Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020

Lord Bruce of Bennachie Excerpts

Wednesday 2nd September 2020 Grand Committee

[Lord Bruce of Bennachie (LD) [V]]

My Lords, this instrument raises many more questions than it answers, as is increasingly the case with government business.

First, what does paragraph 7.2 of the Explanatory Memorandum mean when it states:

“The UK has now left the EU with a deal”?


Is that not at best disingenuous, if not downright deceitful? We have an agreement to leave; we do not have a deal.

At the end of June, M Barnier said that the political declaration committed us to use best endeavours to finalise our respective assessments by the end of June. The Commission sent 28 questionnaires to the UK covering the areas where equivalence is possible. At that time, only four had been returned. Where are we now? Are we not empowering ourselves to set out our terms for equivalence to third parties? This is of course necessary to enable us to deal with the world and to negotiate with the EU, but when will the industry get any clarity as to what equivalence will be agreed with the EU? Is there any prospect—which always seemed unlikely, and is much less so given the current mood music—that the EU will agree to any longer time for ending equivalence unilaterally than its current 30-day rule?

I turn to the impact of the changes in Scotland, which is the UK’s largest financial centre outside London. It is estimated that financial and related professional services account for 9.4% of the Scottish economy, something the Scottish National Party sometimes seems unaware of. According to Scottish Enterprise, there are 28,865 companies in the sector in Scotland, employing 247,000 people directly or indirectly and generating around £16.7 billion. UK in a Changing Europe also highlights the importance of financial services to Scotland. In Edinburgh, a conservative estimate of employment in financial services stands at 10.7% of the workforce. Indeed, Edinburgh employs a larger proportion of people in financial services than anywhere in the UK outside the square mile and Tower Hamlets, and significant numbers also work in financial services in Glasgow and West Dunbartonshire. Edinburgh has now risen 12 places in the 2020 global financial centres index to be ranked as the 17th most important financial centre in the world. It is home to the global headquarters of the Royal Bank of Scotland and Scottish Widows, and CYBG, which owns the Clydesdale Bank, Virgin Money and Yorkshire Bank, has its European headquarters in Glasgow.

Financial services are Scotland’s largest service export, with the EU being a significant component of our exports. The EU single market is an important export market for Scotland’s financial services. Some 18% of Edinburgh’s total services exports are financial services to the EU, which is higher than the comparable figure for London, at 15%. This suggests that, proportionately, Scotland’s financial services are slightly more dependent on the EU. There are now signs that Scottish financial firms, as elsewhere in the UK, are planning a future outside the UK. For example, Scottish Widows transferred its European portfolio to a new legal entity in March 2019, Standard Life Aberdeen has opened a portfolio management and distribution service in Dublin to service the EU 27 and Royal Bank Of Scotland began operating a banking entity in the Netherlands in March 2019 to serve non-UK EEA customers.

In the financial crash, the impact of the changes was more severe outside London, so it is important to monitor how the changes we face impact on the Scottish economy in terms of jobs and access to finance, and on other areas of the UK outside London.

Big companies will do whatever it takes to develop their business, and that may not be in the interests of the UK. They will put their business before the UK national interest. There are a lot of small businesses in financial services. They might not find it so easy. Valid as this legislation is, what is lacking is any sense of political direction or certainty on which such businesses can be planned.