Financial Services (Implementation of Legislation) Bill [HL]

Lord Tunnicliffe Excerpts

Committee: 1st sitting (Hansard): House of Lords
Tuesday 8th January 2019 Lords Chamber

[Baroness Kramer]

I say to the noble Lord—and perhaps to clarify for others—that I think there is a real difference regarding the in-flight legislation, which has gone through an extensive European process that we have been engaged in. That is a highly democratic process involving scrutiny and consultation on a scale that we rarely experience here in the UK. It has gone through the Council and Parliament, and the technical language is nearly all in place. That is in a different category from other provisions, which are typically dealt with in the schedule; everything is at a much earlier stage and—if we leave—we will not be engaged in the on-going process that shapes that outcome.

We can look for some flexibility on the first category. I say that in part because we are all incredibly conscious that just getting through the essentials of the legislation on our plate is overwhelming. The last thing I would wish to see is for us to fall out of equivalence by accident, because the Government put elements on which we have been engaged and on which we agree at the back end of their legislative priority list, and we find ourselves by default stepping out of an equivalent situation. That is a concern, and it is one of the reasons why we would like to explore some of the options my colleagues have been outlining.

[Lord Tunnicliffe (Lab)]

My Lords, I think the two groups of amendments in many ways cover the same issue. They are essentially about how much flexibility the Executive should have in using this new law. Taking noble Lords back to the creation of the withdrawal Act, it was an extremely painful process because we were naturally reluctant to give the extensive powers in the withdrawal Act to government. But we were in a sense battered into the very realistic understanding that, given the volume of work that had to be done, the only way to do it was through statutory instruments enabled by the withdrawal Act.

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[Lord Bates]

My Lords, I thank noble Lords on all sides for their constructive suggestions during this short debate. I am grateful for these contributions. The noble Lord, Lord Tunnicliffe, made a fair point about the approach we have taken on considering secondary legislation in Committee. We have brought through 16 statutory instruments so far—we have the joy of another four awaiting us in Grand Committee tomorrow afternoon—out of a total package of some 60, 47 of which will use the affirmative procedure. So there is an element of scrutiny. The noble Lord rightly focused on the provisions of the EU withdrawal Act, which is the substance of Amendment 7, but then we were dealing with known entities and rules.

In introducing this amendment, the noble Baroness, Lady Bowles, made a very fair point and the noble Baroness, Lady Kramer, added to it. If I am paraphrasing her correctly, she recognises that, had she not been there, the legislation coming across to us might not have been dealt with in the interests of the United Kingdom financial services industry. I agree with that, from what I know of her role on that committee in that Parliament. Her input—and that of other members—at that stage was vital in shaping the legislation which subsequently came across. We thank her for that service. She is no longer there and, in the scenario for the future files that we are dealing with, neither will her successors be. Therefore, there needs to be a difference in the way these are treated—between the narrow definition in the EU withdrawal Act, when we knew what we were dealing with, and directives and regulations into which we may have had no input and no responsibility for shaping. These could, potentially, be damaging to the UK financial services industry. There is a long way to go with this debate, but that is the crux of it.

I turn to Amendments 2, 4 and 6, the aim of which is to require the publication of a report three months prior to the exercise of the powers under the Bill. This report would need to explain any policy adjustment or decision to omit aspects of the originating file. The noble and learned Lord, Lord Judge, also referred to this. I reassure noble Lords that the Government’s clear intention would be to set out this information in the reports currently required by the Bill.

Further to that, as is standard practice, the Government would of course seek to engage with interested parliamentarians and the industry on the legislation before taking any statutory instruments forward. Where the secondary legislation omits aspects of any EU files, it would certainly be in the public interest to be open about the choices the Government have made in not implementing them.

Regarding the requirement to publish the reports three months ahead of each exercise of the power, the Bill currently sets the requirement that any implementing legislation be subject to the affirmative procedure. This would require laying the relevant statutory instrument before Parliament, and an accompanying Explanatory Memorandum setting out the policy intent, before the debate on the SI itself and well ahead of implementation. This is the established process for scrutinising such statutory instruments and for this reason it is the model we have chosen to follow.

I am also mindful of the fast-moving nature of financial services. In particular, there may be a need to respond quickly to market developments, and it may be important to avoid imbalances with the EU for even a short period—for example, where the files may be of a deregulatory nature. With respect, I suggest that a three-month gap between a report and laying is too long to respond to market developments. Such a three-month requirement would place at risk the basic aim of the legislation, which is to safeguard the reputation, competitiveness and efficiency of UK financial markets. However, having listened to the points that the noble Baroness, Lady Bowles, made in moving her amendment and to the subsequent points of the noble Baroness, Lady Kramer, the noble Lord, Lord Tunnicliffe, and the noble and learned Lord, Lord Judge, I am willing to consider, ahead of Report, exactly how a process might run in the future to keep noble Lords better informed. Just to manage expectations, we will probably regard three months as too long for what might need to be very fast changes to ensure that UK financial services are not disadvantaged, but I signal my willingness to discuss the issue with the noble Baroness and see whether we can find an acceptable way forward.

[Lord Tunnicliffe]

Does the Minister accept that the problem he faces is bigger than that? It is not just about this group but about the fundamental fact that we parliamentarians dislike secondary legislation that changes the law. He faces a significant defeat in this House if we cannot come to some compromise agreement that seriously limits the ability of the Executive to impose law upon this Parliament. It is important that he recognises that—otherwise, we will end up deciding what the Bill says, and that is usually not good in terms of using the law in the future.

[Lord Bates]

I am always willing to engage and it is helpful, if I may say so, to engage in that debate, because the point the noble Lord is making is more on general principles than on detail. I subscribe to that, provided that we can agree to recognise that what the Government are seeking to do here is to deal with, effectively, processes that I am not aware have ever been dealt with before. We may be giving an undertaking to implement certain directives and regulations over which we have not had control and of which we do not yet know the precise nature. That is a different challenge from the normal routine of the types of onshoring that we are doing with the other statutory instruments. I am prepared to accept the noble Lord’s point if he will recognise the difference that we are dealing with between those two different types: that would be helpful.

[Lord Tunnicliffe]

I recognise that there is a difference, but at the end of the day my noble friend Lord Adonis’s point is valid: in day-to-day life the world changes, we have to react quickly to it and, where needed, we have to enact primary legislation. We are not creating a new environment where the Government enjoy executive power to change the laws in this area; surely we are seeking only to manage the transition. I do not see that it is the end of the world if the Government see something develop in Europe, say it is wrong, and say that that will not be covered by this Act and that we will have to bring forward primary legislation. We have done it in the past and we will have to do it after two years; that is the way new ideas should be introduced to this Parliament.

[Lord Bates]

I hear what the noble Lord is saying. Without wanting to rehearse Second Reading again or to undermine any of the progress that I feel we have already made on this in Committee, I will conclude by saying that from my perspective, the noble Baroness has made a proposal to deal with the length of time and the reporting—to address the noble and learned Lord’s point—about where there are changes, what changes have been made and why, and whether that report could be received in advance of the statutory instrument being laid and then debated in the House. In the spirit of recognising the points referred to, I have said that I am prepared to look at that. Three months may be too long but I am prepared to have a discussion ahead of Report on whether another time period may be more acceptable. With that, I hope that the noble Baroness will feel able to withdraw her amendment.

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[Lord Tunnicliffe]

My Lords, we are superficially attracted to this amendment and we await the Minister’s comments with interest.

[Lord Bates]

I thank noble Lords for their contributions to this debate. I shall begin by looking at what I think is an area of common ground: we all recognise the importance of the financial services industry to the UK. Perhaps I may pick up on a point made by my noble friend Lord Flight, that one of the main purposes of this Bill is to ensure that the UK remains an attractive and competitive place to do business, retaining our place as a world leader in financial services. To do this in a no-deal context, it is essential that the UK retains sovereignty over our rules. From the perspective of financial stability and protecting the UK taxpayer, it is essential that the Government, the Bank of England and the FCA have the tools available to ensure that the UK markets are appropriately and effectively regulated.

It would be wrong to set a condition over the UK’s regulatory framework that means decisions which are made about the UK’s future regime are determined through the lens of maintaining equivalence to the EU, irrespective of the quality of those rules and how future legislation and the market itself may evolve.

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[Baroness Bowles of Berkhamsted]

My Lords, a couple of interesting points have been made in the context of this amendment. As it reads, it looks reasonably acceptable as we do not want gold-plating, which could potentially happen. I echo that the Commission has been particularly good at dealing with smaller companies and businesses. My experience is that that has not always been reflected in the UK when the dispensations have been a matter for the member state. On more than one occasion, I have written to regulators and others about that.

One of the points was about asymmetric effects and the fact that when we are no longer a member state the law will bear down on us when we replicate it, or nearly replicate it, in a different way from when we were a member state. It is not only in financial services legislation that this could potentially happen. It happens with contractual obligations. When we replicate Rome I and Rome II, if the other party is in, say, New York, the penalty for breach of contract will be different in the UK from what it would be in France because we no longer tick the member state box. It essentially means that the higher New York penalty will apply rather than it being limited.

I sit on one of the secondary legislation scrutiny committees, and there have been various occasions when asymmetries have come up. There have sometimes been attempts to balance them, but sometimes not. It depends. These judgments about asymmetries already appear to be going on under the withdrawal Act. From the ones that I have seen, by and large it has not looked as though we could have dealt with them differently, but the issue is worth investigating. To say that the Treasury should do what it can for small businesses is a good thing, whether or not we say that we should not be put in a worse competitive position. Our markets are bigger and, because we have bigger global markets, we may have to regulate in a way that looks stronger rather than weaker. There may be other ways that it does not suit the specificities. I would be a little worried about “no worse competitive position” taken to its extreme, but in the general sense it is possibly more acceptable.

[Lord Tunnicliffe]

My Lords, listening to this debate, one cannot but feel that this is about a policy decision. The last thing I want in this Bill is policy decisions which will introduce different levels of regulation and proportionality. That may not have been the intention. I did not find the words very attractive because they led me to all sorts of different scenarios. I think I heard it advocated as quite a narrow concept to provide against unintended consequences as a result of slavishly transcribing a piece of legislation. If that is the intention, it may have some attraction, but as drafted, the narrowness of that is in no way clear and the breadth of it would involve serious policy changes. It is not the purpose of this Bill to introduce serious policy changes.

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[Baroness Bowles of Berkhamsted]

My Lords, I agreed with the amendments of Lord Adonis; I do not agree that they are not needed, even with Amendment 7. There is still the issue of sequencing in terms of what is and is not being done; Amendment 7 does not solve the cherry-picking point or various other things. I attach quite a lot of importance to the reports provided by subsections (8) and (9). In that context, I read the amendments that added in the Bank of England. The noble Lord has explained that in the sense of taking advice from the Bank of England. But when doing these transpositions, there are inevitably delegated acts and other associated things that will be done at the level of the regulators and will not even be contained in a statutory instrument. Therefore I thought it was right that the regulators reported how things are dealt with as well as the Treasury. I support the amendment but would add the PRA and the FCA. In that way, we get the full Treasury report through to the regulators, so that we see that we are all on the same page and where the tweaks, even within the available limits, are made. So I agree with the noble Lord.

As to whether Amendment 11A is needed, there is no harm in putting it there. The Secondary Legislation Scrutiny Committee and other committees will still be doing their part when the things come to them, so I see no reason not to give some work to the Treasury Select Committee.

[Lord Tunnicliffe]

My Lords, we have an open mind on the amendments. The noble Lord, Lord Deben, hit the nail on the head in saying that the gap between primary legislation and the SI process is too wide. Since we are shovelling a lot of stuff into the statutory instrument process, this is a good time to consider some intermediate action. I do not move from my commitment to tighten up what is available for secondary legislation under this Act, and we will be pursuing that, but I shall listen to the Minister’s response with care to see whether this would be the occasion to make some progress in this important area and give two views of a piece of secondary legislation, instead of the usual process. No matter how hard the Minister and I, and colleagues on the Liberal Democrat Benches, try to give some life to the affirmative SI process, we know in our hearts that we are not going to vote against it because we are not going to provoke a constitutional crisis. Some process in between the two—this may be the right one—deserves careful consideration.

[Lord Bates]

I thank the noble Lord, Lord Adonis, for introducing his amendment, and all noble Lords who have spoken. I will touch on some of the points made, but before I do, perhaps I may say that, as we are moving rapidly through the different groups, it is important that we keep updating where we are. In earlier groups, I was responding positively to my noble friend Lord Deben’s point that the legislature needed to be better informed about the effects where changes are made and where we are derogating from existing directives that are in flight. I dealt with the concerns that had been raised by the Delegated Powers and Regulatory Reform Committee, and agreed to meet and talk further about them—so as we move along I do not want to lose sight of the fact that this is an unfolding story. Already, three hours into Committee, we have agreed to undertake and look carefully at some of the points raised.

I recognise the immense wealth of expertise which is here, not least in ministerial office from the noble Lord, Lord Adonis. I would not dare try to calculate the years of ministerial office represented by my noble friend Lord Deben, especially when I have my noble friend Lord Young of Cookham to my left; between them they could put up a cricket score of years.

There needs to be proper scrutiny; I accept that. The Secondary Legislation Scrutiny Committee already scrutinises all instruments laid before each House that are subject to parliamentary proceedings, and it is required to draw to the special attention of the House those instruments which are politically or legally important, or which give rise to issues of public policy likely to be of interest to the House. In addition, Standing Orders set out that the Joint Committee on Statutory Instruments must report on affirmative statutory instruments before debates can be scheduled. This is the established process for scrutinising statutory instruments, and it is a model we have sought to follow.

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[Baroness Bowles of Berkhamsted]

My Lords, I have Amendment 16 in this group. As the noble Lord, Lord Hodgson, said, I added my name to his amendments and I thank him for trying to bring some better order to the reports and to increase the frequency with which they are produced. Amendment 16 says that the reports must include a table setting out which provisions of the financial services legislation have been transposed into domestic legislation, and under which statutory instruments. I ask for that because it is awfully difficult to know where things have been put. The Minister will recall that on several occasions when we have been discussing statutory instruments under the withdrawal Bill, I have had to go hunting for the articles of the legislation that has been transposed, and they have popped up in a different instrument and sometimes been dealt with at rather different times.

If that kind of thing is going to happen again, we need the safeguard of knowing where things have been put. In European parlance, this was called a “coronation table”, which showed where the European legislation ended up. One does not necessarily need to do that going forward, once we are amending under our own rules, but something like it would be a first step to obtaining equivalence, because we will also have to demonstrate to the EU where everything has been put. Therefore, this seems a useful addition to these reports, thereby keeping Parliament informed about how things are progressing.

[Lord Tunnicliffe]

My Lords, we have constantly been debating the same issue, which this amendment addresses from another direction. I am afraid that my experience of government producing annual reports is that, on average, they tend to appear every 18 months, rather than 12 months. I am not quite sure what the last report of the two does anyway, and the idea of one meaningful report every six months has a lot to commend it. Being prescriptive about its contents would also be quite useful, and I look forward to the Minister’s response.

[Lord Bates]

I thank my noble friend Lord Hodgson for ably introducing this amendment. A substantial part of my speaking notes is remarkably similar to those for Amendment 2, when I responded to the comments made by the noble Baroness, Lady Bowles, on early reporting. Again, we have made some progress, so let us perhaps just leave that on the record.

I will make a couple of specific points about my noble friend’s amendments, and those which the noble Baroness, Lady Bowles, has put her name to as well. These amendments would require the Government to lay reports on the use of the power every six months, rather than every year; to set out why the power would need to be used; and to include a table setting out the provisions of the EU legislation that have or have not been transposed into domestic legislation, as the noble and learned Lord, Lord Judge, mentioned in an earlier debate. Again, I can assure noble Lords that the Government’s intention has always been to set out such reasoning and detail as part of the reports referenced in subsections (8) and (9).

As to the frequency of the reports, the current drafting has been designed so that the reports will provide an overview of how the powers have been used in the first year, and how the Government propose to use them in the second year. The intention behind this is to allow enough time to pass for a meaningful report to be drawn together. I hope this helps to clarify the Government’s intention to be as transparent as possible in the exercise of these powers.

As with the amendments tabled earlier by the noble Baroness, Lady Bowles, I have listened carefully to the arguments being presented on all sides, and particularly in this instance by my noble friend Lord Hodgson. It may be that we need to consider further exactly how such a process can run, so that we can provide the House and Parliament with the necessary assurances that it seeks. In that regard, I ask my noble friend to withdraw his amendment, given my commitment that we will look again at this issue and seek to make some constructive suggestions on a new way forward at Report.

Financial Services (Implementation of Legislation) Bill [HL]

Lord Tunnicliffe Excerpts

Report stage (Hansard): House of Lords
Tuesday 29th January 2019 Lords Chamber

[Baroness Kramer]

My Lords, with that provocation I say to the noble Lord, Lord Hodgson, that perhaps we should look at the quality of enforcement. I would far rather that we had too many warning signs, but captured a large part of the wrongdoing, than missed major wrongdoing because there were so many options where people could avoid early warning signs. I suspect we have an enforcement problem, and often in this House we have heard that echoed. It sits entirely outside what we are dealing with today. For goodness’ sake, let us be very wary of the seductive argument that where we fail to enforce we should not even investigate.

[Lord Tunnicliffe (Lab)]

My Lords, I support Amendments 3, 4 and 5. They are the product of ideas from all parts of the House: from the noble Lord, Lord Hodgson, and particularly from Lib Dem Members. Amendment 4 strikes me as a very important innovation. Other parts of the Administration may want to ponder what should be done here, because while it will all be down to the Government how they use it, it creates a mechanism by which we get will close to being able to amend an SI. Clearly, no great measures are going to fall because we have no great power to influence them and we all know that we are not going to vote on such SIs.

However, to be able to discuss an SI with the Government—obviously not on the Floor of the House but perhaps by approaching Ministers on particular issues—before it is laid would be an important step forward. Proposed new paragraph (b)(ii) and (iii), inserted by Amendment 4, is also important for making how such an SI is generated much more structured. I hope this will give real transparency to SIs, which can at times be very complex. I end by thanking the Minister for his efforts on the Bill and almost by celebrating, for want of a better term, the extent to which we have been able to come to consensus.

[Lord Bates]

I thank the noble Lord, Lord Tunnicliffe, for his last intervention. In effect, I think he was saying that in the way we have been working together we have perhaps somehow pioneered a new way of approaching financial secondary legislation. I am pleased that he feels that.

I am grateful to my noble friend Lord Hodgson for his support for the amendments. He was tempting the noble Baroness, Lady Kramer, to rehearse the vigorous and full debate which took place in Committee on these provisions. Perhaps I may step out of the middle simply to reiterate that the Bill is not the Government’s proposed long-term solution for all financial services legislation. The Government will take forward their proposals for a sustainable, long-term model in due course, when there will be lots of opportunities to discuss the important issues which have been raised.

Financial Services (Implementation of Legislation) Bill [HL]

Lord Tunnicliffe Excerpts

3rd reading (Hansard): House of Lords
Wednesday 6th February 2019 Lords Chamber

[Lord Bates]

I thank the noble Lord, Lord Davies, for his comments. As he has set out, the schedule that we are up against here is pretty demanding. All of us on the Front Benches are in solidarity in recognising the demands of the work going on. It is also demanding on some of the committees of your Lordships’ House, which are having to do an incredible amount of work. I am thinking of the Secondary Legislation Scrutiny Committee and its sub-committees, under my noble friend Lord Trefgarne and the noble Lord, Lord Cunningham of Felling, which is doing a tremendous amount of work.

The noble Lord, Lord Adonis, asked about the progress being made. We have agreed that we will provide regular updates. We have approximately 60 pieces of secondary legislation that need to come through. Around 45 are subject to the affirmative procedure and, of those, 22 or 23 have made their journey through the House, with some benefiting from the scrutiny of the noble Lord himself. That is basically where we are: about half way. We have some 31 sitting days before Brexit, so it is a pressurised and demanding situation.

I turn to the point made by the noble Lord, Lord Foulkes, about the Delegated Powers and Regulatory Reform Committee. I thank that committee in particular because it has done an excellent piece of work. In fact, we almost took the committee’s script to express concerns about the extent of the Henry VIII powers, some of the wording and some of the files that were in flight and which we have just been talking about. I am pretty sure we have addressed all those concerns. If that is not the case, I will write, but from recollection we wanted to address all the points.

The noble Baroness raised the online community. Of course a number of pieces of legislation relate to online financial regulation. I cannot be specific about which ones are relevant but it is a crucial point. We have had many long discussions in Grand Committee in the Moses Room about statutory instruments that have a strong online financial services element to them and make a significant contribution to the success of UK financial services. We want that to continue once we leave the European Union.

[Lord Tunnicliffe (Lab)]

My Lords, perhaps I may say a word or two to put this discussion into perspective. This side hates the idea of a no-deal exit and so on, but the Bill is an outstanding example of co-operation by the Government. The Bill has changed massively from the one introduced at Second Reading. The Government facilitated discussions with the Minister and officials. It is now a much better Bill and, given its task, which we abhor, it is nevertheless a good Bill.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I remind the House of my interests as set out in the register. I also express my thanks to the Minister and his officials, along with other noble Lords who tabled amendments. We have a more than satisfactory outcome. We now have much greater transparency, some new procedures under which the Government will report on what is going to happen and tables to show us where things have gone. I hope this will perhaps lay the ground for how some other things, in what may be more fortunate circumstances than Brexit, could continue in the future. On behalf of these Benches, I thank the noble Lord and the officials.