Draft Financial Regulators' Powers (Technical Standards Etc.) and Markets in Financial Instruments (Amendment) (Eu Exit) Regulations 2019

Jonathan Reynolds Excerpts

Wednesday 20th February 2019 General Committees

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

It is a pleasure to serve under your chairmanship, Sir Gary. Once again, the Minister and I are here to discuss a draft instrument that makes provision for the regulatory framework after Brexit in the event that we crash out of the EU without a deal. On each of those occasions, my Front-Bench colleagues and I have spelled out our objections to the Government’s approach to secondary legislation. The Minister knows and appreciates that. This is the first of two meetings we will have today, and I will not read my speech out twice, but I will simply say that the more I see of this process, the less convinced I am that it is a good way to make such a substantive body of law.

The regulations amend the Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018, which, as the Minister described, simply list the EU regulations for which the Financial Conduct Authority, the Prudential Regulation Authority and the Bank of England are the appropriate regulator. In particular, they allocate the FCA a further set of EU regulations, taking its current figure by my count to a whopping 93. As we have raised in previous debates, it would be helpful to understand how it has been decided which powers will go to the FCA, the PRA, the Bank of England or the Treasury and how much resourcing will be given to those institutions. The Minister tends quite correctly to say that the functions of the Commission are going to the Treasury and those of ESMA are going to the FCA, but the picture is more complicated than that simple binary transfer of power. He knows that the Opposition are concerned about this unprecedented transfer of powers via secondary legislation, as any good Opposition would be, especially as there has been little consultation about the FCA specifically acquiring the powers.

Many bodies could take on powers of financial regulation alongside the FCA, the PRA, the Bank of England and the Treasury. Aspects of financial regulation could be seen as being within the purview of a democratic Parliament. There has been little explanation in statutory instruments about why other bodies, including Parliament, should not have principal oversight of former EU regulations. It is also not clear that the FCA has been given support or resourcing to discharge the major increase in powers it has been given. Without support or resourcing, the FCA will not be able to discharge new regulatory capacities effectively or responsibly. The explanatory memorandum confirms that the Treasury has not undertaken a consultation on the instrument, but it seems clear that some stakeholders have been consulted by necessity. Will the Minister clarify that point?

The explanatory memorandum also states:

“The financial services regulators plan to undertake public consultation on any changes they propose to make to BTS or rules made under the powers conferred upon them by the Financial Services and Markets Act 2000 using the powers delegated to them by the 2018 Regulations.”

It would be helpful to have further clarification on that, not least the statutory requirements for consultation. The words “plan to undertake…consultation” seem uncertain. According to the explanatory note, an

“impact assessment…on the costs of business, the voluntary sector and the public sector will be available from HM Treasury”.

However, the explanatory memorandum states:

“An Impact Assessment has not been prepared for this instrument because in line with Better Regulation guidance, HM Treasury considers that the net impact on businesses will be less than £5 million a year. Due to this limited impact, a de-minimis impact assessment has been carried out.”

The explanatory memorandum continues:

“There is no, or no significant, impact on business, charities or voluntary bodies, as this instrument relates to maintenance of existing regulatory standards...The impact on the public sector is that UK financial services regulators (the Bank of England/Prudential Regulation Authority, the Financial Conduct Authority and the Payment Systems Regulator) will be responsible for fixing deficiencies in BTS so that they operate effectively from exit day, and will have ongoing responsibility for making any technical standards required under retained EU law on financial services”.

It states:

“The allocation of responsibility is therefore a manageable impact.”

Will the Minister confirm whether there has been an impact assessment? Either way, can we see the evidence base for those assertions?

It is ten years since the fall of Lehman Brothers and the beginning of the global financial crisis, and the Government need to reflect on how the imperative of ensuring financial stability will be met, or otherwise, by these arrangements. I am becoming increasingly alarmed by the Government’s unfolding approach to regulating financial services, which seems to have no overall plan, no indication of how the different pieces of legislation fit together and, ultimately, no clarity. Rather than pushing through such a large volume of piecemeal secondary legislation, it is clear we need a consolidated piece of primary legislation.

Will the Minister explain why the Government need to update the Financial Regulators’ Powers (Technical Standards etc.) (Amendments etc.) (EU Exit) Regulations 2018 and the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018, which were made in October 2018? It suggests they are making decisions as they go along, rather than having a coherent plan. I listened to the distinction that the Minister made, which was that new legislation has to be covered by the regulations, but surely that is the purpose of the in-flight Bill, which we dealt with on the Floor of the Chamber recently. In addition, part 3 makes minor technical amendments to correct the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018.

The Minister was frank about the errors that have been found, and right to say that for such a large volume of legislation the amount of those errors is relatively minor. As he may remember, however, Labour voted against the regulations and called for greater scrutiny, and there are still legitimate concerns about the strength of the process.

This statutory instrument must be understood in the context of the Government’s chaotic approach to no-deal preparations, which has been characterised by significant transfers of power to the Treasury, the FCA, the PRA, and the Bank of England through statutory instruments. When Britain voted to leave the EU, I believe that was to empower Parliament to debate and make these decisions, not to concentrate them in the hands of a few civil servants and Ministers. As legislators we have to get this right. This is not just about the principle of democracy and accountability; this is about robust law-making that is clear, comprehensive, coherent, and enforceable.