Scrutiny of Secondary Legislation

Lord Bates Excerpts

Monday 6th November 2017 Lords Chamber

[Lord Haskel (Lab)]

My Lords, I am a member of the Secondary Legislation Scrutiny Committee, and the Minister will be pleased to hear that I will concentrate my remarks on its work. Our task is to keep the Government up to scratch so that Parliament can properly scrutinise secondary legislation. I thank my noble friend for moving this Motion, which draws attention to this work and helps us in carrying it out.

What was wrong with these regulations? I do not want to repeat everything that has been said but, as my noble friend explained, we were unhappy with both the drafting and the process. We were unhappy with the definition of a “person with significant control”, and explained why that was unclear. We were unhappy with the fact that, although it was promised, there was no analysis of the consultation—this, of course, is standard practice. As my noble friend said, the impact assessment came two weeks after the regulations were laid. When it did come, there was no assessment of the value to be gained from the cost to business.

These regulations were laid in a rush. As the noble Baroness and my noble friend explained, instead of the normal 21 days between a regulation being laid and it coming into force, there were only two or three days. When we drew the Government’s attention to this, we were told that it was “because of the election”. However, as others have pointed out, the consultation ended in November 2016, so why the delay? If the Government want Parliament to scrutinise regulations properly, everything should be done in good time and with proper care; otherwise, Ministers will be called into account—that is what we have to do.

The committee wrote to Stephen Barclay MP, the Economic Secretary to the Treasury, about its concerns. Perhaps it was because of those concerns that, in his reply, he helpfully said that HM Treasury was instituting new proceedings and that he would become the “secondary legislation champion”. That was good news, but that was in July. Will the Minister confirm that this has actually happened, because it would greatly assist Parliament in its scrutiny and the public in their understanding of the law?

[The Minister of State, Department for International Development (Lord Bates) (Con)]

I thank noble Lords for their contributions and the noble Lord, Lord Tunnicliffe, for moving the Motion. I was in the middle of reading my notes seeking to answer the point of the noble Lord, Lord Haskel, and then realised that it was my time to speak. Perhaps he might bear with me as I quickly try to offer a response.

We can confirm that Stephen Barclay is now acting as the secondary legislation champion, as set out in his letter of 17 July to my noble friend Lord Trefgarne, chair of that committee. The new prioritisation and planning process is now operational. I will come back to some of those points, because they overlap with points made by other noble Lords, including the noble Lord, Lord Tunnicliffe, who talked about focusing more on procedure rather than on questioning the argument for the need for these money laundering regulations to be put in place.

I thank the noble Lord for bringing about this debate. I am sure noble Lords will agree that protecting the public and our economy from financial crime is vitally important and something that cannot be taken lightly. Indeed, the size of the UK’s economy, our open economy and the attractiveness of the London property market to overseas investors exposes the UK to money laundering—a point made by the noble Baroness, Lady Bowles, about the importance of London. The Home Office estimates that serious and organised crime costs the UK at least £24 billion every year, which is a significant sum. I am sure that we all agree on that.

In June 2017, the Government updated their anti-money laundering and counterterrorist financing regime. In doing so, the EU’s fourth money laundering directive was transposed into UK law. This was mainly through the 2017 money laundering regulations, but also through two linked statutory instruments produced by the Department for Business, Energy and Industrial Strategy. This brought the UK’s anti-money laundering regime in line with the latest global standards.

The Government’s overarching objective in this area is to ensure that the UK’s anti-money laundering and counterterrorist financing regime is current, effective and proportionate. The money laundering regulations have made it clear to both firms and supervisors that they must take a risk-based approach, as the noble Lord, Lord Tunnicliffe, said, taking steps to avoid putting disproportionate burdens on businesses.

In terms of processes of implementation, before the directive was transposed, the Government sought views and evidence through public consultations. The noble Baroness referred to the consultation exercise and the 186 responses that were received. The responses to the autumn 2016 consultation, which was also referenced by the noble Lord, Lord Tunnicliffe, were used to inform the Government’s decisions. Therefore, the draft regulations were published in March 2017.

The UK was legally obliged to transpose the directive by 26 June 2017 and meeting that deadline was imperative to minimise uncertainty for businesses that had prepared for implementation on this date. While I am not trying to suggest to the noble Baroness, Lady Bowles, that this is in any way an excuse, the Dissolution of Parliament came at a difficult time for the implementation of those directives because it was not possible to lay the money laundering regulations and the two separate but linked BEIS statutory instruments within the appropriate timeframe. That is something that we have acknowledged in our communications with the Secondary Legislation Scrutiny Committee. As the noble Lord, Lord Tunnicliffe, noted, we were unable to lay one of the impact assessments along with the regulations. A draft was however published in September 2016, alongside the first consultation, and eight months prior to the regulations coming in to force.

I shall now address some of the key policy questions raised by noble Lords in the debate. The noble Lord, Lord Tunnicliffe, rightly pointed out that the gambling sector, except for casinos, has been exempted from the scope of the money laundering regulations. While the Government recognise that money laundering risks exist in the gambling industry, in comparison with other regulated sectors, they are lower-risk. That was confirmed by the national risk assessments in 2015 and 2017. The Government will keep that decision to exempt gambling service providers, except casinos, under review as we move forward.

On the national risk assessment that the Treasury and Home Office must produce, I can confirm that that was published on 26 October 2017. It had the benefit of input from across government and the private sector. The noble Lord, Lord Tunnicliffe, also raised the question of the different levels of consumer due diligence that firms should apply and the need to be consistent across sectors. Businesses are required to carry out risk assessments and base their level of customer due diligence checks in line with those risks. To ensure consistency across sectors, all guidance is reviewed by the Money Laundering Advisory Committee, which includes representatives from law enforcement, the Government, industry and regulators, so there is a voice to be heard there. The Treasury is also in the process of reviewing the guidance and ensuring that messaging across sectors is consistent, which I know was a concern of the noble Baroness, Lady Bowles.

On the point made by the noble Lord, Lord Tunnicliffe, about regulators and the strain on their resources, I can confirm that anti-money laundering responsibilities in the FCA, HMRC and the Gambling Commission are paid for by relevant businesses, which they supervise. The noble Lord also notes the steps that businesses have taken to comply with the regulations include appointing a compliance officer. Around 100,000 businesses are subject to the money laundering regulations and, where appropriate, based on the size and nature of the businesses, they may be required to take steps, including appointing a compliance officer. I can also confirm, as I was asked, that the money laundering regulations specifically state what mechanisms are in place if businesses fail to comply.