Draft Financial Regulators' Powers (Technical Standards Etc.) (Amendment Etc.) (EU Exit) Regulations 2018

Debate between John Glen and Sarah Champion

Wednesday 10th October 2018 General Committees

[The Economic Secretary to the Treasury (John Glen)]

I beg to move,

That the Committee has considered the draft Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018.

It is a pleasure to serve under your chairmanship, Sir David. Since the UK’s 2016 referendum decision to leave the EU, Her Majesty’s Treasury has undertaken a significant amount of work on the withdrawal negotiations and in preparing for the range of potential negotiation outcomes. The best outcome is for the UK to leave with a good deal, and we have put forward a serious and credible proposal for the future relationship. Although we remain confident of agreement later this autumn, in the meantime we must and will continue the work of preparing for no deal.

As the Department responsible for financial services, the Treasury has undertaken particularly intensive work to ensure that there will continue to be a functioning legislative and regulatory regime for financial services in a scenario in which the UK leaves the EU without a deal or an implementation period. An essential part of that work involves using powers delegated to Ministers under the European Union (Withdrawal) Act 2018 to fix deficiencies in applicable EU law that will be transferred directly to the UK statute book at the point of exit. The approach taken in the Act is to maintain existing legislation at the point of exit to provide continuity.

Although the fundamental elements of the current financial services legislation will remain the same after exit, that legislation still needs to be amended to ensure that it will work effectively once the UK has left the EU. To achieve that, I am delighted to say that the Treasury is in the process of laying approximately 70 statutory instruments ahead of exit day. A key decision for my Department in approaching that work is how to divide responsibility for the huge body of financial services legislation that the Act brings to the statute book.

An important component of that legislation is level 2 legislation—technical standards, which run to 7,000 to 8,000 pages. The responsibility for developing technical standards currently lies with the European supervisory authorities, and they are adopted by the European Commission. As required by EU law, they do not take policy decisions; they set out at a granular level the requirements that firms need to meet to implement policy set out in higher EU legislation. Common examples of technical standards include those that set out the process for firms to provide supervisory information to regulators, including the specific form templates that they should use.

The 2018 Act will transfer those technical standards into UK law at the point of exit in the event that we do not reach an agreement with the EU on an implementation period. Many of them will be deficient and will need to be fixed by the appropriate body or regulator. The Government propose to allocate responsibility for them consistently with the UK’s existing regulatory framework, as approved by Parliament in successive pieces of legislation.

The Financial Services and Markets Act 2000—the key piece of framework legislation for regulation of financial services in the UK—delegates responsibility to the Prudential Regulation Authority and the Financial Conduct Authority for making the detailed rules that apply to firms in order to operationalise the framework that Parliament has set in legislation. On the same basis, the Government propose to transfer responsibility for technical standards from the European supervisory authorities to the Bank of England, the PRA, the FCA and the Payment Systems Regulator. That transfer will be made through statutory instruments to amend EU regulations in relation to each sector of the financial services industry. They will amend each mandate to make technical standards to give power to the appropriate regulator; for example, the SI to amend the capital requirements regulation will transfer the relevant technical standards to the PRA. Each SI doing that will be subject to parliamentary approval through the affirmative resolution procedure.

The SI that we are discussing today amends the FSMA and other relevant Acts to set out the procedure that the regulators will use when they are given the power to make technical standards by the relevant sectoral SIs. That approach is consistent with the FSMA framework, and recognises the fact that it is the UK regulators that have the necessary expertise and resources to maintain standards after the UK’s exit from the EU. That is particularly true given the important role the UK regulators have played in the EU to develop those standards, through their membership of the boards and working groups of the European supervisory authorities.

[Sarah Champion (Rotherham) (Lab)]

I am listening to the Minister with interest. He is talking just about financial services. Has any estimation been made across Government Departments of how many years of SIs we are likely to have post Brexit to tie everything up?

[John Glen]

I cannot speak for other Departments; I can set out only what I am responsible for in the Treasury. Other Ministers will introduce SIs and that will be a matter for the scrutiny of the House. I do not have a holistic answer today. I will investigate, and if possible I will write to the hon. Lady.

The SI will also sub-delegate the section 8 deficiency-fixing power in the European Union (Withdrawal) Act to enable the regulators to make the necessary corrections to the technical standards, as well as to regulator rules made under FSMA, so all those rules will operate effectively from day one of exit. The same constraints that apply to Ministers when acting under that power would apply to the regulators. It could be used only to make changes to correct deficiencies in EU law, and would be subject to a two-year time limit. To ensure that the regulators fixed deficiencies in technical standards in line with the fixes Parliament will approve in onshoring SIs, the SI will require the Treasury to approve the deficiency fixes the regulators propose to make.

In advance of laying the SI, the Treasury published the instrument in draft, along with an explanatory policy note, in April 2018, in order to maximise transparency to Parliament and industry. We have engaged stakeholders on these issues and will continue to do so, and we are publishing advance drafts of our onshoring SIs throughout the autumn—I think some were published in the last few days. The regulators are also committed to a fully transparent process for fixing deficiencies in technical standards and their own FSMA rules. The regulators plan to issue consultations on their proposed deficiency fixes. The first of those has been launched today by the FCA, and the Bank of England will follow shortly.

In conclusion, the SI will be essential for ensuring that EU technical standards for financial services continue to work effectively in the UK from day one of exit. UK regulators operating within the statutory framework set by Parliament in FSMA are best placed to ensure that the technical standards are fit for purpose as we prepare to withdraw from the EU and in the period following exit. They will exercise that function in an open and transparent way, with their ongoing responsibility for technical standards made subject to the statutory requirements for consultation as set out in FSMA. I hope that all colleagues will join me in supporting the regulations, which I commend to the Committee.

--- Later in debate ---

[John Glen]

With respect to that, we have prepared a narrative on the impact assessment, and I believe there is a conversation going on with the appropriate Committee to determine that, but we have not concluded that assessment. Obviously, it is necessary to move quickly to secure all these statutory instruments before the end of March. That has been our objective.

[Sarah Champion]

For clarity, is the Minister saying that we need to pass 800 statutory instruments before March? I thought he meant before the whole process was concluded.

[John Glen]

I need to write to the hon. Lady about the distribution of the 800 statutory instruments. As I understand it, 800 statutory instruments will be required across Government through the exit process.

I hope that I have dealt with the points that have been raised. I am sincerely sorry about those points that I have not dealt with, and I will write to hon. Members. I hope that it is clear that we have had full scrutiny of this statutory instrument, and that the Committee will now approve it.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018.