Exiting the European Union (Financial Services)
Kirsty Blackman Excerpts(5 years, 2 months ago)
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John Glen
As the House will be aware, the Treasury has been undertaking a programme of legislation under the European Union (Withdrawal) Act 2018 to ensure that if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning legislative and regulatory regime for financial services in the United Kingdom. The two statutory instruments being debated today are part of this programme. The disclosure regulations, as corrected by the corrections slip published on 12 February, will address deficiencies related to the UK’s implementation of EU rules that govern the exchange of confidential information between European economic area and third country regulatory and supervisory authorities. Once the UK is outside the single market and the EU’s joint supervisory framework for financial services, amendments will be needed to these rules so that they continue to operate effectively in a scenario where the UK leaves the EU without an agreement. The money market funds regulations will fix deficiencies in UK law on money market funds and their operators to ensure they continue to operate effectively post exit. The approach taken in these pieces of draft legislation aligns with that of other statutory instruments being laid under the 2018 Act, providing continuity by maintaining existing legislation at the point of exit but amending it where necessary to ensure that it works effectively in a no-deal context.
Let me deal first with the Public Record, Disclosure of Information and Co-operation (Financial Services) (Amendment) (EU Exit) Regulations 2019. As Members across the House will know, an important function performed by financial services regulators is the gathering of supervisory information from firms. Regulators use this information so that they can ensure that regulated firms are operating in a way consistent with regulatory requirements and so they are alerted to any development that may need supervisory intervention. As a great deal of financial services activity takes place across borders and across regulatory regimes, the ability of national regulators to co-operate with each other and to exchange information is vital if they are to discharge their supervisory functions effectively.
The information gathered by regulators is often confidential and often commercially or market sensitive, so it is right that there are strict rules and safeguards on how regulators share such information with other regulatory authorities. EU law currently plays an important role in setting these rules. In order to ensure the effective functioning of the single market in financial services, the EU has developed a joint supervisory framework for national regulators and supervisory bodies in the EEA. This makes co-operation and the sharing of certain supervisory information between EEA national regulators mandatory.
In addition, the EU has established the European supervisory authorities—ESAs— which are responsible for co-ordinating the approach of EEA national regulators. Co-operation and sharing of certain information with the ESAs is also mandatory for EEA national regulators. As well as setting out what information should be shared, EU rules also include restrictions and safeguards. In the UK, these rules are implemented in Part 23 of the Financial Services and Markets Act 2000 and the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001.
For third country authorities, there are additional restrictions when disclosing confidential information. The UK regulator may need to be satisfied that the third country authority has protections for confidential information in place that are equivalent to those of the EU. There may also be a requirement to enter into a co-operation agreement with the third country authority. In addition, if the UK regulator is disclosing confidential information to a third country authority which originated from an EEA authority, the UK regulator may need to seek the consent of the EEA regulator which originally disclosed the confidential information.
If the UK leaves the EU without an agreement, the EU has confirmed that it will treat the UK as a third country and the UK will also need to treat EEA states as third countries. The UK will be outside the single market and the EU’s joint supervisory framework, so references in UK legislation to this framework, and to EU legislation and EU bodies, will be deficient and will need to be corrected so that the UK’s disclosure rules for confidential information will work effectively. In particular, the rules will need to be amended to reflect the third country relationship that will exist between the UK and EEA states. After exit, it would not be appropriate to provide for different rules and protections on the disclosure of confidential information by UK authorities depending on whether confidential information is being shared with EEA authorities or the authorities of non-EEA states. If this is left unamended, the UK would afford additional protections and less onerous restrictions to EEA states compared with other third countries. In addition where there are currently requirements to seek the consent of an EEA authority before the onward disclosure of information, these requirements will be retained only if an equivalent requirement also exists in relation to seeking consent from non-EEA authorities.
This instrument also provides for a transitional arrangement that will ensure that any confidential information received by a UK regulator before exit day will continue to be treated in accordance with the relevant provisions that existed before exit day. While it is necessary to amend the UK implementation of rules around disclosure of confidential information to ensure that they continue to operate effectively once the UK is outside the EU, it must be stressed that these amendments are in no way intended to diminish the level of co-operation that exists between UK and EEA regulators.
The Government and UK regulators believe that effective co-operation and co-ordination is essential for the effective supervision of financial services. UK authorities will be doing everything possible to ensure that effective co-operation continues. UK regulators have always been key players and key voices of sanity in the global supervision of financial services, as is demonstrated by the close and co-operative arrangements we have with regulators in countries outside the EEA. After exit, it will be necessary for the UK regulators to enter into co-operation agreements with EEA national regulators and with the ESAs. These agreements will help ensure that a high level of co-operation and information sharing will continue.
Kirsty Blackman (Aberdeen North) (SNP)
I am seeking some clarity on the first of these SIs and which day the Minister expects the disclosure of information regulations to come into operation. Am I right in thinking that exit day means exit day unless there is an implementation period, in which case it means at the end of the implementation period?
Kirsty Blackman
With respect, that is not what it says in the explanatory memorandum for the first SI, which suggests that it is needed in the event of any Brexit and not just in the event of a no-deal Brexit. The second one covers a no-deal Brexit, but I had understood that the first one was needed for any Brexit.
John Glen
I will examine that and, if I may, I will come back to it and seek to clarify it when I wind up this debate.
Both the Government and UK regulators attach very high priority to putting these agreements in place, and I am pleased to report that UK and EU regulators are making good progress in their discussions to finalise these agreements. The Treasury has been working very closely with the Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority in the drafting of this instrument, and there has also been engagement with the financial services industry, including the publication of this instrument in draft, along with an explanatory policy note on 9 January. In summary, the Government believe that the proposed deficiency fixes are necessary to ensure that the UK has a clearly defined and operable set of rules for the disclosure of confidential information.
I turn now to the Money Market Funds (Amendment) (EU Exit) Regulations 2019, which relate to the establishment, management, and marketing of money market funds. Such funds invest in highly liquid instruments, and provide a short-term, stable cash-management function to financial institutions, corporations and local governments. They are commonly used by investors as an alternative to bank deposits. The regulations formed part of the response to the 2008 global financial crash to preserve the integrity and stability of the EU market, and to ensure that money market funds are a resilient financial instrument. They do so by ensuring uniform rules on prudential requirements, governance and transparency for managers of these funds.
Money market funds can either be structured as undertakings for collective investment in transferable securities—UCITS—or as an alternative investment fund. Therefore, they are regulated as UCITS or as an alternative investment fund, in addition to being regulated as a money market fund. The regimes for UCITS and alternative investment fund managers have been separately amended to reflect the UK leaving the EU by the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 and Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018, which were taken through Committee, where I believe I was joined by the hon. Member for Oxford East (Anneliese Dodds), and have now been approved in both Houses and will be made shortly. In a no-deal scenario, the UK would be outside the EEA, and outside the EU’s legal, supervisory and financial regulatory framework. EEA money market funds, which currently provide the majority of money market services in the UK, would not be able to continue to service UK clients. The money market funds regulation therefore needs to be updated to reflect this and ensure that the provisions work properly in a no-deal scenario.
First, these draft regulations remove references to the Union which are no longer appropriate and to EU legislation which will not form part of retained EU law. These references will be replaced by references to the UK and to relevant domestic and retained EU legislation. Secondly, in line with the general approach taken to the onshoring of EU legislation, the SI will transfer functions currently within the remit of EU authorities; from the European Securities and Markets Authority to the FCA, and from the European Commission to Her Majesty’s Treasury.
As the UK’s regulator for investment funds and the current national competent authority for money market funds, the FCA has extensive experience in the asset management sector, and it is therefore the most appropriate domestic institution to take on these functions from the European Securities and Markets Authority. This statutory instrument transfers all powers exercised by ESMA to the FCA. The FCA will become responsible for technical standards on how funds should stress test their funds, and it will gain two operational powers to establish a register and reporting template for money market funds.
This statutory instrument transfers any power currently exercised by the Commission to the Treasury, in line with the other statutory instruments that we have taken through. Those powers all relate to creating rules concerning standards for money market funds, such as their liquidity and quantification of credit risk.
As I have mentioned, EU money market funds are structured and further regulated as UCITS or alternative investment funds. This statutory instrument makes provision to ensure that EU money market funds can use the temporary marketing permissions regime, as legislated for in the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 and the Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018. Following an assessment by the FCA and the submission of a written statement to both Houses, the Treasury will be able to extend that by a maximum of 12 months at a time. It will also allow for EU money market funds that are currently marketing into the UK, and any subsequent UCITS sub-funds, to continue to market into the UK for up to three years after exit day.
This statutory instrument amends the scope of the regulation to apply to the UK only, with the effect of only allowing the marketing of UK-authorised MMFs or MMFs managed by UK fund managers. However, further amendments maintain the eligibility of EEA MMFs with temporary permissions to continue to market in the UK at the end of the temporary marketing permissions regime if they gain the required permissions to market as a third country fund under the UK domestic framework.
Money market funds that are UCITS will be required to gain authorisation under section 272 of FSMA, while the managers of money market funds that are alternative investment funds will need to notify under the national private placements regime. The UK currently has a very small domestic market that relies heavily on EEA money market funds, so these provisions address the cliff-edge risks that could arise as a consequence of defaulting to a UK-only market. That will ensure that local government, businesses and other UK investors can continue to access their investments and have a choice of money market funds to use for cash management.
As with the previous statutory instrument, the Treasury has been working very closely with the FCA in the drafting of this statutory instrument and engaging with the financial services industry. I would like to put on record my gratitude to TheCityUK for convening appropriate representative bodies throughout the process. In November the Treasury published the statutory instrument in draft, along with an explanatory policy note, to maximise transparency to Parliament and industry.
In summary, the Government believe that the proposed legislation is necessary to ensure that the framework for money market funds continues effectively, and that the legislation continues to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope colleagues will join me in supporting the regulations.
I would like to respond to the point raised by the hon. Member for Aberdeen North (Kirsty Blackman). Parliament will amend the regulations as necessary for a deal scenario. If we have a deal, an amendment process would apply to all the regulations that we have taken through. Most of them would need to be repealed, but we would do so according to the terms of the deal. I have nothing more to say at this point, and I commend these regulations to the House.
Kirsty Blackman (Aberdeen North) (SNP)
I am impressed by the hon. Member for Thirsk and Malton (Kevin Hollinrake) making a valiant attempt clearly not to stretch the time out, but to make an excellent speech. It was unfortunate that he did not listen a little more carefully to the speech by the Labour spokesperson, who raised the issue of powers that were being changed beyond the scope of simply rewriting the EU law into UK law. Powers are being changed in that regard.
In relation to the disclosure of information SI and to be fair to the people who wrote the explanatory memorandum, there are two whole pages on the deep and special partnerships that the UK desires to have with the EU, although not on the substance of the information in the SI. I commend them for including all that information, although it could have been written in any SI, to be honest.
The instrument redesigns the requirements on EU member states in various pieces of EU legislation that are to be read as applying to the UK after exit, according to a line in the explanatory memorandum, which did not make a huge amount of sense to me. The explanatory memorandum seems to suggest that this UK SI is amending EU legislation that applies to EU countries, which it clearly cannot do, because the UK Parliament does not have the power to amend EU legislation as it applies to other EU countries.
The SI contains some interesting stuff about the requirement to seek the consent of EU organisations and countries before disclosing information. There is currently a requirement for the UK to seek the consent of EU countries before passing on the financial data that it may need to pass on. The SI would remove that requirement. How does that accord with the UK being keen to have a deep and special partnership if it is removing the requirement to seek consent? Removing a requirement to seek consent seems like a bit of an odd thing to do, given that the requirement to seek consent presumably ensures that there are more safeguards in place. We seem to be reducing the number of safeguards in relation to EU countries but not in relation to third countries, because currently we do not need to seek that consent. It is a bizarre thing to do.
My other question is whether the EU has announced plans to change its legislation so that it does not need to seek consent from the UK to pass on financial information. I have raised this issue before and the Minister will know what I am about to say. In some cases, the UK seems to be agreeing on reciprocity—my understanding is that it is on a case-by-case basis by whoever happens to be heading the Department’s SIs and there is no overall policy from the Government on whether they will agree EU reciprocity on such matters, but will the EU change its law? Has it signalled its intention to change its law and is that why we are seeking to change our law?
The explanatory memorandum states:
“The UK and the EU have agreed the terms of an implementation period”.
I am little confused about the definition of “UK” in this regard. The House certainly has not agreed to the terms of an implementation period. The Prime Minister’s deal lost by 230 votes, so we cannot say that it has been agreed. It may have been negotiated, but I would not go so far as to say that it has been agreed. The Prime Minister certainly seems keen to reopen negotiations on the withdrawal agreement, so surely it cannot possibly have been agreed at this point.
The explanatory memorandum states:
“The powers in the EUWA”—
the European Union (Withdrawal) Act 2018—
“are not intended to be used to make policy changes”,
yet the powers in both SIs are being used to do just that, by changing how the law operates, and not just replacing EU regulators with UK regulators. They contain more wide-ranging changes.
The explanatory memorandum states that it would be “inappropriate” to continue sharing information. I am not sure how that would be inappropriate. If we are switching from “shall share information” to “may share information”, surely there will be cases in which it would be appropriate to continue sharing information.
I have a question about the co-operation agreements that will potentially be signed for the disclosure of financial information. I am interested to know how much work will be involved in negotiating those co-operation agreements. Clearly we do not have to do any such negotiating with the EU currently because we are part of the single market and of that framework. Brexit will be overwhelmingly bad, whatever happens. Even if we have a deal, we will end up at a huge disadvantage, compared with our current position. On this specific point, how much additional work will be generated as a result of having to negotiate and sign those co-operation agreements, and at how much of a disadvantage will we be put as a result?
I am still dealing with the first SI, on the disclosure of information. The regulations were published in draft on 9 January this year, but the corrections were made less than a week ago, on 12 February. The copy that I got from the Vote Office did not include the corrections, so I had to find them online. I am interested to know why corrections were needed.
Kirsty Blackman
If they simply correct typos, that is absolutely fine. I was worried that they might have been the result of concerns raised about the legislation. I welcome that clarification.
The explanatory memorandum states that no consultation was undertaken. Once again, I think that consultation should have been undertaken on the SIs, and particularly the one that makes changes to the legislation. The explanatory memorandum states that no impact assessment was done, but it does say that
“a de minimis impact assessment has been carried out.”
This is the first time that I have seen that phrase used in an explanatory memorandum on a financial SI, and I do seem to be spending quite a lot of my life dealing with them—I am sure that the Minister is spending even longer. I do not know what a de minimis impact assessment is, and I do not know where I could find it, because it is certainly not provided on the website. I can find no further information on this thing that has apparently been done to assess the impact.
We have criticised the Government before for not carrying out impact assessments. I think that it would have been useful to have an impact assessment on this. In fact, I fully intend to challenge the Government on this. They carry out an impact assessment only when there is likely to be an impact of £5 million or more on businesses. They do not carry out impact assessments when there is likely to be an impact of millions, or indeed hundreds of millions, on consumers or individuals living anywhere in these islands. It strikes me that, according to the Government’s own better regulation guidance, this process is entirely unfit for purpose, given that it involves literally hundreds of SIs coming through, many of which could do with an impact assessment.
I will move on to the Money Market Funds (Amendment) (EU Exit) Regulations 2019, which is a no-deal SI. The Labour spokesperson made a comment about taking no deal off the table. [Interruption.] Mr Deputy Speaker, it would be easier to speak if it was a little quieter in the Chamber. We are not asking the Government to take no deal off the table now—the hon. Member for Thirsk and Malton said that we were doing so at a critical point in the negotiations; we have been asking them to take no deal off the table pretty much since the Brexit process started, because it should never have been an option in the first place. We are not asking for it to be done now; we were asking for it to be done almost three years ago.
The regulations also change the powers of the Financial Conduct Authority. I have raised concerns before about the powers of the FCA, and the fact that the Government are making piecemeal changes without any kind of overall strategy on what they expect it to look like at the end of the process. I know that the FCA can request more money from Parliament, and I assume that it will have to do so in order to carry out the additional functions that are being delegated to it as a result of all the SIs coming through.
The explanatory memorandum for the money market funds regulations states that HM Treasury will have
“the power to make delegated acts specifying quantitative and qualitative liquidity requirements on MMFs.”
I would appreciate it if the Minister could seek some divine intervention on this and let us know how those delegated acts will be introduced. Will SIs be introduced under the affirmative or negative resolution procedure, or will the Treasury simply be allowed to make its own regulations without any recourse to Parliament? It would be useful if Parliament were across this, given that it is an area that Parliament is not in the habit of dealing with, because it has been an EU area. I think that, in the event of no deal, Parliament would benefit from having some input into those requirements on MMFs.
The commencement provisions for both SIs state that they will take effect on “exit day.” Now, I understand that exit day is defined in the European Union (Withdrawal) Act, which sets out a definite date and time. I am told that the SIs that refer to “exit day” mean that date and time. However, the withdrawal Act also gives the Government the power to vary exit day. If the Government vary exit day, presumably the SIs would come into effect only on the day that they have decided is to be exit day.
I want to know what will happen if we approve these SIs. The process is as follows. If an SI is approved, it does not get Royal Assent—that is not something that happens to SIs. Instead, it basically sits in a pile of SIs that are waiting to be “made”, and they are “made” at a date and time of the Government’s choosing. I was unable to get any further information on that, other than that it is the Government who decide—is it the Cabinet Office or the Prime Minister?
When we were asked to approve these SIs, I genuinely thought that the first one was not to do with a no-deal Brexit, because nowhere in the explanatory memorandum could I find the words “no deal”. The second SI, however, is very clearly to do with no deal. We are being asked to approve the money market funds regulations, which the explanatory notes state will come into effect only if there is no deal, but there is nothing to stop the Government from making this SI, or indeed any other, at a time of their own choosing; it would then apply after exit day. The House of Commons is basically being asked to agree to all these SIs coming into force on exit day, and then the Government have carte blanche to make any of them whenever they desire.
The Minister and I were both a little confused about the provisions of the disclosure of information regulations, given that I thought they applied in any circumstance. I am not sure what will happen if there is a deal now, because I do not know how the disclosure of financial information will work, because we have not been provided with an SI that works in the event of a deal scenario—surely we should have been, because there would be deficiencies in EU law.
What happens in that event? How do the Government decide when to make these SIs? If there is a deal, will they suddenly rush through provisions? The House of Commons has so many SIs in front of it, and we are now only dealing with no-deal SIs. In the event of a deal, will we have a mad situation where the Government have to make edits to each of these SIs and bring them through the House again so that we can approve them, followed by some sort of procedure to put them in place?
There have been screw-ups of monumental proportions in relation to everything to do with Brexit. Specifically in terms of the SI process, we have not seen all the SIs for a no-deal scenario. Apparently we will not even see some of the SIs for a deal scenario until the Prime Minister manages to get something through the House, and who knows when that may be? Are we going to continue with this shambles? For people who are interested in House of Commons procedure, it is wonderful to see it not working. It is great to see the millions of places where House of Commons procedure is completely deficient, and it is particularly great to be able to discuss these SIs and raise those issues on the Floor of the House.
I understood that the disclosure regulations were for the event of any deal or no deal. If they are only for the event of no deal, what information will the Minister provide about that? What information will he provide about the powers of the FCA and what it will look like in future? How will he ensure that the FCA is adequately funded to fulfil its obligations? Lastly, these two SIs and all the other financial services SIs we have seen have not been adequately consulted on, and I would appreciate it if the Minister commented on the consultation process.
Securitisation Regulations 2018
Kirsty Blackman Excerpts(5 years, 2 months ago)
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The Economic Secretary to the Treasury (John Glen)
As part of our obligations while the UK remains a member of the EU, it is our responsibility to ensure that domestic law is compatible with EU legislation. That includes this statutory instrument, which will, as the hon. Member for Oxford East (Anneliese Dodds) said, ensure that the EU securitisation regulation is effective and enforceable in the UK. It is not an EU-exit statutory instrument through which functions are transferred from an EU authority to domestic authorities. The instrument that does that—the Securitisation (Amendment) (EU Exit) Regulations 2019—was laid on 23 January and will be debated in due course.
It might be helpful if I gave the House some background information. The securitisation market’s slow recovery after the financial crisis reflects concerns among investors and prudential supervisors about risks associated with the securitisation process itself. The EU responded by proposing in 2015 legislative measures to promote a transparent and liquid market for securitisation. There were 120 responses to the 2015 consultation that gave rise to the regulations, which evolved over two years of EU discussions. They were then scrutinised in Parliament and were approved by the House of Lords scrutiny Committees in July 2017 and by the House of Commons European Scrutiny Committee in February 2017.
Kirsty Blackman (Aberdeen North) (SNP)
The Minister mentioned the number of consultation responses; were they from throughout the EU or just from companies and organisations in the UK?
John Glen
I am not certain, but I would imagine they were from the UK. It was an extensive consultation that led to the evolution of the regulations, which were then scrutinised at different intervals by the Lords and Commons Committees before their final approval in 2017.
The UK voted in favour of the package of reforms in 2017 because it ensures high standards of process, legal certainty and comparability through a greater degree of standardisation of products. The new rules bear no relation to the securitisation of sub-prime mortgages created in the US that contributed so significantly to the financial crisis. Along with other legislation, including on the overhaul of the credit ratings agencies and more stringent rules for mortgage and credit granting, the proposals build on the lessons learned from the financial crisis by improving regulation and oversight, and they implement standards introduced by the international supervisory community.
The EU regulation, which the instrument we are debating implements, is derived from the new international standards set by the Basel Committee on Banking Supervision and the International Organisation of Securities Commissions. These two bodies worked to create a new framework of high-quality securitisations to introduce the degree of assurance around the information on securitisation that was necessary in the markets. Their work seeks to restore an important funding channel for the EU economy while making the market less risky and supporting financial stability.
At a time when bank lending is constrained, securitisation can boost credit and growth. It can help to free up banks’ balance sheets so that they can lend to households and businesses. The good functioning of and access to securitisation as a funding tool allows investors to diversify their investments and supports the real economy. It is for that purpose that effectively supervised securitisation is actively supported by the prudential authorities, including the Bank of England, which supported the EU initiative as playing
“an essential role in de-stigmatising European securitisation, helping the market to develop on a sustainable track”.
Let me turn now to the securitisation regulations. Although the EU rules themselves were agreed in 2017, the statutory instrument under consideration concerns empowering the regulators to effectively supervise the new securitisation rules that came into force at the start of the year. As the industry has prepared itself for the new regime, the Government are obliged to ensure that the new framework is operable. In essence, this SI simply gives effect to the directly applicable EU securitisation regulation and ensures that it is effective and enforceable in the UK.
The supervisory, investigative and sanctioning powers that this instrument delegates to the relevant competent authorities give effect to the EU framework. The hon. Lady mentioned the resourcing of the Financial Conduct Authority and the Bank of England. Both have been instrumental in the development of these regulations and are primed and ready to take on responsibility for them. The instrument fulfils the necessary obligations of the EU regulation in designating roles to the domestic regulators and provides them with the powers that they require to effectively supervise the market.
To summarise, the Government believe that this instrument is needed to ensure that the new securitisation regulatory regime works effectively. This will support a sound and transparent securitisation market in the UK, bringing real benefits to investment, jobs and growth while enhancing long-term financial stability. The whole purpose of the EU regulation is to address the challenges of the past and to ensure that mistakes prior to the financial crisis in respect of securitisation are not repeated by keeping the measures simple in form and more transparent. The proposal to revoke the instrument would only endanger that and disrupt the market as supervisors would not be able to enforce infringements to the rules that seek to better regulate the market.
The hon. Lady raised a number of points. I have clarified that this measure is not related to a no-deal situation. A point was made about the amendment to primary legislation and the fact that criminal offences already on the statute book will be affected. Although the EU regulation is directly applicable, the Securitisation Regulations 2018 make changes to UK law to ensure that EU regulations are fully effective and enforceable in the UK. The power under section 2(2) of the European Communities Act 1972 makes it possible to give effect in national law to measures in EU law by secondary or delegated legislation such as statutory instruments. Importantly, such secondary legislation can amend an Act of Parliament—section 2(4)—as the delegated legislative power includes the power to make such provisions as might be made by an Act of Parliament. So the instrument applies and modifies certain provisions of the Financial Services and Markets Act 2000 and other UK legislation both to create the new supervisory, investigative and sanctioning powers required by the EU regulation and to ensure that UK legislation is compatible with EU regulation, including applying and/or modifying necessary offences pursuant to sections 398 and 177 of the 2000 Act. This instrument allows an approach consistent with existing enforcement regimes elsewhere in the sector and with other financial services implementing SIs.
The hon. Lady referred to preferential treatment of capital for banks and risk retention and needing to have skin in the game. These rules are derived directly from international standards, which are set by the Basel Committee on Banking Supervision and by the International Organisation of Securities Commissions. There is no attempt to develop some bespoke UK regime. These measures are completely consistent, which has been acknowledged during the significant scrutiny process to which they have already been subject. The hon. Lady also mentioned the CMA. The CMA was not designated as it does not have a role to play under the EU regulation.
I think that I have dealt with the points that have been raised. These are straightforward regulations that give effect to the directly applicable EU securitisation regulation. When Sub-Committee A of the Secondary Legislation Scrutiny Committee looked at these regulations on 17 December, it cleared them without comment. This is an attempt to update the regulations appropriately to give more confidence in the markets. I hope that the House will join together in support of the continued application of this instrument, and to oppose the motion to revoke it.
Kirsty Blackman (Aberdeen North) (SNP)
This debate is so well subscribed that I was not sure whether I would be called, so I am delighted to have the opportunity to speak. It is excellent to have the opportunity to talk about a statutory instrument on the Floor of the House, given that we tend to be relegated to the Committee Corridor. It is also delightful to see two Government Ministers on the Front Bench, as we only have the pleasure of one in Delegated Legislation Committees.
The case has been put excellently by the hon. Member for Oxford East (Anneliese Dodds) who spoke from the Opposition Front Bench. I want to talk about a few concerns that the Scottish National Party has about the regulations as drafted, and the reasons why the Labour party prayed against them. The hon. Member for Oxford East made the case that, although this is not an EU exit statutory instrument, its aims clash with the aims of the EU exit SI on securitisation. It is quite confusing for the House at this time to be dealing with the in-flight regulations coming from the EU, as well as the EU exit ones. The issues around Henry VIII powers are incredibly important and form the core of our concerns.
The Minister mentioned the consultation. I would guess that the 150 submissions were from an EU-wide basis, rather than a UK-wide one. In fact, it seems unusual for there to be that number of submissions on pretty much anything. Given the number of SIs that receive no formal submissions, 150 seems like a significant number. However, if that is the case, I am quite happy to retract those comments.
The Minister’s comments on the consultation and the responses to it were very useful, but it was unfortunate that this information was not included in the explanatory memorandum. The explanatory memorandums that we normally see for SIs, particularly those dealing with EU exit, generally do not say that there has been consultation—and we generally criticise the Government for that—but they do usually say that there has been consultation with the Financial Conduct Authority, the Prudential Regulation Authority, the Bank of England or whichever authorities are relevant. However, the explanatory memorandum for this SI does not even say that that has happened. It is particularly concerning that, even if there were consultation on how the legislation was written, there has not been one on the implementation of the legislation as it is written into UK law and how it will be taken forward in this place.
My other concern is about the authority given to the FCA and the PRA. I have raised this concern recently, particularly in relation to the Bank of England. It seems that the Government are changing the powers that these organisations have, piece by piece, without any kind of overall strategy. It would be sensible for the Government to bring forward a White Paper or some sort of document on how they envisage the powers of the FCA and the Bank of England operating in future years. It seems that the Government are making policy changes by SI when they should actually be coming forward with an overarching position regarding how they see both the policy and the powers of the Bank of England, the FCA and the PRA in the future. When they make these piecemeal changes, we end up with organisations that have to deal with powers that are not joined up in any way because there is no joined-up approach.
It seems to me, from conversations that I have had with the Minister, or possibly the Financial Secretary, on the amount of resource that the FCA has that this House has been giving it quite a lot of additional work and obligations in recent times. While I am not saying that that is necessarily a bad thing, the way that it has been done has not been helpful. My understanding, with regard to the FCA’s requirement for resource in terms of spend, is that it will come to this House and request additional money if it has additional duties that it needs to carry out. Given that the Government are increasing the scope of and requirements on the FCA in taking action to monitor things and to have obligations in various places, has the Minister had an overall look at what its budget and powers will look like in future years? If not, it will be very difficult for it to say to this House how much money it is going to require in order to adequately ensure that it is fulfilling all the obligations that have been given to it by this House.
My main concerns were around the issue of consultation, particularly the fact that, as it says in the explanatory memorandum, consultation has not been undertaken on the implementation of this EU law within UK law, as well as the piecemeal nature of the way in which the Government are coming forward with this. It would be helpful if the Minister was able to clarify, or give us some idea of, the Government’s direction of travel and say that there will be some sort of policy paper on these powers. It was particularly concerning that the Bank of England’s powers were just extended without any sort of policy alongside that. We are regularly seeing the FCA’s powers being changed.
It would be really helpful for this House, and we would be much less likely to raise concerns, if we had an idea of where the Government’s decision making was going. We might disagree, but we would be less likely to raise these concerns about every single SI. I am sure that the Minister is absolutely fed up with us raising exactly the same things on these occasions and having to give exactly the same answer, which generally does not help us. I have not generally taken part in SI debates on the Floor of the House, so I am not sure whether the Minister is going to wind up, as is normal. I hope that he does, so that he can answer some of these points.
John Glen
Thank you, Madam Deputy Speaker. I feel it is appropriate for me to respond to the remarks of the hon. Members for Enfield, Southgate (Bambos Charalambous) and for Aberdeen North (Kirsty Blackman).
The Treasury has not undertaken a formal consultation on this SI, as the changes to domestic legislation required are minor, and the enforcement approach taken is in line with existing enforcement regimes in the financial services sector. We have worked closely with the FCA and the PRA throughout.
The hon. Member for Aberdeen North made some remarks about the resourcing of the FCA. It has additional resources through the onshoring programme, but this SI has nothing to do with that. This is a business-as-usual SI that would have happened anyway. There was certainly no attempt to slip it in amidst all the others that were taken through Committee. It was a consequence of these regulations being taken through the scrutiny process. I can confirm that there were 120 responses from across the EU as a whole in 2015 to the Commission’s proposals, which were then iterated over the two years before they were approved.
I agree with much of what the hon. Member for Enfield, Southgate said about the aspirations of the regulations underlying this SI. This will bring in more stringent underwriting criteria for mortgage and credit granting. It will overhaul the supervision of credit rating agencies. We have updated international standards on the amount of capital that banks need to hold against securitisations. It responds directly to the work of the Basel Committee on Banking Supervision and the International Organisation of Securities Commissions. The process of consultation that led to the regulations being agreed in this House and through the Commission has lasted two years, from 2015 to 2017, and this SI is simply implementing them.
In conclusion, I believe that the securitisation regulations will enable the FCA and the PRA to supervise the new framework for securitisations agreed in the EU, which introduces stricter standards and makes securitisations simpler and more transparent.
Kirsty Blackman
On the point about the powers of the FCA and the changes that are being made to it—I am not suggesting that he is trying to slip out this particular one, but there do seem to have been various changes along the way—is it likely that the Government will come forward with something explaining how they expect the FCA to look in future and how we will get to that point?
John Glen
There are two or three things going on. There are 53 financial services SIs going through Committee in connection with no-deal preparations, which is certainly an additional burden on the FCA, and it has had the resources for that. The hon Lady asked about the Government’s holistic view of the role of the FCA. It is subject to a periodic review, having been formed under the legislation of five or six years ago, and that will happen in due course. We hope there will be more financial services legislation in future Sessions.
This instrument is necessary to enable the regulations to take effect. I hope that the House has found this afternoon’s debate on this matter informative and will be able to join me in opposing the motion.
Communities: Charities and Volunteers
Kirsty Blackman Excerpts(5 years, 2 months ago)
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Kirsty Blackman (Aberdeen North) (SNP)
It is really great to get the opportunity to speak in this debate. There are so many charities and organisations that I could mention, but, with just five minutes in which to speak, I clearly do not have the time to do so. I could easily speak for a number of hours about the different organisations that I have seen in my constituency, as I am sure could Members across this House. I echo those who have said thank you to our volunteers, particularly to those who are genuinely involved in charitable organisations and charitable activities across Scotland and across the wider UK. Our communities would be incredibly different without them.
I shall start on a slightly negative note, but I promise that the rest of my speech will be positive. When talking about the number of people volunteering, I have to say that I have a real concern about millennials and their ability to volunteer given that they are working in jobs that are lower paid than in previous generations, given that their housing costs are increased, and that, in some cases, they are having to work more hours than those from previous generations. Finding time to volunteer in that stramash of everything that has been going on since the financial crisis is really hard for them. Anything that the Government can do to help, such as increasing the minimum wage, would be great as it would give people that breathing space so that they can have time to go out and volunteer.
I have one more general point in relation to corporate social responsibility. When I sit down and speak to organisations that want to put forward corporate social responsibility, I say to them, “Most people can paint a shed or do something like that, but if you are an IT organisation and you can bring your expertise to help people improve their IT systems or to help people fill in funding applications, that would be absolutely vital for some of our frontline charities.” I encourage companies thinking about corporate social responsibility to go down those routes if they possibly can, especially if they have that expertise within their organisations.
Let me talk about some of the charities in my constituency. There is an organisation called Lighthouse in Tillydrone, which was co-founded by John Merson. This man has had an amazing life. As a prison pastor, he found that there was almost a revolving door for people coming out of prison, and he wanted to help them. His church was in an affluent area of Aberdeen, but he started to work in one of Aberdeen’s more deprived communities. The difference that his project has made to people coming out of prison in that community is absolutely unbelievable. The work was totally taken on by him to begin with, but he now has an army of volunteers and paid workers. He planted the seed of that project, and it could not have been better for that community.
Newhills Parish Church has a Living Well Café and a dementia outreach service. It has a befriending project, which provides support for people who are lonely. The café is linked in with dementia services, and it is a brilliant place to go along to. Music 4 U is another organisation in my constituency. It is a stage school that does shows. People with physical and learning disabilities attend the school. Everyone is supported in that organisation to reach their potential. It is just how I think life should be, with everyone supported to reach their potential and overcome barriers. I could not be more supportive of Music 4 U and Debbie Kirkness, who runs that organisation.
Aberdeen Muslims does excellent work in supporting the local community. For example, the beach in Aberdeen was an absolute mess after flooding a few years ago; there was stuff everywhere, and the Aberdeen Muslim community rallied round and organised much-needed beach cleans.
There are so many more groups in my area. I will briefly mention the uniformed organisations such as the Guides, the Scouts, the Boys’ Brigade and the Girls’ Brigade. I started my journey in the Guides at Rainbows, and my daughter has now started her journey in Rainbows. I was a Rainbow, then a Brownie, then a Guide and then a Young Leader. [Interruption.] How things have changed—not necessarily for the better. I have also helped to run a Rainbows group. The volunteering hours are a brilliant experience. These organisations are so good for bringing people together from all the different corners of communities, and giving them the opportunity to socialise with people who they might not normally socialise with.
I have said before that I am not religious, but I could not have more respect for the amount of volunteering that our religious and faith communities do. My city would be very different if it were not for people who attend churches of all different types, and who volunteer and try to improve their communities. I thank them all.
UK as a Financial Services Hub
Kirsty Blackman Excerpts(5 years, 3 months ago)
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Kirsty Blackman (Aberdeen North) (SNP)
Congratulations to the hon. Member for Hitchin and Harpenden (Bim Afolami) for bringing the debate. It is important that we talk about the UK as a financial services hub, the contribution to the economy, and the number of jobs in this area.
At lot of the statistics have already been discussed, and as time is relatively short, I will not go over them. I would like to mention Edinburgh, which is the largest financial services centre in the UK after London. It is also a major European centre for asset management and asset servicing. It has been at the forefront of the life assurance market for more than 200 years, which is pretty impressive. Think about the depth of knowledge that companies have developed over 200 years of providing services to people in the asset management space. In 2017, around 33,000 people were working in Edinburgh’s financial services and insurance sector, which is a significant proportion of the population of not only Edinburgh, but Scotland.
Within Scotland, the financial services sector is not confined to Edinburgh. Large banks have technology hubs in Glasgow, and Aberdeen has financial and professional services jobs, for example in major accounting firms that are servicing the oil and gas industry. As the hon. Member for Hitchin and Harpenden said, this is not exclusively a London thing. When reading the stats, I was surprised to find that 50% of jobs in financial services are outside London. I had expected the sector to be more London-centric, so it was interesting to read that, and to think about the vast numbers of people in the sector; we know how many people in London work in financial services, but there are a significant number of people doing so outside the City as well.
I will focus on Brexit, as Members would expect, given that the Scottish National party is the party in this place that has consistently and vociferously opposed any Brexit. We have said that if we are to have any Brexit, we need full single market and customs union membership, which would protect our right to access some of the services that we would be able to have post EU exit.
Financial services firms and their money are leaving the UK because of Brexit; they are genuinely voting with their wallets. Since the 2016 referendum, $1 trillion-worth of assets have been moved from the UK to the rest of Europe according to Ernst & Young, which is a significant amount of money. According to Bloomberg, Deutsche Bank AG is repatriating at least €400 billion to Frankfurt; JP Morgan is taking €200 billion there, Goldman Sachs €60 billion, Citigroup €50 billion and Morgan Stanley €40 billion. Those are significant amounts of money.
Bloomberg has said that London could lose 10,000 banking jobs and 20,000 jobs in wider financial services. To put that in context, professional services represent 12% of the contribution to the British economy. Losing those jobs in financial and professional services, losing that investment, and losing the centres of large financial services organisations as they move would be a significant hit to the Treasury.
When we have discussed Brexit in this place, we have not had enough discussion of services. We have had in-depth discussion about tariffs, for example, but if we think about the contribution made to the economy by services, compared with the export or import of goods, services are a huge part of the economy. It surprised me that when the UK Government set out on the path of trying to work out which Brexit would suit, they did not say, “We are going to bat for services. Services are the key thing that we will put front and centre, and we will fight for access to services markets.” That would have been a far more sensible option for the Government than saying, “The most important thing is clamping down on freedom of movement. We are happy to ditch our access to services markets, simply so that we can get rid of our citizens’ right to freedom of movement.” That was an incredibly poor decision, and we will all pay the price.
On the impacts on the single market and our options— I am aware that there is not a huge amount of time, so I will whizz through this—one of the biggest concerns raised is data transfer post Brexit, whether there is a deal or a no-deal Brexit. There are issues to do with compliance with the general data protection regulation. For example, if a motorist crashes their car in Europe and they are insured by a UK firm, it is important that the data can be transferred, so that the claim can be paid. If there are barriers in place because we are outside the single market, or because we are outside the GDPR regime as it is set up in Europe, that is a major issue for ensuring that those claims are paid.
I have tackled the Government about the lack of reciprocity in some of the secondary legislation that has been brought in. They had immediately assumed that we would not have reciprocal arrangements with the EU in a no-deal scenario, whereas I come from the point of view that we should always have reciprocal arrangements with the EU. Once there was regulatory divergence, a further statutory instrument could be laid before Parliament to change the position around reciprocity. It concerns me that the Government have refused to do that.
I will focus briefly on people, as the issue was brought up a lot in the debate. In some sectors of the capital markets, EU27 citizens account for as much as a quarter of all staff in the UK. That is a significant stat. If the UK Government’s settled status scheme makes people feel unwelcome, and they therefore choose to go back to the EU country where they were born, that is a major concern. There is another issue around short-term visas. A lot of large companies have bases in other countries and require people to come over for a short period. The UK Government have suggested that the visa scheme will allow for 12-month visas; somebody might only be here for three months, and then the company might want somebody else for three months. That causes a real problem for companies, with regard to ensuring flexibility in their workforce.
To sum up, everything relating to Brexit that the Government have decided on has been disadvantageous to financial services. Anybody who talks about a low tax, low regulation system causes me major problems; I have real issues with that. For 20 years of my life, Scotland had a Conservative Government for which we did not vote. Conservative Back Benchers are talking about a low tax, low regulation system that we have not voted for. I wonder why people—and the Government—cannot understand why Scotland wants to be an equal partner in the EU, rather than a member of the UK, where we are having these things done to us against our will.
Draft Financial Markets and Insolvency (Amendment and Transitional Provision) (EU Exit) Regulations 2019
Kirsty Blackman Excerpts(5 years, 3 months ago)
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Kirsty Blackman (Aberdeen North) (SNP)
I thank the Minister for ensuring that an impact assessment was provided to us in advance. We have not always had one, and I am pleased that we do today. I found it incredibly helpful in preparing for the Committee, and in understanding the legislation and the impact the Government expect it to have. That was very useful.
The information that the Government have provided to us, particularly in the explanatory memorandum, still says that they believe that no deal is incredibly unlikely. The explanatory memorandum says of no deal that
“the government does not anticipate it arising.”
I understand that the explanatory memorandum was written back in October. I wonder whether the Minister is keen to update its phraseology so it is more in tune with the Prime Minister’s current views, given that no deal seems much more likely than it did around October.
I have a few concerns with the statutory instrument, some of which were covered by the hon. Member for Stalybridge and Hyde. The SI seeks to vary the powers of the Bank of England. It seems to me that that is a significant change. Any variation of the powers of the Bank of England should probably be discussed by the House in a bigger forum than a Delegated Legislation Committee. Whether the power of the Bank of England needs to be extended in this way to cover any transitional period is quite a serious matter, which probably needs to be looked at in the round, perhaps by the Treasury Committee.
The hon. Gentleman’s point about the power of the Treasury is incredibly important. Giving the Treasury unfettered power to extend the period is concerning, and that is certainly not something that I would be particularly happy to support. The Minister mentioned that the draft SI and the explanatory memorandum were published back in October. I would be interested to know—I have asked this before, so the Minister should expect me to ask this question—whether there were any hits on the website for the draft SI. There is no point in the Government putting it on a website if nobody looks at it, because then it is not fulfilling its purpose as a consultative document.
If people did look at the SI, did they comment on it? I understand that consultation was undertaken only with the FCA and the Bank of England, rather than more widely. That is certainly what the explanatory memorandum says. Did anybody else have any input into that consultation, to raise issues or make positive comments about the statutory instrument? Has the statutory instrument been changed since it was published in draft? I expect that if people had responded to the consultation with concerns, the draft statutory instrument could have been changed to take account of those concerns, so it would be useful to know whether any changes were made.
On the transitional designation, 126 EU systems currently benefit from protection under the settlement finality directive. According to the impact assessment,
“as of 24 January 2019, 26 systems have indicated their intention to enter the UK post exit regime.”
Presumably those 26 systems have done something to start the process for transitional protection, which is quite impressive considering that the transitional scheme does not yet exist.
How many of those 126 organisations have actually been contacted by the Bank of England? Has the Bank of England contacted all of them? Are they aware that they will need to do something in advance of 29 March, if things go ahead as envisioned? If they are not aware, why is the Treasury not asking the Bank of England to contact them to make them aware of their requirement to do that? We are very close to 29 March now. It would be sensible for those organisations to be aware that they have to notify their intention before exit day to take part in the transitional scheme, and that they then have to make a full application within six months. That would be incredibly useful.
There are a few more things I would like to raise. The hon. Member for Stalybridge and Hyde mentioned the issues with the Government saying they are not making policy decisions through the delegated legislation being made under the European Union (Withdrawal) Act 2018. It seems to me that the Government have made a very significant policy decision by not recognising things that are recognised in EU states by EU authorities. It seems to me that the Government have at no stage put it to Parliament that that is their policy position in all the delegated legislation coming through.
I am on the European Statutory Instruments Committee and we see a lot of statutory instruments coming through where the UK has decided unilaterally not to recognise EU qualification designation systems. There seems to be no clarity about which ones are not recognised and whether any will be recognised. Obviously, in this case, the Government are building in a transitional protection to recognise some things that have been recognised by EU authorities for a brief period. However, I have not seen that in any of the other instruments that have come forward. I am not clear whether that is a Government policy. It would help us all as parliamentarians to understand why the Government have taken a decision unilaterally, when the EU has not changed any legislation, not to recognise things on day one that have been recognised as appropriate under the current system. More information on the Government’s position on that would be incredibly useful.
I am concerned about not recognising those designations, because the EU has not changed its law and will not do so overnight on 29 March. Presumably, those regulatory regimes will not change overnight on 29 March, so they should still be appropriate. The more sensible legislative approach would be to continue to recognise those designations and, in the event of the EU or the UK making changes to its regulatory regime, to bring forward another SI or in some cases primary legislation to change that recognition, and to refuse to recognise those agreed under EU authority. The Government seem to have it backwards; this is certainly not how I would have done it if I were making these decisions.
Whatever happens, it is important that the SI works and there is continuity for the people and organisations that benefit from these protections. I understand that, in setting up transitional designation, the Government are trying to ensure that that happens. I am concerned about the lack of consultation. I get it that the Government have consulted the Bank of England and the FCA, but more consultation or evidence of consultation with the organisations affected would have been helpful. It would have been useful if the Government had come forward with that information.
What I am most concerned about is ensuring that transitional designation is fit for purpose—that the people who should use it can do so and are aware of their obligations, so that people are protected. I am also particularly concerned that the Treasury is being granted powers that I am not keen it should be granted without a sunset clause—that is a great idea—and that the Bank of England is being granted powers that I feel should be discussed in a bigger forum than a DL Committee. An awful lot of DL Committees are going on, so some Members might have missed the fact that this incredibly important Committee was happening and been unable to come along and say, “I’m not particularly happy about the way that this is being done.”
It would be useful if the Minister provided answers to some of those points. Depending on his answers, we might need to vote against the SI.
Kirsty Blackman
Can the Minister explain whether, in the event of the Prime Minister’s deal getting through and there being some sort of implementation period, he envisages a transitional regime or whether everything will just go ahead as it is currently?
John Glen
I am very happy to respond. In the situation that we have a deal, which is what the Government wish to happen, we would enter the implementation period. That means we would have continuity of current arrangements until we secured the enhanced equivalence solution, which we would be working towards, by the middle of next year, before the end of the implementation period.
The hon. Member for Stalybridge and Hyde expressed concern about the cost. We estimate that 126 EEA firms benefit from UK protections via the SFD and would therefore be in scope for this regime. Each firm is expected to have a one-off familiarisation cost of £210, so the total cost would be £27,000.
The hon. Member for Aberdeen North asked about the extension of the Bank’s power to designate non-EEA systems, which she posited was a significant policy change to the EU SFD and therefore incompatible with the general onshoring approach. The key point is that if, in the undesirable circumstances that we leave the EU with no deal, the UK becomes a third country and therefore is treated the same as any other non-EU jurisdiction, the new regime would need to reflect that. The SFD is a directive rather than a regulation and so allows for a degree of member state discretion on transposition into national law. I suspect that is why there is the impression of some arbitrary decision being taken.
A number of member states, including the UK, have in place or are working towards a framework for designating non-EEA entities. I would therefore submit that the Bank’s power to designate non-EEA systems is not a significant policy change from how the SFD framework currently operates in the EU at member state level. I note the hon. Lady’s observations about how her approach would differ, in that, if changes were made to the EU directive, we would submit another SI. I cannot give her the explicit rationale for why we did not adopt that approach, but I am happy to write to her on that point.
The hon. Lady also raised concerns about who had looked at the SI and asked about hits on the website. I do not have that data. I do not know whether it has been collected; I do not think it has. We engaged with stakeholders, including the financial services industry, while drafting these SIs, and they were published in advance. We shared the draft legislation with industry to allow stakeholders the opportunity to familiarise themselves with our approach and to test our understanding of the impact, and it was welcomed and supported. I cannot give the hon. Lady a precise answer about the iterations leading to the final SI being laid before the House, but I can say that there are no concerns about where it has ended up.
The hon. Lady asked about my view on the likelihood of no deal and whether it has changed. Obviously, we cannot completely rule out the possibility that the UK will leave the EU without a deal, but from my perspective as a junior Treasury Minister, it is important that I deliver a fully functioning legislative and regulatory regime come what may, and that is what I am determined to do. We have engaged with stakeholders to ensure that happens. The Commons continues to debate and, I hope, approve SIs relating to no deal, but I think the process the Government are going through is well known.
The hon. Member for Stalybridge and Hyde asked what the procedure would be for extending the temporary designation regime. Under this instrument, the Treasury will be able to extend the temporary designation regime by an additional 12 months beyond the initial three-year period. We would do that by laying a negative SI, given that we would not be substantively changing anything; it would be an administrative change. We would lay a written ministerial statement before both Houses in advance of laying that SI, in order to inform them of the situation.
John Glen
I am grateful for the advice I have received, mystically, from behind me. It could be a multiple approach, but, again, that would be justified in the written ministerial statement. It is quite difficult to see how that would go on in perpetuity, but if there was a justification from the Bank of England, that would be made clear and that would happen.
Kirsty Blackman
As the Minister managed to get divine inspiration for that question, he might manage to get some for this one. He has talked about the cost to companies of having to make these changes and go through the registration process. I failed to ask about, and the Minister did not mention, the additional cost that the Bank of England might incur from administering the transitional designation regime.
John Glen
I am very happy to write to the hon. Lady about that. I think the cost would be minimal, and it would be in the context of the Bank’s overall work. I do not know whether the cost relevant to this directive can be isolated, but I will write to her in general about the resourcing of the work of the Bank of England.
The hon. Lady also asked whether the Government have decided not to recognise systems that are recognised by EU authorities. The mutual recognition process works by virtue of the UK being a member state and hence subject to the settlement finality directive. I may have raised this point earlier. When we leave the EU, we will no longer be subject to the SFD, so this is not a policy decision; it is a necessity to provide continuity in respect of EEA systems. That is why the temporary designation regime is being created.
There is also the question of our overall aspiration. Clearly, we hope to secure a deal, and therefore we have ambitious plans subsequent to that, during the implementation period, to have an ambitious arrangement with the EU where we have strong relationships, regulator to regulator. This SI is essential for ensuring that we continue to have an effective framework for financial markets insolvency in the UK in a no-deal scenario. I hope this sitting has been informative and that the Committee will join me in supporting this SI.
Question put and agreed to.
Draft Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019
Draft Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019
Kirsty Blackman Excerpts(5 years, 3 months ago)
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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.
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.
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.)
Oral Answers to Questions
Kirsty Blackman Excerpts(5 years, 3 months ago)
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Robert Jenrick
We have made a number of interventions in this space, because as my hon. Friend says, while the UK is generating record numbers of start-ups, there is evidence that we need to help businesses to scale up and achieve their full potential. We launched the patient capital initiative, and we put £2.5 billion behind the British Business Bank to help small businesses in all parts of the country, including Scotland, and it is making good progress.
Kirsty Blackman (Aberdeen North) (SNP)
I am pleased to let the Minister know that in the next financial year, 90% of businesses in Scotland will pay less in business rates than they would if they were elsewhere in the UK. Following on from the question from the hon. Member for Stirling (Stephen Kerr), it is important that new firms have access to banking and lending facilities. What is the Minister doing to encourage banks to lend to businesses?
Robert Jenrick
We are taking a range of steps to ensure that banks are able to finance small businesses. For example, as I have just described, we are establishing the British Business Bank, which is supporting tens of thousands of businesses across the country, including many in Scotland, and helping to ensure that finance is available. The venture capital sector is vibrant and maturing in all parts of the country—not just the areas traditionally associated with venture capital, such as London, Oxford and Cambridge—and helping those businesses to scale up.
Kirsty Blackman
The news that Santander is to close 15 branches across Scotland will leave firms across the country without access to basic banking services. When did the Treasury become aware of that news, and what action has it taken to protect those services and those jobs in our local communities?
Robert Jenrick
We have taken action already to ensure that banks, including Santander, work more closely with post offices, so that there are always banking services available in all parts of the country. We give post offices over £50 million in financial support a year to help keep branches open, particularly in rural and harder-to-serve communities.
HMRC Estate Transformation
Kirsty Blackman Excerpts(5 years, 3 months ago)
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Mel Stride
I thank my hon. Friend for his question. As he will be aware, we have announced that we will retain the Southend office until the end of 2022, but I am happy to meet him to discuss that matter.
Kirsty Blackman (Aberdeen North) (SNP)
I thank the Financial Secretary for giving this statement and for advance sight of it. It is clear that he has drawn the short straw today—perhaps it is penance for his “no food, no channel tunnel” gaffe. Somebody needed to give a statement so that we had less time for the Brexit debate, and at least 10 fewer Members will get to speak in it as a result of this statement.
This is an important statement, but the timing is bizarre, given that on 8 January HMRC produced on its website a list of addresses and details of the transitional sites. How come it has taken 21 days for the Financial Secretary to come to Parliament to allow us to ask questions on this statement? How come it happens to be on the day when we are discussing Brexit?
As the hon. Member for Oxford East (Anneliese Dodds) said, the entire programme of transformation and the way that this has been gone about is completely bonkers. Dedicated, experienced staff are being forced out of HMRC as a result of these closures. Communities such as Cumbernauld and Livingston are losing thousands of jobs as a result of these changes. Why on earth does the Financial Secretary think it is good value to close a large out-of-town office and move it to a city centre location where rents are hugely in excess of those in out-of-town locations, where staff will have massively increased travel costs to get to work and where business rates are likely to be far higher? Why does he think that this is a good idea?
The Financial Secretary said that 90% of staff who were at HMRC at the beginning of this process will still be there at the end. What about the 10% of staff who will not be there at the end? Will those staff be made redundant? How many of those 10% of staff are in Scotland?
People worked in HMRC offices in Inverness, Wick and Aberdeen, but the only regional offices in Scotland will be in Edinburgh and Glasgow. Does the Financial Secretary realise how long it takes to get from Aberdeen to Edinburgh, from Inverness to Glasgow or from Wick to Glasgow? It takes the best part of a day to get there from Wick. There is no way that people can commute that distance.
In terms of the customs checking functions that HMRC will need to perform, does the Financial Secretary believe that there will be adequate geographical coverage of customs staff once Brexit happens? More checks by customs officers will be required at those ports, and if it takes them a day to get to the port, there will be even more of a hold-up than is being suggested in a no-deal scenario.
I understand that HMRC is taking on an extra 5,300 staff to deal with Brexit planning. Could the Financial Secretary confirm how many of those 5,300 staff who are being taken on or have been taken on are in Scotland? How many of the 3,000 additional customer service staff who have been taken on are in Scotland? How many jobs will HMRC have in Scotland at the end of this process compared with the beginning? Lastly, I want to know why the Financial Secretary has taken 21 days to come to the House to tell us what was published on HMRC’s website on 8 January.
Mel Stride
The hon. Lady raised a number of questions, one of which was about the issue of staff.
Draft Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, Etc., and Transitional Provision) (EU Exit) Regulations 2018
Kirsty Blackman Excerpts(5 years, 3 months ago)
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Kirsty Blackman (Aberdeen North) (SNP)
I am not the Scottish National party’s most regular contributor to this Committee, so I have some learning to do before I get to the level of knowledge that many people in this room have. I have a few questions in relation to the information that has been provided to us and also some of the information that has not been provided to us.
My first question is about the lack of consultation on this statutory instrument. The explanatory memorandum says clearly that no consultation has been undertaken on the instrument, although it says that the Government have been interacting with the Bank of England and the FCA in relation to the drafting of this regulation, which I appreciate. I am pleased that the Treasury put it online back in October so that people could access it. It would be useful to understand how many people engaged with that process. Were representations made by individuals and companies or those who use these regulations and are governed by them? If the Government put them online and only four people see them, there seems little point in doing so. The Government should publicise the fact that the regulations are online for people to comment on. Also, it would be useful for people who might want to comment to know that the Government take comments on board and might actually make changes to the draft instrument before it comes to Committee. Even the Minister’s making a statement to that effect would be useful for the people who think, “Is there a point in me spending my time writing a submission on this SI when the Government are just going to ignore me, anyway?” If the Government were willing to say that they would take on board representations, it would be helpful.
My second question is about the intragroup regime and the period of time when it will happen, which is a three-year period with the possibility for extensions, as the Minister mentioned. The explanatory notes state that
“equivalence decisions will be sought, allowing for the establishment of new permanent exemptions.”
I am not clear about the exact process for those equivalence decisions being made, as mentioned by the hon. Member for Oxford East. Are such decisions difficult to achieve or relatively smooth? If we have the three-year time period, will there be sufficient time for equivalence decisions to happen, and in adequate ways so that the legislation equivalence rules that we have going forward are appropriate? Does the Minister foresee that being a smooth or a difficult process, and, to allow those things to happen, will it require input from lots of people whom we have no control over?
My next point relates to no deal. The explanatory memorandum states that the Government do not anticipate no deal happening, although, since it was written, things look a little different from the Government’s point of view. I am still not particularly clear on any of the statutory instruments that come forward. A lot of them seem to be things to do with no deal as well as things to do with deal. I am not always entirely clear which bits relate to no deal and which bits relate to deal. Not necessarily for this instrument, but going forward, it might be better for the Government to be clearer in the explanatory memorandum about which parts of any SIs would be necessary in all outcomes for Brexit: which ones would be necessary in a no-deal scenario and also which ones would be necessary in a deal scenario, but not until the end of the implementation period. There are all these different outcomes, and I do not have the level of clarity needed. Given that we have quite a packed parliamentary agenda, it is difficult to spend a huge amount of time on legislation.gov.uk trying to find out all these bits of information.
The last point was in relation to the impact assessment. I managed to find the SI online. If you look on the back page there is a direct link to legislation.gov.uk—probably you never thought to look on the back page, but it is there. That takes you through the statutory instrument. I do not know whether it has got the explanatory memorandum there. On that web page, which I checked before I came here, it says that no impact assessment has been prepared for this SI—which is directly contradicted by the information that we have in the explanatory memorandum, which says that an impact assessment has been prepared—[Interruption.] I absolutely agree that it is a mess. I do not understand why, if the Government have prepared an impact assessment, we need to wait until the Regulatory Policy Committee sees the impact assessment before we can see it. Surely it could come to hon. Members, with the caveat that it has not been through that Committee? Then we would be in a position to make better decisions.
One of the lines in the explanatory memorandum says:
“It is difficult to quantify the size of the market affected as the instrument covers both the financial sector and non-financial counterparties”.
I would expect the impact assessment to cover that information and provide Committee Members with the information included. If the information is not there for the explanatory memorandum, I am concerned about how good the impact assessment must be—if it does not include proper information about the financial impact on various types of companies and organisations. The way this has been put together is not great. I am particularly concerned about the lack of an impact assessment. As I said, MPs do not have a huge amount of time right now. If we had been provided with the impact assessment at the outset, this meeting would have been a lot quicker, given that we would have been able to read all the information before coming here and easily have it to hand.
The fact that the shortened web address is written throughout the explanatory memorandum and the actual address is only at the very back is not particularly helpful. It means that MPs are wasting time trying to find these things, when the full web address could have been provided throughout the text of the explanatory memorandum.
To push on the point that the hon. Member for Oxford East made, if the Minister can give the Committee today a date when the impact assessment will come, or, at least, some kind of timeline, that would give us a level of comfort. Going forward, though, it is totally inappropriate for MPs to be asked to consider statutory instruments when an impact assessment has been written and is required, yet we are not provided with it until after we have considered the statutory instrument—at which point it is too late for us to make any changes to it. If the Minister could give some comfort and, going forward, look at any other SI Committees so that this shambles does not happen again, that would be incredibly helpful.
Maria Eagle
I rise to support my hon. Friend the Member for Oxford East on the points she made, and on some of the points made by the hon. Member for Aberdeen North. I was appointed to this Committee last week. I do not normally spend my time considering derivatives of the over-the-counter version—or any other kind. However, having spent many years as a Minister—and therefore knowing how to look at legislation—I found, when I looked at this instrument, something else that I would like to raise with the Minister. When I was a Minister I used to spend my time, before I came to Committees, making sure that my officials would bring along to the Committee all instruments referred to in the regulations, to enable the Committee, if it wished to look in detail at some wording, to be able to understand what that meant. I thought that having the other instruments in the Committee room was the norm. What we have here is an instrument that refers in terms, for example in part 2, to regulations from 2013, and then sets out:
“In regulation 2, in paragraph (1), for the definition of ‘the EMIR regulation’ substitute—
‘“the EMIR regulation” has the meaning given in section 313 of the Act;’.”
To understand the meaning of that, one has to have the regulation to hand. I do not see any copies of the regulation that the instrument refers to here. It was always the practice when I was in Government, and I am sure it was the practice of some Conservative members of the Committee who have been in Government in their time too, to have in Committee all the regulations referred to and being amended, so that if somebody had a particular point to make about a particular part we could see clearly what was being changed, what the implementation of that change would mean, and whether the wording appeared appropriated.
Here, we are left with nothing, in practice, but the explanatory memorandum. We have to take on trust—not that I am saying that I do not trust the Minister—that what we are being told in the explanatory memorandum is in fact being done by the wording that we see in the instrument. I think it is poor practice, if I might say so, and I hope that he will take this back to his Department, to come to Committee with instruments that effectively alter other regulations without making them available in the room. Any officials who had left me in that position as a Minister would have known about it. In fact, I used to ensure that such things were correct in Committee.
I know that there is a big burden of statutory instruments at present, and I understand that Ministers are hard pressed, but it is not right in terms of proper scrutiny for us not to be able to understand the meaning of the regulations. Regulations under the European Union (Withdrawal) Act 2018 are more complex than many because they often simply refer to amendments to primary legislation. Here we have a suite of three regulations, but I was not on the Committees that considered the other two.
It makes it increasingly difficult for an ordinary, intelligent person to understand what the hell is going on. That is not good for scrutiny, for the Minister, for the Government, or for good governance, and it leads us to the impression that what is happening is rushed, has not been thought through, and may be defective. If it is, it will not be possible for members of the Committee to pick up the defects. That is a real problem for proper parliamentary scrutiny.
My hon. Friend the Member for Oxford East referred to part 2. When I was reading the explanatory memorandum, one of the things that jumped out at me, as it clearly jumped out at her, was in paragraph 7.16, on page 6:
“Part 2 of this instrument also introduces a power for the FCA to suspend the reporting obligation for a period of up to one year…in a scenario where there is no registered or recognised UK”
trade repository. I immediately wondered in what circumstances that might be the case. The Minister made a reference to that, and said that it would be highly unlikely—but it is not so unlikely that steps are not being taken in the instrument to deal with it.
Can the Minister tell me how many UK-registered trade repositories there are, and in what circumstances—unlikely though they might be—he envisages that this part of the instrument might have to come into force, or that the powers specified might have to be used? As he said, the whole purpose of the regulations, whether they are operated by EU institutions or by the Treasury, the Bank and the Financial Conduct Authority, is to try to prevent the disaster of the global financial crisis that resulted last time from insufficiently prudent, untransparent regulation of such trades. Will he give us a bit more detail about why he has felt it necessary to include such a provision in the regulations?
I agree with the remarks made thus far by my hon. Friend the Member for Oxford East and others about the lack of any kind of impact assessment. It struck me that there is not even a guesstimate of the cost. Will the Minister tell us what trades we are talking about? If the regulations were referring to a couple of hundred thousand pounds a year, we would not worry as much about it as we would if we were dealing with the equivalent of a quarter or a half of our GDP. Will he tell us what level of financial dealings the regulations relate to?
Kirsty Blackman
I am struck that in these Committees, the Government do an impact assessment for more than £5 million of costs to businesses, but not for under £5 million of costs to businesses. If that is all the information we have to go on, that is sketchy, at best.
Maria Eagle
The hon. Lady makes a good point, and perhaps the Minister would like to comment on that as well.
The other point I would like to make is about the financial and resource burdens that the transfers made through the regulations will put on those who inherit the obligations and functions that used to be carried out by the EU institutions. That appears to be the Bank and the Prudential Regulation Authority part of it, the Financial Conduct Authority and, of course, the Treasury. There is nothing I can see that suggests that extra resources will be passed on to the FCA and the PRA part of the Bank for dealing with the additional obligations that the regulations place upon them. While they may well have experts in such instruments and this kind of trading already on their staff, the work that they are going to be expected to do as a consequence of the regulations, if they have to be used, would be different to the work they are already doing.
What financial provision are the Government making to ensure that the FCA and the Bank have the relevant staff and resourcing to do this very important job that he is asking us to bestow on them? There does not seem to be any information about the impact on those who will acquire the extra burdens of doing this work, or the likely cost to the Government, the Bank, the FCA and any other authorities, of carrying it out in a way that will work as well as their current arrangements.
John Glen
Because I wanted the opportunity to explain face to face in the Committee and, given the need to secure the SIs for industry, as I made clear in the quotation from TheCityUK, it is not the perfect process. [Interruption.] I understand the point that the hon. Lady makes but I think I have responded to it as reasonably as I can.
Kirsty Blackman
Lastly, although the Minister has not said it, it appears to me that the issue might be with the Regulatory Policy Committee not getting through the impact assessments that are sent to it. Given that we are going to have an awful lot of SIs and, presumably, an awful lot of impact assessments, that is likely to become more of a problem. Is it necessary for the assessment to go to the Regulatory Policy Committee? Is there a way we could see it without it going to the RPC?
John Glen
The responsibility rests ultimately with me and my officials, and I have to take it on board. It is for me to be accountable for the impact assessments—I am not blaming anyone else. I will continue to do everything I can over the coming hours and days.
The hon. Lady mentioned impact. The draft regulations will not place new regulatory burdens on UK firms. We expect a one-off familiarisation cost for legal experts to examine the draft regulations, which we estimate will have an impact on just over 400 firms and cost £350,000 in total.
The regulatory requirements for trade repositories as defined in title VII of EMIR, will remain largely unchanged. The FCA has been given the power to supervise trade repositories against those requirements, but it has been in close engagement with trade repositories to ensure that their transition is as smooth as possible. Trade repositories will have to familiarise themselves with changes to the supervision and enforcement procedures under the UK regime, but we do not anticipate that that will be burdensome or that the familiarisation costs will be high.
The hon. Member for Oxford East asked how likely the FCA is to use the power to suspend the reporting obligation. It is almost certain that it will not need to use that power because the trade repositories regulations enable it to process advance applications for new trade repositories, or convert authorisations for existing UK trade repositories, to ensure that the UK has operational trade repositories from exit day.
Draft Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2018
Kirsty Blackman Excerpts(5 years, 4 months ago)
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Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to see you in the Chair, Ms McDonagh. May I wish everyone on the Committee a happy new year?
Once again, I must say that it feels a little like groundhog day: we are here again to discuss a Treasury statutory instrument that would make provisions for the financial regulatory framework after Brexit in the event that we crash out without a deal. On each such occasion, my Labour Front-Bench colleagues and I have spelled out our objections to secondary legislation being used in this manner, as well as the challenges of ensuring proper scrutiny of the sheer volume of legislation that passes through Delegated Legislation Committees. We have expressed many times our frustration about having to spend time and resources creating a framework that might never be used, and about the public money that has been spent on planning for what should not be viewed as a potential eventuality.
Because of the dangerous game now being played, statutory instruments considered by Committees such as this may not disappear into the ether on 29 March. They could represent real and substantive changes to the statute book, so they need proper and in-depth scrutiny. Equally, we must bear in mind the stress that financial markets would be under in the scenario that the Government allowed such a situation to materialise. Such instruments must be considered through that lens.
The draft regulations follow on from the Sanctions and Anti-Money Laundering Act 2018. I do not want to rerun the many issues of contention that were debated during the passage of that Act, but I think a few significant points that relate to the draft regulations bear further scrutiny, and I hope the Minister will respond to them.
First, it would be helpful to have further information about how the FCA will assess equivalence of third countries’ legislation, compared with that of EU countries, following the fourth money laundering directive. Will it use the Commission’s list initially and then expand or contract it in the future? If so, what methodology and resources will be used to undertake that? Such a process could obviously be very resource-intensive—a point that I shall come back to later.
Secondly, and relatedly, the existing legislation refers to the Commission’s high-risk third country list. The draft regulations would onshore the EU list as of exit day and then commit the UK to updating the list. I understand from debates in the other place that that would be undertaken via the affirmative procedure for reasons of speed.
Has the Government’s thinking developed on enabling parliamentary scrutiny of changes to that list? Clearly, there is a need for speed, but that surely has to be balanced with appropriate oversight. As with sanctions policy, it would surely make sense to co-ordinate this with the EU, even if it is not done formally, given the potential resource implications of having to research many different jurisdictions speedily. We do not have an indication in the accompanying notes of how that process would occur.
Kirsty Blackman (Aberdeen North) (SNP)
I was going to ask a question in a similar vein about the high-risk countries. I would have less concern if the same list as the EU was used on day one. However, looking for comfort in the future, if the list is going to be changed, and particularly if it will diverge from the EU’s list, parliamentary scrutiny should be brought to bear on that.
Anneliese Dodds
I absolutely agree with the hon. Lady. We have seen a lot of contention around the definition of which countries go on the list. There have been criticisms, even at EU level, of how transparent or otherwise that process has been for countries going on or coming off the list. It is therefore important that we get it right if we end up adopting this process in the UK. We need to make sure that it is fully transparent and accountable. It can have a significant impact on the jurisdictions that are affected, so I am grateful to the hon. Lady for raising that point.
Thirdly, I hope the Government will make clear what our co-operation with the EU on anti-money laundering efforts will look like in the future. Currently, we only seem to have the ubiquitous phrase that on this issue the Government are seeking a “deep and special” future relationship with the EU. The Minister provided us with a little more in his comments, saying that we would continue to engage with international processes—I am sorry I did not catch his exact wording.
We need more detail on this. That is important, given the current developments with the recast of the EU’s anti-money laundering machinery, including its decision to implement more transparency for trusts. The UK’s trust register, as I understand it, is not yet complete and it is not publicly available, even to the limited extent that is proposed in the reform of the anti-money laundering regime. That reform would cover business-like trusts and enable their beneficial owners—or the people who would benefit from their proceeds—to be viewable by those who could prove a legitimate interest in knowing about them, for example journalists as well as law enforcement agencies. That would go beyond the UK regime. It would be helpful to know how we, as a nation, envisage co-ordinating with that process.
We also need more information, given the continuing role of UK-based structures in facilitating hidden transactions. I was astonished to see, in response to a parliamentary question I tabled, that the Government’s loudly promoted crackdown on Scottish limited partnerships has been anything but. In October 2018, there were no less than 3,542 SLPs that said they could not reveal ownership information—which is, of course, now required by law—because of their own failure to obtain that information, and more than 600 that said they could not provide it because, despite knowing who their people of significant control were, they had not been able to collect the required particulars from them. Those figures had only reduced by almost a third and 12% respectively over the previous year, so there really has not been a crackdown in this area, despite what was promised. That is problematic, particularly when other countries are looking nervously at what is happening in relation to these shell companies in our jurisdiction, including EU countries.
Fourthly, I am unclear about one element of drafting. Regulation 8(b)(i) changes an emphatic “must” to a weak “may”, to coin a phrase—I am sorry, I could not help myself. Specifically, the amended regulations will state that the commissioners—HMRC—may, rather than must,
“make arrangements to ensure that the NCA are able to use information on the register to respond promptly to a request for information about the persons referred to in”
different regulations. It is not clear to me why that change has occurred. It seems to weaken the language and there is no explanation of it in the memorandum. Surely the parameters for such co-ordination are critical, especially in a context in which we lack any indication from the Government of when they will introduce their promised offence of failure to prevent economic crime, despite the consultation on the subject having ended many months ago.
Fifthly, and perhaps most substantially, there is—as with so many recent statutory instruments—a question about resourcing. Regulation 5(3)(b) grants the FCA the power to make further technical standards relating to the area. FCA funding has been increased by £5 million to cover withdrawal work, but as far as I can see, that is just to aid the transition; there does not seem to be any commitment to maintain increased funding to allow it to use the new powers that it has been given via such instruments. The FCA’s annual business plan includes the following statement about EU withdrawal:
“Although our Annual Funding Requirement has increased by £5m to cover EU Withdrawal work, we have still made difficult and challenging decisions about our priority activities across all business areas that are not related to work on EU Withdrawal, including limiting the number of new initiatives we’ve taken on. We recognise the particular significance of EU Withdrawal on wholesale financial markets, investment management and the general insurance sectors, and our decisions have been driven by our recognition of the capacity of industry to absorb change.”
Just yesterday, I discussed with the Thames Valley police and crime commissioner his concerns about resourcing for the FCA with respect to adequately identifying and prosecuting fraud—not an area that is covered by the EU withdrawal process, but one that needs to be provided for appropriately. There still seems to be a lack of recognition from the Government about the impact of this SI and others on the FCA’s existing work programme. The FCA’s activity was criticised in FATF’s assessment last month for having cited only eight firms and collected just £254 million in penalties for anti-money laundering violations over the past five years. The Minister mentioned OPBAS; I am sure that he will be aware that the supervision of professions, which was meant to be tightened up, streamlined and made more coherent through OPBAS, was another area criticised in FATF’s assessment.
Interestingly, the draft regulations make no mention of the National Crime Agency, despite concerns expressed in the FATF report about the lack of resources for the NCA, particularly its financial intelligence unit. The Committee may be aware that there has been considerable debate in the specialist press about whether the UK’s glowing assessment by FATF was warranted, particularly given the lack of action to better resource the NCA—an issue highlighted in FATF’s last evaluation in 2007, which stated that
“the UK financial intelligence unit needs a substantial increase in its resources and the suspicious activity reporting regime needs to be modernised and reformed.”
FATF also flagged continuing problems with the lack of verification of data on the Companies House register, a subject that I have repeatedly raised in the House. Because of the FIU’s lack of resources, FATF concluded that it
“misses the opportunity to search for criminal activity that might otherwise be missed by”
investigators who
“mine the SARs database for issues linked to their own geographical or operational remits.”
I understand that the UK assigns only nine employees to analyse hundreds of thousands of suspicious activity reports, or SARs, each year.
Back in 2007, the UK pledged that it would significantly increase the staffing level of the FIU to 200, but press reports from last October suggested that it has only 80 full-time employees and that the unit has actually lost one in five of its staff over the past 11 years. Apparently, the Government have committed to increasing staffing in this area, so it would be enormously helpful if the Minister provided some assurances on that score. It is not just the FCA that works on money-laundering issues, but the FIU in the NCA, so we need to know that it will be adequately resourced.
Kirsty Blackman
May I start by wishing everyone a happy new year? I will not rerun the entire speech of the hon. Member for Oxford East, but I largely agree with what she said.
I have just a few points to raise. First, if the list of high-risk third countries, which the hon. Lady mentioned, is to change, it will be really important to have expertise in scrutinising those countries, so perhaps there should be a formal role for the Treasury Committee or the Foreign Affairs Committee to look at any proposed changes. Allowing the list to be considered by a group of MPs who are used to looking at such issues would reduce the likelihood of insufficient parliamentary scrutiny. People would still complain, but it would be less likely that people would say that changes to the list of high-risk countries had not been adequately scrutinised if they were looked at by one of those Committees in advance.
I am less concerned about the list in the first place if it is to be directly transposed from the EU’s list, because that is clearly working adequately for us at the moment. It is for changes that might come through in the future that a proper scrutiny process needs to be set up, to ensure that we all feel that these issues are looked at properly.
As was mentioned by the Opposition Front-Bench spokesperson and the Minister, there will be an obligation on the EU and the UK to co-operate. I appreciate that, but my concern is about the actual mechanisms that will be in place to allow that to happen. What mechanisms will be in place? Currently there are mechanisms because we are all part of the EU. How will conversation between those authorities be facilitated, and will that happen on as regular a basis as we would like?
We do not want to see a situation where the UK leaves the EU and is less good at tackling money laundering as a result, and we do not want to see the EU’s powers to tackle money laundering reduced either. Continuing that close co-operation is really important. If the Minister made clear through what mechanisms those conversations would happen, it would give us a level of comfort and assurance, rather than there being an obligation to co-operate but no clarity about how it will actually happen.
Lastly, the explanatory memorandum to the draft regulations states that
“certain credit institutions, financial institutions and payment service providers need to expand existing IT systems to reflect the greater levels of scrutiny that will need to be applied to correspondent banking relationships between the UK and EEA states”.
I accept that some of those organisations already scrutinise money laundering issues at that level, but some of them do not, as is reflected in that note. I would like the Government to explain what conversations they have had with such organisations about whether they are ready for the changes to be made to their IT systems, whether they are ready to expand their IT systems in the way that the Government say they need to, and whether they will be able to do that by the Government’s required date.
It is important, if we are putting an additional burden on companies and organisations, that we do not talk only to financial services trade bodies in general. The Government or their agencies should be talking to the individual companies that will have to make those changes to ensure that they are compliant at the beginning. We should ensure that they are compliant not just to make sure that they are compliant, but in order that money laundering is reduced as a result. It is important that the Government make it clear whether the companies will be ready, and if the companies will not be, what they are doing to make sure that the companies will be ready.
John Glen
I would be happy to respond on that matter as well.
A point that often comes up in these discussions is the resourcing of the FCA. I acknowledge the great work that it has done over the last 18 months in helping the Government to prepare these SIs. It is funded by an industry levy and has set out in its business plan the resources involved in working towards exit. The Government are confident that the FCA has made adequate preparations ahead of leaving. If additional resources are needed in the event of no deal, it would be able to raise those funds very quickly, but we would all be in a situation where we would have to do things that we had not anticipated. This programme of SIs is about getting to the basic starting point that allows us to have confidence in the regulatory regime, but I do not deny that a considerable amount of work would need to take place.
On maintenance of standards and equivalence with the EU on anti-money laundering, the hon. Member for Oxford East discussed the use of the word “may” versus “must”. I want to clarify that what we have removed is the obligation to report in a specific way, as per the legislation. It is not our intention to remove ourselves from either the spirit or substance of that obligation; it is just that it would be inappropriate to leave a legal obligation to an entity when we are a third party. That is the only way that I can describe it.
To expand further on future co-operation, through the bilateral agreement with the EU, we expect to have an expansive relationship that would have a wide scope of cross-border activity. The changes in the SIs do not preclude deep co-operation between UK and EU regulators in the future. It is desirable to have that co-operation.
The hon. Member for Aberdeen North raised the burden on banks’ IT systems. When one makes a transfer between one bank and another, if it is in an unfamiliar, non-mainstream destination in Africa—I will not name an individual country for fear of getting a letter from its ambassador—some checks would be done, because the bank would then obviously receive those funds. A check would be done on that, but because that sort of transaction is inherently risky, the same degree of checking will need to take place—and does take place in practice in the banking industry—with countries in the EU that are more familiar to us. Broadly, there is harmony on that matter anyway.
I mentioned the SARs reform, which the Home Office leads on. We anticipate that new IT will provide a more user-friendly portal for reporters from all sectors and that improved data processing, storage, analytics and distribution will be required. Work is being done across the Treasury, the Home Office and the MOJ to look at how we can refine that.[Official Report, 17 January 2019; Vol. 652, c. 10MC.] At the moment, the basic problem is that there is a high volume of SARs and we could better interrogate that data pool.
The hon. Member for Oxford East mentioned the concerns raised by the Thames Valley police and crime commissioner. He has also raised them with me and I will get in touch with him about them. Obviously, we do not rest on our laurels with respect to the FATF evaluation. I have mentioned the concerns that the Government have acknowledged in terms of the FIU, and the improvements to SARs and to the Companies House register, on which we expect a Government report in Q1 or Q2 of this year.
The statutory instrument is needed to ensure that the UK’s anti-money laundering and counter-terrorism financing regime operates effectively and that the legislation functions appropriately if the UK leaves without a deal. I hope that I have adequately responded to the points raised.
Kirsty Blackman
When the Minister was talking about the resourcing of the FCA in the event of a no deal, he suggested that it would be able to draw down extra money very quickly. Is he basically suggesting that, in the event of a no deal, on 1 April, Parliament will come in and approve lots of money to be given to lots of different Government agencies to deal with that scenario, or will that happen in advance of a no deal? We have only 80 days to go.
John Glen
My colleague the Chief Secretary has set out comprehensive budgets for each Department for the financial year with respect to a no deal, and a process for urgent requests. The FCA would be able to raise its levy autonomously and separately from Government. It will have contingency arrangements for doing that quickly. I obviously cannot address all Government agencies and Departments, because it will be done through different Ministers in different Departments, but I can say that the Treasury has fully communicated the process for making additional requests in a no-deal situation to all Ministers in all Departments.
Kirsty Blackman
What about communicating that to Parliament rather than just to Ministers? I know that the scrutiny process is rubbish and Parliament does not have much say on Government spend generally, but surely it should have some say on that.
John Glen
If I take the Department for Education, for example, where a large portion of the budget is for providing food in schools, in a no-deal circumstance where additional costs might be associated with that food, the Minister would need to make a statement to Parliament about that and respond to it. Inherently in the process, there is a mechanism for the Government and different Departments to bring matters to Parliament. They would need to justify where they would spend that additional money and the basis for it. With respect, I think that is beyond the scope of the statutory instrument—at least, that is my judgment.