Draft Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019

Christian Matheson Excerpts

Wednesday 13th February 2019 General Committees

[Christian Matheson (City of Chester) (Lab)]

What a great pleasure it is to see you in the Chair, Mr Pritchard. I thank the Minister for his explanation of quite a complicated measure, but I cannot help but wonder at the amount of time—both his and his officials’, here and elsewhere—being sucked up by such measures. It is yet another consequence of the madness that is Brexit, and particularly the madness of no-deal Brexit—a prospect that the Government should have taken off the table weeks, if not months, ago, given the opportunity to do so.

The Minister made a genuine attempt to explain as clearly as possible this important, complicated matter. I do not doubt the sincerity of his speech, but I utterly despair at the fact that we are being sucked further into the morass of chaos that is Brexit at a time when the country faces so many major problems. I greatly and deeply regret the situation.

[Peter Dowd (Bootle) (Lab)]

It is a delight to see you in the Chair, Mr Pritchard. Once again, the Minister and I are here to discuss a statutory instrument that would set up a regulatory framework after Brexit in the event of us leaving in a disorderly fashion without a deal. On each of these occasions, my Labour Front-Bench colleagues and I have explained our objections to the Government’s approach to secondary legislation.

The volume and the flow of EU exit secondary legislation give rise to deep concern, from the point of view of accountability and proper scrutiny. The Government say that no policy decisions are being taken, but establishing a regulatory framework, for example, inevitably involves policy, and raises the questions about resourcing and capacity referred to by my hon. Friend the Member for City of Chester.

Secondary legislation should be used when the Government want to do things that are technical, non-partisan and uncontroversial. This Government continue to push through contentious legislation with high policy content using secondary legislation. As legislators, we have to get it right. These regulations could represent major changes to the statute book, so they need proper, in-depth scrutiny. In light of that, the Opposition would like to put on record our deepest concern about the fact that the process for these regulations is not as accessible and transparent as it should be, or as the Minister suggests it is.

Unfortunately, the regulations seem to have three statutory instruments within them: one amending the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018; one amending the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018; and one amending the Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018. The way they have been pasted together causes concern, to say the least, and the result is that they are extremely difficult to follow, let alone scrutinise. I would be grateful if the Minister responded to a number of concerns.

Part 2 sets up a temporary permissions regime that says that if someone is carrying out an activity that is authorised in their home state, and several conditions are met, for a temporary period that person can carry on with that activity in the UK. The activity had to have been allowed under the Financial Services and Markets Act prior to exit day, and the person had to have had an establishment in the UK. Several further criteria must be fulfilled; in particular, the regulations seem to say that if the activity was part of performing a pre-existing contract or, more tenuously, part of “reducing the financial risk” to a party to a contract or a third party affected, a temporary permission should apply.

In other words, it seems that these regulations are trying to avoid cutting across existing contracts. They might have in mind, among others, private equity funders on one side of a contract when referring to parties involved with reducing the risk of a contract. I would like the Minister to explain more about that. What is meant by “reducing the financial risk”, and how far does that go?

Chapter 3 of part 2 sets the period for the temporary permissions regime. It seems to say that the period is 15 years for a contract of insurance and five years for other purposes. Does that mean that EU law continues to apply for 15 years for the purposes of insurance contracts, and for five years for other contracts? Clarity on that would be helpful. There is not much detail, and a period 15 or even five years is stretching the limits of “temporary”. We are concerned that in trying to avoid chaos for contractors, the Government might be creating even more uncertainty. I would be grateful if the Minister commented on that and clarified it.

Proposed new part 6, chapter 4 of the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 appears to modify the Financial Services and Markets Act. This is the application of a Henry VIII clause—something that is much criticised by lawyers and judges, as we all know. Chapter 4 also gives the Financial Conduct Authority power to receive applications for permission to vary. That seems to be a significant amount of power going to the FCA, and there is seemingly little power here for Parliament to review or hold accountable.

Proposed new chapter 4 allows the FCA to cancel the temporary permissions based on:

“(a) the person’s conduct,

(b) the practicality of supervision by a regulator,

(c) the size of the person’s undertaking, and

(d) the nature or extent of the regulated activity”.

Can the Minister clarify what conduct would or might justify cancellation, and what

“the nature or extent of the regulated activity”

means? Are we correct in understanding that there does not appear to be a right of appeal on this determination? I would be grateful if the Minister clarified. Obviously, just process and natural justice should be upheld. We are concerned about the implications of making the FCA into a judge in individual cases, and a lawmaker.

Proposed new part 9 of the EEA passport rights regulations appears to give the Treasury the power to extend the temporary regime, as the FCA has to submit to the Treasury an assessment of the need to extend the regime. That, again, leaves doubt about how temporary this all is. I would be grateful for assurances on that.

Other parts of the regulations deal with transitional arrangements relating to central counterparties and trade repositories. On central counterparties, for certain activities a one-year transition period appears to apply, and for others,

“the Bank may direct that the central counterparty be subject to such transitional arrangements as it considers necessary or expedient”.

Again, I would like to know more about the thinking behind issuing such power and discretion to the Bank of England.

We are becoming increasingly alarmed at the Government’s unfolding approach to regulating financial services. There does not appear to be an overall plan; there is no indication of how different pieces of legislation fit together; and, above all, there is no clarity. I looked at legislation across the world that appears to be clearer than this, but is ridiculous. For example, in Fairbanks, Alaska, it is illegal to sell alcohol to a moose.

[Christian Matheson]

It is also illegal to sell antifreeze to the Indians of Quebec.

[Peter Dowd]

That seems a much clearer position than the Government’s. In Quitman, Georgia, it is illegal to change the clothes on a storefront mannequin unless the shades are down. That seems perfectly sensible. In South Bend, Indiana it is illegal for monkeys to smoke cigarettes. Apparently, cigars are okay, but only if the monkey goes outside. I am sure that monkeys could understand that legislation, but some of the regulations coming to us are quite ridiculous. We have to be clear.

As Members will know, earlier this week, Labour opposed the Financial Services (Implementation of Legislation) Bill on Second Reading, because it represented a worrying transfer of powers of significant scope to the Executive. We have all been deeply concerned about this, as we have said time after time. Today, colleagues will debate in the Chamber the Securitisation Regulations 2018, which Labour prayed against for similar—or at least related—reasons.

I believe that when we voted to leave the EU, the aim was to empower Parliament to debate and make those decisions, not to concentrate them in the hands of civil servants or Ministers, yet the Government continue to put our economy at risk through their chaotic and opaque approach to lawmaking and the handling of Brexit. It is clear that rather than the Government pushing through such a large volume of piecemeal legislation, we need consolidated pieces of primary legislation, scrutinised in the proper and correct way, as opposed to regulations being brought to Committees in which no one from the Government Benches tries to challenge them.

Ultimately, we legislators have to get this right. This is not just about the principle of democracy and accountability, but about robust lawmaking that is clear, comprehensive, coherent and enforceable. That is our duty as parliamentarians. As far as the public are concerned, we are paid to do that, and we should do it, but the Government are not allowing us to. It is precisely because the stakes are so high, and because the Opposition view their responsibilities to the British public with the utmost intensity and severity, that we will be voting against the regulations.