Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020

Lord Tunnicliffe Excerpts

Wednesday 2nd September 2020 Grand Committee

[Lord Tunnicliffe (Lab) [V]]

My Lords, I thank the Minister for presenting this SI. As he knows, the Opposition will not oppose it as it would create a constitutional crisis. Nevertheless, it is the duty of Her Majesty’s loyal Opposition to scrutinise the instrument.

As we have discussed on previous occasions, the volume of and interplay between the Treasury’s EU exit SIs makes keeping track of the changes somewhat difficult. The intricacies of this instrument, which simultaneously amends and supplements a 2019 measure, is a case in point. I thank Vanessa McKay, the designated Treasury contact, for helping me to achieve a limited understanding of the regulation and the equivalence framework in which it fits.

I conclude that the instrument is technical in nature and complements the actions taken under the authority of the equivalence regulations of 2019 and 2020. The instrument provides for subsequent co-operation arrangements and regulatory decisions. I do not believe that it introduces any significant new policy. I would value an assurance from the Minister on that point.

Nevertheless, having previously met the Commons Minister on this issue, I am dissatisfied with the level of understanding that I was able to achieve on first reading the supporting documentation. It may be inevitable that the instrument is written in impenetrable language but surely the Explanatory Memorandum is supposed to overcome this barrier. In January 2020, the Secondary Legislation Scrutiny Committee published guidance for departments on statutory instruments. I quote from paragraph 4 of Part 2:

“The purpose of an EM is to provide the Houses and the public with a plain English, free-standing, explanation of the effect of an instrument and how it is intended to operate. It is not meant for lawyers. Legal explanations of the changes are given in the Explanatory Note that forms part of an SI and should not be duplicated.”


This Explanatory Memorandum clearly fails this test. Perhaps it is what comes of reading such documents during Recess, but I fear that if somebody like myself who has dealt with 50 of these instruments has difficulties in following the commentary, an interested citizen without prior knowledge stands no chance. For example, paragraph 2.2 of the Explanatory Memorandum contains a circa 100-word, nine-line sentence. I understand that there are more Treasury SIs to come. I hope that Her Majesty’s Treasury will prioritise EMs that are easier to read, set the SI in context and require less prior knowledge. I would be happy to discuss this matter with the Minister and his officials if they feel this would be of use.

The essence of today’s debate is equivalence for financial services. The guidance in this area is provided in paragraphs 35, 36 and 37 of the political declaration. It envisages concluding,

“these assessments before the end of June 2020.”

I understand that that deadline was missed. What are the implications of this in terms of the trade negotiations and the preparedness of financial services firms? Does the Minister have an estimate of when the process will be completed?

John Glen, Economic Secretary to the Treasury, said in a letter of 27 May 2020 to the noble Lord, Lord Sharkey, chair of the EU Financial Affairs Sub-Committee:

“Successfully concluding equivalence assessment and delivering comprehensive positive findings will be in the UK and EU’s mutual interest and we can see no reason why the UK and EU will not be able to find each other equivalent across all existing equivalence regimes. As you will be aware, equivalence assessments are unilateral processes and thus not part of the ongoing negotiations on the future EU/UK partnership.”


Further, the concluding sentence of paragraph 2.1 of the EM says:

“This statutory instrument … is not linked to the ongoing UK-EU negotiations on a free trade agreement.”


These statements imply that the determination of equivalence is independent of the free trade negotiations. Does this not display heroic optimism and naivety in the light of the Swiss experience? Switzerland lost its equivalence recognition over a lack of progress in an unrelated negotiation.

Further, what is the Minister’s view of the recent statement by Mr Dombrovskis, an executive vice-president of the European Commission? The Financial Times reports him as saying that Brussels would not be ready in the coming months to assess whether Britain qualifies for some pan-EU access rights, known as equivalence provisions, because the bloc’s own regulations are in flux.

If an equivalence ruling is not given, or at least not in a timely manner, what is the Minister’s assessment of the impact on cross-border financial services trade between the UK and the EU? Is he concerned about a financial stability impact if access is withdrawn suddenly after 31 December? What assessment has he made of London’s attractiveness as a place from which financial services firms operate if their ability to sell services into the EU on the basis of equivalence is withdrawn?