Draft Securitisation (Amendment) (EU Exit) Regulations 2019

Jonathan Reynolds Excerpts

Wednesday 27th February 2019 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Hanson. Once again, the Minister and I are here to discuss a statutory instrument that would make provision for the regulatory framework after Brexit in the event we crash out without a deal. On each occasion, my Front-Bench colleagues and I have spelled out our objections to the Government’s approach to the process.

Today we are here to discuss the draft Securitisation (Amendment) (EU Exit) Regulations 2019. Given the impact that securitisation had on the wider economy and its role in the 2008 global economic crisis, I am sure I do not need to remind anyone in the room of the importance of ensuring that the securitisation market is properly regulated and monitored. The Opposition have laid out its wider concerns on the no-deal regulatory provision process for financial services, which incorporates dozens of statutory instruments and the in-flight Bill for EU legislation that is in train but not yet implemented. We believe there should have been a consolidated financial services Bill that presented a single overview of the changes proposed, which would allow us thoroughly to scrutinise and assess the new allocation of powers across different regulators and institutions.

This statutory instrument is a case in point. We have already debated one business-as-usual securitisation SI, which was subject to the negative procedure, to implement new European regulations. Now we have another securitisation SI, related to no deal and subject to the affirmative procedure, just a few weeks later. The powers allocated in the other SI are complicated by their interaction with this one, as my hon. Friend the Member for Oxford East (Anneliese Dodds) stated on 13 February in the debate on that instrument.

I want the Minister to clarify some points that are of concern to the Opposition. First, the explanatory memorandum highlights that an exemption is provided to national promotional banks, and that the exemption will continue for UK parties only, namely the British Business Bank. Where does that leave existing securitisation deals with exposure to entities such as the German KfW, given that their preferential treatment will be removed? Will those deals need to be liquidated and novated the British Business Bank? I am sure the Minister agrees that that has the potential to be highly disruptive. What would their legal status be?

Secondly, what long-term plan does the Treasury have to ensure that securitisation regulations will continue to be robust given the volume of powers that will be transferred to the FCA? Much of the securitisation regime has not been developed domestically, as the Minister said, yet we will take full onshore responsibility for regulating and monitoring a regime that might contain substantial risks.

I reiterate my hon. Friend’s comments in the debate of 13 February about the new powers bestowed on the FCA, and on which we still do not have full clarity. It seems that under the Treasury’s proposed approach of transferring powers that rest with the European systemic risk board, the FCA can permit re-securitisation for specified legitimate purposes in an exemption to the general ban. The general ban prevents the underlying assets of a securitisation from being themselves securitised assets, which as we know is the type of circular activity that caused the issues that in many ways led to the financial crisis. Will the Minister explain what checks and balances will be in place to ensure that the development of this regulation is properly scrutinised and monitored? That is all I have for the Committee this morning.