Draft Transparency of Securities Financing Transactions and of Reuse (Amendment) (EU Exit) Regulations 2019

Ranil Jayawardena Excerpts

Wednesday 27th February 2019 General Committees

[John Glen]

I very much respect the points made by the hon. Members for Bootle and for Inverness, Nairn, Badenoch and Strathspey. I will respond to each of the 10 or 11 points that have been raised in succession. The opening remarks of the hon. Member for Bootle concerned the process with respect to the volume and flow, the adequacy of the resourcing, the capacity and transparency.

I will address all of those points, but I will say that the SI is needed to ensure that the EU law on securities financing transactions continues to operate effectively if we leave without a deal or an implementation period. It is not the policy of the Government to get to that point, because we are seeking a bilateral agreement with the EU that would expand the scope of cross-border activity beyond existing equivalence and ensure structured dialogue to manage regulatory change. Our proposal for a future UK-EU relationship in financial services seeks to be both negotiable and ambitious, but it is obviously prudent and necessary for us to have no-deal preparations such as these.

The hon. Member for Bootle commented on the onshoring project and the powers used. The 2018 Act does not give the Government the power to make policy changes, as has been spelled out in this SI, beyond those needed to address deficiencies arising as a result of exit. They are limited and seek simply to onshore existing provisions into domestic regulators and fix deficiencies as they exist.

The hon. Gentleman then referred to the reliance on secondary legislation. Those of us who have sat through a number of such Delegated Legislation Committees in recent weeks, including the Whip, my hon. Friend the Member for Calder Valley (Craig Whittaker), all recognise that, under the powers granted by 2018 Act to make all these financial services statutory instruments, restrictions are in place to ensure the appropriateness of their use. The central objective of the SIs is to provide, as far as possible, legislative continuity for firms. No policy changes are intended; the exercise is an intelligent onshoring one.

[Mr Ranil Jayawardena (North East Hampshire) (Con)]

May I probe the Minister a little further? He talks of onshoring policy, not changing it. The FCA is picking up a number of different roles under the draft regulations, particularly on enforcement, so will he assure us that there will be no resulting policy deviation in relation to the penalties that might be imposed?

[John Glen]

I am happy to say that the FCA has been intimately involved in the whole process. Its objective is to provide continuity to the market and to ensure that appropriate scrutiny of market activities is undertaken. No extension of power is given to the FCA through this process. As the national competent authority, it is simply taking on more responsibilities that were often elsewhere previously.

[Mr Jayawardena]

I thank the Minister for that answer. May I probe further? Given that the FCA is taking on those responsibilities, is it recruiting more people to undertake that work? If so, is it making good progress in doing so?

[John Glen]

Yes. I can tell my hon. Friend that, for example, 158 individuals or full-time equivalents in the FCA are now working on Brexit matters, which contrasts with 28 such individuals or full-time equivalents in March last year. It will shortly be setting out its plan for 2019-20, which will set out how it is allocating resources. The FCA has the power to increase the levy should it require additional resources.

I have sought to address the issue of the reliance on secondary legislation with the inherent restraints placed on the Government in the process. The hon. Member for Bootle went on to ask whether the change in the SI to how branches are treated will lead to duplicative requirements for firms, but firms are simply reporting the same information at the same time using the same template to the UK and EU authorised trade repositories, so yes, there is duplication, but it is straightforward—exactly the same form is sent to two institutions simultaneously.

The hon. Gentleman asked about the suspension of reporting for one year. The draft SI, like other financial services SIs, does not make changes beyond what is necessary to ensure that we have a functioning regime after exit. With regard to the powers to make regulatory technical standards, that reflects an approach that applies across the entire body of onshored legislation. In addition, the SI will ensure that regulators have sufficient flexibility to avoid cliff-edge risks for firms.

The hon. Gentleman asked about the robustness of the SIs and drew attention to the admission that I made on Monday on the Floor of the House about some minor typographical drafting errors, including one or two that happened previously. There are, I think, 1,000 pages of the SIs. My officials and I have done our best, we have acknowledged where those mistakes were made, and we have corrected them as quickly as we could, but they were not meaningful in their substantive legal effect, with the exception of one case, which has now been corrected. We have engaged with industry on the content of the SIs. We usually—I cannot remember circumstances in which we have not—publish the drafts of the SIs in advance of laying them before Parliament, and we have allowed an iterative process to exist.

The hon. Gentleman asked, in connection with regulation 4, whether we should use an SI to allow the FCA to issue penalties. The 2018 Act allows that in limited circumstances, with safeguards, including the affirmative procedure. The FCA needs the power properly to supervise trade repositories. He then asked about resourcing, but I have discussed that in response to my hon. Friend the Member for North East Hampshire.

The hon. Member for Bootle also asked about consultation. We published a document in June that set out our approach and emphasised the aim of ensuring continuity. That was widely welcomed. The draft regulations were published on 19 December, so people have had two months to examine them.

On the unavailability before the debate of a consolidated text, it is not normal practice for the Government to provide consolidated texts for debates on secondary legislation. I think that the hon. Gentleman was making a wider point about the overall need for all financial regulations. Frankly, that would be very difficult to achieve, given the wide range of contingency arrangements that are needed. However, the National Archives will publish an online collection of documents capturing the full body of EU law as it stands on exit day.

The SNP spokesman, the hon. Member for Inverness, Nairn, Badenoch and Strathspey, made a point about the volume of capital moving outside the UK and asked what the Government’s response was to that. The Treasury is in frequent contact with firms and regulators about their contingency planning for EU exit. Although we have been clear that passporting will come to an end after we leave the EU, we are seeking a relationship with the EU that allows for continued cross-border trade in financial services, as set out in the White Paper. Although I acknowledge that there has been movement of some capital and execution of contingency arrangements, there is a great deal of resilience to the City of London and financial services in the United Kingdom. We need to draw a distinction between wholesale movement of jobs, and capital being located somewhere else but still being acted upon in the United Kingdom and the City of London.

The hon. Member for Bootle asked about discretion for mutual co-operation arrangements and market access. The Government’s priority is to exit the EU with a deal that ensures continued co-operation with EU institutions on all regulatory matters, including SFTs. However, we are working hard to ensure that, in the no-deal scenario that we are seeking to cover ourselves for, we can maintain a degree of co-operation with the EU. Like all such SIs, the draft regulations ensure that we are prepared for all scenarios.

I believe that I have answered the points that were raised. I recognise the wider political point about the adequacy of this process, but I hope that Members have found this Committee sitting informative, will respect the answers I have given and will be able to support the draft regulations.

Question put.