Statutory Auditors, Third Country Auditors and International Accounts Standards (Amendment) (EU Exit) Regulations 2019

Lord McNicol of West Kilbride Excerpts

Thursday 26th September 2019 Lords Chamber

[Lord Duncan of Springbank]

The impact assessment was conducted on a de minimis basis and it established that the cost is £0.93 million—£930,000. I am happy to write further to the noble Lord on this matter to set out exactly how this figure was reached and who is affected by it and will place a copy in the Library.

[Lord McNicol of West Kilbride (Lab)]

I thank the Minister for his introduction to this statutory instrument. Before I come to the substance of the policy in these regulations, I highlight the comments made by the House of Lords Secondary Legislation Scrutiny Committee, which said:

“However, the range and magnitude of the changes are significant: the Regulations make changes to 15 items of legislation and include a sub-delegation of powers to UK regulators and extend a ministerial power of direction”.


The committee is right. Despite the utterances in the Explanatory Memorandum that this instrument exists only to continue the framework of the regulatory oversight and professional recognition of statutory auditors and third-country auditors in the UK, concerns have been raised, as we have just heard, that the regulations extend beyond this. The challenges financial services organisations will face in adapting to these changes are numerous, and were also noted by the SLSC. Can the Minister confirm whether any recent support has been offered to such firms to assist them in adapting to the changes?

In the light of such wide-ranging challenges resulting from these regulations, I draw the House’s attention to the fact that one of the core reasons why the other place divided on this instrument was the absence of a full impact assessment. Although I have no intention of similarly dividing this House, I place on record my disappointment that the Government have chosen not to publish an assessment in the period between these regulations being debated in the Commons and today. Parliament needs to be given the full information on the impact that these regulations will have on the financial sector; without such an assessment, that is not the case.

Moving on, I should like to ask the Minister a number of technical questions about the substance of these regulations. I will speak slowly. First, on Regulation 4, which deals with the loss of the EEA subsidiary exemption, can he confirm the timescale for the issues here to take effect? The legislation does not give a specific timeframe for the implementation of this provision, so I can assume only that further regulations may well be necessary. Secondly, in relation to Regulation 6, which focuses on the EEA qualification for auditors and which the Minister touched on, can he guarantee to the House that EEA-qualified auditors recognised up to December 2020 will retain their eligibility? If I missed that in his introductory remarks, my apologies.

To conclude, the way in which this instrument has been progressed, with little assessment and consultation, is deeply disappointing. It is mentioned in the Explanatory Memorandum for the SI, under paragraph 10 on “Consultation outcome”, that there has been no consultation on this instrument, which is deeply worrying. There also seems to be a thread of ambiguity through the regulations, which I hope the Minister can cast aside with assurances today. On this side of the House, we have agreed that the Government should make preparation through secondary legislation to ensure continuity after exit, but I hope the Minister can confirm that future regulations aimed at doing this will take a different approach.

[Lord Liddle (Lab)]

My Lords, I was not planning to intervene, having not read these papers in great detail, but until my noble friend spoke I was not aware that the Government had not carried out an economic assessment of the impact of these changes. On the face of it, this seems rather worrying.

As the Minister will know, there has been considerable controversy over the role of auditors and accountants in the past five years. The competition authorities in Europe have sought to break up the monopoly of the big five, although I am sure they would not put it as crudely as that. In the UK, the Competition Commission has also pursued these questions. There are also big ethical questions about the combination of roles between accounting and audit, which has resulted in some major scandals about the role of auditors.

Are we content that nothing in what we are doing in any way limits the ability of the authorities to pursue the cause of greater competition and greater separation of powers and duties? One of my really big worries about Brexit is that we may be creating a situation in which a close relationship between an industry and a UK ministry results in arrangements that are not in the interests of consumers or shareholders and that work against the public interest.