Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019

Lord Deben Excerpts

Tuesday 5th March 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I will be exceedingly brief because, again, this falls into the category of necessary changes to regulation in order to keep a reasonable consistency in the relationship between the Gibraltarian and UK financial markets. I accept that but I have to say: poor Gibraltar.

There is a three-way relationship between Britain, Gibraltar and Spain. A recent tax treaty between the UK and Spain requires Gibraltarians sourcing their business primarily in Spain to pay Spanish taxes. I suspect that some in Gibraltar are slightly stunned by it but realise they have to accept it. The complexity of the relationship outside the EU is far from being resolved.

As the noble Baroness, Lady McIntosh of Pickering, said earlier, unfortunately impact statements only test the actual cost of a particular regulation and then compare it with what would happen if there was no regulation. They never compare the cost between implementing no deal and remaining in the EU. This is where the big number lies, not only for the UK, but very much for Gibraltar. So it is crucial to do anything we can at this point to try to minimise the impact. This regulation is a small part of it. I cannot see how the whole Brexit strategy—deal or no deal—can ever benefit Gibraltar or give it a future which is anything like as prosperous as the one it had in a remain context.

[Lord Deben (Con)]

My Lords, I want to ask a question which follows on from the intervention of the noble Lord, Lord Beith. First, I am still a little at a loss as to how these years work, compared with other SIs. I do not quite understand what would happen if we had a deal and a transitional period. The noble Lord raised something which needs to be explained.

Secondly, I agree with the noble Baroness, Lady Kramer, that it would be wrong to allow these two SIs to pass without reminding the House of the serious effects of Brexit on this particular connection of the United Kingdom. The more we talk about these and the more you unwind it, the more it becomes quite clear how ridiculous the whole process is. I know it is not suitable for my noble friend to comment on this, but I wish only that our Benches were filled with those who think that Brexit is good idea so that they could listen to the realities of what happens if you leave the European Union—let alone without a deal. As usual, none of them is present to listen to the serious effects of Brexit. It is rather like trying to talk about climate change. You never have the climate change deniers present to see what the science is actually about. The House might like to note the non-existence of those who think that Brexit is just a matter of getting there and doing it at once. The people who stand outside with little notices about the WTO clearly have never worked out what becoming dependent on WTO rules means.

Thirdly, of course we have to pass these two SIs. Without them, were we to leave the European Union without a deal, things would be even worse than they need be, but we must not do it thinking that this is going to make things easier. Gibraltar is a sharp instance of the damage that could be done. Will my noble friend explain a little more about the discussions that have been held with the Gibraltar Government and particularly his reference to the Gibraltar Government making their own arrangements should there be Brexit without a deal? What are these arrangements and how do they interrelate with this SI? I do not think that many Members of this House have detailed knowledge of the kinds of things which Gibraltar would have to do were we—and they—to leave the European Union without a deal. It would be helpful to the House if my noble friend would delineate what exactly it is that they have to do and what their powers and responsibilities are in parallel with the two SIs with which we are concerned this evening.

[Lord Tunnicliffe (Lab)]

My Lords, we have no objection to these two SIs, but I have two or three brief questions. The position is summed up in the Explanatory Memorandum to the first set of regulations, paragraph 7.21 of which surprised me. It states:

“The UK government will work closely with the government of Gibraltar to design a long-term permanent framework”.


My impression until I got to that sentence was that the provisions here would change the situation into a stable framework. I would be grateful if the Minister could give us a feel for the extent of difference between the UK system and the system in Gibraltar that means that this bespoke framework is needed, and particularly what will happen if it is not agreed by the end of 2020.

The Minister can respond in writing to my second comment if he would like to do so. I refer to the first bullet point in paragraph 7.15 on the second set of regulations. This is really a cry of anguish because one has slogged through so many of these SIs and has to read every one, and then one reads this final sentence:

“This framework will not apply to the automatic recognition procedure of resolution actions between the UK and Gibraltar”.


I do not have the faintest idea of what that means and not the faintest idea of how to find out what it means. I ask the Minister as a matter of sheer curiosity what it means, and I will accept a letter.

--- Later in debate ---

[Lord Deben]

How can we make sure that the measures we take here in this House and in the other place and the measures taken in Gibraltar are in fact congruent? That is really quite important. Who is responsible for that connection so that we make sure that no part of it falls out of line? As my noble friend has said, mistakes do happen. Perhaps I could be told exactly how this is done.

[Lord Bates]

This happens predominantly through the Treasury. It is engaging with the Government of Gibraltar and of course with the Executive there to ensure that the process goes through. It is run through the Treasury at present, but obviously in careful consultation with the relevant regulators in both entities.

My noble friend asked whether we had consulted Gibraltar on the SIs, which is in part relevant to the previous point. Throughout the EU exit process the UK Government have been committed to engaging with the Government of Gibraltar. On the ministerial level that engagement has been largely structured through the Joint Ministerial Council on Gibraltar-EU negotiations. On contingency preparations, the Government of Gibraltar have indeed received both SIs very positively. There have been discussions at both the ministerial and the official level on the onshoring approach taken in the two SIs.

[Lord Deben]

I have one final point. What would happen if the Gibraltarians did not like what we are doing? Is it really that we are deciding it, they are doing it, and that is it? Alternatively, could they say, “Frankly, we would like it done in a different way”? I think it is quite important to know what the relationship with Gibraltar actually is.

[Lord Bates]

It is a very close relationship. How would Gibraltar react to the deliberations in this House? I hope that it would respect them as being the work of Parliament. However, we also realise the crucial importance of financial services to both entities and therefore we want to ensure that Gibraltarian firms can continue to access UK financial services and that UK firms—

[Lord Deben]

I am so sorry, but I should have declared my interest as the chairman of PIMFA.

[Lord Bates]

I thank my noble friend. Similarly, we want to ensure that UK financial services have access to the Gibraltar market as well.

The noble Baroness, Lady Kramer, commented on the recently signed tax treaty. The UK, Spain and Gibraltar have concluded a treaty to improve tax co-operation between them and secure the protection of their financial interests. The treaty provides rules for resolving tax residency conflicts and administrative co-operation. The UK signed the agreement as the state responsible for Gibraltar’s international relations. Whereas this means that the UK will ratify it in due course, the Government of Gibraltar will take forward all domestic legislation required for it to have effect in Gibraltar.

On the follow-up question the noble Lord, Lord Tunnicliffe, asked, on the status of the SIs in the event of a deal, I say that the two SIs will not be needed during an implementation period. He also asked about automatic recognition of resolution actions. The framework referred to relates to the jurisdiction controls in relation to winding-up proceedings. This will not apply to the recognition of the actions taken to resolve a failing bank without winding it up. No firms will qualify for automatic recognition. I hope that is clearer.

The noble Lord, Lord Tunnicliffe, also asked why we needed the long-term replacement framework. I think we dealt with that. Will the replacement framework be ready for 2020 and what will happen if it is not? Again, I think I dealt with that. The Treasury is working with the UK regulators and the Government of Gibraltar to design a replacement framework for 2020. Its implementation will depend on progress between both Governments on this framework. Crucially, we do not want to create a cliff edge in Gibraltar’s access to the UK in 2020. The Treasury has therefore included a temporary extension framework in the Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019. This will extend market access through a new negative SI by one year at a time from the end of 2020.

The noble Lord, Lord Deben, asked what would happen if the Gibraltarians did not like what we are doing. Gibraltar is content with our onshoring approach to the two SIs. To ensure a mirrored and functioning financial services regime, Gibraltar is onshoring its own financial services legislation in the event of no deal.

With those explanations, I again thank noble Lords who have taken part in this and beg to move these two SIs.