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

Pat McFadden Excerpts

Wednesday 16th September 2020 General Committees

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

It is a pleasure to serve under your chairmanship, Ms McVey. The regulations are intended to put in place an equivalence regime for financial services during and at the end of the transition period. They mirror the equivalence regulations put in place last year in case we left the EU without a withdrawal agreement. As the old saying goes, it is déjà vu all over again.

The aim is to ensure minimal disruption at the end of the transition period and a suitable UK regime for functions currently carried out by EU bodies such as the Commission or the European Securities and Markets Authority. In most cases, those functions will transfer to the Treasury or regulators such as the Financial Conduct Authority. The Minister might confirm my understanding that the aim of the regulations is not to change policy other than that necessary to recognise the legal fact of the UK’s having left the European Union.

To put the Committee’s mind at rest, I will say that we do not intend to divide the Committee on this matter today. It is clearly in the national interest to have a robust regulatory system in place and to have a mechanism for making equivalence determinations for the financial services industries and the regulatory systems in EEA countries, and that is what the regulations aim to achieve.

However, I do have a couple of questions for the Minister, and I would be grateful if he addressed them in his summing-up speech. Determining equivalence is of course a two-way street. It is of just as much relevance to our financial services industry—and all the jobs, investment and tax revenue associated with it—to know what the situation is with equivalence determinations in EEA countries for our financial services industry as it is to design our own regulatory system for theirs.

The Minister will be aware that paragraph 36 of the political declaration that we signed last year said that the UK and EU should endeavour

“to conclude these assessments before the end of June 2020.”

We are well beyond that now, in mid-September, and perhaps it is a bit much to expect the Government to stick to the non-legally binding political declaration when they do not even intend to stick to the withdrawal agreement, but could the Minister give an update on how the process of determining equivalence with EEA countries is going? That has of course become a more serious and urgent question with the controversy about the United Kingdom Internal Market Bill, currently being debated in the House.

Let us say that no free trade agreement is reached in the coming weeks. What is the Minister’s assessment of the impact of that on our financial services industries? The regulations—they say it throughout—are all about co-operation arrangements, but what if there is not much co-operation in place? What will that mean for this important sector of the UK economy? What will it mean for jobs? And what will it mean for associated industries such as law, consultancy, accountancy, insurance and so on? What does the Minister think are the prospects for equivalence agreements if the good will is being destroyed in the way that we have seen in the last couple of weeks? What representations, if any, has the Minister received from the financial services industry on this question in recent weeks, since the Government’s intentions on the internal market Bill became clear?

We can replicate the regulations currently in place; we can transfer responsibility for these determinations to UK bodies, and that is what the regulations before us today do, but what we cannot do is replicate the market access that we currently have, because the Government have chosen their direction in the negotiations in a way that inevitably lessens market access for these UK-based firms. Of course, quite what the full implications of that are only time will tell, but particularly in the light of the last couple of weeks, I would be interested in the Minister’s assessment of that before we conclude.