Draft Solvency 2 and Insurance (Amendment, Etc.) (EU Exit) Regulations 2019 Draft INSURANCE DISTRIBUTION (Amendment) (EU EXIT) Regulations 2019 DRAFT FINANCIAL CONGLOMERATES and Other Financial Groups (Amendment Etc.) (EU Exit) Regulations 2019

Alison Thewliss Excerpts

Monday 4th February 2019 General Committees

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to see you in the Chair, Sir Henry, and to join all hon. Members for another Delegated Legislation Committee. I look forward to the 30 more to come; I am sure it will be a delight for us all to spend so much time together.

I agree with an awful lot of what the hon. Member for Stalybridge and Hyde said, and I share his concerns about the way in which this secondary legislation is being made, about scrutiny and about the plans as we go ahead. As an SNP Member, I do not want Brexit to happen and I certainly do not want a no-deal Brexit—that is not what Scotland voted for. In July last year, TheCityUK reported that the number of financial services jobs in Scotland rose 6.6% to 161,000 in the preceding year, outstripping London, which had a rise of 5%. Financial and related services now account for 8.9% of the Scottish economy, so it is no small business that we are talking about, but an essential component that we have to get right. The particular strength of my home city of Glasgow is insurance; I have a strong interest in keeping those insurance companies functioning in Glasgow, with all their employees.

I am glad to see that there is an impact assessment for the draft Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019; that is helpful. The familiarisation cost for those alone is £230,000. I appreciate that for some companies, that is not a huge amount of money, in the wider scheme of things, when it is divided up. It is, however, additional money that they have to come up with. I note also that the provisions place an additional burden on the Prudential Regulation Authority. It would be interesting to know from the Minister exactly how that is being met in the PRA; how many extra staff and financial resources will be required for the additional regulatory burden? More insurance firms will fall into PRA supervision, and there will be increased regulatory and compliance costs for UK firms as a result. It would be interesting to know whether he can put any kind of figure on that, because it may be additional resource that firms have to find, outside the familiarisation costs.

I note the ABI’s concerns about duplication; it says that this will be an additional burden, which could place firms at a disadvantage to their European counterparts. The ABI’s points about those issues were well made, and the hon. Member for Stalybridge and Hyde made most of those points. The ABI wants some assurance about the long-term future of the regulatory structure, and it wants to be part of the review. It says that new regulatory architecture should be within a defined timescale at the end of the process. We are going into a pretty uncertain period, and it needs to know what will happen in advance, for planning and other things.

The impact assessment states:

“The impact on individual firms will depend on the exposures they have, which we do not currently hold information on. Therefore, it is not possible to quantify the estimated impact on the insurance industry in the time available to complete this legislation.”

That comment goes to the heart of the situation we are in. We are building this legislation but we do not have time to deal with it, and there is a prospect of no deal looming. That is a huge worry for many firms and their employees, who do not know what they will be dealing with.

On the draft Insurance Distribution (Amendment) (EU Exit) Regulations 2019, I am concerned about the consumer welfare aspect, because of the powers that the Treasury gives itself to adopt delegated acts, and to make regulations about conflicts of interest, inducements and assessments of suitability, appropriateness and reporting to customers. Can the Minister tell us a wee bit more about how he will ensure that consumers do not lose out as a result of this change and what the intended framework will be in the years ahead?

I note that in order for the PRA and the FCA to carry out their functions, the draft Financial Conglomerates and Other Financial Groups (Amendment etc.) (EU Exit) Regulations 2019 remove the requirement on firms to report to the ESAs and replace it with a requirement to report to the UK regulators. It would be good to get a bit more detail on how that process might work, because there is a change from one thing to another. It would be good to know what kind of notice firms require for that, and how easy it will be.

There will also be a transitional cost. I believe it is below the threshold for the impact assessment, but it would still be good to get more of an idea of what it will be. Again, for some firms there may well be duplication—having to report twice—and that would be another additional cost. Any additional information on what that cost might amount to for firms would be useful.

As the hon. Member for Stalybridge and Hyde said for the Opposition, we do not seek to vote against these statutory instruments. However, I reiterate my concern that they are incredibly late in the day, that we do not have much time left and that it is very difficult to get a real handle—besides the very helpful briefing from the ABI—about their impact, because things are moving very fast.