Draft Merchant Shipping (Prevention of Air Pollution from Ships) (Amendment) Regulations 2021
(2 years, 7 months ago)
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The Chair
Before we begin, can I encourage Members to wear masks when they are not speaking? This is in line with current Government guidance and that of the House of Commons Commission. Please also give each other, and members of staff, space when seated and when entering and leaving the room. Members should send their speaking notes by email to hansardnotes@parliament.uk. Similarly, officials in the Gallery should communicate electronically with Ministers.
The Parliamentary Under-Secretary of State for Transport (Robert Courts)
I beg to move,
That the Committee has considered the draft Merchant Shipping (Prevention of Air Pollution from Ships) (Amendment) Regulations 2021.
It is a pleasure to serve under your chairmanship, Mr Davies. The draft regulations are necessary because of the ongoing need to reduce pollutant emissions from the maritime sector to protect public health and the environment. They will do that by amending the Merchant Shipping (Prevention of Air Pollution from Ships) Regulations 2008 in order that our domestic legislation is aligned with the latest international limits and standards for sulphur and nitrogen dioxide emissions. The international requirements are set out in annex VI of the 1973 international convention for the prevention of pollution from ships, which is colloquially known in the industry as the MARPOL convention.
The changes limit the amount of sulphur in marine fuels that are used, or intended for use, by ships to 0.5% by mass or less. They also require that new ships and new engines be certified to meet the latest nitrogen oxide emission standards, both globally and when ships operate inside waters that have been designated as an emission control area, or ECA, by the International Maritime Organisation.
The regulations enable UK ship inspectors to enforce the new limits more effectively on foreign-flagged vessels calling at UK ports. Under port state control regulations, ship inspectors from the Maritime and Coastguard Agency can apply limited sanctions for an offence on ships calling at UK ports. For example, those include recording a deficiency against a ship or temporarily detaining a vessel, or a ship can be ordered to de-bunker, which is emptying its fuel tanks. If the ship is using non-compliant fuel, access to UK ports and anchorages may be denied if there is evidence of significant non-compliance.
Those sanctions can be applied to ships only when in port or at anchor. The new statutory instrument, which we are debating, will allow ship inspectors to use the criminal justice system to impose fines on offenders. That is in line with our current approach to other marine pollution offences.
The ability to impose such fines will be an important deterrent to all foreign-registered vessels in UK waters, whether in transit, in port or at anchor, particularly those that would consider risking non-compliance to reduce costs without the threat of financial penalties. I would stress, however, that compliance with maritime environmental rules is the norm. Enforcement action by the MCA through the courts is extremely rare, and would be funded through existing resources if it were to occur.
The regulations also include an ambulatory reference provision—
Kevin Brennan (Cardiff West) (Lab)
The Minister says that such enforcement action is extremely rare. On how many occasions in the past two decades, for example, have maritime companies been found to be in breach of the regulations?
Robert Courts
I thank the hon. Gentleman for that question. I do not have those details at my fingertips; I apologise, but I will write to him and the Committee.
Kevin Brennan
If officials have the figures, could those be communicated to us during the sitting, because they would be of interest to the Committee? We are introducing further and stricter regulation, so it would be helpful for the Committee to know how much of a problem there is under the existing system.
Robert Courts
If I have that information, I will be delighted to share it. In any event, I would make the point that through the regulations we will ensure that our domestic legislation matches the international standards with respect to the IMO. We have two choices today, essentially. We can choose not to apply those standards—that is certainly an option for the Committee and the House—but if we were to take that option, we would be choosing to have lower standards in our domestic law than those in international law and those that we pushed for in the International Maritime Organisation. In any event, I urge the Committee to consider that these provisions are necessary, but if I have that information, I will of course share it with the hon. Gentleman.
The regulations include an ambulatory reference provision, which will automatically update references in the 2008 regulations to provisions of the convention and its annexes. That implements a key industry request from the red tape challenge that enables some amendments to international requirements to be transposed into domestic law more rapidly and efficiently than was possible previously. An amendment that is accepted will be publicised in advance of its coming into force date by means of a parliamentary statement to both Houses of Parliament. In any event, the ambulatory reference provision is limited. Substantial changes, such as implementing a new chapter in MARPOL annex VI, would still need to be implemented by statutory instrument.
The draft regulations amend obsolete sulphur limits for marine fuels used by ships, which were made under section 2(2) of the European Communities Act 1972. Specifically, the new regulations remove references to the 1% sulphur limit for ships operating inside an emission control area and the 3.5% sulphur limit for ships operating outside an emission control area. Respectively, these have been superseded by the stricter 0.1% and 0.5% sulphur limits. The new regulations also remove references in the 2008 regulations to a 1.5% sulphur limit that applied to passenger ships operating within European waters. This has been superseded because, like all vessels, passenger ships are now subject to the stricter 0.5% sulphur limit or the 0.1% sulphur limit when they operate inside an emission control area—that is, the higher standard.
Although it is important to remove obsolete requirements from our domestic legislation that were introduced under section 2(2) of the European Communities Act, the draft regulations retain other requirements that are still pertinent. They do not, for example, amend the requirement for ships to use 0.1% sulphur fuel when at berth in a UK port.
As the Committee will remember, shipping is the most global of international industries. It is important we apply internationally recognised air quality standards to shipping, which was of course the answer I gave to the hon. Member for Cardiff West a moment ago, along with effective enforcement measures to safeguard and encourage compliance. The draft regulations will ensure that the UK maintains some of the strictest air quality for shipping anywhere in the world, which will of course protect public health and the environment. The Government have made it clear that air quality is one of our top priorities.
The regulations help deliver on the commitments made in Maritime 2050 and our route map for sustainable maritime transport, the clean maritime plan. They will ensure that we enforce the standards we agree at the IMO and I commend them to the Committee.
Mike Kane (Wythenshawe and Sale East) (Lab)
It is a pleasure to serve under your chairmanship, Mr Davies. To be in Committee today, discussing the maritime sector in London International Shipping Week, is a great honour. In this week in particular, I pay tribute to everyone in the maritime sector, which played such a crucial role in getting this country through the pandemic crisis and which will continue to play a crucial role in the months and years ahead. The Minister and I enjoyed a very pleasurable cruise together today—I hope Hansard records that accurately—on the River Thames with industry leaders, where we got to thank them personally for the effort they have put in to keeping our supply chains in the UK moving.
I welcome the opportunity to discuss air pollution today. We all know that it poses not just an environmental threat, but a severe threat to public health, as the Minister pointed out. In my own constituency, the most vulnerable people in our community, children and older people are dealing with increased levels of bronchitis, asthma, heart problems and cancer caused by excesses of nitrogen dioxide in the air they breathe. It is vital that we work to reduce the volume of those emissions and of sulphur dioxide and it is right that we look to all parts of the transport sector to play a part.
We are obliged by MARPOL to control emissions, and our reputation as a maritime nation could be damaged if we fail in that quest. As we come out of lockdown, the effects of climate change are being seen and felt globally. Last year, my constituency was flooded, and the news channels show us wildfires in Europe and across the globe—nothing could more strongly make the case for a green recovery, rooted in decarbonisation and climate justice.
We know what we need to do, and we must start to do it now. Our maritime sector, which is often overlooked, has a crucial role to play, and with the COP26 UN climate change conference imminent, now is the time for us to look ahead and consider a greener future for the industry.
Do the proposals go far enough? I would argue that, in revitalising the maritime sector, we could unlock tens of thousands of jobs across the UK, with many of them green jobs and, very importantly, concentrated in our neglected coastal communities. I had the great honour of visiting the port of Hull a couple of months ago, and cycled from the train station to meet the chief executive in the port, passing the Siemens wind turbine factory. It was a sight to behold, with tens of thousands of highly paid, unionised jobs decarbonising our economy in the heart of a previously neglected coastal community.
This could be the opportunity to renew the many towns and villages that are dotted along the UK coastline, which are in desperate need of improvements to transport, job opportunities and connectivity, and which would be at the heart of maritime sector growth.
I speak frequently to those in the sector, and they tell me how keen they are to make the changes that are needed—to develop, innovate and change for the greener. However, the Government need to fund and support that radical transformation. In doing so, they would rapidly lower carbon emissions from shipping, and in the process could develop world-leading renewable fuels and reskill our workers for a sustainable future.
It is time for Government action. Decarbonisation and the rebalancing of our economy are possible, and UK maritime, with its wealth of talent and expertise, has shown time and again its ability to generate enormous value. This is a fantastic opportunity for our country, as there is no clear global leader setting the pace to develop zero emission shipping technology, and if Ministers are prepared to act quickly and invest, the UK can become a scientific and green technological superpower, bringing jobs and prosperity to our communities around our coast. However, there is no time to lose.
We have a moral duty and an environmental obligation to control pollution and to reduce emissions of both sulphur dioxide and nitrogen dioxide from ships and from our skies and in our children’s lungs. Controlling emissions will allow the UK to comply with its obligations as a party to MARPOL and to reduce the risk of reputational damage from not meeting our obligations.
The new regulations will also enable UK ship inspectors to enforce the international pollutant limits and standards more effectively, so I am happy to support the statutory instrument and will continue to be an advocate for more investment in our maritime sector to ensure we get there and take our rightful place at the front of the vanguard.
Kevin Brennan
My hon. Friend is right to welcome the regulations, and this is an extremely important measure and part of our international obligations. I rise, therefore, not to oppose the regulations, but to press the Minister a little around enforcement and costs, and around the resource that the Government are going to put into enforcing these new and stricter regulations in the new form of criminal sanctions.
It is important that the Committee understand the implications of the statutory instrument with respect to Government resource and the effectiveness of enforcement, which will ensure that the regulations have their intended effect on pollution. I note from the explanatory memorandum that the costs overall are deemed to be neutral to business—there will be a cost of £180 million per year to UK businesses as a result of the draft regulations—but the Government judge, probably rightly, that if we did not introduce the regulations, and if those costs were not incurred by UK businesses, those same businesses would face fines, problems, the impounding of ships and so on when travelling to ports in other parts of the world. That is why I am interested to know what we will do to ensure that ships in our waters, as well as UK ones, comply with the regulations so that they are effective in the ultimate aim of reducing pollution, climate change and so on.
Will the Minister tell us whether additional resource is being put into ensuring that the new, stricter regulations are enforced? That would be helpful to the Committee in considering the draft regulations. Also, has he had any electronic inspiration on the question I asked earlier, because that too would be helpful? If not, it would be useful to know in writing. The existing regulations are supposed to be reviewed every five years, so he ought to know the answers to my questions. The Government ought to be able to report to the Committee what the findings of the five-yearly reviews are, as outlined in the explanatory memorandum issued by the Department with the draft regulations.
Finally, on the “Today” programme this morning, I heard a very interesting report about the future potential of hydrogen-powered submarines for marine shipping. I wondered whether in passing, without breaching the strict terms of what we are debating in Committee, the Minister could give us his view of the future potential of that technology to reduce emissions from marine shipping.
The Chair
If Members wish to speak, they should signal. Members of the Select Committee on Environment, Food and Rural Affairs, medically qualified people and others will be concerned about air quality in ports, where people live.
Richard Thomson (Gordon) (SNP)
It is a pleasure to serve under your chairmanship, Mr Davies.
Obviously, it is highly desirable that domestic legislation should match the highest international standards, particularly where the UK Government have been a party to calling for higher standards in international regulation and in compliance through international bodies such as the IMO. For all that the draft statutory instrument before us is highly technical, it is of huge significance, and it is absolutely the right thing to be doing to ensure that domestic UK legislation is in alignment with not only the highest international standards, but those standards that the UK has been a party to calling for.
That clearly has a number of effects on aligning our sulphur and nitrogen-related emission requirements with those high standards, on setting standards for new engines in the marine sector and on improving the ability of the authorities to enforce compliance with the stipulated requirements. On all those things, we are content with the draft SI.
Speaking more broadly, in particular in the year of COP26, the environmental impact of heating and our industrial and transportation requirements are clearly the next areas that we need to focus on to reduce our environmental impact on the planet. Rightly, there is a focus on decarbonisation, but carbon is not the only emission to harm our planet and quality of life. Shipping is a key part of that. Reducing the environmental impact of shipping as we move goods around the globe is clearly a huge part of the positive impact that we can make by reducing emissions. The draft legislation is significant in that, and we are happy to support it.
Robert Courts
It is a great pleasure to hear the points made by hon. Members. I appreciate the broad support that is being expressed for the draft statutory instrument and the points made, all of which are excellent. In broad terms, air quality is a huge priority for the Government, as it is for hon. Members throughout the House, and through the legislation we are ensuring that we remain fully aligned with the latest environmental emissions regulations. We are working towards delivering our own commitments for sustainable maritime transport, which I will turn to in a second.
On the specific points raised, I will start with those from the hon. Member for Cardiff West, who asked about the enforcement of the existing regime. I will give him some detail on how that works. Currently, there are civil-only sanctions. We are introducing some criminal sanctions in these regulations. Civil sanctions can, at present, be used under the Merchant Shipping (Port State Control) Regulations 2011. Ship inspectors, as I outlined at the beginning of the debate, can record a deficiency, and they have a range of powers temporarily to detain a vessel, order a ship to de-bunker if it is using non-compliant fuel, and deny access to UK ports and anchorages. Those are carried out by local inspectors. I would have to go back to the MCA to see if it has a record. I am very happy to do that, I undertake to do so and to write to the hon. Gentleman and the Committee.
I think the hon. Gentleman is essentially asking how often the existing powers have been used, and, if not much, why we need extra. It is a perfectly reasonable point. The reason is that civil sanctions can only be applied to ships when in port or at anchor. It would not be possible to apply civil sanctions retrospectively on a vessel that has left UK waters or on the foreign-registered company operating the vessel. We are taking some additional powers not so much to beef up the existing powers, but to slightly broaden them. It is particularly the foreign-registered vessel that the hon. Gentleman might be interested in. We are taking a wider environmental remit, regardless of how often we have used the existing powers. I hope that explanation will help to allay his quite understandable concern about why we are seeking additional powers. The civil sanctions replaced by a criminal sanction is particularly important.
The hon. Gentleman asked about resources. With the new regulations, it will be possible to use the criminal justice system—the courts—to impose the fines or deal with existing contraventions. Enforcement action by the MCA through the courts is extremely rare, but as I outlined at the beginning, because it is very rare, we would expect existing resources to be adequate to deal with any demand. The ability to impose fines has an important deterrent effect, particularly for foreign-registered vessels in UK waters, whether they are transiting, in port or at anchor, and particularly those which are persistent offenders. There is clearly a deterrent effect if we have the ability to impose a fine, which we currently do not have. I understand and would expect any such enforcement action to be very rare and for the cost to be met within existing budgets. I hope that gives the hon. Gentleman a little more detail.
Kevin Brennan
I am grateful to the Minister for that explanation, but I am none the clearer on how likely the provision is to be needed. If there is a deterrent effect on something, we do not know how often it happens. I would welcome further information, although I understand that he cannot give us that now.
Robert Courts
That is a reasonable and pertinent question. I undertake to go away and make the enquiries, and to write to the hon. Gentleman and the Committee with further detail. He tempts me to pick up my crystal ball, but it is of course impossible to judge how likely it is that any powers would be used. I understand that such enforcement action is extremely rare, but I appreciate that one person’s definition of extremely rare may be different from another’s. I will look for the information. In any event, having the ability to take the stronger powers would make the requirement to exercise them less rather than more likely, but I will certainly go away and look at that.
The hon. Gentleman raised some other points—broadly, what else are we doing? I do not want to stray too far into a wider clean maritime debate. This is London International Shipping Week, which the hon. Member for Wythenshawe and Sale East rightly drew attention to. There are a number of aspects to that, including the clean maritime demonstration competition, which is a £20 million fund and one of the largest such funds that the Department has announced. The competition is directly relevant to some of the technologies we are discussing in these regulations, and we will be announcing the winners this week.
Later today, I will be opening the new cruise terminal at Southampton port, which has shore power. That means that cruise ships can plug in and do not need to have their generators running in port, which will help with carbon dioxide, sulphur oxide and particulate emissions, as well as other emissions, and will take us a step forward.
Earlier this week, we announced that we will be pushing for a zero emissions target for international shipping at the IMO. We will be challenging the international community collectively. The hon. Member for Cardiff West asked me what the UK is doing to push this forward; that is what we are doing, and it was announced a couple of days ago. We are pushing the international community to deliver a Paris-compliant outcome when the IMO renegotiates its strategy for climate change in 2023. So, that is our international work.
Domestically, we continue to make good progress on the commitments that we set out in the clean maritime plan, which was drawn up in 2019. We have provided £1.4 million of funding for a competition for innovation in clean maritime through Maritime Research and Innovation UK, a research agency. We have established the marine emissions reduction advisory service as a function of the Maritime and Coastguard Agency. We have undertaken research considering the role of maritime clusters onshore, which are companies in a certain area delivering clean innovation and growth. We are exploring the inclusion of maritime elements in the renewable transport fuel obligation as part of a public consultation.
We have built on the clean maritime plan itself. We had the Prime Minister’s 10-point plan in November 2020. We have had the clean maritime demonstration competition, which I referred to earlier, and we will have the results of that later this week. Overarching all this is the transport decarbonisation plan, building on the clean maritime plan and developing our plans to navigate this tricky-to-decarbonise sector, all the way to net zero. There will be a series of consultations in the coming years as we build towards that.
I apologise for not mentioning before now the hon. Member for Gordon, but I think I have addressed some of his points. I am conscious that he raised points similar to those raised by other Members, and I hope I have answered them.
It has been a real pleasure to discuss the issues raised in the debate. As the hon. Member for Wythenshawe and Sale East and I have said, this is the right week to be discussing the subject, as it is London International Shipping Week, the industry event that showcases the important role of the sector globally and here in the UK. That is never more important than while we are still in this pandemic, and it is a timely reminder of how critical the sector is in keeping us all supplied. I know the whole Committee will join me in paying tribute to all those in the maritime sector, who have been unsung heroes, keeping us supplied and fed, sometimes in difficult personal circumstances, throughout the last two years. I know the Committee will join me in thanking them sincerely for that.
I hope the Committee has found the debate interesting and informative, and that it will join me in supporting the regulations.
Question put and agreed to.
Draft Capital Requirements Regulation (amendment) regulations 2021
(2 years, 7 months ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Capital Requirements Regulation (Amendment) Regulations 2021.
It is a pleasure to serve under your chairmanship, Mrs Murray. The regulations, among other things, support the implementation of the Basel III standards in the United Kingdom. This is yet another statutory instrument that I bring to the Committee, and I am delighted to do so.
I want to begin by reminding the Committee of the background to this issue. After the financial crisis, the international community came together to rectify major deficiencies in financial regulation and created new banking standards, known as the Basel III accords. As a member of the G20 the UK is committed to implementing these standards, but now we have left the EU, we have the opportunity to do so in our own way, enabling our expert regulators to apply international standards in a way that is most fitting to the UK’s individual circumstances. The instrument therefore exercises the powers contained in section 3 of the Financial Services Act 2021, to revoke elements of the UK’s capital requirements—the CRR, or capital requirements regulation—so the Prudential Regulation Authority can update the current regime to account for the Basel III standards.
Let me turn to some of the detail. The Financial Services Act restricts the ability of Ministers to only revoking those parts of the CRR that need to be updated to reflect the new Basel standards, and anything that is connected to, or consequential to, those standards. When it makes CRR rules under the new regime, the PRA is subject to an accountability framework under which it must consider the impact of its rules on a number of areas. These are: the relative standing of the UK compared to other jurisdictions, lending to the real economy and the Basel standards themselves. In addition, the PRA must consult the Treasury on the potential impacts of any rule changes on equivalence.
The instrument also contains additional EU exit-related amendments to the CRR. It makes an amendment to article 497 of the CRR, allowing for the Treasury to extend a transitional provision that allows for certain foreign central counterparties, or CCPs, to retain temporary qualifying status. Qualifying status allows UK firms to have exposures to these CCPs without being subject to higher capital requirements. This amendment will allow for the transitional period to be extended by regulations one year at a time. These extensions are required as there may be non-UK CCPs that will be unable to receive qualifying status through recognition for a prolonged period. However, the Treasury still considers it beneficial that they retain qualifying status. The Treasury will keep these arrangements under review to ensure they are fit for purpose.
Additionally, under article 391 of the CRR, the Treasury may determine that an overseas jurisdiction applies prudential requirements to the same standard as those applied in the UK and grant it equivalence. Smaller UK banks in particular benefit from that article as it allows them to lend more as a single loan to overseas firms. However, the UK’s only equivalence decision in this area is with respect to EEA member states. That is because, at the end of the transition period, the EU had not made any equivalence decisions under the article and the European Banking Authority had issued guidance allowing EU firms, including those in the UK, to use equivalence decisions under a different article—107—as a proxy for article 391 equivalence. However, this is, in effect, regulatory guidance overruling legislation.
The Government and the UK’s regulators consider that guidance inappropriate and therefore do not intend to replicate it in the UK. It is also impractical to undertake the equivalence assessments in such short timescales. The Treasury is therefore, through this statutory instrument, using section 8 powers under the European Union (Withdrawal) Act 2018 to put in place transitional arrangements. In parallel, the Treasury will seek a legislative opportunity to streamline the system by linking the equivalence regime in article 391 to that in article 107, providing certainty to firms.
The Treasury has worked closely with the PRA in drafting the instrument. We also engaged with industry throughout the process, including through a public consultation. The Government have updated their approach in line with the points raised in the consultation.
I hope I have given Members a comprehensive overview of the measure, and I urge colleagues to join me in supporting the regulations. In short, the measure will enable the implementation of Basel III—regulation that is key to the UK’s international standing. In addition, it will iron out some of the wrinkles in existing EU regulation. Together, the proposals will give UK firms certainty, and therefore help them to flourish. I commend the regulations to the Committee.
Mr Pat McFadden (Wolverhampton South East) (Lab)
Thank you for chairing the sitting, Mrs Murray.
Just before I came here, I saw media reports that there is a Government reshuffle under way. There is an old Glasgow phrase referring to job insecurity. It talks about somebody’s jacket hanging on a shoogly nail. I genuinely hope that the Minister’s jacket is not hanging on a shoogly nail, and wish him well in whatever transpires over the rest of the day.
The statutory instrument before us, as the Minister explained, is the legislative child of section 3 of the Financial Services Act, which we debated in the House last year. Under that Act, powers under certain EU directives were onshored to be allocated to UK-based regulators. Some of those powers related to the capital requirements regulation, which was the EU’s instrument for implementing the Basel standards agreed in the wake of the financial crash of 2007 and 2008.
Those Basel standards are important, because they required financial institutions to hold particular levels of capital buffer; stick to, at the very least, a minimum overall leverage requirement below which they could not fall; and have particular liquidity requirements. All that was designed to avoid a repeat of the financial crisis, when globally and systemically important banks were found to be holding too little capital, and to be overstretched when it came to leverage, and therefore to be unable to fund themselves when the crisis came.
That scenario left Governments and taxpayers—not only in this country, but in the United States, Ireland and a number of European countries—in the invidious position of having to bail out banks deemed too big to fail. The Basel rules were designed to avoid a repeat of that situation, make financial institutions more resilient and get taxpayers off the hook of bailing those institutions out, or to put it another way, and perhaps more bluntly, to deal with the problem of privatising the profits and nationalising the risks.
As the Minister and I have often discussed in such debates, there is particular onus on the UK to have resilient institutions and good regulation in this sphere, because our banking and financial services sector is so large relative to the rest of our economy. That in many ways is a great strength, but it can be a vulnerability if the UK taxpayer is the ultimate backstop for the system.
My first question to the Minister, therefore, is about whether, in giving these powers to the PRA, there is any policy intent to reduce the capital requirements on institutions. Banks will not openly lobby to put greater risk in the system. Instead, when they come knocking on the Minister’s door, they talk about competitiveness and say, “Can we just have this change? It would make us more internationally competitive. We could lend a bit more if only we didn’t have to hold all this capital against our balance sheet.”
How alive is the Treasury to that kind of lobbying and how determined is the Treasury to resist it, particularly given the number of consultations going on in the financial sector, on all sorts of subjects, asking the sector what it would like to be changed in the wake of our withdrawal from the EU? Really, my question is about whether this is a purely technical transfer of administrative responsibility, or does it open the door to lower capital requirements and greater leverage, and therefore greater risk, for UK-regulated financial institutions?
The second issue in the regulations is clearing services and the recognition of overseas central counterparties, known as CCPs, by the Bank of England. Clearing is very important; it is a firebreak in the system when large transactions take place. It is very important for the UK financial services sector and allows huge volumes of transactions to take place in this country. A temporary agreement on clearing was reached with the EU in the absence of any wider equivalence recognition on financial services last year. This instrument allows the Treasury to extend the transitional period for recognition of overseas CCPs indefinitely, but one year at a time. The reason for that is explained in paragraph 7.11 of the explanatory notes, which say that
“because there are some CCPs, who submitted applications for recognition…that will likely be unable to receive equivalence and recognition under EMIR”—
the relevant directive—
“for a prolonged period”.
In other words, “We need to have this rollover because we can’t process the paperwork.”
That is the financial equivalent of Lord Frost’s announcement yesterday of the unilateral setting aside of border controls on incoming goods. What the Government are doing through this instrument, and a number of similar ones, is empowering themselves in legislation to carry on what went before even in the absence of mutual agreements in the other direction and in recognition that their institutions do not yet have the capacity to consider the individual applications and approvals that would be necessary to do this one clearing house at a time. In the absence of that capacity, we have this catch-all rollover of the status quo, because we are openly admitting that cannot process the paperwork. Can the Minister explain why this power for endless rollover has been deemed necessary? Why, five years after the referendum, does the UK not have the necessary systems in place? How often does he expect to see this annual extension power used?
As I said, this aspect of the statutory instrument is part of a pattern. I have stood in this room and similar rooms on this Corridor debating the same thing with regard to customs procedures, and we also saw it yesterday with regard to the clearance of goods. At what point did taking back control morph into not having controls at all, and not being able to consider applications? When will we ultimately get out of this holding pattern of the rollover of the status quo and actually put in place the controls that were envisaged five years ago when the country took this decision?
John Glen
I am grateful to the right hon. Gentleman, as ever, for his constructive scrutiny of the statutory instrument. He always provides succinct summaries of complex matters. They are often full of wisdom, and always courteous, and I am very happy to try to address the points that he made.
The right hon. Gentleman referred to the anxiety that exists in his mind concerning the Government’s intentions with respect to standards, competitiveness, what the PRA will be subject to and what we may wish to do to encourage it to succumb to such covert lobbying. As I have always tried to stress in our encounters, this Government wish to retain the highest possible standards. Of course, having regard to our situation in the global financial services industry will always be important, but we are united, in terms of the Treasury, the PRA and the FCA, on the need to hold to the highest international standards, which give us a baseline of resilience. As the right hon. Gentleman will know, the UK was extremely influential in both shaping the Basel accords and pushing for their implementation. We remain committed to their effective implementation.
As the right hon. Gentleman will know, as part of the Financial Services Act, the PRA is required to have regard to the effect of its rules on international standards, including Basel. As was demonstrated in the publicly available analysis, which I think was published in July, the PRA considers all its rules as achieving the same outcomes: a safe and sound prudential regime to the Basel standards and EU equivalent legislation.
The second issue that the right hon. Gentleman raised was around the CCPs and the transitional rollover concept. He asked about that provision. I would want to say to him that while a foreign firm or jurisdiction can express an interest in receiving equivalence or recognition, it will be for the Treasury to decide whether to initiate consideration of an EU equivalence decision for a foreign jurisdiction and the appropriate timescales. As with all equivalence decisions, the UK authorities will need to ensure that granting equivalence is compatible with the UK’s policy priorities, including those relating to the rule of law, international standards, human rights and efforts to combat money laundering.
Let me turn to the retention of that transitional status without, I think the right hon. Gentleman said, all the forms being processed. Letting that transition fall away might create disruption for the UK firms with exposures to the relevant CCPs. That is not something we would wish to have. The market access provided by qualifying central counterparty status is more limited than that provided by full recognition status, with QCCP firms unable to provide clearing services directly to UK clients. Therefore, it is appropriate that firms may continue to benefit from QCCP status while awaiting the result of their application for recognition.
On any Government intention to extend the transition indefinitely, that is not the case. The Treasury will keep those arrangements under review to ensure they are fit for purpose while a permanent solution is considered. Obviously, I am engaged in discussions with colleagues about legislation in the next Session.
May I conclude by reminding members of the Committee of the key purposes of the statutory instrument? The legislation revokes a number of provisions in the UK’s capital requirements regulations. By doing so, it will enable regulators to make rules in these areas reflecting Basel III international standards. The PRA has consulted on those rules, and in July it published a near-final version of the rules alongside an accompanying policy statement. That set out how the regulator had taken into account public policy factors set out in legislation.
I hope that the Committee has found today’s sitting informative, and that its members will join me in supporting the regulations, which I commend to the Committee.
Question put and agreed to.