Draft Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 Draft Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019

Kirsty Blackman Excerpts

Wednesday 30th January 2019 General Committees

[Anneliese Dodds]

I am grateful to the Minister for that clarification, if that is the case. However, even if it were not the case previously, there is a prima facie argument that it would be useful for Committees of this type to be able to see in the committee room the previous regulation and be able to compare it with what is being suggested. Otherwise, it is extremely hard for us to understand exactly what is being proposed in some of the very complex changes that are being implemented.

That difficulty had its apogee with the MiFID—markets in financial instruments directive—transposition regulation. I will not go into all the details; I have discussed the matter with the Minister many times. The Opposition had hoped to debate that subject on the Floor of the House because it was recognised in that case that a Keeling schedule was necessary, effectively to track changes. It would be helpful for Members in all such Committees to be able to see the direct impact of changes from this no-deal legislation. Otherwise, it is very difficult to understand.

[Kirsty Blackman (Aberdeen North) (SNP)]

Even if the documentation that was made available to MPs beforehand related to the relevant legislation, that would be a slightly better position than the one we are in now, and it would not require a Government Minister actually to bring the legislation with him.

[Anneliese Dodds]

I absolutely agree with the hon. Lady. She is right that it would be helpful. In many cases, we are talking about the initial legislation, which itself was relatively complex and has often been amended. It would be useful for all of us during this complex process to have some aid in that regard.

In its amendment of article 5.1 of the EU regulation, the statutory instrument would give the FCA an extra-territorial power that it should not have. That is obviously fairly problematic because, whatever kind of Brexit occurs, ELTIFs will continue to exist under EU as well as UK law. It is EU-level authorities that will provide their initial designation for the EU27. To explain that quickly, articles 4 and 5 of the ELTIF regulation set out the conditions for the designation and authorisation of ELTIFs. In the draft regulations presented to us today, article 7 amends articles 4 and 5.1 of the EU regulation in quite a strange direction.

Article 4 refers to LTIFs, but article 5.1 talks about applications for authorisations of ELTIFs and says that application for authorisation as an ELTIF shall be made to the FCA, and sets out the process for application for LTIFs. I am sorry that this is very complicated but it underlines the confusing nature of the SI.

It seems that the proposed article 5.1 as amended is wrong because ELTIFs will continue to exist under EU law after Brexit. It will not be in the FCA’s gift to recognise and authorise them outwith the UK. We need just a small change to article 5.1, which should read: “An application for authorisation within the UK as an ELTIF shall be made to the FCA.” Will the Minister assure us that he will look into that and seek to amend the legislation accordingly, if that concern proves genuine and is not just my reading of the text?

[Kirsty Blackman]

I will make a few comments. My colleague on the Opposition Front Bench has spoken about various things, including the register of ELTIFs that the FCA will be empowered to hold. It would be useful if the Government, although not necessarily changing the wording from “may” to “shall”, would let us know whether it is their intention that the FCA hold the register.

If the Minister made a statement in that regard, it would make it clear whether it is the Government’s intention for the FCA to use the power that it will have. That would be helpful to the Committee’s understanding, and that of anybody poring over this legislation, of whether the FCA should be doing this or whether it is something it could get away with not doing. I am not suggesting that the FCA would try to get away with not holding a register, but if it does not have to, it might decide that doing so is less important. A Government statement on that would be incredibly helpful.

I will raise a couple of other things. In a recent Delegated Legislation Committee I raised draft legislation appearing on the Government website and individuals’ access to it. It did not feel as if I received a very good answer that time, so I will press the Minister on it again. How many people access draft legislation on that website? How many hits are there? Is it the case that only five people view it, or is it significantly more? The explanatory memorandum to the draft instrument says that it has been on that website. Knowing how many people accessed it would be helpful in our understanding of whether the Government publicise it enough and that people know about it and access it. That would be incredibly useful.

On the policy direction of the draft instrument, one thing it does—as do many things we are doing around no-deal planning—is remove reciprocity with the EU. I understand the desire for that in many cases, but it is not clear whether attempting to remove reciprocity is Government policy in all cases or whether they are prioritising some of these things for a reciprocal agreement with the EU. If it is the latter, it would be helpful for Ministers to make clear to us whether the Government will seek a standalone reciprocal agreement on these specific things, in order to make things smoother in the event of no deal. That is particularly the case with the recognition of what we are discussing. If the LTIF and ELTIF regulations are similar, at least in the initial stages, before there is any kind of regulatory divergence, the UK’s recognising EU certifications of these things on day one would be relatively sensible, rather than assuming that there has been divergence by day one, which we all know there will not have been.

I understand that the Minister will probably not have this information today, but it would be useful if in future Committees he could provide information on whether it is the Government’s intention to seek a reciprocal agreement on these specific standalone measures in the event of a no-deal Brexit. That may be less important for some of the draft instruments that are coming through and more important for those around flight, for example.

Finally, I am very pleased that the Minister ensured that the impact assessment was sent to us, although I am concerned about the short timescale available to look at it. I confess that I have not had time to look at it in nearly the level of detail that I would have liked, because we only received it this morning and I have been quite busy today.

However, the Minister was quite good in the last DL Committee on which we served in explaining the impact assessment process and how we reached the stage we are now at. My understanding is that they are drafted by the Treasury and then go to the Regulatory Policy Committee, which assesses whether they are fit for purpose. I received some information that basically suggests that that committee did everything it could to turn those assessments round in the quickest possible time, and did its best to comply when asked to do so in a truncated timescale. The impact assessments sent to the committee by the Treasury have been responded to in eight days on average.

Impact assessments have not been provided to us in several of these DL Committees, which does not appear to be the fault of the Regulatory Policy Committee. The Minister held his hands up and apologised for not having those impact assessments, which I appreciate. My concern going forward is that, when the Treasury creates impact assessments that go to the Regulatory Policy Committee, it should learn from what has happened so far and ensure that those impact assessments going to the Regulatory Policy Committee are fit for purpose in the first place so that, if possible, they can get through at the first time of asking, rather than taking a bit longer.

That is a big issue because I think it is unreasonable to expect Committees to take decisions without having the impact assessment provided to us. If we are going to see more statutory instruments being introduced than we have ever seen before, which is the case, given that there are still hundreds that have not even been to the European Statutory Instruments Committee at this point, then we need to ensure that any impact assessments sent to the RPC are turned around as quickly as possible and are fit for purpose in that first instance. If that means that the Government cannot present an SI to us next week and must do so the week after, I would prefer that, so that the Committee is in the best possible position to take decisions on it.

Those are a variety of questions, and the Minister will probably not be surprised by any of them—he may have been surprised by the questions from my Opposition colleague, but not so much mine, because they were pretty much par for the course, so I hope he has answers to at least some of them.

--- Later in debate ---

[John Glen]

From my point of view at this point, it seems reasonable not to suggest that there will be a register for something that does not yet exist, but the hon. Lady’s point is perfectly reasonable. I will write to the FCA following what she has said.

[Kirsty Blackman]

It would be helpful if the Minister explicitly said, “Yes, we would like the FCA to keep a register of those new LTIFs as they arise in the UK.” The form of that register could be decided later.

[John Glen]

I am sympathetic to what the hon. Lady says, but she has to understand that the regulator is the regulator, and it will have reasons in terms of the market actors around that. My view is that it would be entirely appropriate for the regulator to have that register, and I would expect to see clear market-driven reasons for why it would not be necessary. Again, it would not be responsible for me to make a commitment without knowing all the background factors, but I will write to the regulator to express the Committee’s concerns and ask what its approach would be in the circumstances where those funds existed in the United Kingdom.

--- Later in debate ---

[Kirsty Blackman]

One last time, Minister. If the UK Government are trying to do what they tell us they are trying to do—to replicate EU law in UK law—the most sensible thing to do would be to start with a requirement for the FCA to keep this. Should there be a change and it is decided that it is not necessary, we can then legislate down the line with secondary legislation to say, “Actually, we feel like this is not appropriate for our regulatory regime.”

[John Glen]

I think I have said all I can on that matter at this point. I will move on to the drafting point on territorial power for the FCA, which the hon. Member for Oxford East raised. I will consider that point carefully—there may be a drafting error. It is difficult for me to be certain about that now, but I will respond in due course.

The hon. Member for Aberdeen North raised the issue of how many people engaged with the draft legislation. She will probably not be surprised to know that I do not have the numbers in front of me, but we have sought wide engagement with the industry and stakeholders as the legislation has developed, which can be seen in the fact that we relayed on 6 December following engagement on the sub-funds point. I am happy to examine any data on that and write to her on that matter.

The hon. Member for Oxford East made a point—I think it was also made by the hon. Member for Aberdeen North—about the Government’s general policy of reciprocity in the prioritisation of certain areas in a no-deal scenario. We want to continue to engage constructively with EU partners and be in a position to deliver on the political declaration in a negotiated deal, in which we would respect the autonomy of both sides but would be ambitious about the degree of collaboration on recognition. We think that that is realistic—there is a very strong relationship with our regulators across the EU, and we expect that to continue.

I have answered most of the points that have been made. If there are any others, I shall write to both hon. Ladies on the Opposition Benches. I have demonstrated why we need this SI to pass in the event of the UK leaving the EU without a deal, and I hope the Committee can now support the regulations.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019.

Draft Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019

Motion made and Question put,

That the Committee has considered the draft Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019.—(John Glen.)