Financial Services (Electronic Money, Payment Services and Miscellaneous Amendments) (EU Exit) Regulations 2019

Baroness Kramer Excerpts

Wednesday 16th October 2019 Grand Committee

I kind of welcome the clarifications around equivalence. It is always difficult if you say, “Saying we are equivalent on Solvency II relates only to Solvency II and not other things”, because there is a great deal of entanglement. There will be bits to do with MiFID and bits to do with other things that have either amended, imported or applied Solvency II. Where there are explanations regarding this, to say, “Just Solvency II” could lead people astray. You have to make it clear whether, if you are finding them equivalent on Solvency II, that means that any related bit to do with some other obligation somewhere else that you have to do if you are an insurance company has also been taken account of. Again, that is where the web of legislation, made more complex by the way in which we have imported and amended it, and the absence of checklists and correlation tables about what is where, will make it very difficult for industry and any practitioner to follow. It will also be quite difficult for those seeking equivalence decisions. I have no objection to what is being done, but I fear that on equivalence and clarification it will need revisiting at some point in a more generic way.

[Baroness Kramer (LD)]

My Lords, I will be brief thanks to my noble friend Lady Bowles, who takes all the pressure and burden off my shoulders. I thank her very much. I also thank the Minister for his clarity and advance notice of his speech. I want to bring up a couple of issues. As with my colleague, it seems to me good sense to follow the tactic of contractual run-off. That that was not in one of the earlier SIs was probably an oversight given the volume that the Treasury has had to deal with, and I do not think that anybody can raise too many eyebrows at that.

I want to focus a little more on the third-country benchmarks, because I wonder whether that really was an oversight. The UK may have assumed that third countries would stand in line so that, on the first possible day that they could have a discussion on recognition of benchmarks, they would be knocking at our door and begging to be able to go through the process. It has been a rather salutary experience to find that many countries have not been all that concerned about standing in line to make sure that they continue to be able to use London for a wide range of their activities—most of them are exploring alternative markets fairly vigorously and with quite a bit of enthusiasm. Making it easier and taking away some uncertainty for a period of three years therefore makes great sense, but I suspect that the initial thought was that London was so necessary to everybody that it could not be replaced by anyone in any way and consequently did not have to think carefully about providing the opportunity now covered by this SI.

That brings me to the issue of equivalence which the Minister mentioned, although I know it is not essentially embedded in this SI. He said that the UK almost from the moment we leave—if Brexit happens—would begin potentially to diverge. Different interpretations and different rules might come under the umbrella of Solvency II, but their UK life would be different from that for the 27 countries within the European Union. That is one of the things that worry me more than anything else. While all these measures focus on the UK discussing how it will allow EEA firms to continue to use London, the real issue is whether UK-based firms can continue to service clients across the EU, because that is obviously where the overwhelming majority of the client base is.

Let us look at insurance. Commercial insurance is the most significant part of that industry and the overwhelming majority of its clients are EU 27 companies. I have no idea whether any relaxation in terms has now been offered by the EU that is greater than the original temporary permissions. As I remember, most of the temporary permissions from the EU expire next March, so potentially we are looking at some fairly rough waters. If the Minister is making a statement that underscores the expectation that the UK will have a different interpretation or will step away from our common heritage quite rapidly after Brexit, he is doing a great deal to diminish any willingness on the part of the European Union to extend temporary permissions or to consider that the terms are being met for equivalence. I counsel him to think carefully before flagging up an intention to create divergence, when such divergence is largely at a cost to the UK financial services.

[Lord Tunnicliffe (Lab)]

My Lords, I welcome the Minister to the Moses Room. I do not know whether he has done any propositions here before, but I hope he is not overwhelmed by the number of Peers in attendance.

The Liberal Democrats are blessed with people who understand this industry. I am afraid that the Labour Opposition is blessed with me; I do not know the industry and have had to slog through the Explanatory Memorandum to try to understand what it is all about. I note the Minister’s praise of the Treasury staff and others involved in its creation. As a constant critic of Explanatory Memorandums, I also extend praise, because slotting together these 58 SIs must have been a dreadful task. Nevertheless, I fall back on reading the Explanatory Memorandum and hope I add some rigour to the exercise by insisting on explanations where the plain language has failed to get the information across to me.

The first issue I raise is in Regulation 1(2) itself, which says:

“This regulation and regulations 2 to 7”,


et cetera,

“come into force the day after the day on which these Regulations are made”.

By my understanding of the “made affirmative” process, that means they are actually in force now—I stand to be corrected on this. One of the problems we have had all the way through is that this is a so-called no-deal SI, so what happens to the parts of the regulations which are now in force if in fact we get a deal? Will they be repealed, when and by what mechanism?

Plunging into the Explanatory Memorandum itself, the first place I paused was paragraph 2.5. Here, there is an amendment to FSMA,

“so that the Financial Conduct Authority … can, if necessary, be exempt from consultation requirements where an urgent change to BTS is needed to protect UK consumers. The ability of the FCA to make urgent rule changes, where necessary to protect consumers, is an important crisis management tool in the UK regulatory framework”.

I always worry about these urgent tools where consultation is abandoned. If it is important and about a crisis, and if there is no consultation because of the timescale, is there subsequent consultation? Should amendments made under these circumstances be subject to some sort of review process?

The next area I will look at is paragraph 2.6, which says:

“Updates are necessary to take account of EU amendments made to the CRR which became applicable in June 2019. The CRR cross-references to be updated are in domestic legislation concerning the recovery and resolution of banks, and the reorganisation and winding up of credit institutions”.


For my sins, I have been involved in this legislation over the past several years and know that this is really important stuff. Is it possible to give me some sort of feel as to what these changes effect? Clearly I could go back through the many documents, but it would be useful if the Minister could give a short explanation.