Financial Services Bill (Second sitting)

Gareth Davies Excerpts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Tuesday 17th November 2020 Public Bill Committees

[Gareth Davies (Grantham and Stamford) (Con)]

Q First, Mr Cummings, thank you for your comments about the extended permissions and the overseas regime, which I would agree with. However, can I specifically ask about these 9,000 funds? My understanding is that around 75% of all EU-domiciled funds are a SICAV vehicle, and I have two questions on that. First, what is your assessment of the demand level from UK investors for the SICAV vehicle, given that typically, historically, they have been much more expensive than the UK-domiciled equivalent? Secondly, can you explain more about the complementary nature of these funds to our market, specifically as relates to money market funds?

Chris Cummings: You are right in saying around 75% are UCITS. UCITS have become a global brand. It is a high watermark, at least currently, in an investor-centric investment vehicle, and rightly recognised by jurisdictions across Europe and internationally. In thinking about how the UK develops its own UK fund regime, which is some work that the IA has put forward to the Treasury and the FCA, we have taken the UCITS regime as our benchmark to think about how it can be expanded upon; how can it be modernised given the experience with UCITS over the last few years.

One of the core issues that the industry takes very seriously is better governance of funds. That is one of the reasons why we supported our regulator, the Financial Conduct Authority, in stipulating that, at fund level—not at company level—there must be an independent, non-executive director who asks the big questions about governance of the fund, and ensures that there is a clear value for money assessment at least annually, to drive down costs for investors and to ensure that investors are getting a better deal out of those funds. In terms of modernisation, we think that a great deal is already happening in the industry, with more to come.

Although money market funds are used by some retail investors, they are seen more as a capital markets instrument. Given their brevity, they tend to attract a lot of overnight money. Their particular structures are perhaps for more sophisticated professional and institutional investors. They are a useful counter, but really for us UCITS are the gold standard at the moment. We are naturally keen to extend the UCITS regime, especially post Brexit.

That is why we brought forward our own proposals for a long-term asset fund, which we think will not only modernise the UK fund regime but draw together some of the more interesting parts from other fund regimes. It has the benefits of an open-ended fund, and some of the advantages of a closed-ended fund, with an extra layer of governance. It will allow UK savers and investors, institutional as well as retail, to invest more in infrastructure, taking a longer-term view, and in what traditionally have been higher-growth companies—technology companies, life sciences, biotech and so on—taking a much longer-term perspective. We think that the long-term asset fund will be a great complement to the existing UK and European fund family.

[The Chair]

Does anyone else on the Committee wish to catch my eye in the remaining four minutes? In that case, thank you very much, Mr Cummings, for your evidence.

Examination of Witnesses

Emma Reynolds and Catherine McGuinness gave evidence.

--- Later in debate ---

[Angela Richardson]

Thank you.

[Gareth Davies]

Q My understanding is that the British Government have so far filled out something like 2,500 pages of questions from the European Union, all of them to strict deadlines. What do you think has caused the delay in the EU granting equivalence or making any public statement on that? Clearly the UK is equivalent, so what is causing the delay?

Adam Farkas: I do not know. What I can say is that the equivalence determination process consists of two stages. One is a technical assessment that involves a detailed assessment of the rule book for the set of regulations, with questions and interactions. In every jurisdiction there is a second stage, which is the determination itself after the technical assessment. That stage is a much more political decision, or is a decision of a more political nature; it considers other aspects in addition to the interests of the jurisdiction making the determination. The answer probably lies there, but I have no information on why equivalence decisions have not yet been made on the EU side. It is not true to say that no equivalence decisions have been made; some have been determined and published, even if on a temporary basis.

[Gareth Davies]

Q But there is still the big question mark on overall equivalence for the United Kingdom. You hit the nail on the head when you referred to the potential for politicisation of the regulatory process. Looking at what happened recently with Switzerland, my understanding is that the Swiss stock market had its equivalence removed because the Swiss Government had the temerity to put Swiss citizens first in new Swiss labour laws. My fear is that the EU will politicise the process, and I would love your view on that.

Adam Farkas: I do not think I would like to express a view. One point of correction I would make is that there is no such thing as overall equivalence; unfortunately, the equivalence decisions are very technical and made bit by bit. There are equivalence provisions in different parts of the EU legislation, and there are equivalence decisions possible in parts of the UK legislation. Looking at the announcements from the Chancellor, it is very specific and is focused on certain activities or institutions that are deemed equivalent to the domestic regime. There is no overall equivalence, and there will probably not be.

On the Swiss equivalence case, I will refrain from commenting, if you will allow that.

[Gareth Davies]

Dr Huq, can I ask one more question?

[The Chair]

We have until 4 o’clock for the entire session, so you can ask a quick question.

[Gareth Davies]

Q Given that in your opening remarks you said the UK had played a significant part in the formation of regulation as a major financial centre, to what extent are you worried that the European Union will now take a more localised, protectionist stance?

Adam Farkas: As an association, we are very strongly advocating the openness of markets, both in the United Kingdom and in the EU. We are very strongly advocating maintaining the co-ordination of dialogue and the consistent implementation of global standards. Of course, it is very difficult to speculate which way the EU will go. What I can say is that our members have a very clear view on this issue, and we are—

[The Chair]

Adam, can you please speak into the microphone? For the recording, you need to be in the right place.

Adam Farkas: Yes, of course.

Our position on this issue is very clear, and we have been open and transparent about our members’ position on arguing for market openness, maintaining consistency and, on the basis of constituency, maximum market access and flow of capital and services between the UK and the EU.