Draft Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, Etc., and Transitional Provision) (EU Exit) Regulations 2018

Debate between Maria Eagle and Kirsty Blackman

Tuesday 22nd January 2019 General Committees

[Maria Eagle]

I rise to support my hon. Friend the Member for Oxford East on the points she made, and on some of the points made by the hon. Member for Aberdeen North. I was appointed to this Committee last week. I do not normally spend my time considering derivatives of the over-the-counter version—or any other kind. However, having spent many years as a Minister—and therefore knowing how to look at legislation—I found, when I looked at this instrument, something else that I would like to raise with the Minister. When I was a Minister I used to spend my time, before I came to Committees, making sure that my officials would bring along to the Committee all instruments referred to in the regulations, to enable the Committee, if it wished to look in detail at some wording, to be able to understand what that meant. I thought that having the other instruments in the Committee room was the norm. What we have here is an instrument that refers in terms, for example in part 2, to regulations from 2013, and then sets out:

“In regulation 2, in paragraph (1), for the definition of ‘the EMIR regulation’ substitute—

‘“the EMIR regulation” has the meaning given in section 313 of the Act;’.”

To understand the meaning of that, one has to have the regulation to hand. I do not see any copies of the regulation that the instrument refers to here. It was always the practice when I was in Government, and I am sure it was the practice of some Conservative members of the Committee who have been in Government in their time too, to have in Committee all the regulations referred to and being amended, so that if somebody had a particular point to make about a particular part we could see clearly what was being changed, what the implementation of that change would mean, and whether the wording appeared appropriated.

Here, we are left with nothing, in practice, but the explanatory memorandum. We have to take on trust—not that I am saying that I do not trust the Minister—that what we are being told in the explanatory memorandum is in fact being done by the wording that we see in the instrument. I think it is poor practice, if I might say so, and I hope that he will take this back to his Department, to come to Committee with instruments that effectively alter other regulations without making them available in the room. Any officials who had left me in that position as a Minister would have known about it. In fact, I used to ensure that such things were correct in Committee.

I know that there is a big burden of statutory instruments at present, and I understand that Ministers are hard pressed, but it is not right in terms of proper scrutiny for us not to be able to understand the meaning of the regulations. Regulations under the European Union (Withdrawal) Act 2018 are more complex than many because they often simply refer to amendments to primary legislation. Here we have a suite of three regulations, but I was not on the Committees that considered the other two.

It makes it increasingly difficult for an ordinary, intelligent person to understand what the hell is going on. That is not good for scrutiny, for the Minister, for the Government, or for good governance, and it leads us to the impression that what is happening is rushed, has not been thought through, and may be defective. If it is, it will not be possible for members of the Committee to pick up the defects. That is a real problem for proper parliamentary scrutiny.

My hon. Friend the Member for Oxford East referred to part 2. When I was reading the explanatory memorandum, one of the things that jumped out at me, as it clearly jumped out at her, was in paragraph 7.16, on page 6:

“Part 2 of this instrument also introduces a power for the FCA to suspend the reporting obligation for a period of up to one year…in a scenario where there is no registered or recognised UK”

trade repository. I immediately wondered in what circumstances that might be the case. The Minister made a reference to that, and said that it would be highly unlikely—but it is not so unlikely that steps are not being taken in the instrument to deal with it.

Can the Minister tell me how many UK-registered trade repositories there are, and in what circumstances—unlikely though they might be—he envisages that this part of the instrument might have to come into force, or that the powers specified might have to be used? As he said, the whole purpose of the regulations, whether they are operated by EU institutions or by the Treasury, the Bank and the Financial Conduct Authority, is to try to prevent the disaster of the global financial crisis that resulted last time from insufficiently prudent, untransparent regulation of such trades. Will he give us a bit more detail about why he has felt it necessary to include such a provision in the regulations?

I agree with the remarks made thus far by my hon. Friend the Member for Oxford East and others about the lack of any kind of impact assessment. It struck me that there is not even a guesstimate of the cost. Will the Minister tell us what trades we are talking about? If the regulations were referring to a couple of hundred thousand pounds a year, we would not worry as much about it as we would if we were dealing with the equivalent of a quarter or a half of our GDP. Will he tell us what level of financial dealings the regulations relate to?

[Kirsty Blackman]

I am struck that in these Committees, the Government do an impact assessment for more than £5 million of costs to businesses, but not for under £5 million of costs to businesses. If that is all the information we have to go on, that is sketchy, at best.

[Maria Eagle]

The hon. Lady makes a good point, and perhaps the Minister would like to comment on that as well.

The other point I would like to make is about the financial and resource burdens that the transfers made through the regulations will put on those who inherit the obligations and functions that used to be carried out by the EU institutions. That appears to be the Bank and the Prudential Regulation Authority part of it, the Financial Conduct Authority and, of course, the Treasury. There is nothing I can see that suggests that extra resources will be passed on to the FCA and the PRA part of the Bank for dealing with the additional obligations that the regulations place upon them. While they may well have experts in such instruments and this kind of trading already on their staff, the work that they are going to be expected to do as a consequence of the regulations, if they have to be used, would be different to the work they are already doing.

What financial provision are the Government making to ensure that the FCA and the Bank have the relevant staff and resourcing to do this very important job that he is asking us to bestow on them? There does not seem to be any information about the impact on those who will acquire the extra burdens of doing this work, or the likely cost to the Government, the Bank, the FCA and any other authorities, of carrying it out in a way that will work as well as their current arrangements.