Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018

Lord Kirkhope of Harrogate Excerpts

Tuesday 6th November 2018 Lords Chamber

In summary, the Government believe that these SIs are necessary both to ensure that the regulatory regime applying to payment institutions, electronic money institutions and account information service providers works effectively if the UK leaves the EU without a deal or an implementation period, and to maximise the prospects of the UK maintaining participation in SEPA, to the benefit of UK consumers, businesses and the wider UK economy. I hope noble Lords will join me in supporting both these draft regulations, and I commend them to the House. I beg to move.

[Lord Kirkhope of Harrogate (Con)]

My Lords, that all sounds terribly straightforward. I shall just make a short comment and ask my noble friend one or two questions. In the European Parliament I was involved in matters such as the SWIFT banking arrangements for fast transfer of funds, particularly across the Atlantic with our United States friends, so I have a little background in this. As my noble friend correctly said, the single euro payments area covers 34 entities at present: the EU members; the other EEA members; Monaco and San Marino, which he mentioned; and Andorra, which, unless I am mistaken, he did not. Within that area, those countries have a combination of institutional and commercial arrangements. Looking at the effects on providers, or those involved in transfers, my noble friend mentioned negotiations taking place without the institutional arrangements of being members of the EU or another European institutional situation, such as the EEA. Is it possible to have an arrangement to remain part of the single euro payments area even if we are not members of any of those European institutions?

On the temporary permissions regime that my noble friend talked about, again, I question this. A lot of the SIs we are now looking at with regard to the withdrawal agreement seem to refer to temporary provisions. However, here in the Explanatory Memorandum we are talking about the cut-off date for this set of provisions. Is that extendable? Perhaps my noble friend could clarify.

In addition, part 2 statements, which are always attached, as my noble friend knows, never really illuminate one at all. The part 2 statement attached to this first SI includes an appropriateness statement; the Minister clearly states that it is appropriate and, when asked to give good reasons, answers by saying, “I think it’s reasonable”. We never get any fuller justification at all. Is my noble friend of the opinion that part 2 statements are integral sufficiently within the SI to be justiciable? Is it in fact possible for these to be challenged in courts as either inadequate or in themselves questionable?

My noble friend mentioned a general point about all scenarios. In paragraph 7.3 of the Explanatory Memorandum, “all scenarios” are referred to. Are all the scenarios the ones he has set out today, or are there further scenarios that could occur in the event of our not reaching a satisfactory conclusion with the European Union?

Finally, paragraph 7.4 of the Explanatory Memorandum refers to a sunset clause and mentions consequences. Can my noble friend elaborate slightly for us on what those likely consequences could be in relation to the sunset clause itself? It says that the power,

“falls away two years after exit day”,

but that does not take us much further along the road, particularly through a transition period, which we anticipate for financial matters.

--- Later in debate ---

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for introducing these SIs. They are two of the 70 that we have to deal with and it is a rare privilege to do so in such a crowded Chamber. Normally, the noble Lord, Lord Bates, and I are allowed the privacy of the Moses Room along with one representative from the Liberal Democrats and no others. During debate on an earlier SI, I talked about the value of these meetings, because at the end of the day the Minister knows, as do I, that we will not oppose these statutory instruments. However, I made the point that they create a record that might help the people who use the regulations to understand them. However, so far this SI presents the biggest challenge when it comes to understanding, and my further comments might reveal that I have totally failed to understand it. I look forward to the tutorial in the Minister’s response.

My understanding is that the sorts of things we are talking about are BACS, CHAPS, LINK, the NICC, Mastercard and Visa Europe. I understand that these are regulated in the United Kingdom by the Payment Systems Regulator, which works to a set of standards, directives or frameworks that are the UK manifestation of EU directives and so on. Therefore, my first question is: who will set the standards after exit day? I think that the Minister said that it would be the FCA, but does that mean that effectively, wherever there is a reference to the EU, this SI takes it out and puts in the FCA?

Then we have the complication of who sets the standards for EU firms trading in the UK. Once again, I assume that that is a passporting issue that will die on exit day if we have no alternative agreement. Therefore, what does the instrument do for EU firms after exit day? The Minister says there is a temporary regime, but could he perhaps expand a little on what it does? As I understand it, the temporary regime is time-limited, so what happens at the end of the temporary period? I did not get the sense—as the noble Baroness, Lady Kramer, did—that it was extendable.

Turning now to SEPA, it seems that the Government’s aspiration is to retain membership of it, even if there is no deal, but this is slightly different from the pure no-deal situation, in the sense that it will require international agreements between the UK and other SEPA members. Could the Minister expand a little on how the SI facilitates such agreement? More importantly, could he explain the consequence of no agreement? It is, presumably, theoretically possible that we will not be able to achieve a third-country—or whatever the right term is—membership of SEPA. What will that mean, in practical terms, to UK citizens in their day-to-day lives and their desire to use various means of transport in EU countries?

I turn now to what I loosely call the big picture. If we get a Brexit deal, as I understand it, we do not need these SIs. They are essentially no-deal SIs, but I cannot see in them how they are revoked. Are there articles deep in these pages that allow the SIs to be revoked? The commencement paragraph actually specifies the time when they become active. I will now make my standard moan on these occasions: that there is no impact assessment. The value of impact assessments, quite apart from the actual numbers, is that they usually speak in fairly plain language about who is affected and the level of impact on those institutions. Can we try to ensure that the promised impact assessments for these SIs are available before we debate the instruments themselves?

Because I could not understand the SI in any depth, I worry if it really is just about translating three or four simple ideas into fact. I notice that it is 24 pages long. It strikes me that it is like a bit of computer software, with lots of lines. As we all know from our experience with Microsoft, every now and then it does not get it right. What systems do the Government have to assure themselves that these SIs actually work? While they seek to introduce a number of relatively straightforward ideas—I hope they are; I hope not to be told that I have none of it right—they take an awful lot of articles to do that. Is there a checking mechanism to make sure they work? They are going to have to work at a moment in time. If they do not, the chaos could be frightful.

I repeat my request, to which I have not yet had an answer from the last set of SIs, that those of us involved—I am sure my Liberal colleagues would agree—have a fully updated and amended copy of the Financial Service and Markets Act 2000. We are often told to go to commercial copies of these things. There is a commercial organisation—called Westlaw, I think—and I looked up the Financial Services and Markets Act in its system. Because it records every change since the year 2000, the document is 1,569 pages long. I put it to the Minister that that is not user friendly.

Finally, I echo the welcome for this SI from the noble Baroness, Lady Kramer—

[Lord Kirkhope of Harrogate]

I am sorry to intervene, but the noble Lord is making a point about an impact assessment. If he looks at page 27, he will see that there is a specific reference to an impact assessment. However, I will say that, when I tried to find it on the appropriate website this morning, it was not there.

[Lord Tunnicliffe]

I thank the noble Lord for that.

The Minister knows exactly what I am going to say. On page 6 of the Explanatory Memorandum, paragraph 12.6 and beyond states:

“An Impact Assessment will be published in due course on the legislation.gov.uk website … The Treasury’s decision to publish the regulations without a final Impact Assessment aims to ensure that industry and regulators have as much time as possible to familiarise themselves with the regulatory changes”.


The reason the Minister and I are familiar with those two paragraphs is that they have appeared in every Explanatory Memorandum on Treasury SIs so far; and on every SI so far, the Treasury has failed to produce an impact assessment, despite the fact that it is promised in the body of the document. For the life of me, I cannot see why it would bother, given that we will have approved the SI by the time it arrives.

Let me turn back to the good news for the Minister. We are certainly not going to challenge this SI. I echo the view of the noble Baroness, Lady Kramer: it is good to see, as far as one can because of the sheer complexity of it, that it sticks with the Government’s commitment to make only the necessary changes to have a smooth transition. I cannot detect any effort from the Government in this SI to try to introduce any policy changes.