Bilateral Loan to Ireland
John Glen Excerpts(6 years, 1 month ago)
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The Economic Secretary to the Treasury (John Glen)
I would like to update Parliament on the loan to Ireland.
In December 2010, the UK agreed to provide a bilateral loan of £3.2 billion as part of a €67.5 billion international assistance package for Ireland. The loan was disbursed in eight tranches, and the final tranche was drawn down on 26 September 2013. Ireland has made interest payments on the loan every six months since the first disbursement.
On 3 February, in line with the agreed repayment schedule, HM Treasury received a total payment of £404,714,183.56 from Ireland. This comprises the repayment of £403,370,000 in principal and £1,344,183.56 in accrued interest.
As required under the Loans to Ireland Act 2010, HM Treasury laid a statutory report to Parliament on 3 October 2019 covering the period from 1 April to 30 September 2019. The report set out details of future payments up to the final repayment on 26 March 2021. The Government continue to expect the loan to be repaid in full and on time.
https://www.gov.uk/government/collections/bilateral-loan-to-ireland
The next statutory report will cover the period from 1 October 2019 to 31 March 2020. HM Treasury will report fully on all repayments received during this period in the report.
[HCWS89]
Counter-Terrorism Asset Freezing Regime
John Glen Excerpts(6 years, 1 month ago)
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The Economic Secretary to the Treasury (John Glen)
Under the Terrorist Asset-Freezing etc. Act 2010 (TAFA 2010), the Treasury is required to prepare a quarterly report regarding its exercise of the powers conferred on it by Part 1 of TAFA 2010. This written statement satisfies that requirement for the period 1 July 2019 to 30 September 2019.
This report also covers the UK’s implementation of the UN’s ISIL (Da’esh) and al-Qaida asset freezing regime (ISIL-AQ), and the operation of the EU’s asset freezing regime under EU Regulation (EC) 2580/2001 concerning external terrorist threats to the EU (also referred to as the CP 931 regime).
Under the ISIL-AQ asset freezing regime, the UN has responsibility for designations and the Treasury, through the Office of Financial Sanctions Implementation (OFSI), has responsibility for licensing and compliance with the regime in the UK under the ISIL (Da’esh) and al-Qaida (Asset- Freezing) Regulations 2011.
Under EU Regulation 2580/2001, the EU has responsibility for designations and OFSI has responsibility for licensing and compliance with the regime in the UK under Part 1 of TAFA 2010.
EU Regulation (2016/1686) was implemented on 22 September 2016. This permits the EU to make autonomous al-Qaida and ISIL (Da’esh) listings.
It can also be viewed online at: http://www.parliament. uk/business/publications/written-questions-answers-statements/written-statement/Commons/2020-02-04/HCWS88/.
Tables set out the key asset-freezing activity in the UK during the quarter.
Counter-terrorist asset freezing regime Q3 2019 (TAFA Q3 2019 Table.pdf).
[HCWS88]
Draft Public Bodies (Abolition of Public Works Loan Commissioners) Order 2019
John Glen Excerpts(6 years, 1 month ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Public Bodies (Abolition of Public Works Loan Commissioners) Order 2019.
It is a pleasure to serve under your chairmanship, Mr Sharma.
The draft order, which is being introduced under the Public Bodies Act 2011, will abolish the office of public works loan commissioners and transfer their functions, interests in land, and all other rights, liabilities and property to Her Majesty’s Treasury. The role of the Public Works Loan Board as a lender to local authorities is not affected by the draft order, which will rather ensure continuity of such lending by providing ongoing improvements in efficiency and accountability.
The Committee may be aware that the PWLB was formalised in 1817 via an Act of Parliament. It has supported England, Scotland and Wales through major historical events such as the Napoleonic wars, the formation of Trafalgar Square and our recovery after the two world wars, and through construction projects relating to vital infrastructure—projects for public utility and sanitary improvements, housing development and harbour maintenance. PWLB loans have supported employment opportunities and improved quality of life for successive generations.
Today, the PWLB is a statutory body of up to 12 independent commissioners. It issues loans to local authorities and other specified bodies from the national loans fund, and operates within a policy framework set by Her Majesty’s Treasury, while daily lending functions are carried out by the UK Debt Management Office. However, since the introduction of the prudential regime in 2004, which devolved borrowing decisions to local authorities, the commissioners retain a merely ceremonial role, carried out so that central Government lending complies with statute, rather than serving any practical purpose. Recruiting for the commissioner roles in that context has, inevitably, become more challenging.
If the PWLB is not quorate, it cannot lend or collect repayments. The result would be to freeze central Government lending, which would have a significant impact on local authority budgets and financing plans and jeopardise essential capital projects. Acute concerns about that will continue while PWLB governance remains outside the Treasury’s jurisdiction. This draft instrument will place that vital lending function on a more secure footing, so that we continue to provide a foundation for local authorities to commit to value-for-money long-term capital investment initiatives, and so reinforce the Government’s vision for levelling up.
As is usual for this type of legislation, the draft order has been put before the Secondary Legislation Scrutiny Committee, the Joint Committee on Statutory Instruments and the Treasury Committee for scrutiny. I met the Chair-elect of the Treasury Committee to inform him of this statutory instrument debate. None of the Committees requested the enhanced scrutiny procedure available under the Act.
I hope that the whole Committee will join me in thanking the public works loan commissioners—often ex-finance officers of local authorities—for the services they render, entirely voluntarily, for the benefit of the citizens of this country. I commend the instrument to the Committee.
John Glen
I am keen to respond to the points made by the hon. Members for Stalybridge and Hyde, and for Glenrothes. I stress, as I did in my opening remarks, that the order removes a purely ceremonial role. Although we are removing a function, it is one that does not exist in a meaningful sense, in terms of arbitrating on individual loan decisions.
The issue of commercial property speculation was raised. Local authority borrowing and spending decisions are made at a local level with reference to the Chartered Institute of Public Finance and Accountancy’s prudential code and the Ministry of Housing, Communities and Local Government’s statutory guidance. Those bodies revised the guidance in 2018, which makes it clear to local authorities that if they borrow more than or in advance of their needs solely to generate a profit, they are not acting in accordance with the prudential framework. MHCLG is reviewing the impact of the revisions to the prudential framework. When local authorities borrow, they must have regard to it to ensure that their borrowing is sensible and affordable.
Borrowing and capital spending decisions are devolved to local councils, but it is expected that they should not take on disproportionate levels of financial risk. PWLB finance continues to play a critical role in helping local authorities to transform services, but they cannot use that provision for day-to-day spending, which must be balanced off by the accounting officers each year.
The hon. Member for Stalybridge and Hyde asked about the interest rate rise before Christmas. I am sorry about the apparent lack of answer to any question he may have asked. The Government raised rates to slow borrowing, because of the statutory lending limit; they also raised that limit by £10 billion, to ensure that lending remained available. Let me stress that that is managed by the Debt Management Office; the rates are set daily against benchmark gilt prices, and should be seen against the spending round provision for local government. The forecast is for a 4.4% increase in real terms this coming year—the largest increase in spending power since 2010. I should also mention the additional grant funding available for adults and children in social care announced in the spending review.
John Penrose (Weston-super-Mare) (Con)
Could I press the Minister a little more on his answer about the interest rate rise? Since there is concern in the Treasury and elsewhere in Government about borrowing to invest in commercial property, as he mentioned in his reply letter to the Chair of the Treasury Committee, and as he just laid out, is he at all concerned that raising the interest rate from 1.8% to 2.8% may have a depressing effect on local authority investment in non-commercial property—that is, in genuine capital expenditure? As he rightly laid out, the Public Works Loan Board was originally constructed to enable that investment.
John Glen
All these matters are subject to ongoing review. There is no evidence that the rate is depleting the ability of local authorities to borrow to invest in the sorts of projects that the Government, CIPFA and MHCLG would deem appropriate, but as I indicated, the subject of this SI is much narrower than that. The wider issue is a separate matter, which is always under review. I would be happy to engage with my hon. Friend on any issues that he wants to raise from his experience of his local authority.
John Penrose
Since the Minister kindly makes that offer, the Treasury has raised the interest by what must be roughly 35%, from 1.8% to 2.8%. Surely that must have an impact on the amount of borrowing that local authorities are willing to do for what are presumably much-needed capital projects. Does the Minister have any assessment of the likely impact on demand for that kind of genuinely needed loan?
John Glen
It is helpful to put this in context. The rate was a function of the prevailing gilt rates last year, and the change brought it back to the level of the previous year, so we should not see this as a great leap in interest rate that will have a major effect. It is questionable whether the advantageous window offered by the relationship to the historically very low gilt rate was creating a different sort of behaviour. Again, that is outside the scope of my comments. I am happy to look at these matters, which are under ongoing review.
Let me turn to the hon. Member for Glenrothes’s remarks. He expressed general concern about any Government Minister taking control of anything, because he has no confidence in the Government. This is not a matter of Government Ministers overruling local authorities; the change is a reform of governance, with no practical effect on local authorities. It is based on the prudential code; decisions on borrowing and spending are devolved, and that continues. The Government consulted on this in 2017, and found widespread support for it. I am told that when the commissioners have met annually to sign off the annual report, they have said that they were keen for this SI to pass. The SI is quite complicated because it makes many references to primary legislation, and was delayed because of the events of recent years.
Peter Grant
I am interested to hear the Minister say that there is no practical effect on local authorities. The Government’s explanatory memorandum claims that the process will become more effective for local authorities. Is that not a practical effect? Does the Minister intend to reply to my question about whose policies will be implemented more effectively?
John Glen
The process is more effective in so far as the ceremonial role, which did not meaningfully alter any decisions on the ground, is transferred to the Treasury. There, we can ensure that we have a quorate body meeting to oversee the borrowing, but it will not make any different arbitration decisions, because the existing group of commissioners do not make those decisions. I am sorry that there has been a misunderstanding, but the order is not a power grab by the Treasury.
Transferring the powers of the public works loans commissioners to the Treasury will place that crucial function on a secure platform, enabling the continuity of lending for essential local capital projects. Those investments are often fundamental to quality of life and economic development, and by passing the SI, we will enhance the robustness and resilience of the lending facility, thereby supporting local authorities in such endeavours. I hope that the Committee has found the sitting informative and will join me in supporting the Order.
Question put.
Oral Answers to Questions
John Glen Excerpts(6 years, 2 months ago)
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Marsha De Cordova (Battersea) (Lab)
The Economic Secretary to the Treasury (John Glen)
In September, the Chancellor announced a new £500 million youth investment fund to build and refurbish youth centres and deliver high-quality services to young people across the country. That will include £250 million of capital investment, which is expected to deliver 60 new youth centres, 360 refurbished facilities and more than 100 mobile units for harder-to-reach areas.
Marsha De Cordova
Over the past decade, spending on youth services has been cut by more than £1 billion. In constituencies such as mine and across London, the number of youth clubs has almost halved. Will the Chancellor finally own up to the devastating effect that austerity has had on young people in my constituency and commit to funding a proper statutory youth service in his upcoming Budget?
John Glen
What I can promise the hon. Lady is that the Government are committed to funding local government with a settlement, which was announced before the election, of an additional 4.4% in real-terms increase that will give local authorities that additional spending power alongside the youth investment fund announcement that I mentioned earlier.
Mr Steve Baker (Wycombe) (Con)
Will my hon. Friend take steps to ensure that young people in Wycombe are not disadvantaged by excessively coarse aggregate measures of deprivation, which can obscure real need in constituencies such as mine?
Christian Matheson (City of Chester) (Lab)
Mr Virendra Sharma (Ealing, Southall) (Lab)
The Economic Secretary to the Treasury (John Glen)
The Government are always willing to work with the City and interested parties to consider how we can advance investment across all those sectors, and I would be happy to discuss such matters with the hon. Gentleman.
James Wild (North West Norfolk) (Con)
Katherine Fletcher (South Ribble) (Con)
John Glen
I welcome my hon. Friend to her place. I know she has great experience as an SME leader. The Government recognise that SMEs are the backbone of the economy. We have international trade adviser networks giving peer-to-peer support to encourage more exports. The Government’s export strategy, launched in August 2018, lays the foundations of how to extend that. I hope she will be able to make use of it during her time in the House.
Karl Turner (Kingston upon Hull East) (Lab)
The “back of a cigarette packet” policy to increase road duty by more than 700% for motor homes and camper vans is reminiscent of the caravan tax of 2013, which I think was invented by the Chancellor’s predecessor George Osborne. That would have decimated manufacturing industry in Hull. Will the Chancellor meet me, colleagues and those in the industry, who are very concerned about this policy, so that they can explain directly to him how disastrous this policy will be for manufacturing industry in Hull?
Ministerial Equivalence and Exemption Directions in Financial Services for the EU and EEA
John Glen Excerpts(6 years, 5 months ago)
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The Economic Secretary to the Treasury (John Glen)
The Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 (S.I. 2019/541), provides powers for HM Treasury, for up to 12 months after exit day, to make equivalence directions and exemption directions for the European Union and EEA member states.
On 11 April 2019, I laid before Parliament HM Treasury directions under those powers to help to ensure that the UK will have a functioning regulatory regime for financial services in all scenarios. Today, I have laid before Parliament two further directions in preparation for the UK’s withdrawal from the EU.
The Prospectus Directive and Transparency Directive Equivalence (Variation) Directions 2019 amend a previous direction made on 11 April 2019. The existing equivalence direction determines that EU-adopted International Financial Reporting Standards (IFRS) are considered equivalent to UK-adopted international accounting standards for the purpose of preparing financial statements for transparency directive regime requirements and for the purpose of preparing a prospectus under the prospectus directive regime. This decision delivered on a commitment made by the Government in November 2018, allowing overseas issuers with securities admitted to trading on a UK regulated market, or overseas issuers making an offer of securities in the UK, to continue to use EU-adopted IFRS when preparing their consolidated financial accounts for future accounting years.
On 21 July 2019, the prospectus regulation came into full application in EU legislation, and the prospectus directive, including the UK domestic legislation implementing the directive, was repealed. HM Treasury has made the Prospectus (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/1234) to ensure that there continues to be a coherent and functioning prospectus regime in the event that the UK leaves the EU without an agreement on 31 October 2019. This new equivalence direction therefore amends the existing direction to refer to prospectuses being prepared under the prospectus regulation rather than the directive. This amending direction ensures that the existing equivalence direction continues to be legally operable and does not change its intended effect.
The markets in financial instruments exemption directions 2019 give effect to the decision taken by HM Treasury, the European Union and the EEA European Free Trade Association countries to exempt central banks of certain states, including EEA states, from certain provisions under the markets in financial instruments regulation in the event that the United Kingdom leaves the European Union without an agreement. This direction is necessary because adaptations to the EEA agreement granting the relevant exemption are not yet operative for all affected EEA central banks. This direction will therefore ensure that those affected EEA central banks can continue to carry on their activities in the UK without disruption at exit.
Copies of the directions are available in the Vote Office and Printed Paper Office and will be published alongside the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 on Legislation.gov.uk.
[HCWS46]
The Economy
John Glen Excerpts(6 years, 5 months ago)
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John McDonnell
Is it not interesting that virtually every Government apart from this one are willing to undertake an impact assessment of some sort? What does that display? I am not usually a suspicious person, but I think we have our suspicions.
Let me say to the Chancellor that he has a role to play in shouldering his responsibility to provide us all with the fullest possible information on the basis of which we can make our decisions. That means publishing a full economic impact assessment and doing it fast, so that we can have a proper debate.
As the Government have a working majority of minus 45, it is obvious that the Queen’s Speech is little more than a pretty crude election stunt. In all their various comments in the House and the media, the Prime Minister and the Chancellor have depicted their programme as “the people’s priorities”. As a political artisan, I can admire a good turn of phrase—
John McDonnell
I have been here for 22 years. That is a long apprenticeship—and sometimes the apprentice can point out the truth as well.
As I say, I admire a good turn of phrase, and I congratulate the creatives in whatever PR agency the Conservative Party now uses for coming up with that one—it must have tested very well in the focus groups—but that is all it is: a slogan, a turn of phrase. The reality, as demonstrated in the Queen’s Speech, is that after something approaching a decade of harsh and brutal austerity, a few cynical publicity stunt commitments to paper over the massive cuts in our NHS, schools, policing and care will go nowhere near what is needed. A slogan will not suffice.
People know—and this is relevant to the Brexit debate—that if the economy hits the buffers again, as a result of Brexit, economic mismanagement by the Tories or both, and when a choice must be made by the Tories about who will pay, they will always protect their own: the corporations and the rich.
Ged Killen (Rutherglen and Hamilton West) (Lab/Co-op)
It is a pleasure to follow my hon. Friend the Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney).
It does seem rather bizarre to be talking about a Queen’s Speech that the Government have no intention or any ability to implement, and I would not exactly describe myself as a monarchist but I do think the way the Prime Minister has treated Her Majesty through all this is shameful.
First, I want to touch on the implications for the UK. The Government say:
“The integrity and prosperity of the union that binds the four nations of the United Kingdom is of the utmost importance to my Government”
and Scotland will see a £1.2 billion cash bonus as a result of the latest spending round, but this Queen’s Speech ends freedom of movement, which will have a disproportionate impact on Scottish sectors, and even by the least damaging Brexit that would mean a reduction in Scottish GDP of 2.7%, and we know that a disastrous no-deal exit could mean a loss of economic output for Scotland of as much as £12.7 billion by 2030.
And it is not just prosperity in Scotland that is under threat from the Government; so too is the very existence of the United Kingdom itself. We have seen over a decade of austerity that Scotland did not vote for; we had David Cameron’s English votes for English laws speech on the steps of Downing Street on 19 September 2014; of course we had the Brexit referendum in 2016; and now we have this Government’s reckless deal, which tears up workers’ rights and simply delays a no-deal Brexit until the end of next year. The Conservative party, in truth, has done almost as much as the Scottish National party to undermine the United Kingdom. It is no longer the Conservative and Unionist party; it is the Conservative and Brexit party.
I was deeply disappointed, once again, to see nothing for 1950s-born women who are being denied a pension. That is a huge missed opportunity. Just as we are seeing with PPI repayments, we could have seen a boost for the economy had those women been paid what is rightfully theirs. As one of the leading members of the local WASPI branch in my area put it,
“these women are not going to be squirrelling this money away in offshore accounts.”
It will be spent in our local towns and on our high streets. However, the campaign will go on and I can assure them of my continued support.
Lastly, I want to touch on the lack of any new measures to protect free access to cash. I have been campaigning on that issue since my election. It has become increasingly clear, from the work of consumer rights groups, from international examples, from what is happening in many of our constituencies and from reports like the Access to Cash review, that this issue will not simply resolve itself. The banks have made a conscious decision to shift responsibility for running ATMs to private companies, and now they have decided that they really do not want to have to pay for that either. So the pressure they have put on LINK means that the fee being paid to the operators has been cut, and we are now seeing free-to-use ATMs closing, or turning fee-charging. That is having a particularly difficult impact in rural communities and in small towns such as those in my constituency, where businesses on the high street are already struggling and do not need any new additional barriers, such as a lack of availability of cash.
The Joint Authorities Cash Strategy Group, which the Government have set up to look at this issue, is no more than a talking shop.
Ged Killen
The Minister shakes his head, but what has that actually done since it was set up? The Government have to get real, or millions of people—some of the most vulnerable in society—will be left behind in a so-called cashless society.
In conclusion, this is a completely unnecessary Queen’s Speech, which has wasted everyone’s time and will do nothing at all for my constituents in Rutherglen and Hamilton West.
Draft Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019
John Glen Excerpts(6 years, 5 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 Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019.
It is a pleasure to serve under your chairmanship once again, Mr Bailey. As the Committee will be aware—some Members will be too aware—the Government had previously made all necessary legislation to ensure that in the event of a no-deal exit on 29 March 2019 there was a functioning legal and regulatory regime for financial services from exit day. Following the extension to the article 50 process, new European Union legislation has come into force and, under the European Union (Withdrawal) Act 2018, will form part of UK law at exit. Further deficiency fixes are therefore necessary to ensure that the UK’s regulatory regime remains prepared for exit.
This statutory instrument makes deficiency fixes to a new piece of EU legislation that has recently become applicable relating to the European market infrastructure regulation. EMIR implemented the G20 Pittsburgh commitments agreed in the aftermath of the financial crisis in 2009, regulating over the counter derivative markets, and in particular requiring some derivatives to be cleared in a central counterparty, known as a CCP. The European Commission reviewed EMIR in 2015-16, resulting in an update known as the EMIR regulatory fitness programme—EMIR REFIT—which came into force on 17 June 2019.
EMIR REFIT makes a series of changes so that the framework for over the counter derivatives applies in a more proportionate way. It focuses on users of OTC derivatives and does not make significant changes to the rules for CCPs. In particular, it expands exemptions from the requirement to clear trades in OTC derivatives through a CCP. As the Committee is aware, this is not the first time that EU exit legislation has been used to address deficiencies in EMIR as it will form part of UK law at exit, but this instrument is necessary to address new deficiencies that will arise as a result of the recent amendments made to EU legislation by EMIR REFIT. After exit, the UK would be outside the European economic area and outside the EU’s legal and supervisory framework for financial services. The EMIR framework that will form part of UK law at exit therefore needs to be updated to ensure that the new provisions continue to work effectively.
This instrument will ensure continuation of the new provisions introduced in EMIR REFIT and will transfer new EU functions to the appropriate UK authorities. Many provisions in EMIR REFIT do not produce significant deficiencies in UK law, and will continue to work effectively at exit. For example, this is true of the new exemption for small financial counterparties from the requirement to clear trades through a CCP. However, there are two key deficiency fixes in this instrument that are necessary to ensure EMIR REFIT is workable in a UK context. First, the instrument ensures that UK pension schemes will continue to be exempt from the requirement to clear trades through a CCP. This is an important provision for industry and consumers; an exemption for pension schemes is needed because there is currently no approach to clearing that works without subjecting pension schemes to disproportionate cost, particularly the requirement to pay margin to the CCP. The additional costs would ultimately undermine the ability of pension funds to meet their obligations to pension holders.
EMIR REFIT includes a pension scheme clearing exemption that will last anywhere between two to four years. To ensure there is no ambiguity about the length of the extension, that extension will now last the full four years in the UK. The fix is appropriate given the size and nature of UK pension schemes, the vital role that they play in pension provision, and their crucial position as long-term investors in the UK economy. The instrument will provide the time to find a solution that balances the interests of pension schemes and CCPs, which will be particularly challenging in the UK context.
The instrument enables the Treasury to extend the pension scheme exemption further, for up to two years at a time if no appropriate solution for the UK market has been found. That will give certainty to UK pensioners and industry. The instrument also ensures that EEA pension schemes will continue to be exempted in the UK, enabling UK banks to continue trading derivatives with EEA pension schemes without using a CCP, just as they currently do. Her Majesty’s Treasury committed to this action on 21 February 2019 to avoid disruption to UK businesses.
Secondly, the instrument transfers the function to suspend the clearing obligation from the European Securities and Markets Authority and the European Commission to the Bank of England. In EMIR REFIT, ESMA can recommend that the European Commission suspend the clearing obligation for three months at a time, up to a total of 12 months. We believe that the Bank of England is the most appropriate UK authority for that function, consistent with the responsibilities that Parliament has already conferred on the Bank for financial stability and the supervision of CCPs.
The Bank of England must secure the consent of Her Majesty’s Treasury and inform the Financial Conduct Authority if it needs to suspend the clearing obligation in the UK. The Bank may decide to issue a suspension lasting any period up to 12 months. Such flexibility will enable the Bank to reduce uncertainty for globally significant clearing members and clients based in the UK in the unlikely event that a suspension is necessary. Finally, this instrument ensures that all references to EMIR are up to date on exit day so that references in UK legislation after that point will refer to the right version.
The Treasury has worked closely with the Bank of England and the Financial Conduct Authority to prepare this instrument, and we have engaged with the financial services industry. The draft legislation has been publicly available on legislation.gov.uk since 24 July, when the instrument was laid before Parliament.
In summary, this instrument is necessary to ensure that EMIR will continue to function effectively in the UK after exit, following the updates made in EMIR REFIT. In particular, it will ensure that UK pension funds continue to benefit from the pension scheme clearing exemption and enable the Bank of England to take necessary action to safeguard financial stability when necessary. I hope that colleagues from all parties will join me in supporting the regulations, and I commend them to the Committee.
The Chair
The question is that the Committee has considered the draft Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019.
John Glen
Let me say at the outset that the instrument is needed to ensure that UK firms are able to make use of the new provisions included in EMIR REFIT and that EMIR will function appropriately after exit. Without the instrument, UK pension funds would be required to clear derivatives in a CCP, and that would come at a considerable cost to UK pension schemes and pensioners.
The instrument also ensures that the clearing suspension, a key financial stability tool, operates effectively in the UK. The hon. Member for Stalybridge and Hyde characteristically went through familiar arguments, stating his party’s position on the unsuitability of this process, and I will not go over that again. As he said, we both know where we are on that. He did make some specific points, which I will respectfully try to accommodate.
On the appropriateness of the transition of powers, the Bank of England will be given responsibility for suspending the clearing obligation in exceptional circumstances, with the consent of the Treasury. Both the Bank of England and the FCA will take on the responsibility to set certain binding technical standards that currently sit with ESMA. That is a widely understood common responsibility between them.
The SI does not give any new supervisory responsibilities to UK authorities. No new firms will be subject to supervision by UK supervisors due to the SI. National supervisors across the EU already have responsibility for supervising the users of uncleared derivatives and CCPs, and we are confident that the regulators are appropriately resourced for those roles.
The hon. Gentleman made a point about the wider framework. As he knows, a review is ongoing with respect to what we term air traffic control of regulations. There will be subsequent reviews of the configuration of powers between the Treasury, the FCA and the Bank of England, so the wider point that he made was a fair one, but that will be resolved hopefully after a deal is secured.
The hon. Member for Stalybridge and Hyde mentioned impact assessments. The Treasury has considered the impact of all its financial services SIs. I did not mention it before, but I am happy to say now that the impact of today’s SI was assessed to be below £5 million. When that is the case, Government policy is not to publish a full impact assessment. For previous exit SIs where the impact was assessed to above £5 million, impact assessments were published in advance and could be scrutinised.
The hon. Gentleman made some points about reassurance on the direction of travel of regulation. The context of the SI is that the UK’s pension regime relies on a higher number of defined benefit schemes than the rest of the EU. The way that those schemes need to interact with CCPs is unusual and different, so we have had an enduring dispensation not to participate in the same way. That is not a deregulatory effect, but because the pension schemes would have to hold a large amount of cash, which would be costly and uneconomic for them.
In essence, there has been enduring uncertainty around the conclusion of the process of resolution, but we have actively participated in it, given our historically different pension scheme arrangement. There is no desire not to observe the G20 Pittsburgh obligations on derivatives, and this is not some sort of deregulatory effort.
Jonathan Reynolds
It is an entirely reasonable observation that the UK pensions industry is structured differently and requires a different set of regulations and approach, but we have always known that. Is the Minister saying that, if we had not spotted this back then and left the European Union without passing the instrument, our regime would be deficient, or has something changed so that we now need to address it?
John Glen
Clearly, had we left on 31 March, the EMIR REFIT regulation would not have come in in July. What happened would have depended on the conditions under which we had left at the end of March and on whether we observed the changes naturally as part of the EU through a transition period, or if, in a no-deal circumstance, we used a different mechanism to consider ongoing legislation into which we had had some input but that was not quite finished. That is a bit of a difficult question to answer fully, but that is my understanding.
John Glen
I sense that there is a degree of frustration and impatience in the Committee, but I will respectfully address the point made by the hon. Member for Linlithgow and East Falkirk. We clearly have disagreements over the fundamental outcome that we need to secure, but all the interventions across the 58 SIs have been designed to give as much stability as possible in the event of no deal, which is in the interests of the whole of the United Kingdom’s financial services sector.
I hope that the Committee has found this morning’s sitting informative and will join me in supporting the draft regulations.
Question put and agreed to.
Prospectus (Amendment etc.) (EU Exit) Regulations 2019
John Glen Excerpts(6 years, 5 months ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the Prospectus (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019, No. 1234).
It is a pleasure to serve under your chairmanship, Mr Paisley. The Government had previously made all necessary legislation under the European Union (Withdrawal) Act 2018 to ensure that, in the event of a no-deal exit on 29 March 2019, there was a functioning legal and regulatory regime for financial services from exit day. Following the extension of the article 50 process, new EU legislation has become applicable, and under the EU withdrawal Act that new legislation will form part of UK law at exit. Further deficiency fixes are therefore necessary to ensure that the UK’s regulatory regime remains prepared for exit.
This statutory instrument amends the EU prospectus regulation and related legislation, including a previous EU exit instrument—the Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019, or “the official listing instrument”. The official listing instrument fixed deficiencies in the prospectus regime as it applied before 21 July 2019. This instrument will ensure that the UK continues to have an effective prospectus regime after exit, taking into account the new EU prospectus regulation, which applied across the EU from July of this year.
The EU prospectus regulation contains the standardised rules that govern the format, content, approval and distribution of the prospectus that issuers must produce when securities are offered to the public or admitted to trading on a regulated market in a European economic area state. Deficiency fixes to the new EU prospectus regulation are necessary to reflect the fact that, after exit, the UK will be outside the EU single market and the EU’s regulatory and supervisory framework for financial services. The amendments in this instrument follow the same approach as the amendments made in the official listing instrument to the UK prospectus regime as it applied before 21 July 2019.
First, in line with the approach that the Government are taking to all onshored financial services legislation, this instrument transfers functions currently within the remit of EU authorities—in particular, the European Securities and Markets Authority—to the appropriate UK bodies. Such functions—for example, the development of technical rules on certain provisions of the EU prospectus regulation—will now be carried out by the Financial Conduct Authority. That is appropriate, given the FCA’s expertise in applying the UK prospectus regime and the major role that it has already played in the EU to develop technical standards. Where the EU prospectus regulation confers a delegated legislation-making power on the Commission, the powers are converted into regulation-making powers conferred on the Treasury. Use of those powers by the Treasury will need the approval of Parliament.
Secondly, this instrument removes the obligation for UK authorities to share information with the relevant EU and member state authorities. The obligations will no longer work appropriately once the UK is outside the EU’s joint supervisory framework. For the purposes of supervisory co-operation, that means that the EU will be treated like other third countries. The FCA will still be able to co-operate with EU regulators, using the existing framework in the Financial Services and Markets Act 2000, as it currently does with other third countries on a discretionary basis. The UK is committed to maintaining a high level of supervisory co-operation with the EU and its member states after exit.
Thirdly, post exit, EEA issuers wishing to access the UK market will be required to have their prospectus, or their registration document—the part of a prospectus that contains information on the issuer—approved directly by the FCA, as any other third country issuer would. Currently, an EEA issuer’s prospectus or registration document approved by another EEA regulator can be passported for use in the UK.
This instrument introduces transitional arrangements that will allow any prospectus approved by an EEA regulator and passported into the UK before exit to continue to be used, and supplemented with additional information, up to the end of its normal period of validity. The instrument also permits registration documents passported into the UK before exit to continue to be used as a constituent part of a prospectus in the UK, pending approval of the full prospectus by the FCA after exit. For both a full prospectus and a registration document, the period of validity is usually up to 12 months after it was originally approved.
An exemption for certain public bodies from the obligation to produce a prospectus under the EU prospectus regulation is maintained, but is extended to the same set of public sector bodies of all third countries post exit. That is in line with the approach taken in the official listing instrument previously. Members of the Committee will remember that this issue was discussed during the debate on that instrument in March; I think that the hon. Member for Oxford East raised these points then. Like then, I believe it makes sense to extend this exemption more broadly to ensure that UK capital markets continue to be attractive to public body issuers.
The EU prospectus regulation allows issuers to incorporate information from certain documents that are available electronically elsewhere, by making reference to them in a prospectus. This includes information approved by the regulator of another EEA state. To provide a smooth transition, this instrument sets out that information contained in relevant documents approved by an EEA regulator before exit day can continue to be incorporated by reference in a UK prospectus going forward. Any prospectus that incorporates information in this way will still require FCA approval before it can be used in the UK.
Lastly, the instrument ensures that matters in relation to the UK prospectus regime and transparency framework will continue to apply to Gibraltar as they did prior to the UK’s departure from the EU. This is in line with the approach taken in other EU exit instruments. Throughout the drafting process, the Treasury has worked closely with the FCA and engaged with the financial services industry—TheCityUK in particular, as a convenient body to develop this instrument.
Before I conclude, I want to address the procedure under which this instrument has been made. Along with three other financial services exit instruments, it was made and laid before Parliament on 5 September, under the made-affirmative procedure provided for in the EU withdrawal Act. This is an urgent procedure that brings an affirmative instrument into law immediately, before Parliament has considered the legislation. But the procedure also rightly requires that Parliament must consider and approve a made-affirmative instrument if it is to remain in law.
The Government have not used this procedure lightly, and it must be remembered that across Departments we have already laid over 600 exit SIs under the usual secondary legislation procedures. However, as we draw near to exit day, it is vital that we have all critical exit legislation in place, including legislation necessary to ensure that our financial services regulatory regime continues to function effectively from exit. It would have been reckless to leave that until the last minute. Industry and our financial regulators need legal certainty on the regime that will apply from exit. Without addressing the deficiencies that will arise from the EU’s prospectus regulation, there would be significant legal uncertainty and disruption for issuers and regulators. Confidence in the UK’s role as an international hub for the issuing of securities would be undermined.
To conclude, this Government believe that the legislation is necessary to ensure that, if the UK leaves the EU without a deal, the UK’s prospectus regime can continue to function appropriately post exit. I hope colleagues across the Committee will join me in supporting these regulations. I commend them to the Committee.
John Glen
I appreciate the three points raised by the hon. Member for Oxford East. In typical fashion, she has got to the heart of some of the core matters of the SI. I will address regulation 32, the accounting standards and the wider point she makes about the 12-month transition. I will then deal with the points raised by the hon. Member for Motherwell and Wishaw on the broader effect of this process on the financial services industry.
On the first point—the consideration we have given to the risk of extending public bodies exemption to all third countries—we have worked closely with the FCA in the drafting of the instrument to ensure that investors remain suitably protected, and we believe this approach offers the most appropriate balance between investor protection and maintaining the attractiveness of the UK’s capital markets. It is in line with the approach taken in the previous official listing SI that we discussed.
As with all investments, there is a risk that public bodies offering securities could fail, and a prospectus might help an investor to understand that risk. However, there is generally more information available to potential investors on public bodies, such as sovereign issuers and state bodies that currently make use of the exemptions, than on corporate entities. For that reason, we feel that it is justified. We will, of course, keep the arrangements under review and consider them if they appear to expose investors to disproportionate risk—there is no complacency on that point.
The hon. Member for Oxford East made a second point on accounting standards. She raised the issue of the appropriateness of the Government to specify the accounting standards deemed equivalent to UK international accounting standards, and she asked whether we are making new decisions. Unlike the delegated Act under the EU prospectus directive, the delegated Act under the EU prospectus regulation does not explicitly state which third countries’ accounting standards have already been deemed equivalent for the purpose of preparing a prospectus. The ambiguous drafting of the EU prospectus regulation leaves the position unclear, which might create uncertainty for market participants on which accounting standards are permitted post-exit.
To ensure consistency and clarity for market participants, the instrument explicitly provides for a new article on the accounting standards that are permitted to be used when preparing a prospectus for use in the UK, and its introduction is supported by the FCA. The article does not go beyond what is currently permitted under the EU regime; it does not designate any new third countries’ accounting standards that were not previously explicitly stated in the prospectus directive, as equivalent for the purpose of preparing a prospectus. All the current equivalent regimes for accounting standards will continue to be equivalent after exit.
The hon. Member for Oxford East asked about the 12-month transition and suggested that there is a gap and an inadequacy in the long-term view, and that this impacts on the resilience of the City. I recognise that uncertainty is unwelcome, and the Government are working to secure a deal. In a situation where that is not secured, there will need to be a considerable amount of additional work in the light of the new reality. At the suggestion of many groups in the City, we have started a review that looks at an air traffic control mechanism to deal with all the regulations that exist coming in from the City. That call for evidence will conclude on 18 October, and there will be a series of further regulatory reviews, but their nature and scope will be determined by the outcome of the process that we are in during this month.
A lot of work is going on to look at the financial services industry and its competitiveness. What we need to do is get that balance between systemic stability, which all parties have been committed to ensuring since the crash, and the future.
The hon. Member for Motherwell and Wishaw referred to her party’s position on Brexit. In the interest of time and of trying to get the heart of the concerns about the financial services, I will focus on the area that I am familiar with. I have grave sympathy with her for having had to study these matters, but I guess that was her choice.
The hon. Lady refers to the $1 trillion of assets that has been moved offshore. The City has made modest and consistent contingency arrangements. There is no denying that it would be undesirable for extra costs to accrue, but in the context of this significant decision of the UK as a whole—although I acknowledge that her view on that is different—those decisions have been made.
This process actually avoids red tape, because it keeps us completely aligned with where we are as members of the EU. The fact that a de minimis assessment was made illustrates that it will not cost the industry additional sums. I take seriously the footprint of financial services across the United Kingdom—including in Edinburgh and Glasgow, where it is significant, as the hon. Member for Motherwell and Wishaw knows better than I. We will do everything we can to take appropriate measures in all circumstances to safeguard the health of the financial services industry.
In conclusion, the instrument is needed to ensure that the UK has an effective prospectus regime and that the legislation functions appropriately after the UK has left the EU. I hope that I have answered the points thoroughly, that the Committee has found the sitting informative, and that it will join me in supporting the regulations.
Question put and agreed to.
CAPITAL REQUIREMENTS (AMENDMENT) (EU EXIT) REGULATIONS 2019
John Glen Excerpts(6 years, 5 months ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019, No. 1232).
It is a pleasure to serve under your chairmanship, Mr Bailey. As the Committee will be aware, the Government had made all the necessary legislation under the European Union (Withdrawal) Act 2018 to ensure that in the event of a no-deal exit on 29 March 2019, there was a functioning legal and regulatory regime for financial services from exit day. Following the extension to the article 50 process, new EU legislation will become applicable before 31 October. Under the 2018 Act, that new legislation will form part of UK law at exit; further deficiency fixes are therefore necessary to ensure that the UK’s regulatory regime remains prepared for exit.
The regulations deal with one of the new pieces of EU legislation that has recently become applicable. They resolve deficiencies in the EU’s prudential regime that will be retained in UK law at exit. The regime sets out how much capital credit institutions such as banks and investment firms need to hold; these rules are currently set in the EU capital requirements regulation, as well as in UK secondary legislation to implement the fourth capital requirements directive. The CRR is a directly applicable EU regulation that has applied since 2013. A statutory instrument to correct the deficiencies in this retained law was laid before and approved by Parliament last year: the Capital Requirements (Amendment) (EU Exit) Regulations 2018.
Earlier this year, the European Council and European Parliament finalised a revised banking package, which included several amendments to the capital requirements regulation made by an amending instrument known as CRR II. This gives effect to some of the internationally agreed Basel reforms, which are the centrepiece of the post-crisis reforms aimed at making banking safer. Similar changes are expected in all G20 economies that follow the Basel guidelines. Through the UK’s membership of the G20 and the Financial Stability Board, we have committed to the full, timely and consistent implementation of the Basel III reforms.
Several of the amendments made by CRR II are already in force and will therefore become retained EU law on exit day. This retained EU law will contain deficiencies that need to be fixed and that have not been addressed by the 2018 SI because they relate to changes that have come into effect since it was made. There are three main areas in which fixes are required.
The first area is third-country treatment. Consistent with the approach taken in the 2018 SI to amend the CRR, the regulations remove the preferential treatment given to the largest banks and investment firms in the EU27 to reflect the fact that the EU and the UK will treat each other as third countries after exit. It must be stressed that this is not about the ability of EU firms to carry on doing business here after the UK has left the single market; through comprehensive temporary permissions and transitional regimes, we have done everything we can to support EU firms that already have business here to continue with that business while they become UK-authorised.
The second area is transfer of functions. In line with the Government’s approach to all onshored financial services legislation, the regulations transfer a number of functions currently within the remit of EU authorities to the appropriate UK bodies. Such functions, such as the development of detailed technical rules on certain provisions of the regulations, will now be carried out by the Financial Conduct Authority, the Prudential Regulation Authority or the Bank of England. That is appropriate, given the regulators’ responsibilities for prudential and resolution policy and the supervision of global firms, and the major role that they have already played in the EU to develop CRR technical standards. Where CRR II confers delegated legislation-making powers on the Commission, those powers are converted into regulation-making powers conferred on the Treasury. Their use by the Treasury will need the approval of Parliament.
The final area is updates to definitions. CRR II amended some definitions used in the CRR; the regulations correct those updated definitions so that they can operate in a UK-only context. Here, too, the approach is consistent with fixes that Parliament has already approved in the previous CRR SI.
In drafting the SI, the Treasury worked closely with the financial services regulators, and we have engaged extensively with the financial services industry, incorporating feedback from industry players that will be significantly affected.
Before I conclude, it is important to address the procedure under which the SI has been made. Along with three other financial services SIs, the SI was made and laid before Parliament under the made affirmative procedure provided for in the European Union (Withdrawal) Act. It is an urgent procedure that brings an affirmative instrument into law immediately, before Parliament has considered the legislation, but it also requires that Parliament must consider and approve a made affirmative SI if it is to remain in law.
The Government have not used that procedure lightly, and it must be remembered that, across Departments, we have laid more than 600 exit SIs under the usual secondary legislation procedures. As we draw near to exit day, however, it is vital that all critical exit legislation is in place, including legislation necessary to ensure that our financial services regulatory regime continues to function effectively from exit. It would have been reckless to leave that until the last minute. Industry and our financial regulators need—and needed—legal certainty on the regime that will apply from exit. Without addressing the deficiencies in the new CRR rules, there would be significant legal uncertainty, disruption for firms and increased risk to financial stability.
The SI is essential to ensure that the prudential regime applying to credit institutions and investment firms works effectively if the UK leaves the EU without a deal on 31 October. I hope that colleagues will join me in supporting the regulations, which I commend to the Committee.
John Glen
I will endeavour to address the points raised by the hon. Members for Stalybridge and Hyde and for Glasgow Central. The hon. Gentleman referred to our conversation on 12 December regarding preferential sovereign debt and preferential capital treatment. In the circumstances of no deal, the consequences will be the inevitable result of leaving the EU: the UK and the EU27 will no longer be part of the same overriding legal infrastructure.
It is Government policy not to provide unilateral preferential treatment, but the hon. Gentleman made a reasonable point about different scenarios that might ensue. In practice, the impact would be largely mitigated by the transitional powers that we have given through this process to regulators, enabling them to phase in the new requirements between now and 31 December 2020.
The hon. Gentleman asked about the provision of the changes with respect to the in-flight files Bill. Only legislation under the European Union (Withdrawal) Act can onshore legislation before exit. The IFF Bill would have been for new files after exit, but we are dealing with all the immediate risks prior to exit. Given that there was an evolution in the corpus of EU material and directives over the summer, it is within scope of this mechanism.
The hon. Gentleman asked about the “shall” versus “may” language, and whether action is optional for regulators. That fits with the UK’s existing regulatory framework. Parliament has already delegated responsibility to our regulators for technical rules. That approach has been accepted in the UK and is supported by industry. I am happy to look carefully at what he said and see whether there is an issue. I will write to him, but I do not think that we have changed anything from previous approaches.
Like the hon. Gentleman, the hon. Member for Glasgow Central made a number of wider political points that I will resist responding to now. However, I will try to address the specific points regarding the use of SIs. Again, it is completely consistent with the approach approved by Parliament, and it would not be feasible to use primary legislation for onshoring.
The hon. Lady asked about the future regulatory framework, and made some wider observations about the potential diminution of UK influence. Obviously, we will always be part of wider bodies globally in terms of regulation in this area, but the aim of the onshoring legislation for financial services has always been to ensure that we are at a base point in terms of a functioning regime in all scenarios. Onshoring is designed to provide continuity and to minimise disruption, as well as to provide time for the Government and Parliament to design a regulatory framework fit for the future.
The first step in that has already taken place with the call for evidence document of 19 July, which set out the context of a long-term review of the regulatory framework and the key issues that we will need to consider for a regime that operates outside the EU. The document also requests views for the Treasury and the regulators in terms of short-term changes, and how the co-ordination of UK regulatory activity can be improved to manage the combined impact of regulatory change on firms and their customers. The call for evidence ends on 18 October and is the first stage of a longer review. Obviously, the nature of our exit from the EU will determine the way that evolves in subsequent stages.
I hope that that addresses the substantive points that were raised. The Government believe that the SI is essential to ensure that prudential regulation of credit institutions and investment firms continues to work safely and effectively if the UK leaves the EU without a deal. I hope that the Committee has found the sitting informative and will join me in supporting the regulations.
Question put and agreed to.
Risk Transformation and Solvency 2 (Amendment) (EU Exit) Regulations 2019
John Glen Excerpts(6 years, 5 months ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the Risk Transformation and Solvency 2 (Amendment) (EU Exit) Regulations 2019 (S.I. 2019, No. 1233).
It is a pleasure to serve under your chairmanship, Mr Wilson. The Government made all the necessary legislation under the European Union (Withdrawal) Act 2018 to ensure that, in the event of a no-deal exit on 29 March 2019, there was a functioning legal and regulatory regime for financial services from exit day. During the article 50 extension period, the Treasury has continued to work with UK regulators and the financial services industry to ensure our regulatory regime remains prepared for exit on 31 October. This statutory instrument ensures that our regulatory regime for insurance and reinsurance business will continue to work effectively from exit.
First, the instrument updates UK law to ensure that EU revisions to the Solvency 2 delegated regulation made since 29 March operate without deficiencies. Secondly, the instrument makes amendments to the UK’s domestic risk transformation regulations, which govern the UK’s regime for insurance-linked securities.
I turn first to the provisions that deal with revisions to the Solvency 2 delegated regulation. In January this year, the Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019 were approved by Parliament. Those regulations addressed deficiencies in Solvency 2 legislation as it will form part of UK law at exit. Since then, revisions by the EU to the delegated regulation made under the Solvency 2 directive have updated aspects of the approach to setting solvency requirements for insurance firms, including the simplification of capital calculations and greater alignment of capital requirements across insurance and banking legislation. Those revisions took effect across the EU on 8 July 2019 and will form part of UK law after exit.
The substance of those revisions will not result in deficiencies after exit, and the updated provisions will continue to operate in the UK as they do now. However, routine deficiency fixes, including removing references to the EU and EU institutions, will be needed to ensure Solvency 2 regulation continues to operate effectively in the UK. This instrument also replaces references to EU law with references to relevant UK law at exit.
I turn to the amendments to the UK’s risk transformation regulations. The Risk Transformation Regulations 2017 set up a new regime for insurance-linked securities. ILS are an innovative form of risk transfer that allow insurers and reinsurers to transfer risk to a special purpose vehicle. ILS are now an important and rapidly growing part of the reinsurance market, and the new regime for ILS was introduced as part of our efforts to help ensure that the UK remains a leading global centre for specialist reinsurance business.
As the risk transformation regulations were designed to follow Solvency 2 requirements, they rely on references to and definitions in EU law. This instrument fixes those by using references to relevant UK legislation and importing certain definitions into Solvency 2 as it will form part of UK law at exit, with those definitions adapted to work in a UK stand-alone regime.
Before I conclude, it is important that I address the procedure under which the SI has been made. This SI, along with three other financial services exit SIs, was made and laid before Parliament on 5 September under the made affirmative procedure provided for in the EU withdrawal Act. That is an urgent procedure that brings an instrument into law immediately, before Parliament has considered the legislation. However, the procedure also requires Parliament to consider and approve a made affirmative SI if it is to remain in law.
The Government have not used that procedure lightly. It must be remembered that, across Departments, we have already laid before Parliament more than 600 exit SIs under the usual secondary legislation procedures. However, as we draw near to exit day, it is vital that we have all critical exit legislation in place, including legislation necessary to ensure that our financial services regulatory regime continues to function effectively from exit. It would have been reckless to leave that until the last minute. Industry and our financial regulators need legal certainty about the regime that will apply from exit. If we did not address the deficiencies covered by the SI—particularly the deficiencies in new Solvency 2 rules recently introduced by the EU—there would be significant legal uncertainty for firms and for our regulators, with the risk of serious disruption to the insurance sector.
The SI makes relatively minor fixes to new Solvency 2 legislation and to the UK’s legislation for insurance risk transfer to ensure that the legislation continues to operate as intended after exit. It does not alter the substance of requirements in either case, and the same Solvency 2 and risk transfer rules will continue to apply to firms. I hope that colleagues will join me in supporting the draft regulations, which I commend to the Committee.
John Glen
I am happy to address the points raised by the hon. Member for Oxford East, and the point made by the hon. Member for Linlithgow and East Falkirk. The SI follows the same process as all SIs. With respect to Solvency 2, the simple reality is that the legislation was amended between the previous presumed exit date and this one. We have simply brought that up to date, and the ILS-related mechanism derived from, and made reference to, the Solvency 2 provision. As a consequence of that relationship, which was something that we authored in the UK, it made sense to update both at this time, given that they are within the same category.
The hon. Member for Oxford East asked what would happen to this SIs if we got a deal. If a deal is secured, any withdrawal agreement Bill will make provision to defer any Brexit SIs that are not needed in a deal scenario until the end of the implementation period. We expect that the Bill will achieve this through a blanket deferral of Brexit SIs that come into force on exit day until the end of the implementation period. We expect that the Bill will also ensure that Ministers can revoke or amend any EU exit SIs as appropriate, so that they deal effectively with any deficiencies arising from the end of the implementation period. In the circumstances that we are talking about, following a hopefully successful conclusion of the deal-making process, we would have a 14-month implementation period, as per the plans at the moment, in which to make provision for the enduring solution. We will ensure that onshoring regulation is not commenced if there is a deal and a transitional period is agreed with the EU.
The hon. Lady asked about the difference between EEA and non-EEA firms. The UK special purpose vehicles are already subject to the same Solvency 2-derived requirements, regardless of whether they are accepting risks from EEA or non-EEA firms. The distinction in the Risk Transformation Regulations 2017 simply reflects the fact that EU law applies only to deals that involve EEA firms. This notional distinction will no longer make sense after exit, so it is being removed, but it will not affect any deals already in place. There is no distinction for these regimes in practice—all deals must comply with UK standards, so equivalence is not necessary.
The hon. Lady referred to her question to the Secretary of State for Digital, Culture, Media and Sport and to the update of FSMA on the gov.uk website. The National Archives is working to have FSMA updated in time for exit day, and the Treasury is helping with this work. I am not more familiar with the situation than that; obviously my officials helped me answer that question, but I would be happy to examine the matter closely and come back to her on that.
Anneliese Dodds
I am grateful to the Minister for making that commitment, because his answer contradicts what his Secretary of State said in an answer to me: that the updates would be ready only at the end of this year. I welcome that, and hope the Minister can try to reach towards the date he gave, because otherwise I really worry about people trying to comply with the legislation without having it in front of them.
John Glen
I do not try to contradict my colleagues in Government, but that is the information I have received. I will provide clarification as soon as I can.
Turning to the points made by the hon. Member for Linlithgow and East Falkirk, I recognise the distinction between the Government’s perspective on these matters and his party’s. All I can say is that the financial services industry, which is significant in Edinburgh and Glasgow, is made secure by this process. He may—and indeed does—disagree with the Government about what should happen, but I assure him that in a no-deal scenario, the interests of the financial services industry in Scotland will be looked after as best they possibly can.
I thank the Committee for its consideration of this SI, and the points made by hon. Members on the Opposition Benches. In conclusion, the deficiency fixes in this SI will ensure that the UK’s prudential regime for insurance and insurance risk transfer remains prepared for withdrawal from the EU in any scenario. I hope the Committee has found this evening’s sitting informative, and will now be able to join me in supporting these regulations.
Question put and agreed to.