Financial Services (Implementation of Legislation) Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

Committee: 1st sitting (Hansard): House of Lords
Tuesday 8th January 2019 Lords Chamber

Moved by

[Baroness Bowles of Berkhamsted]

1: Clause 1, page 1, line 3, leave out “or” and insert “and”

[Baroness Bowles of Berkhamsted (LD)]

My Lords, for the purposes of the Committee stage of this Bill, I declare my interest as in the register as a director of the London Stock Exchange plc.

This Bill, as was elaborated at Second Reading, is intended to provide a way to land so-called in-flight legislation. However, as many noble Lords also observed during Second Reading, the scope for amendment of that legislation is wide and not limited to the type of onshoring provisions of the withdrawal Act. Indeed, there is no promise of onshoring at all. This point is noted by the Delegated Powers Committee in paragraph 17 of its report on this Bill. The fact is that there is just a wide power to make legislation related to any of the provisions in any of the legislation in subsection (2) or specified in the list in the Schedule. There are no provisions defining how close it must be to that legislation, and the power is not anchored only to withdrawal from the EU.

We should not lose sight of the fact that the mechanism is an alternative to primary legislation. Although the power is time-limited, I do not consider that that is sufficient control to replace primary legislation entirely. It cannot be left open for the Government to cherry pick, to diminish, to add or to do things that depart from expectation, in terms both of the policy in the EU instruments that the power covers and the policy that has been laid out by government with regard to relations with the EU after Brexit.

The doubt starts right at the opening words, which state:

“The Treasury may by regulations make provision … corresponding, or similar, to … any of the provisions, of any specified EU financial services legislation”.


The use of “or” clearly implies that the regulation may make provisions that are corresponding but not similar. A simple suggestion may be to make a penalty for a failure in a corresponding position, but not the same penalty. So, too, could it be the other way round: a provision may be similar but not corresponding. A penalty may be moved to somewhere else or attached to a different provision. We often talk in particular about criminal penalties, when we are equalising them out between different types of provisions.

Amendment 1 would replace “or” with “and” so that it said “corresponding and similar”, thus making the objective clear: it corresponds to a particular EU provision and it is in similar terms. That seems to be a good and clear start to the Bill rather than the imprecise start that it currently has.

On its own, the amendment would not solve all the problems, including the Government’s plea for some flexibility. In other amendments in later groups, I probe how that might be done. Other noble Lords have amendments in this group which suggest further limitations on power. As it has fallen to me to speak first, I shall briefly comment on them

Amendment 3, tabled by my noble friend Lord Sharkey, makes a good point about not changing the primary purpose of the EU legislation, and it could sit alongside my Amendment 1 as well as standing alone. Amendment 5, tabled by the noble Lord, Lord Davies of Oldham, and others, would limit the provisions to the circumstances of withdrawal from the EU. I am interested in the debate around that point. How far would the Government intend to stretch the term,

“adjustments in connection with the withdrawal”?

What other form of amendment not connected to withdrawal might they be contemplating?

Amendment 7, by the noble Lord, Lord Tunnicliffe, progresses the limitation to reflecting the UK position outside the EU. In later groups, I have put forward some probing amendments that would limit the scope of amendment in other ways but which are a little more permissive, so, for now, I reserve my own position on Amendments 5 and 7 save to say that, if it is not feasible to construct suitably restrained flexibility, limitations of the kind set out in Amendments 5 and 7 would have to become the default position. I beg to move.

[Lord Sharkey (LD)]

My Lords, I shall speak to Amendment 3. At Second Reading, there was much discussion of the wide powers that the Bill gives to the Treasury via secondary legislation. All the amendments in this group deal with that issue.

Clause 1 contains clear Henry VIII powers. It allows the Treasury to make policy and new laws entirely by means of statutory instrument. It even allows such new laws to be wholly unrelated to the UK’s exit from the EU. Unusually, it allows these new laws on to the statute book without any parent primary legislation. There will be no parent Acts for these new laws: no context, no detailed parliamentary discussion and no effective parliamentary scrutiny.

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[Lord Bates]

I hear what the noble Lord and the Committee have said. That is what a Committee stage is for: it is for the Government to listen to what noble Lords have to say. I am grateful for what they have said, and I undertake to take it back, reflect on it and discuss it with colleagues ahead of Report. In the meantime, if the noble Baroness is happy to withdraw her amendment, I shall be grateful.

[Baroness Bowles of Berkhamsted]

My Lords, I thank the Minister for his replies. Part of his early response sounded quite encouraging when he said that things would not move outside the bounds of the original EU legislation, but it got a bit worse later on when he said this meant that things could still be domesticated or removed to match the peculiarities of the UK financial markets, which basically means not doing it if we do not feel like doing it. That is certainly how it was presented, interpreted and ended up in the EU when I was in charge of putting through a lot of this legislation.

With regard to my own amendment, I think he has said that “corresponding” is tight, in that the provision has to be identical in all respects. But he went on to say that this is one of two definitions that give wider latitude; “similar” was somehow a looser term but did not have that same latitude. He made the point that trying to satisfy two different legal criteria can be confusing, and I would side with that view. He also said, I think, that one of the terms was meant to apply to one category of the legislation and the other, looser term—whichever that turns out to be—applied to the other.

If I understood correctly, he said that the list that appears in subsection (2)—which is the finished though not yet active legislation: there are no changes, it is all done and we know what it says—would be subject to the tighter of the definitions, which is possibly “corresponding”. Those in the annex, which have not been finished and possibly might not be finished until after we have left—so we will not be involved in the last tweaks—may need to be tweaked more and will be subject to the term “similar”. This starts an interesting discussion, which we can continue when we talk on other groups, of whether we should completely separate out how we deal with the legislation that we already know about and can already analyse regarding whether it works for the UK markets, as opposed to where things are not definite and one needs more reservations. I push that out as a point.

Other amendments, particularly Amendment 3 in the name of the noble Lord, Lord Sharkey, would also solve some points, as they go back to the question of the “primary purposes”. The key anxiety is that this Bill enables legislation to be made through a secondary method which is incapable of having scrutiny and will not necessarily have had scrutiny even at the European level by way of the adjustments, and there is no way to amend it. It could depart from the purpose, no matter what is said, because the Bill does not actually say there is to be no departure from the purpose. If you put in Amendment 3, or some other amendments that we will come to later, then you can tie it down and make clear where you will depart and where you cannot do so.

Let us be clear that one of the elephants in the room is whether we will implement the legislation at all. There is nothing compelling this. One can cherry pick it—we will come on to that in the next group of amendments—but there is nothing that says it will be onshored, so one could simply not have it at all. It is absolutely clear if you look at the first articles in subsection (2)(a),

“Articles 6 and 7 of the Central Securities Depositories Regulation”—

we know what the issue is there. I am sure there are people in this Chamber right now who could debate the benefits and otherwise of those particular articles. It was thought that the EU might not be able to make the technical standards, or that they would somehow be withdrawn. But no, the technical standards have been made; we know what they are and the likelihood that they will become active in 2020. The question could be put now: are we going to have it, or are we not? If we are not going to have it, should that be at the whim of the Treasury? This has significant repercussions on all kinds of other parts of the market where we may or not be deemed to have equivalence. We might as well discuss this now. It should not be someone sitting in an office and saying, “Well that can go and damn the consequences”.

We have a lot more to discuss around this as we go into the next groups but for the time being I beg leave—

[Lord Adonis]

Before the noble Baroness sits down, I just want to say that all the points she has made, and made extremely well, seem to me to be met by my noble friend Lord Davies of Oldham’s excellent Amendment 7. Most of the problems the Minister has encountered could be solved by him simply accepting it, because what Amendment 7 says is that:

“Regulations made under subsection (1) shall be limited to preventing, remedying or mitigating deficiencies in retained EU law”.


I have not yet heard a good argument put before the Committee, least of all by the Minister, for why we should not accept that amendment. The Minister says he wishes to discuss it further; I am not exactly sure what there is further to discuss, because unless my noble friend Lord Davies or the noble Baroness resile from this amendment, it is a very clear-cut position of principle, which seems to me to be fundamental to the maintenance of our proper parliamentary procedures.

So would the noble Baroness agree that the right position is for the Liberal Democrats and my noble friends to stick resolutely by Amendment 7, and unless the Minister is prepared to meet us on that, we should simply vote on that and seek to carry it, I hope with support across the House, because it is fundamental to the operation of parliamentary sovereignty? On Report, we should not get involved in a long technical discussion about how much additional power we might grant the Minister simply because he has put a proposal on the table in the first instance which is straightforwardly outrageous.

[Baroness Bowles of Berkhamsted]

I thank the noble Lord for his question. He will recall that I reserved my position on that amendment but said that I thought it is the default if we cannot find something workable that gives more flexibility to the Government. I will come on to why there may be a case for flexibility in the next group, where I have a set of amendments related to it, but I can give noble Lords a preview in that I think it is quite difficult to define what that flexibility should be, and so it is going to take a lot of work to better Amendment 7. What the noble Lord suggests as the common position might well come, but we have a duty to explore further. There is more to mine away at within this Bill, and so I will not give an absolute yes to that question. Furthermore, there may be others within the group who want to consider the points. With that, in order that we can move on, I beg leave to withdraw my amendment.

Amendment 1 withdrawn.

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Moved by

[Baroness Bowles of Berkhamsted]

2: Clause 1, page 1, line 4, leave out “, or any of the provisions,”

[Baroness Bowles of Berkhamsted]

My Lords, as I explained, I have three amendments in this group. They fit together as a set, but Amendment 2 can also be a useful standalone provision.

Amendment 2 would delete the words “or any of the provisions” from line 4. On its own, that amendment is intended to prevent the cherry picking of favourite bits of the legislation. Taken to its extreme, such cherry picking would even enable the cherry picking of revocations of prior legislation—such revocations might appear in the schedule because they are amendments to other pieces of legislation. So you might be able to enact them without any kind of replacement.

More generally, EU legislation is interwoven with checks and balances, and if some are left out, the nature of the legislation can be changed or rendered ineffective, for example if penalties are taken out or time limits changed. The DPRRC makes a similar point in its paragraph 17, which says that,

“the overall effect of the legislation might vary quite substantially depending on which provisions are implemented and which … are not”.

Whether on its own or in combination with other amendments, it would be a useful amendment to rule out the prospect of simply cherry picking.

Amendment 4 is a linguistic amendment that links to Amendment 6. It might not actually be necessary, but I tabled it to deal with the kind of omissions that might be necessary—for example, taking out things that are not relevant to the UK. An obvious one would be something to do with monetary union, which is not relevant to us. The amendment’s purpose is to clarify that “adjustments”—that nebulous word; maybe we need something else—includes omissions. Then, whether it is an adjustment, change, omission or whatever we want to call it, all become subject to the same controls I would put in with Amendment 6 and elsewhere. This does not work if you try to do it using the wording appearing earlier in the clause. It looks a bit bizarre to take out the possibility of omissions in one place and put it in somewhere else, but this is just to ensure that one could establish that the conditions imposed apply to all of it. At the time of drafting I thought it clearer to reference “omissions” than “provisions not provided for” or something of that nature.

The more substantive Amendment 6 states that any omission or adjustment made under subsection (1) that is not subject to similar conditions as those in the withdrawal Act—that could be tightened up to refer to a particular provision of that Act—and does not fall under that kind of provision is,

“only to be considered appropriate if the Treasury has at least three months previously laid before Parliament a report on the policy and reasons for omission or potential omission”.

Here I am, as I said I would try to do, crafting something using the ideas of the reports in subsections (8) and (9) so that, if the Treasury comes forward with some proposal, Parliament is not surprised by it because it has been laid out and possibly even debated and understood.

That would be very helpful, but, having put forward this suggestion as to making flexibility, I came to the conclusion that I do not think that that on its own is sufficient. It still gives far too wide a leeway for change because the kind of reporting we get when statutory instruments to do with EU exit are brought before us—the Minister will know that we spend hours on them in this Chamber and in Grand Committee—is a bit perfunctory. Anyway, even if they are reported, it does not mean that they can be stopped. Maybe I have not got this right. My point is that one still needs to have some other overarching provision that stops things going too far, which might come back to Amendment 7, in which case all these other ones would not be necessary, to my noble friend Lord Sharkey’s Amendment 3 or, when we get to the next group, to my Amendment 8.

I am trying to find a way to give the Government the possibility for flexibility, because I know as well as anybody else what EU legislation could look like in the absence of a strong input from the UK. I have said before that I know what it would look like if I had not been there. I concede that we have to have some defences. If the defence is not to be primary legislation, to go through it all again—and I am very conscious of the volume of that—then there need to be some guidelines. It cannot be just a simple free-for-all. We need to know what is going on, and the reporting has a huge input there, but we have to be able to say no if the departures are substantive. I beg to move.

[Lord Adonis]

My Lords, I understand what the noble Baroness is seeking to do: to tease out from the Government whether they are prepared to agree to new reporting requirements, which would be helpful. There is nothing in the new reporting requirements which I think is objectionable. On the contrary, the more the Government are prepared to explain their policy to Parliament, the better. I know the noble Baroness said she and her colleagues are considering what their stance will be when it comes to Report. Can I recommend Amendment 7 in the name of my noble friend Lord Davies of Oldham? It is significantly superior in this respect. It makes a clear distinction of principle between Orders in Council which are,

“limited to preventing, remedying or mitigating deficiencies in retained EU law”,

and, because they are so limited, an Order in Council procedure is justifiable; and changes to the law that go beyond that, and which, as a matter of principle, should be subjected to the primary legislation procedure. The Liberal Democrats do not want to give decree-making powers to the Government, so I cannot see an argument for not subjecting substantive changes in the law that go beyond,

“preventing, remedying or mitigating deficiencies in retained EU law”,

to primary legislation, as my noble friend Lord Davies of Oldham sets out in his Amendment 7. I encourage the noble Baroness and the Liberal Democrats to be true to their liberal principles and not to give dictatorial powers to the Government, and to support my noble friend’s Amendment 7.

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[Baroness Bowles of Berkhamsted]

I thank the Minister for his response. As the noble Lord, Lord Tunnicliffe, pointed out, the meat, if you like, in this group of amendments is in Amendment 6 and some mechanism of having reports to Parliament so that we are not surprised by what is going on. I think that that means more than just laying a finished instrument. When I was drafting it, I was looking more at the reports that are required by subsections (8) and (9). The noble Lord, Lord Hodgson, has tabled some amendments and I signed some of them because I think that good work can be done on the issue of reports. Perhaps my Amendment 6 ideas will go into that pot.

I think we are getting to a situation where some statutory instruments will be able to go through because there will not be significant changes or the sorts of changes that would lead to a loss of equivalence or a change of purpose or however we define it. But there will be some others, if there has been an unsatisfactory conclusion to some of this in-flight legislation, where the changes will be larger, and for which therefore the process that uses secondary legislation may not be appropriate, so one will have to fall back on primary legislation. That does not mean that that will be the destination for all of them, because they will not necessarily all be unsatisfactory. There will be an incentive, perhaps, to stay aligned and do some, but the fact that one or two might require primary legislation is not something that can be run away from.

I will just put in a plug for Amendment 2, the anti-cherry-picking point that you cannot pick and choose between the provisions; it should be on a whole basis. If we were to pursue Amendment 7 as the mainstream amendment, I would suggest to the noble Lord, Lord Adonis, and the Labour Front Bench that something like Amendment 2 would perhaps slot in quite well, if it is not inherently covered by the wording, which I would have to analyse further.

I think we are slowly making progress, but my conclusion is that everything is still too wide, so we need to move on to the other groups. With that, I beg leave to withdraw my amendment.

Amendment 2 withdrawn.

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Moved by

[Baroness Bowles of Berkhamsted]

8: Clause 1, page 1, line 11, at end insert—
“( ) But no adjustment may be made under subsection (1)(b) that jeopardises potential equivalence with the EU.”

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[Baroness Bowles of Berkhamsted]

My Lords, this amendment is a simple, overarching provision that says that no adjustment may be made,

“that jeopardises potential equivalence with the EU”.

This goes to the heart of what is allowable under a statutory instrument and what is not. It seems to me that it is one thing to seek short-cut arrangements—if I might call them that—to land in-flight legislation without needing primary legislation but quite a different matter to then land that legislation at a destination that is very different from the one that was expected. This is especially the case for legislation under subsection (2), which is no longer under negotiation but which has in fact landed, even if it is not yet operational.

It is worth pointing out that everything the Government have said about Brexit, under whatever type of Brexit, is to try to obtain or retain equivalence—that is the expectation. It may be that equivalence does not work out; it might be due to things that the EU does which become problems for UK markets—and, as I said, I know pretty well how that might happen—or it might just be that the EU Commission delays or decides not to make an equivalence finding because it does not see it as in its interest. After all, it is EU Commission policy to make equivalence decisions only when the EU needs them—although it tends to find out in the end that it does need them. I know full well what an infuriating process equivalence can be, as I have played my part both in making sure that it gets into the legislation in the first place and then pressing EU officials to get on with it.

However, despite all those difficulties around equivalence and whether we will have it or not, that will not be decided overnight—even, if I may say so, in the event of a no-deal Brexit. Thus to abandon notions of equivalence, even at any time within two years of Brexit, would be a big step and a decision that should come before Parliament in primary legislation. I do not say that it should not happen, but it is a big departure. I do not remember that anybody’s manifesto said that they would abandon equivalence willy-nilly. Everything that has been said on every occasion, on everything to do with the Brexit negotiations, has been to try to get something better than equivalence, so it would be a big departure to set it aside. This is where the dividing line comes, and this would be the gatekeeper of those things that you do: “It’s okay—you’re keeping equivalence. No; you can’t do it this way if you want to break away from equivalence”.

The truth is that we have already given regulators sufficient leeway that they could make rules that led to an abandonment of equivalence by them not matching EU delegated Acts legislation. The way we have set it up, that has been given to the regulators. However, I do not think that our regulators would tend to go down that track—and if they did, I suspect that it would feature prominently in their consultations. I regret that the noble Lord, Lord Adonis, is not in his place, because I commend his amendment that we will come to later on, in which he suggests that some reporting from the Bank of England should be included. Possibly, if we are to have these reports that tell us what is going on across the piece, it would be a good idea to include in that what the FCA is doing, whether that is done through the FCA having a section of the report or through the Treasury dealing on its behalf with that aspect of the report that it told us about.

As I have already indicated, we know that there are concerns about certain bits or pieces of legislation, but we have to bear in mind that abandonment or significant alteration of any policy element of what is essentially EU primary legislation may well remove the hope of equivalence for part of the market, or indeed for other parts or entities that are not necessarily the direct beneficiaries of those adjustments. I could construct an argument around the changing of the buy-in regime. If that was dropped, it could have ramifications for equivalences in many other places, and that matter is already weighing on the consciences of those who are having to think about which way they would want to push that debate.

As I said, the business about what we do with equivalence needs a great deal more thought. As my noble friend Lady Kramer said, we cannot let it go by default of not doing something or by rushing something through in a statutory instrument that we cannot amend, knowing that it might lead to a loss of equivalence. I beg to move.

[Lord Flight]

My Lords, the hope is that if everything were sensible, the amendment would be appropriate and powerful. As the noble Baroness, Lady Bowles, pointed out, it is possible that the EU may go down paths of regulation that are not very sensible. In that situation, given that the market for the UK’s financial services industry is not just Europe, it may not be practical for the UK to use and follow equivalence. Indeed, there may need to be changes to the benefit of the industry other than vis-à-vis a Europe that has gone off the rails with its regulations.

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[Lord Bates]

To go back to first principles, I am saying that the power in this Bill is not in effect to make policy—rather, it is the ability to produce secondary legislation that has a policy content to it and which would then be subject to scrutiny in this House. That power is being put in place for an extraordinary set of circumstances—I think we all agree that these are extraordinary circumstances and in fact I should underscore that we hope that these powers will not be required to be acted upon, because there will be a deal and we will continue to have access to the market in financial services across the EU. That is our aim, but we are preparing for all eventualities.

The noble Baroness will be aware that equivalence determinations are autonomous decisions with the EU and, in turn, the UK retaining autonomy for determining if a foreign jurisdiction has equivalent standards and supervision. The EU takes a varied approach to assessments of equivalence, tailoring its approach to individual regimes with regard to how the assessment is conducted. The Commission itself has stated:

“It is the equivalence of regulatory and supervisory results that is being assessed, not a word-for-word sameness of legal texts”.


Indeed, for a recent example, one need to look only at the EU’s statements on equivalence in a no-deal scenario. Within these, the EU has been clear that equivalence decisions of the UK will be made where justified in the interest of the Union and its member states, with time limits and conditions to their decisions where appropriate. As such, it is very difficult to judge what the EU will take into account in its future assessments and how its autonomous third-country regime will evolve. Such an approach, plus the breadth and variety of considerations that form part of equivalence determinations, from the rules themselves to supervisory approaches, means that it would be very difficult to determine what effect, if any, a change or adjustment that the UK makes to our laws might have on a future equivalence determination in a given area, given that these are autonomous decisions taken by the EU. It is therefore difficult to see how the test set out in this amendment could be met.

Let me reiterate the importance of, in the case of a no-deal situation, retaining the ability to adjust our legislation so that it best serves the aims and objectives of the UK once we have left the EU, as my noble friend Lord Flight has identified. It is crucial to ensure that we can bring into force pieces of legislation in a way that works best for the interests of UK markets. The Government are also committed to doing this as transparently as possible, which is why we have set out the strict reporting requirements to which I know we will return on Report. In the light of that, I invite the noble Baroness to withdraw her amendment.

[Baroness Bowles of Berkhamsted]

I thank the Minister for his response. I shall deal first with the point that this might be legislation that will never need to be implemented. But the fact is that something like this will probably be needed when we get to the next cliff edge, and in any event by passing this Bill, we will also set a precedent for what might then follow in subsequent legislation. You cannot get some dodgy things through on the basis of reasoning, “Oh, we might never need it”. We know only too well the effect of having let something slip through once. I can assure the Committee that that is not something I had a reputation for in Europe and I would not allow it here if I had anything to do with it.

Like my noble friend Lady Kramer, I fully accept the point made by the noble Lord, Lord Flight, that the legislation might not be “sensible” when looked at from the UK perspective. This is what is meant by not being able to fit in with the specificities of the UK. However, the trouble is that that is a very vague description. We would need far more of an indication of what is meant by that to allow it to be any kind of gatekeeper. I think that the point about equivalence is fundamental and it can be a gatekeeper. It is probably completely wrong not to contemplate having an equivalence Bill which actually lays out in more detail the sort of tests that would be applied. Looking further into the distance of how we deal with financial services legislation, we are not going to bring to the Floor of this House all the detail set out in the regulations and directives that I had to negotiate. The majority of that will no doubt be passed off to the Treasury and the regulators in some way that will not concern us. I am not sure that I agree with that, but I can see the writing on the wall. However, something big such as whether we want to stay aligned or whether we think that it has progressed too far—it is too uncertain, we cannot deal with this kind of uncertainty, and what are the tests?—could well be put into legislation.

I reject the notion that we cannot have a limitation such as this in some form or other as a guardian within this legislation because of the attitude of the EU and how it makes decisions. You know for sure that doing certain things would remove any chance of equivalence—such as leaving out a couple of articles of the main legislation. Boom! Not equivalent. There is no question. Because certain things are done in a slightly different way, maybe tweaking a little bit in a delegated Act would not be a bar, so that could possibly pass the test and go through.

I come back to subsection (2). The very first item there is a yes/no decision: are we having this, or will we neuter it to the extent that we do not have the buy-in regime of the CSDR? That is what it is all about. If we did not have the buy-in regime of the CSDR, we would not be equivalent in quite a lot of things to do with securities transactions, and maybe in things to do with our clearing houses or our exchanges. I remind the House of my interest as a director of the London Stock Exchange. These things are under active consideration, so doing something like that would, in my personal judgment, put equivalence at risk. I think you can make a dividing line through this.

Especially if there is some tentative encouragement from the Labour Front Benches, I think this is one of those amendments that usefully goes into the pot that we should be working on. The alternative is that you get even less, probably a very tight and improved version of Amendment 7, because an amendment such as this might offer not a great deal but a tad more flexibility—a tiny bit more. With that, I beg leave to withdraw my amendment.

Amendment 8 withdrawn.

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[Baroness Kramer]

I thought that the noble Lord described naked short selling, which I thought I just defined. Anyway, I am nervous about the idea of policies such as this. There will be enormous pressure to use this opportunity, where the Treasury alone is the decision-maker, basically to loosen the regulatory structure that we have in the UK. That issue is a fundamental one for Parliament.

I would say to the noble Lord, Lord Hodgson, who talked about the need to find the appropriate place and that it is good that we can have those discussions with the Treasury, to have them with Parliament because there is another side to the argument. One reason why the UK been spectacularly successful as a financial centre is because the regulatory environment in which it functions is considered by many to be a global gold standard. If the noble Lord goes to countries such as China, India or other places, the level of trust and respect in financial institutions that are framed within those EU parameters—he could say it is foolish or sensible—is very high. It annoys the United States to heaven and beyond because so often it has loosened its regulatory standards but has not seen the business shift out of the EU into the US.

If you talk to companies, part of that reason is the reputational issue. For many companies, to be able to turn to clients and say, “I operate in the gold standard regulatory environment which means that you can trust me and what I do”, is so key to the future of their business that clients will reply, “If there is a significant loosening of standards, it might in the short term increase my profits but in the long term it will damage my regular relationship with my client base and I will need to move to the place that carries that gold standard kitemark”. Losing the kitemark is significant. That is something that this House and the other House should consider and should not be simply left to a conversation between the industry and the Treasury. It backs up our whole argument that this Bill, by transferring all those decisions simply to statutory instruments, is running into very dangerous territory.

[Baroness Bowles of Berkhamsted]

My Lords, a couple of interesting points have been made in the context of this amendment. As it reads, it looks reasonably acceptable as we do not want gold-plating, which could potentially happen. I echo that the Commission has been particularly good at dealing with smaller companies and businesses. My experience is that that has not always been reflected in the UK when the dispensations have been a matter for the member state. On more than one occasion, I have written to regulators and others about that.

One of the points was about asymmetric effects and the fact that when we are no longer a member state the law will bear down on us when we replicate it, or nearly replicate it, in a different way from when we were a member state. It is not only in financial services legislation that this could potentially happen. It happens with contractual obligations. When we replicate Rome I and Rome II, if the other party is in, say, New York, the penalty for breach of contract will be different in the UK from what it would be in France because we no longer tick the member state box. It essentially means that the higher New York penalty will apply rather than it being limited.

I sit on one of the secondary legislation scrutiny committees, and there have been various occasions when asymmetries have come up. There have sometimes been attempts to balance them, but sometimes not. It depends. These judgments about asymmetries already appear to be going on under the withdrawal Act. From the ones that I have seen, by and large it has not looked as though we could have dealt with them differently, but the issue is worth investigating. To say that the Treasury should do what it can for small businesses is a good thing, whether or not we say that we should not be put in a worse competitive position. Our markets are bigger and, because we have bigger global markets, we may have to regulate in a way that looks stronger rather than weaker. There may be other ways that it does not suit the specificities. I would be a little worried about “no worse competitive position” taken to its extreme, but in the general sense it is possibly more acceptable.

[Lord Tunnicliffe]

My Lords, listening to this debate, one cannot but feel that this is about a policy decision. The last thing I want in this Bill is policy decisions which will introduce different levels of regulation and proportionality. That may not have been the intention. I did not find the words very attractive because they led me to all sorts of different scenarios. I think I heard it advocated as quite a narrow concept to provide against unintended consequences as a result of slavishly transcribing a piece of legislation. If that is the intention, it may have some attraction, but as drafted, the narrowness of that is in no way clear and the breadth of it would involve serious policy changes. It is not the purpose of this Bill to introduce serious policy changes.

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[Lord Deben (Con)]

I hope that my noble friend the Minister has listened carefully to the noble Lord, Lord Adonis, on this matter. We are faced with a real difficulty here. We have agreed to many kinds of legislation, of which this is only one, to protect ourselves against the extraordinarily damaging situation whereby we leave the European Union without a deal. One of the dangers, to which the noble Baroness, Lady Kramer, pointed, was that, if we are not careful, we will be so sure that something is not necessary that we will not look at it as carefully as we ought.

The reason I suggest that my noble friend take Amendment 7 and the amendments that we are now discussing very seriously is this: the whole purpose of Parliament is to make sure that we expose the full extent of decisions of the Executive; it is to curb the Executive in the sense that it ensures that things do not slip through with unintended results.

I am sure that the Government have every intention of using this legislation properly; I am in no way criticising them about that. However, it is true that decisions made primarily by civil servants, which are not open to public scrutiny, can be disastrous. Any of us who have been Ministers know that; we know that one of the most important, perhaps the most important, protection the public have—and the most important discipline that one has as a Minister—is that decisions have to be debated and discussed. My noble friend knows that in this House, where we have limited powers, it is still true that very often during Committee and Report terrible gaps have been shown in legislative proposals. These are gaps which, once they have been revealed, the Government are rapidly determined to fill: to change what they are proposing because they had not meant to have that result.

In those circumstances, it is difficult, is it not, to give these powers so totally to the bureaucratic system? That is so even if one imagines that Ministers themselves have no intention of delivering other than what is perfectly in line with these legislative requirements. Therefore, it is not unreasonable to suggest that there should in all circumstances be a public discussion. The Government’s usual response is, “We can’t possibly do this as there isn’t time”. I am prepared to accept that as a generality, but this is not to impose a long-winded system; it is merely to say that what is proposed shall have sufficient public exposure and discussion to enable people to see whether it is within the proper confines of the Bill or reaches beyond it.

Although I had to disagree with the noble Lord, Lord Adonis, on an earlier amendment and his view of it, this one seems to draw attention to a very real issue. My noble friend and I share a considerable desire that these circumstances shall never arise. He is in no position to share my further desire, which is that we shall not leave the European Union anyway—I have no idea what his personal views are but I know what his views have to be at the Dispatch Box. The public will become less and less enamoured with this whole unprofitable and unacceptable process. If the Government want to protect themselves, at least to some extent, it is extremely important to make sure that these matters are processed in public. If they were ever to come about, the Government would find that protecting and defending what they have done was extremely hard, but why not accept that some further process beyond that allowed for in this Bill would be a democratic help in circumstances which will, we hope, not occur?

[Baroness Bowles of Berkhamsted]

My Lords, I agreed with the amendments of Lord Adonis; I do not agree that they are not needed, even with Amendment 7. There is still the issue of sequencing in terms of what is and is not being done; Amendment 7 does not solve the cherry-picking point or various other things. I attach quite a lot of importance to the reports provided by subsections (8) and (9). In that context, I read the amendments that added in the Bank of England. The noble Lord has explained that in the sense of taking advice from the Bank of England. But when doing these transpositions, there are inevitably delegated acts and other associated things that will be done at the level of the regulators and will not even be contained in a statutory instrument. Therefore I thought it was right that the regulators reported how things are dealt with as well as the Treasury. I support the amendment but would add the PRA and the FCA. In that way, we get the full Treasury report through to the regulators, so that we see that we are all on the same page and where the tweaks, even within the available limits, are made. So I agree with the noble Lord.

As to whether Amendment 11A is needed, there is no harm in putting it there. The Secondary Legislation Scrutiny Committee and other committees will still be doing their part when the things come to them, so I see no reason not to give some work to the Treasury Select Committee.

[Lord Tunnicliffe]

My Lords, we have an open mind on the amendments. The noble Lord, Lord Deben, hit the nail on the head in saying that the gap between primary legislation and the SI process is too wide. Since we are shovelling a lot of stuff into the statutory instrument process, this is a good time to consider some intermediate action. I do not move from my commitment to tighten up what is available for secondary legislation under this Act, and we will be pursuing that, but I shall listen to the Minister’s response with care to see whether this would be the occasion to make some progress in this important area and give two views of a piece of secondary legislation, instead of the usual process. No matter how hard the Minister and I, and colleagues on the Liberal Democrat Benches, try to give some life to the affirmative SI process, we know in our hearts that we are not going to vote against it because we are not going to provoke a constitutional crisis. Some process in between the two—this may be the right one—deserves careful consideration.

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However, in our view it would not be appropriate for the Bank of England to report on the exercise of a function that falls entirely within the remit of the Treasury. While it is certainly the case that the regulators will be consulted on the design and implementation of the legislation introduced under this Bill, the question of what legislation is brought forward and how it is amended is ultimately one for government. It is difficult to see how a body that does not have the ability to exercise this power can meaningfully report on its use. When I was listening to the debate—and perhaps we can clarify this in the discussions that will take place ahead of Report—it was not clear to me whether the noble Lord and the noble Baroness were referring to reporting on the powers which are sub-delegated to the Bank of England as a result of the SIs, or to offering a view on the package or simply on areas within its remit. Perhaps in the gap between Committee and Report we could explore that a little further.

[Baroness Bowles of Berkhamsted]

I certainly was talking in terms of what was delegated and how it was dealing with the things that it then had to deal with. I am not sure that that was the same as the mover’s view, but mine was in the category of doing what was within its power.

[Lord Bates]

I agree, in that spirit, to take back that point and look at it in the wider context of my opening remarks in responding to the noble Lord, Lord Adonis. I hope that he will feel able to withdraw his amendment at this stage, because we will return to these issues in some detail at Report, hopefully with some more to say.

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[Baroness Bowles of Berkhamsted]

My Lords, I have Amendment 16 in this group. As the noble Lord, Lord Hodgson, said, I added my name to his amendments and I thank him for trying to bring some better order to the reports and to increase the frequency with which they are produced. Amendment 16 says that the reports must include a table setting out which provisions of the financial services legislation have been transposed into domestic legislation, and under which statutory instruments. I ask for that because it is awfully difficult to know where things have been put. The Minister will recall that on several occasions when we have been discussing statutory instruments under the withdrawal Bill, I have had to go hunting for the articles of the legislation that has been transposed, and they have popped up in a different instrument and sometimes been dealt with at rather different times.

If that kind of thing is going to happen again, we need the safeguard of knowing where things have been put. In European parlance, this was called a “coronation table”, which showed where the European legislation ended up. One does not necessarily need to do that going forward, once we are amending under our own rules, but something like it would be a first step to obtaining equivalence, because we will also have to demonstrate to the EU where everything has been put. Therefore, this seems a useful addition to these reports, thereby keeping Parliament informed about how things are progressing.

[Lord Tunnicliffe]

My Lords, we have constantly been debating the same issue, which this amendment addresses from another direction. I am afraid that my experience of government producing annual reports is that, on average, they tend to appear every 18 months, rather than 12 months. I am not quite sure what the last report of the two does anyway, and the idea of one meaningful report every six months has a lot to commend it. Being prescriptive about its contents would also be quite useful, and I look forward to the Minister’s response.