Draft Financial Services (Miscellaneous Amendments) Regulations 2022
(1 year, 6 months ago)
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The Economic Secretary to the Treasury (Andrew Griffith)
I beg to move,
That the Committee has considered the draft Financial Services (Miscellaneous Amendments) Regulations 2022.
It is a pleasure to serve under your chairmanship, Mr Robertson.
The statutory instrument comprises two sets of provisions relating to Gibraltarian firms operating in the UK market, and to securitisation. The proposed legislation will remedy technical deficiencies identified in financial services legislation that was put in place to help manage our withdrawal from the EU. In relation to Gibraltar, the instrument will fix temporary market access arrangements that were put in place to ensure Gibraltarian firms did not face a cliff edge loss of market access into the UK when we left the EU. In particular, the amendments will complete the intended transfer of powers to the Treasury and the Financial Conduct Authority in three specific areas. That transfer will give the UK authorities powers in relation to Gibraltarian firms where operating in the UK market, consistent with their powers over domestic firms.
It is worth remembering that financial services legislation was amended on withdrawal from the EU to adjust the treatment of "European economic area firms", in particular to remove passporting rights that were a function of the EU single market. At that time, because Gibraltarian firms benefited from equivalent rights, separate provisions were necessary to preserve the existing arrangements supporting market access for financial services between the UK and Gibraltar. Those arrangements were always intended to be temporary. Through the Financial Services Act 2021, we are working to replace them with a new, permanent regime designed specifically for Gibraltar that reflects our unique history and relationship.
The temporary regime that the Government put in place for Gibraltarian firms unintentionally prevented the transfer of powers to the Treasury and the Financial Conduct Authority - or the FCA - from being completed in certain areas, leaving gaps in UK law. This SI will exclude provisions from that temporary regime to remove those gaps in the powers available to the Treasury and FCA. That is equitable and proportionate as it will enable the treatment of Gibraltarian firms to be brought in line with UK firms. To close those gaps would provide for a more consistent legal and regulatory environment, as had been intended.
The SI will have an impact on three regulations that affect Gibraltarian firms operating in our market, namely, the Short Selling Regulation; the Markets in Financial Instruments Regulation; and the Packaged Retail and Insurance-based Investment Products Regulation. I shall highlight the key impacts of the SI on those regulations.
Under the Short Selling Regulation, the Treasury's power to modify the reporting threshold relating to net short positions will extend to Gibraltarian firms trading shares on a UK trading venue. Under Markets in Financial Instruments Regulation, the FCA will be able to apply technical standards relating to post-trade disclosure obligations to Gibraltarian investment firms in the UK. Similarly, under the Packaged Retail and Insurance-based Investment Products Regulation, the FCA will be able to apply technical standards to Gibraltar firms selling, advising on or manufacturing PRIlPs to retail investors in the UK.
I note that the instrument confers new powers on UK authorities, in effect the same powers that the Treasury and FCA already have in relation to UK firms. The Treasury and the FCA would need to take steps to apply those powers as appropriate to Gibraltarian firms in the UK market.
The next set of provisions delivered through the SI relates to securitisation. Securitisation is the packaging up of assets or loans and selling them on to investors. This allows lenders, such as banks, to transfer the risks of assets to other banks and investors to free up their balance sheets and allow for further lending to the real economy. In relation to securitisation, the instrument will amend the end-date for two specific requirements. That will preserve a consistent approach to certain securitisations which are subject to temporary transitional arrangements, following the UK's withdrawal from the EU.
The UK supports the implementation of international standards to promote simple, transparent and standardised securitisations, known as "STS" securitisations. STS securitisations are easier for investors to understand and assess the risks of. As a result, some STS investors will benefit from lower capital requirements. Generally, only firms established in the UK can designate their securitisations as STS. However, transitional arrangements were put in place to allow for certain EU STS securitisations issued prior to the end of 2022 to be recognised in the UK. Those arrangements were extended to the end of 2024 by another set of EU exit regulations earlier this year.
The SI before the Committee will simply extend the end-date of two requirements for EU STS securitisations to the end of 2024, rather than 2022. That will ensure UK investors do the appropriate due diligence checks when investing in EU STS securitisations, and that those securitisations remain exempt from clearing requirements to prevent unnecessary administrative burden. The amendments thus maintain the current requirements as long as the transitional arrangements last.
I hope colleagues will join me in supporting the regulations, which I commend to the Committee.
James Murray (Ealing North) (Lab/Co-op)
Thank you, Mr Robertson, and it is a pleasure to serve under your chairship.
As we have heard, the regulations concern miscellaneous amendments to the financial services regulations, and are made to address deficiencies in retained EU law arising from the United Kingdom’s withdrawal from the EU. The delegated legislation is technical in nature, and seeks to correct a “deficiency” through regulation 2, and to extend post-Brexit temporary recognition arrangements through regulations 3 and 4. The latter regulations relate to the requirement for institutional investors to carry out specific due diligence prior to investing in EU simple, transparent and standardised, or STS, securitisations. They will extend the exemption from the clearing obligation in relation to EU STS securitisations to those notified prior to 11 pm on 31 December 2024. That will ensure consistent treatment for EU STS securitisations notified before that date.
Regulation 2 of the instrument ensures that the Treasury and the FCA will be able to apply their powers through certain regulations to Gibraltarian firms in the UK financial services market. As we know, the Treasury has made a number of amendments to regulations since 2019 in attempting to ensure that the UK-Gibraltar regulatory framework for financial services continues to operate smoothly. Regulatory changes in the Gibraltar (Miscellaneous Amendments) (EU Exit) Regulations 2019 transferred powers from the EU to the Treasury and the FCA. Although the amendments made in 2019 caused the EU to cease having any regulatory oversight of Gibraltar, the regulations did not fully transfer all of the necessary powers and functions to the Treasury and the FCA that they should have done.
Clearly, the SI before us seeks to remedy the Government’s error. It is important that the financial services regulatory framework concerning UK-Gibraltar market access and oversight runs smoothly, so the Opposition will not oppose the measure.
Douglas Chapman (Dunfermline and West Fife) (SNP)
It is a pleasure to serve under your chairmanship, Mr Robertson.
The SI is evidence of the continuing shambles and uncertainty that we have as a result of Brexit. I say to the Government and His Majesty’s official Opposition that making Brexit work is indeed hard work. We are seeing a continual number of different fixes to what is Brexit, and the SI is yet another.
Unfortunately, last week Mark Carney said that Brexit is a contributor to soaring inflation and the cost of living crisis. That is what the rest of the country is having to put up with in our daily lives. Although I have no inclination to vote against the SI, because it is a technical measure, perhaps the Government should be charged with wasting parliamentary time, because we should not have to be considering such issues.
Andrew Griffith
It is a pleasure to follow my colleague, the hon. Member for Ealing North, and I thank him for this support for the measure, which, as he confirmed, is technical in nature.
I note the comments of the hon. Member for Dunfermline and West Fife about Brexit. I can assure colleagues that anything to do with Brexit is a wee stroll compared with the epic marathon that would be disentangling Scotland from the rest of the United Kingdom.
It is the Government’s view that the amendments, which relate to securitisation and the Gibraltar financial services regime, are necessary, appropriate and proportionate. I hope that hon. Members have found today’s Committee sitting informative and that they will join me in supporting the regulations, which I commend to the Committee.
Question put and agreed to.
Draft Inter-American Investment Corporation (Immunities and Privileges) Order 2022
(1 year, 6 months ago)
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The Parliamentary Under-Secretary of State for Foreign, Commonwealth and Development Affairs (David Rutley)
I beg to move,
That the Committee has considered the draft Inter-American Investment Corporation (Immunities and Privileges) Order 2022.
It is a pleasure to serve with you in the Chair, Mr Gray. It is also a great honour to be here with esteemed colleagues, and I want to highlight my appreciation of the amazing work that a number of hon. Friends have done in the Foreign, Commonwealth and Development Office, and it is honour to serve in this Committee in their presence. And of course it is also an honour to be here with my hon. Friend the Member for Castle Point, with whom I served in the Whips Office for a long time. She is one particular Whip of whom we should take notice, and I will always be present when she wants me to be.
The statutory instrument, which is subject to the affirmative procedure, was laid before Parliament in draft on 11 October 2022. It will be made once it is approved by both Houses. It confers immunities and privileges on the private sector lending arm of the Inter-American Development Bank Group, the Inter-American Investment Corporation. That arm of the bank is known commercially as IDB Invest, and I shall refer to it as such.
The Inter-American Development Bank Group works to promote greater security and stability within Latin America and the Caribbean. The bank is a key partner as we work towards our objectives in the region. Those objectives include promoting democracy and economic growth, preventing organised crime and taking action on climate change, which I know is a huge issue for many members of the Committee. We are also working to deepen trade and investment relationships and to prevent and prepare for the next pandemic.
The Inter-American Development Bank Group is an international financial institution, headquartered in Washington DC. The bank group is the largest source for development finance for Latin America and the Caribbean, and it provided $22.9 billion in 2021. It shares similar policy objectives with other international financial institutions, such as the World Bank Group, to accelerate economic and social development.
The UK has been a member of the Inter-American Development Bank Group since it was established in 1959 and we have used our shareholding to shape it. That includes securing a commitment from the bank, ahead of COP26, to align with the Paris agreement by 2023, and to increase the volume of finance that it provides to tackle climate change.
The bank plays a critical role in providing loan finance to Governments across the region to support development objectives and projects, including in infrastructure, health and education. However, private sector investment across Latin America and the Caribbean region is also critically important for driving growth, creating jobs and tackling climate change. To strengthen the bank group’s focus on investing in the private sector, it agreed with shareholders in 2015 to “merge out” its private sector operations to form IDB Invest. That is now a separate legal entity within the bank group, with its own board and shareholding structures. Today, IDB Invest provides around $6 billion of finance per year to businesses, with a focus particularly on small and medium-sized enterprises. The UK voted in favour of the merge out and agreed to transfer $7 million of UK capital from the bank to IDB Invest. In 2018, the IDB Invest Treaty was presented to the UK Parliament. The final stage in the process to join IDB Invest is to ratify the treaty.
As we have joined an international organisation, we are required under international law to grant it the necessary immunities and privileges. The International Organisations Act 1968 allows His Majesty to do that by Order in Council. It is a long-standing UK policy to only grant immunities and privileges where they are needed. I can assure hon. Members that the immunities and privileges afforded to persons connected with IDB Invest are strictly limited to those required for them to conduct their official activities. They are not for any personal benefit. Hon. Members should note that they are also in line with those offered to officials of other international financial institutions, with which they will be familiar and of which the UK is a member. They include immunity from suit and legal processes for staff in respect of their official acts, and tax exemption. Members should note that the income tax exemption does not apply to British citizens.
The order confers only those immunities and privileges on IDB Invest staff and secondees that are necessary for the institution to function effectively and to conduct its official activities in the UK. Immunities and privileges will be granted only to official visitors from IDB Invest. It does not currently have a UK office.
In granting the immunities and privileges in taking up membership in IDB Invest, the UK will be better placed to influence a major pool of development finance in a region of strategic importance. I commend the order to the Committee.
Fabian Hamilton (Leeds North East) (Lab)
It is an honour to serve under your chairship, Mr Gray.
We welcome the SI, which approves IDB Invest and its immunities and privileges, and we welcome closer engagement with Latin America and the Caribbean. The economic prosperity of our partners is very important to our country and the stability it brings to the region also provides geopolitical security to that part of the world. As we know, however, many countries across Latin America and the Caribbean face pressing humanitarian crises. One of the most prominent of those is in Haiti, where the functionality of the Government has all but failed and criminal gangs control large parts of the country.
Haiti is one of the countries that will be able to borrow from the Inter-American Development Bank. Following the assassination of President Moïse last year, it is essential that political and economic stability is returned to the Haitian people. I think it is therefore very urgent that the international community comes together, working through institutions such as the Inter-American Development Bank, and IDB Invest, to ensure that Haiti is able to carry out free and fair elections to establish a long-lasting permanent Government. With that in mind, I would like to ask the Minister whether he can tell us, based on the UK’s involvement, how much money is being provided to Haiti to deal with the cholera outbreak and the impacts of criminal gangs? As Haiti’s debt was cancelled after the 2020 earthquake, and more than $2.2 billion was provided in grants from the bank up to 2020, it is really important that the institution urgently acts again to fund Haiti’s long-term political and economic development plans.
The Chair
If the hon. Gentleman will allow me, I am listening with great interest to his remarks, but they bear very little relationship, or only a peripheral relationship, to the SI being considered. He perhaps might want to return to the instrument that we are discussing.
Fabian Hamilton
Thank you for that guidance, Mr Gray. I suppose the reason I believe they do bear relevance, and obviously I will be guided by you in the Chair, is that IDB Invest will have a substantial impact on the economic development and the resolution of the crises of many of the affected countries, which will be able to borrow from the bank and are able to receive from it. I can cut the rest of my speech out, if you wish, Mr Gray, and just ask the questions.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
While my hon. Friend is thinking about that, and I am sorry that I was slightly late because I was talking to some constituents outside, could we know where the sources of the money for the investment comes from? I have done a lot of work with the World Bank and the World Health Organisation, and what always worries me is that they do not actually have any money. They have to get money from elsewhere.
Fabian Hamilton
My hon. Friend makes a very good point. As the Minister has said, it is a multilateral organisation, and we are part of it. The SI is really designed to approve IDB Invest and of course the immunities and privileges granted to the British citizens who work for it. Without further analysis or research, I cannot answer my hon. Friend’s question directly, but I know that many countries are involved in raising the finance necessary. And that finance is necessary.
I was going to mention, and I will just gloss over it if the Chair will permit me, the effect on the Bahamas of Hurricane Dorian, which struck at the end of August and during the first half of September in 2019. I spoke to people from there just last Thursday, and those effects have been devastating. The bank and its investment branch will have the ability to invest in the economy of the Bahamas to bring it back into credit, because at the moment its debt burden is 105% of its GDP, which of course is unsustainable. I hope that what we are doing today will ensure that development and inward investment can be given to the Bahamas by that essential organisation.
The explanatory memorandum to the SI states:
“The IIC currently provides around $6 bn of annual finance to businesses within Latin America, with a focus on small-and-medium-sized enterprises. Once the UK becomes a member of IIC we will be able to work with other shareholders and the Bank to influence the allocation of this finance to align with UK priorities, with a policy goal of facilitating development finance and bolstering sustainable growth.”
With the issues that I have described in mind, could the Minister tell us what are the specific priorities of the Government in Latin America and the Caribbean and whether there are any plans to update or review the Debt Relief (Developing Countries) Act 2010?
Finally, I should like to raise the growing influence of China in the region, but if you feel that is not necessary, Mr Gray, obviously I will not.
The Chair
It bears no relationship of any kind at all to the SI we are discussing. Will you please return to the SI?
Fabian Hamilton
Well, China is a member state of the Inter-American Development Bank—
The Chair
Order. I think I have been relatively slack, but the fact of the matter is that we are discussing the particular details of the way in which the bank will operate. Of course it would be possible to discuss almost any matter of international interest under that general context, but I think discussing China’s influence in the Caribbean might be stretching it just a shade.
Fabian Hamilton
Obviously I will acknowledge and listen to your guidance, Mr Gray.
Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)
I am interested in the idea of giving specific immunities to staff members of the institution and how that will affect our relationship with China in particular, given that in offering the organisation immunities, one is also offering a shareholder of the bank some level of access. Is there a concern about that?
Fabian Hamilton
I thank my hon. Friend for his intervention, and I believe that that is a legitimate question. I know that we are discussing immunities and privileges for UK staff, but do we know whether other countries that are part of the bank and part of IDB Invest also enjoy those immunities? I shall leave it there, Mr Gray.
John McDonnell (Hayes and Harlington) (Lab)
Just briefly, although I know how hon. Members like to spend long periods of time in SI Committees, I want to ask the Minister a question, and I am happy if he writes to me in response. On this occasion, and as we have asked on other occasions, it would be useful to know exactly the specific immunities and privileges that are being afforded. What are the extent of those immunities? I raise that because the IDB has not been an uncontroversial body. Its recent president, a Trump nominee, was ousted as a result of allegations of malpractice, and we will be electing a new president on 20 November. We will be affording it, as the Minister said, privileges and immunities in the normal run of business, but with this body I think there are some exceptional concerns that we must have in monitoring and making sure that the immunities and privileges and their parameters are properly set and open to public scrutiny in some detail. I do not expect the Minister to reply today, but if he could write, that would be really helpful.
Mr Sheerman
I always come religiously to SI Committees. Some people find them a little irritating sometimes but I always enjoy them. I also always make sure that I say something because why would a politician come to a meeting and not say anything on the record?
I have done a lot of international work, so could we dig deeper on what the proposed immunities and privileges will deliver? We know of appalling things that have happened when international people have worked for international organisations, and they have been known to have predatory and sexual relationships and so on with local people. What are the privileges and immunities that will work in this case? If someone got into trouble for harassing a citizen in a particular country, would they be unable to be charged with any offence or punished?
David Rutley
I welcome the comments and broad support offered by hon. Members for the order. Clearly, as the hon. Member for Leeds North East highlighted, the key priority is the economic prosperity of our partners and stability in the region. There is clear alignment there. He raised a number of issues, to which I know I am not supposed to respond, so I will not, but needless to say and to reassure members of the Committee, we will be meeting next week to discuss those items in more detail, in a more appropriate setting. We will leave those issues for then, but we are very mindful of issues in Haiti and we know that we need to do more to tackle climate change in the region. Interacting with those partners, they understand the influence of the UK when other strategic players are in operation in the region, such as China.
To reassure hon. Members about the funding of IDB Invest, we are agreeing to transfer $7 million of UK capital in annual instalments from the bank to IDB Invest. That is a transfer of funds, just to make that clear.
Questions were understandably raised about the immunities and privileges. I will provide more detail in writing to the hon. Members for Hayes and Harlington and for Huddersfield. The primary focus is on the legal and suit processes, and tax exemption, although that does not apply to British citizens. On the specific point raised by the hon. Member for Huddersfield, I will come back to him in more detail, but there is a precedent for waivers in such situations. But I will put that in writing to him so that he can be assured on the specific point he raised.
Without further ado, I should like to conclude by saying that in taking up our membership of IDB Invest, we will be better placed to influence the investment that it makes to support private sector development. That will allow us to support the UK’s goal of promoting development and reducing poverty in a region of strategic importance. I thank hon. Members for their contributions and I commend the order to the Committee.
Question put and agreed to.