Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019 Debate
Full Debate: Read Full DebateLord Bates
Main Page: Lord Bates (Conservative - Life peer)Department Debates - View all Lord Bates's debates with the Department for International Development
(5 years, 6 months ago)
Lords ChamberTo move that the draft Regulations laid before the House on 15 January be approved.
My Lords, as with other instruments we have debated today, these have been laid under the EU withdrawal Act. This instrument is part of the Treasury’s legislative programme to ensure that, if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning UK legislative and regulatory regime for financial services.
In December 2017, the Treasury announced that legislation would be brought forward to establish a temporary permissions regime enabling EEA firms operating in the UK to continue their activities here for a limited period after withdrawal. At the same time, it was also announced that legislation would be brought forward to ensure that contractual obligations not covered by that regime could continue to be met, helping protect the interests of UK customers of EEA financial services firms. The legislation setting out the temporary permissions regime for firms that passport under the Financial Services and Markets Act 2000 was debated and passed by this House last autumn, in the form of the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018.
Separately, legislation for temporary regimes for non-UK central counterparties, EEA payments and e-money institutions, and trade repositories has also been debated and passed by your Lordships’ House. This instrument therefore delivers on the second commitment: to ensure that those financial services contracts not captured by the temporary permissions regime can continue to be serviced. It similarly ensures continuity for customers of financial services providers that do not enter other temporary permissions regimes, or that exit these temporary regimes without full UK authorisation or recognition. Specifically, this instrument makes provision for passporting EEA firms, non-UK central counterparties, EEA payments and e-money institutions and trade repositories to wind down their operations in an orderly manner. It will apply to those firms that no longer wish to operate in the UK, and to those that exit the temporary regimes without permission from UK authorities to carry on new business here. The approach taken in this instrument aligns with that of other statutory instruments being laid under the EU withdrawal Act. It delivers on the Treasury’s commitments and is vital to the financial services sector and its UK customers.
Turning to the substance of the instrument, many noble Lords will be familiar with the EU law that allows EEA firms, non-UK central counterparties and trade repositories to provide regulated services in the UK on the basis of being authorised in their home member state, or recognised or registered by the relevant EU authority. In a no-deal scenario, the UK would be outside the EEA and outside the EU’s legal, supervisory and financial regulatory framework. Once the EEA frameworks providing for passporting rights, recognition of central counterparties and registration of trade repositories fall away, we will need to avoid widespread disruption to the provision of financial services, which would ultimately affect UK businesses and consumers. This instrument inserts provisions into the existing temporary regimes to allow for orderly winding down of existing contractual obligations or services, providing continuity and certainty for UK customers of those firms that do not enter the temporary regimes, or that exit them without full UK authorisation, recognition or registration.
Specifically, these draft regulations establish four distinct run-off regimes related to four different temporary regimes, covering EEA firms passporting under the Financial Services and Markets Act 2000, non-UK central counterparties, EEA payments and e-money institutions, and trade repositories. This instrument is necessary to minimise disruption to users and providers in the UK financial services sector in a no-deal scenario. The temporary regimes which have been established go a long way towards mitigating the risks of disruption and uncertainty. Without the additional wind-down provisions, however, some UK businesses and consumers could nevertheless see disruption to their existing contracts or services.
I thank noble Lords for their questions. It might be for the ease of the House to know that I have the advantage—I think—of having a flow diagram in front of me. It must be one that I can release; I am sure it is. It has something printed on the top which probably tells me that it should not be released, but I am happy to make this diagram available. I do not want to reopen the debate about whether the Official Report should be able to capture diagrams and schemes; that would be a heresy that would cause a debate way above my head and pay grade, so I shall stay way out of it. I will circulate that diagram to noble Lords and place a copy in the Library. I will also, if I may, write in detail on the points raised by the noble Baronesses, Lady Bowles and Lady Kramer. Perhaps the same letter could be used to do that.
On the points raised by the noble Lord, Lord Tunnicliffe, about the impact assessment, I can confirm that one was published on 8 February. On the point made by the noble Baroness, Lady Bowles, about the maximum time for extension of terms, the regime can be extended by no more than five years at a time.
But the noble Lord was just telling us how he was working over the weekend. He does Fridays, Saturdays and Sundays. The Opposition Chief Whip is here, so he should not undersell himself. He is one of the most diligent Members of this House. We will certainly look at that point.
On why the CCP regime is non-extendable, the Bank will remain in close contact with CCPs to inform them of expectations during the run-off period. This task is expected to be manageable, given the relatively small number of CCPs that can be expected to be in a run-off.
The noble Baroness, Lady Bowles, also asked under what circumstances a firm may be moved from a supervised to a contractual run-off. The FCSR makes provisions allowing a firm to be moved from the contractual run-off to the supervised run-off and vice versa. For this to happen, a regulator would have to consider the matter specified by the FSCR, including whether the move is necessary for the protection of consumers. Only the regulators can move a firm between the SRO and the CRO; firms cannot choose whether to move.
I appreciate that there will be other points relating to this but, as I have given a commitment to write to noble Lords, I will conclude my remarks there for the time being, and commend the regulations to the House.