the Government in general to be much more informative about engagement. I ask them to consider providing in the Explanatory Memorandums at least a list of stakeholders engaged with and a summary of what issues were raised by the Government and the stakeholders, what opinions were expressed and what changes were made as a result of these engagements.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I declare my interest, as in the register, as a director of London Stock Exchange plc. I am glad that we are debating these two instruments together, because they seem to go together and to form a continuum. Indeed, in some ways it is rather strange. The first says that it would not be appropriate to give the Bank of England powers pre Brexit, but then in the second the powers are being given to the Bank of England. That arises largely because the uncertified securities regulations are largely about transposing EU legislation under the European Communities Act.

I too was interested in the consultation done in 2015 and noted that there seemed to be variably one, two or three comments on various sections. That certainly determined me to step up my rate of response to consultations. The report says that changes have been made, but it leaves you having to compare the before and after. All that was getting a bit too much on a sunny Sunday, as the noble Lord, Lord Tunnicliffe, said. What struck me particularly was the explanation on page 6 of the Explanatory Memorandum to the uncertified securities regulations, which said that,

“the Treasury is taking a proportionate approach to implementing Article 49(1)”.

Given that they are regulations, and you cannot change what is in the regulation done by the EU, I am curious as to what this more proportionate approach entails. Does it imply that the first draft had been gold-plated in some way? What was in and has been taken out? I did not find a great deal of guidance in the documents.

My next comment is a very general one. In both of these statutory instruments, and in particular in the second one dealing with exchanges and so forth, there is a large number of changes to the Financial Services and Markets Act. As we have discussed at some length before, that is not up to date on legislation.gov.uk— although, of course, it does give you a list of the things you might want to go and explore, to see if you can work out what an up-to-date version might be, or you may be thrust into the hands of one of the commercial organisations that will do that for you. However, by the time we have ploughed through all 60 statutory instruments that we are told we have to deal with, and then whatever other number we may get regarding corrections and re-workings—some of which are coming along now—FSMA will be even more incomprehensible on the legislation website, and so too will be any sensible comparison of how EU legislation has been retained with regard to the EU originals.

That might be relevant. If we are ever trying to argue for equivalence, the first thing we will be asked to do is to show it. Page 3 of the Explanatory Memorandum for the investment exchanges SI names six other SIs involved in the onshoring of the Securities Financing Transactions Regulation—so one regulation goes to seven SIs, each of which further redistributes powers and requirements over a range of other instruments. As I have said, we are also getting into second-order corrections and additions, with further SIs winging their way through the system.

It is not my idea of a lawful democracy for laws to be so obscure and inaccessible. It is actually quite a mockery to make a fuss about the accessibility and clarity of wording in individual documents while it remains impossible to find out their cumulative effect. I have long been shocked at this unwholesome situation, but Brexit is making it far worse. What is the Treasury going to do about it? Clearly, check tables have to be used in the Treasury. I am coming to the view that we are reaching a stage at which Parliament should refuse to amend law that is not available in an up-to-date format. At the very least, could the Treasury share the various schedules that point out what has been put where, so that those of us who are expected to scrutinise this do not have to spend an awful lot of time getting frustrated as we try to work out the true current state of the law? If we cannot do it, and we are responsible for it, how is the ordinary citizen supposed to know what is the law, when ignorance is no defence?

Financial Services (Implementation of Legislation) Bill [HL]

Debate between Baroness Bowles of Berkhamsted and Lord Sharkey

Committee: 1st sitting (Hansard): House of Lords
Tuesday 8th January 2019 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, for the purposes of the Committee stage of this Bill, I declare my interest as in the register as a director of the London Stock Exchange plc.

This Bill, as was elaborated at Second Reading, is intended to provide a way to land so-called in-flight legislation. However, as many noble Lords also observed during Second Reading, the scope for amendment of that legislation is wide and not limited to the type of onshoring provisions of the withdrawal Act. Indeed, there is no promise of onshoring at all. This point is noted by the Delegated Powers Committee in paragraph 17 of its report on this Bill. The fact is that there is just a wide power to make legislation related to any of the provisions in any of the legislation in subsection (2) or specified in the list in the Schedule. There are no provisions defining how close it must be to that legislation, and the power is not anchored only to withdrawal from the EU.

We should not lose sight of the fact that the mechanism is an alternative to primary legislation. Although the power is time-limited, I do not consider that that is sufficient control to replace primary legislation entirely. It cannot be left open for the Government to cherry pick, to diminish, to add or to do things that depart from expectation, in terms both of the policy in the EU instruments that the power covers and the policy that has been laid out by government with regard to relations with the EU after Brexit.

The doubt starts right at the opening words, which state:

“The Treasury may by regulations make provision … corresponding, or similar, to … any of the provisions, of any specified EU financial services legislation”.


The use of “or” clearly implies that the regulation may make provisions that are corresponding but not similar. A simple suggestion may be to make a penalty for a failure in a corresponding position, but not the same penalty. So, too, could it be the other way round: a provision may be similar but not corresponding. A penalty may be moved to somewhere else or attached to a different provision. We often talk in particular about criminal penalties, when we are equalising them out between different types of provisions.

Amendment 1 would replace “or” with “and” so that it said “corresponding and similar”, thus making the objective clear: it corresponds to a particular EU provision and it is in similar terms. That seems to be a good and clear start to the Bill rather than the imprecise start that it currently has.

On its own, the amendment would not solve all the problems, including the Government’s plea for some flexibility. In other amendments in later groups, I probe how that might be done. Other noble Lords have amendments in this group which suggest further limitations on power. As it has fallen to me to speak first, I shall briefly comment on them

Amendment 3, tabled by my noble friend Lord Sharkey, makes a good point about not changing the primary purpose of the EU legislation, and it could sit alongside my Amendment 1 as well as standing alone. Amendment 5, tabled by the noble Lord, Lord Davies of Oldham, and others, would limit the provisions to the circumstances of withdrawal from the EU. I am interested in the debate around that point. How far would the Government intend to stretch the term,

“adjustments in connection with the withdrawal”?

What other form of amendment not connected to withdrawal might they be contemplating?

Amendment 7, by the noble Lord, Lord Tunnicliffe, progresses the limitation to reflecting the UK position outside the EU. In later groups, I have put forward some probing amendments that would limit the scope of amendment in other ways but which are a little more permissive, so, for now, I reserve my own position on Amendments 5 and 7 save to say that, if it is not feasible to construct suitably restrained flexibility, limitations of the kind set out in Amendments 5 and 7 would have to become the default position. I beg to move.

[Lord Sharkey (LD)]

My Lords, I shall speak to Amendment 3. At Second Reading, there was much discussion of the wide powers that the Bill gives to the Treasury via secondary legislation. All the amendments in this group deal with that issue.

Clause 1 contains clear Henry VIII powers. It allows the Treasury to make policy and new laws entirely by means of statutory instrument. It even allows such new laws to be wholly unrelated to the UK’s exit from the EU. Unusually, it allows these new laws on to the statute book without any parent primary legislation. There will be no parent Acts for these new laws: no context, no detailed parliamentary discussion and no effective parliamentary scrutiny.