Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2020

Lord Livermore Excerpts

Thursday 18th June 2020 Lords Chamber

[Lord Livermore (Lab) [V]]

My Lords, I am very grateful to the Minister for introducing the statutory instrument, which touches on many aspects of financial services-related retained EU law. Overall, it seeks to replicate at a national level the regulatory regime for financial services to which we currently subscribe at an EU level. Until the end of the transition period we will of course continue to follow the EU’s regulatory rulebook. This is about what will happen in January, if, as the Government confirmed last week, the end of this year marks the end of the transition.

As the Minister outlined, the regulations cover areas such as equalising the regulatory requirements of enhanced due diligence measures; replacing references to the European Securities and Markets Authority with references to the Financial Conduct Authority or the Bank of England; tidying up a number of previous EU exit instruments to ensure that they function correctly following the transition period; and revoking certain EU-derived measures that will no longer be applicable beyond the end of December. We welcome the changes in this instrument that will help maintain the pre-Brexit relationship between the UK and Gibraltar, and we have no fundamental objections to the other specific measures, although I have a number of questions.

On the anti-money laundering provisions, why is the current duty to co-operate with supervisors in other countries being removed and replaced with the weaker power to co-operate if we so choose? It is unclear why we would ever not want to co-operate to tackle money laundering, which can fund everything from international terrorism to the drugs trade. I was perplexed by an answer given by the Minister in another place on Tuesday, when MPs were told that there is no need to maintain a duty to co-operate with other countries’ supervisory bodies because there remains a political desire to talk. But if there is no duty, what happens if a future Minister takes a different view?

On the cross-border distribution of funds, can the Minister confirm that this statutory instrument enshrines the loss of passporting rights for our financial services that will result from the Government’s decision to withdraw from the single market, as well as from the EU itself? As a side note, on this issue of cross-border co-operation, while in the past we have not been critical of the Government’s approach to the “lift and shift” exercise, it is concerning that policy change is now starting to creep in.

Finally, on equivalence determinations, can the Minister confirm that, as yet, we have no guarantee that our regulatory regime will be regarded as equivalent by the rest of the EU? It is of course true that negotiations are ongoing and that we may in time gain an equivalence decision from the Commission. However, the loss of passporting rights will require a fundamental change in how UK institutions do business. We have already seen the restructuring of companies and the redeployment of staff. This will no doubt continue.

As my noble friend Lord Hain observed, while these regulations are intended to ensure continuity for UK financial services at the end of the transition period, the Government’s stated intention is to erect new trade barriers between our financial services and the rest of the EU, so even as we replicate EU regulations at the UK level, we are pursuing a course that will be incapable of replicating the market access we currently enjoy. We are taking the area that makes up 80% of our economy and, in the case of the financial services sector—a sector in which we trade at a substantial surplus with other countries—inserting new barriers between us and our nearest customers. The fact that the sector is resigned to that, and has established alternative bases in Dublin, Luxembourg, Frankfurt or Paris, does not change that reality.

We will start January 2021 largely at a point of regulatory equivalence. That is welcome. However, regardless of the outcome of negotiations, no amount of duplication can avoid the basic fact that although we can replicate the rules, we cannot replicate the market access to which they apply, and for which they were designed in the first place. As a result, UK businesses will start next year with significantly diminished market access, and at a significant disadvantage as a result.