Draft Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019

Lord Beamish Excerpts

Wednesday 22nd May 2019 General Committees

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve on the Committee with you in the Chair, Mr Robertson. I am grateful to the Minister for his explanatory remarks but, as the Opposition have mentioned many times before, we have grave concerns about the use of secondary legislation to make sweeping changes to the statute book. Those changes could have a material impact on our financial services, and could affect jobs and consumers alike.

My right hon. Friend the Member for Delyn was absolutely right that the possibility that these measures will be revoked has become rather less hypothetical, given the comments made recently, including today. It is therefore essential that we look at these changes very carefully.

The official Opposition have frequently warned that this process risks creating drafting errors that are difficult to identify and may be found only after the legislation is enacted, despite our best attempt to provide legislative scrutiny. This instrument is an abject lesson in the perils of this process: it essentially comprises a collection of corrections to deficiencies, ambiguities and errors made in previous rounds of secondary legislation. That just goes to show that, as we stated at the time, the previous legislation passed in this place was rushed. Too much pressure has been put on already overburdened civil servants, who have been expected to do the impossible in some cases. This instrument corrects errors in six other statutory instruments. Who is to say how many more instruments will need to be corrected, and how many errors will go unnoticed until it is too late?

Many of us have argued that the situation has been compounded by the fact that the Government have been determined to opt for a series of different pieces of legislation, making minor amendments to them once the interactions between them have been determined, rather than having a coherent approach from the beginning. Colleagues who have been in these discussions previously will remember that we have asked for a Keeling schedule-like approach, whereby it would be possible to see the timings of the amendments made by the various pieces of legislation passed in this place. Of course, those statutory instruments have generally amended other pieces of legislation, which themselves have often been amended by other pieces of legislation. This is a horrendously complicated set of circumstances.

The Government have now withdrawn no fewer than 73 statutory instruments in the current Session. That is far more than usual, and we can only assume that much of the reason is the kind of drafting errors that we are talking about today. The Minister, perhaps understandably, tried to normalise the situation and suggested that—I hope I am capturing his words correctly—with any legislation, errors are made from time to time. This level of error, ambiguity and lack of clarity is, to my knowledge, unprecedented. Perhaps other Committee members remember this kind of thing happening previously. I am a new Member, but from what I understand about parliamentary history, I think this is fairly unusual.

The Minister suggested that all the changes that had to be in place for the immediate period after the UK leaves the EU were ready before 31 March. Is that reliant on some kind of threshold for the amount of legal difficulty that would be created by having ambiguity or inconsistency? Did the Government think, “Well, it will take a bit longer for a firm to get round to suing us or taking legal action about one issue, rather than another”? These issues are significant, because they are about allocating responsibility to different bodies, and indicating what firms are and are not able to do and what regimes they come under. These are important matters.

[Mr Kevan Jones (North Durham) (Lab)]

Does my hon. Friend agree that if we had left on 29 March with no deal and these instruments had come into being, large areas would not have been covered? That is being corrected today.

[Anneliese Dodds]

My concern—despite the Minister’s comments, I know he is trying to do his very best in difficult circumstances—is that it is not clear what criteria have been used to determine which are the really serious errors, inconsistencies and ambiguities, and which can just be altered later. As I say, perhaps the Government took a view about how long it would take for those problems to crop up in normal practice, but we need a bit more information.

There is also the issue that more powers will be transferred to the Financial Conduct Authority and the Prudential Regulation Authority. At the same time, concerns have been raised about Andrew Bailey’s comments suggesting that the UK would favour a lower-burden approach to financial regulation after we leave the EU, which some have interpreted to mean deregulation. Given that the Government have yet to provide us with information about their vision for their post-Brexit regulatory framework, it would be interesting to know whether the Minister thinks those who are concerned about a policy of deregulation are justified in their concern.

My Opposition colleagues and I have also raised concerns on numerous occasions about FCA funding. The FCA maintains that it is committed to keeping an overall budget that is flat in real terms, despite the rapid increase in responsibilities. Of course, the European Securities and Markets Authority, or ESMA—the regulator on the European level—received funding from member states, so when its responsibilities increased, member states could decide to provide additional funding. As the Minister has mentioned many times, the FCA’s status is different: its funding is provided by the bodies that it regulates. That may mean that it takes longer for the FCA to raise additional funds in the event of additional responsibilities. It may also increase the requirement for funds on bodies that are struggling, particularly as a result of a no-deal Brexit chaotic market situation.

As the Opposition have said before, this is one of many reasons why the FCA is not always automatically the appropriate choice for this massive transfer of powers from ESMA. That is also clear from Charles Randell’s comments that Brexit planning will mean “difficult decisions elsewhere”—his words, not mine—leaving many concerned that a lack of capacity at the FCA might also lead to deregulation, whether or not that is a conscious determination on its part. Again, it would be helpful to hear from the Minister whether he is also concerned about Brexit pressure leading to a reduction in what the FCA is able to achieve in areas that I know are important to him, such as consumer protection and the treatment of vulnerable customers.

--- Later in debate ---

[Mr Kevan Jones]

It is a pleasure to serve under your chairmanship, Mr Robertson, and to see the Minister again. We passed in the corridor earlier this week and noted that it had been several weeks since we were in a Delegated Legislation Committee. I think we will be in a lot more, because this is just the start. In saying that, I am not apportioning blame. I sympathise with civil servants and the Minister—they have a mammoth task.

Quite clearly, mistakes or omissions were made in earlier SIs that we approved. Like the hon. Member for Glasgow Central, I want to get an understanding of how they came about. Have we got teams of civil servants in the Treasury, or are people coming from outside and saying, “Wait a minute. Have you thought about the implications of X, Y and Z?”? If it is the case that the mistakes have quite rightly been identified, it would be interesting to know how and why they are emerging. Is there an ongoing process in the Treasury of looking at SIs that we have already approved?

Perhaps we need to rename this type of SIs as “Tipp-Ex SIs” or “autocorrect SIs,” because that is exactly what they will be. It would be interesting to know what the process will be in the future, and how confident the Minister is that we will not be spending a lot more time coming back with these SIs. I am not criticising; as I say, there is a need for this. Mistakes do happen, and civil servants have been given the impossible task of getting these through.

Under “Extent and territorial application”, the explanatory memorandum states:

“The territorial extent of this instrument is to the whole United Kingdom…The territorial application of this instrument is to the whole United Kingdom.”

I have asked before how the regulations apply to overseas territories. I am interested to know what the implications are there.

The other issue is the impact assessment. I am not sure how the effects can be assessed if we do not know what the effects were in the first place. I find what the explanatory memorandum states under “Impact” very uninspiring. It states:

“There is no, or no significant, impact on business, charities or voluntary bodies.”

How do we know that? At paragraph 12.3, it states that no impact assessment has been undertaken, because

“in line with Better Regulation guidance, HM Treasury considers that the net impact on businesses will be less than £5 million a year.”

It would be interesting to know how that was arrived at or whether representations have been made by business. That is how we are in this situation of amending this SI. Does more work need to be done in assessing whether there will be a more negative impact?

The other issue, which was raised by my hon. Friend the Member for Oxford East—I cannot remember when we raised it first, but it was several months ago—is the impact on the ability of the Financial Conduct Authority and the other regulators to implement the regulations and the extra pressure that will be put on them. In the explanatory notes, it states:

“Impact assessments for the individual instruments being amended by this instrument have been published on legislation.gov.uk, apart from those that have been deemed to be de minimis.”

Again, we might not have known that those impact assessments existed, and these and other regulations are now being put over to such bodies as the Financial Conduct Authority. What assessment have we done that they have the capacity to do it? Has any assessment been done of what would happen if they came back and said, “If we are going to do these things, we might need some extra cash or resource?” I am sure the Minister will be very sympathetic to them if they came to him with that type of plea, but it is something we need to know.

I do not think this will be the last of these statutory instruments. I am sure the Minister will be pleased to know that. As the hon. Member for Glasgow Central said, in this process, our civil servants and Government have been asked to do a huge amount in quite a short period of time. I still think there will be unintended consequences from some of the regulations or from things that we do not know about that will emerge in the future.