Draft Central Counterparties (amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018

Debate between Mark Prisk and Anneliese Dodds

Monday 5th November 2018 General Committees

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to see you in the Chair, Mr Bailey, and to be opposite the Minister once again. I am grateful to him for his explanation of the SI.

As we know, the Government have taken the decision to undertake the bulk of preparation for our EU withdrawal through secondary legislation. The Opposition have voiced our concerns on many occasions about this unprecedented transfer of powers to our Executive. I appreciate the work of the Minister, his staff and the civil service, and their collective efforts to brief us on the process, but it is unquestionable that in a normal environment, a change of this magnitude would and should be treated as primary legislation and given the scrutiny that it demands. The number of Treasury SIs and the speed with which they are set to unfold is deeply concerning. The Opposition are committed to making every effort to ensure that the Government are held fully accountable, but this is a constitutionally unprecedented and enormously resource-intensive task that leaves room for error.

It is also disappointing that we have reached a stage at which such contingency measures, which occupy significant time and resource both for the Government and for the Opposition, must be brought before the Committee against the possibility of no deal. The UK is perilously close to the EU exit date, which is just five months away. Financial services firms lack the certainty they need about the shape of things to come; as a result, many have already adopted contingency plans, some of which are leading to jobs leaving our country.

As the Minister explained, the SI deals with an enormously important issue: the nature of our clearing arrangements if there is a no-deal Brexit. As colleagues will be aware, and as the Minister explained, clearing houses are the buyer to every seller and the seller to every buyer in a financial trade that is cleared. They protect trading parties from the risk of default by the other parties. CCP clearing significantly reduces the cost of having that security to the trading parties, because they can net off the cost of collateral between different trades. CCPs significantly increase the resilience of the financial system by de-risking trades for the parties involved.

More and more trades have come to be cleared in that manner, not least following the landmark EMIR legislation to which the Minister rightly referred. Of course, that forces over-the-counter derivatives to be cleared through CCPs. Lord Sassoon said in the other place when the UK’s resolution framework for CCPs was introduced back in 2012, in tandem with EMIR, that it was

“the previous Labour Government…who identified this general area as one that needed to be dealt with, particularly in the context of deposit takers, where the need was identified to put additional provisions in place for resolution regimes.”—[Official Report, House of Lords, 15 October 2012; Vol. 739, c. 1266.]

That approach was then of course extended to other systemically important parts of the system, not least the trading operations of banks and other financial actors, which we are discussing.

Although introducing extensive requirements to clear through a CCP increased the overall resilience of the system, it concentrated default risk within CCPs, so disruption to their operation may have a significant impact. Indeed, Benoît Cœuré, an executive board member of the European Central Bank, indicated last year his concern that the failure of a CCP may have a destabilising impact, behoving very careful supervision. Ensuring that UK-based firms can continue to clear in a compliant and transparent manner is very important, but it is also important that UK-based CCPs can continue to clear EU27 trades. That point is not covered in the SI, but as I am sure the Minister anticipates, I will return to it.

I note that no fewer than 24 questions were posed during the discussion of the draft regulations in the other place. That is understandable given the significance of this area and the considerable uncertainty that persists as the SI is drafted. I am grateful to the Minister for his helpful explanation and clarification of exactly when CCPs will be expected and required to seek recognition, but there are still six outstanding questions to which I hope he can respond.

[Mr Mark Prisk (Hertford and Stortford) (Con)]

I am listening carefully to the hon. Lady, who cites the real dangers to the UK of having no deal. Will she explain why she and her colleagues have made it clear that they intend to vote down any deal the Government bring back?

[Anneliese Dodds]

The House voted to have a meaningful choice over the deal that was presented to us. Sadly, we have not yet been presented with such a choice. The deal the Government appear to be negotiating does not appear to the Opposition to protect jobs, the environment or workers’ rights, or to meet the other tests we set out, and all that has been set out thus far is a choice between that flawed deal and no deal. For a vote to be meaningful, we would need to be able to amend the deal, which possibility seems to have been removed from us, going against the undertaking that many people on both sides of the House thought we been given.

We are also not being given the additional option whereby the deal is remitted to Parliament to discuss a way forward, which most of us anticipate is what would make the choice meaningful. If a gun is held to one’s head and one is told, “You have to support this deal; otherwise it will be necessary to jump off a cliff,” that is not a meaningful choice. It is enormously disappointing that the Government have chosen to interpret that vote in that manner. Given the hon. Gentleman’s question, I hope he will work hard to persuade his Government colleagues of the need to offer the House a genuinely meaningful choice rather than what currently appears to be in front of us.

[Mr Prisk]

I certainly am doing that—