Treasury
John Glen Excerpts(7 years, 2 months ago)
Ministerial CorrectionsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
John Glen
Work is being done across the Treasury, the Home Office and the MOJ to look at how we can refine that.
[Official Report, Second Delegated Legislation Committee, 8 January 2019; c. 11.]
Letter of correction from The Economic Secretary to the Treasury:
Errors have been identified in my contribution to the debate on the Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2018.
The correct statements should have been:
Contingent Liability Notification
John Glen Excerpts(7 years, 2 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
I can today confirm that I have laid a Treasury Minute informing the House of the contingent liability that HM Treasury has taken on in authorising the sale of a portfolio of Bradford & Bingley (B&B) and NRAM commercial loans, acquired during the financial crisis under the last Labour Government, to a consortium formed of Arrow Global Ltd and Davidson Kempner European Partners LLP, who are specialist asset buyers.
On this occasion, due to the sensitivities surrounding the commercial negotiation of this sale, it has not been possible to notify Parliament of the particulars of the liability in advance of the transaction documents being signed. The Chairs of the Public Accounts Committee and Treasury Committee were notified in confidence ahead of the transaction being agreed.
The contingent liability includes certain market standard time and value capped warranties confirming regulatory, legislative and contractual compliance. In addition, there are further remote fundamental market-standard warranties. The maximum contingent liability arising from all contractual claims is approximately £61 million. The impact of the sale on a selection of fiscal metrics is as follows:
public sector net debt is reduced by £61 million in 2018-19;
public sector net borrowing is increased by a total of £7.9 million by 2022-23;
public sector net liabilities is increased by £30 million in 2018-19; and
public sector net financial liabilities is increased by £30 million in 2018-19.
UKAR will incur an accounting loss of £30 million on the transaction in 2018-19. UKAR is expected to make an overall profit in 2018-19. The net present value of the assets if held to maturity was estimated by UKAR’s advisors using Green Book assumptions. UKAR received less than this estimated hold value in exchange for the assets. The Government should not be a long-term owner of financial sector assets and it is right that these assets should be returned to private hands.
I will update the House of any further changes to B&B and NRAM as necessary.
[HCWS1240]
Draft Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018
Draft Venture Capital Funds (Amendment) (EU Exit) Regulations 2018
Draft Social Entrepreneurship Funds (Amendment) (EU Exit) Regulations 2018
John Glen Excerpts(7 years, 2 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chair
I will now call the Minister to move the first motion and speak to all the draft instruments. At the end of the debate, I will put the question on the first motion and then ask the Minister to move the remaining motions formally.
The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018.
The Chair
With this it will be convenient to discuss the draft Venture Capital Funds (Amendment) (EU Exit) Regulations 2018 and the draft Social Entrepreneurship Funds (Amendment) (EU Exit) Regulations 2018.
John Glen
It is a pleasure to serve under your chairmanship, Mr Sharma. As the Committee will be aware, the Treasury has been undertaking a programme of legislation to ensure that, if the UK leaves the European Union without a deal or an implementation period, there will continue to be a functioning legislative and regulatory regime for financial services in the UK. The Treasury is laying statutory instruments under the European Union (Withdrawal) Act 2018 to deliver that, and several such debates have already been undertaken in this place and in the House of Lords. These draft instruments are part of that programme.
The approach taken in these draft regulations aligns with that in other SIs laid under the EU withdrawal Act, providing continuity by maintaining existing legislation at the point of exit, but amending it where necessary to ensure that it works effectively in a no-deal context. The three draft instruments relate to the management, administration and marketing of alternative investment funds.
Investment funds are investment products created to pool investors’ capital and invest it in financial instruments such as shares, bonds and other securities. An alternative investment fund is defined as any investment fund not covered by the directive on undertakings for collective investment in transferable securities, commonly known as UCITS. Such funds are often sold to institutional investors, such as pension funds and corporate investors, as opposed to UCITS, which are mainly aimed at retail investors.
Alternative investment funds include hedge funds, venture capital funds and private equity funds. Registered venture capital funds and social entrepreneurship funds are sub-categories of alternative investment funds. The former focus on start-ups and early-stage companies, and the latter on social enterprises. These sub-categories will also have to comply with the alternative investment fund regulations, as well as the regulations specific to them.
The issue is that, in a no-deal scenario, the UK would be outside the single market and the EU’s legal, supervisory and financial regulatory framework. Retained EU and domestic law relating to the regulation of alternative investment fund managers, European venture capital funds and European social entrepreneurship funds will therefore need to be updated to reflect this, and to ensure that the provisions work properly in a no-deal scenario. The draft regulations amend the legislation to create a UK-only regulatory framework for alternative investment funds in the UK.
I think it would be worth while to pause at this point and to reinforce the point I have made in previous debates. This is about creating a UK-only regulatory framework; it is not about innovating in any way with respect to disputes that may exist about the regulations. The draft regulations remove references to the Union and EU legislation, replacing them with references to the UK and UK legislation. That includes references to the passporting system, which the UK will no longer be part of after exit.
To ensure that a clearly defined funds regime is identifiable in the UK, the draft instruments create UK-only fund labels, which replace the European Economic Area fund labels with “registered venture capital fund” and “social entrepreneurship fund”, reflecting the fact that these funds are located in the UK and subject to UK rules.
The alternative investment fund managers regulations alter the definition and scope of alternative investment funds to reflect the UK’s position outside the EU in the scenario that I have described. Any fund that is not a UK UCITS will be treated as an alternative investment fund. The effect is that UCITS funds located in EEA countries will be treated as alternative investment funds in the UK after exit.
However, the alternative investment fund regulations were not intended for UCITS funds, which are specifically regulated funds aimed at retail investors. As I said, alternative investment funds are more complex funds, largely aimed at professional investors. Different requirements are needed for these types of funds. Therefore, treating EEA UCITS in the same way we currently treat alternative investment funds would be disproportionate. In recognition of that, this instrument removes certain regulations that were not designed for retail funds such as UCITS—for example, certain reporting requirements. That will ensure that EEA UCITS funds continue to be regulated proportionately in the UK as retail funds.
These instruments will also transfer responsibility for the regulation of alternative investment funds and their managers from EEA authorities to the Financial Conduct Authority and from the European Commission to Her Majesty’s Treasury. As the UK’s national competent authority in the EEA, the FCA is already responsible for supervising alternative investment funds and their managers and therefore has extensive experience of making rules relating to this sector. As of last month, there were 3,936 highly trained and professional individuals working in the FCA on all these areas of regulation.
Furthermore, powers are transferred from the Commission to the Treasury, as the suitable Government body. The Treasury will have powers regarding the rules and regulations in respect of investment funds. For example, it will have the power to specify the criteria used by the FCA in assessing alternative investment fund managers.
Finally, to offer continuity for EEA funds and the UK consumers they service, the alternative investment fund managers instrument delivers a temporary marketing permissions regime for EEA alternative investment fund managers currently passporting into the UK. This was part of the announcement made by the Government in December 2017 in relation to creating a temporary permissions regime for EEA firms and funds. That was something that the Government did proactively to ensure maximum continuity. For alternative investment funds, it will allow EEA fund managers who currently have a marketing passport to continue to market their funds to UK customers, as they could before exit day, for a period of up to three years. Following an assessment by the FCA of the effect of extending or not extending the period, the Treasury will have the power to extend the period for a maximum of 12 months at a time, in line with the position under other transitional regimes that we have been putting forward through such SIs. The SI that will extend the regime will be subject to the negative procedure.
At this point, I want to refer to concerns expressed in the other House during the debate on the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018. In response to those concerns, which I think came from Baroness Bowles, in particular, but probably also from Lord Tunnicliffe, the Treasury has committed that any extension of this or any other such temporary regimes will be preceded, at an appropriate interval of time, by a written ministerial statement issued to both Houses of Parliament, to facilitate closer scrutiny of the decision to have an extension. The statement would give Parliament notice of the Government’s decision to extend the temporary permissions regime ahead of the extension SI’s being laid.
By the end of the temporary marketing permissions regime, fund managers will be directed to notify the FCA under the national private placement regime, the current mechanism for non-EU, third country fund managers to market alternative investment funds into the UK.
In drafting this instrument, the Treasury worked closely with the FCA, but it has also engaged closely with the financial services industry and, in particular, the Investment Association, and it will continue to engage very closely. In September and October 2018, the Treasury published the instruments in draft form, along with explanatory policy notes to maximise transparency to Parliament and to the industry. That significant engagement has given us positive feedback. The reaction is that people are pleased that we have taken the measures proactively in advance of, and ready for, all outcomes.
I would also like to note that an amendment to the alternative investment fund managers regulations will be brought forward separately and additionally under the related Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019, which were laid before Parliament on 17 December 2018. It will amend part 1 of the alternative investment fund managers regulations to bring forward the commencement date of the temporary marketing permissions regime to the day after the 2019 regulations are made. That will ensure that the FCA has the powers it needs in time to have systems in place to implement the temporary marketing permissions regime. Specifically, it will give the FCA power to process notifications before exit day. That is consistent with the other temporary permission regimes that have been introduced.
In summary, the Government believe that the proposed legislation is necessary to ensure that alternative investment funds continue to operate effectively in the United Kingdom, providing continuity for UK investors, and that the legislation will continue to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope that colleagues will join me in supporting the regulations, which I commend to the Committee.
John Glen
I thank my hon. Friend the Member for Basildon and Billericay and the hon. Members for Oxford East and for Glasgow Central for their exhaustive scrutiny of what I said and some of the issues. I put on the record my great respect for the assiduous way in which Opposition Front Benchers have conducted themselves during this process; I concede that it has not been optimal, in terms of the level of engagement and impact assessments. I will now try to faithfully respond to all the points; when I cannot, I shall write to the relevant Members.
Before I come to the issue of the level of engagement and impact assessments, I will address the point that the hon. Member for Oxford East raised. There were long discussions during the passage of the EU withdrawal Act, but that legislation does not give the Treasury the ability to make major changes to policy or legal frameworks beyond those appropriate to ensure basic continuity. We are acting within the spirit of that and doing so as professionally as we can, with as much work to consult and engage with the industry as possible.
We have not conducted a formal consultation on these SIs, but we have engaged closely with industry to ensure that there is a functioning legal framework in a no-deal scenario. That hints at the points raised, which I will come on to more substantively in a moment, about the fact that there are contested spaces in this area and that, in a no-deal scenario, there would be a significant imperative for a bigger corpus of legislation to set the industry fair in this country. Obviously, though, we anticipate and hope—well, not hope, but believe—that we will secure that deal.
The engagement has involved talking to asset management trade associations, representative bodies such as the Investment Association and wider financial services bodies such as TheCityUK, to get technical input to inform our work. That is across the United Kingdom as a whole. I chair the asset management taskforce and I had three or four meetings through 2018 where many of those concerns were also taken forward. I draw attention to the words of Chris Cummings, the chief executive of the Investment Association, who said on 7 December last year:
“In a possible no deal Brexit, HM Treasury’s commitment to remain open to international funds ensures that the UK will remain a world leading asset management centre and that UK savers will continue to have access to a full range of investment opportunities.”
We have worked to satisfy him, and other stakeholders like him, through this process.
I turn specifically to the issue of the impact assessment. The challenge in some areas has been that multiple statutory instruments will apply. We have grouped them together and taken them to the Regulatory Policy Committee to be looked at in the round, so it can then provide a more meaningful assessment of the impact.
I recognise that, as the hon. Member for Glasgow Central said, it is sub-optimal not to have it at this point, but the impact assessment that covers the SIs being debated today has been prepared and is going through the normal clearance and scrutiny procedures. We hope to have it published shortly. It will then cover the balance of those statutory instruments that we will be debating subsequently in these Committees over the next eight weeks, so I hope I will not need to make this apology again.
I emphasise that the point of this legislation is to minimise disruption to firms and their customers and maintain continuity of service provision as a whole. As such, these SIs will significantly reduce costs to business in a no-deal scenario, as without them the legislation would be defective. That is the principle on which we are doing this: we are doing it because the industry wants us to deliver it.
On the point made by the hon. Member for Oxford East about the temporary marketing permissions and the volume of notifications to the market, earlier in the year the FCA launched an online survey for EEA inbound passporting firms and funds, to help inform its preparations and identify firms for which a temporary permission may be relevant. In 2018 there were around 2,060 EEA alternative investment funds that had been notified via a passport to market into the UK. It is not expected that those firms will enter into the temporary marketing permissions regime.
The hon. Lady asked about the specific requirements on depositories. Authorised UK AIFs will be required to have a UK depository as a result of amendments to be made in a related collective investment schemes SI. Transitional arrangements are included in that SI to ensure that firms have sufficient time to make preparations, and unauthorised AIFs will be allowed to have an EEA depository.
The hon. Lady went on to ask about something that has often been raised: the cost to the sector. Again, we will need to see the overall cost, based on that impact assessment. UK investors will maintain their rights to funds in which they are already investing, and will continue to have access to funds currently marketed under a passport and enter the temporary marketing permissions regime. The main cost to firms that we have identified are familiarisation costs of the new legislation and transition costs, because of changes in legal definitions and reporting requirements for firms using the temporary marketing permissions regime. In due course, I think that will be seen to be a very modest sum.
Both Front-Bench spokesmen referred to the FCA resourcing. I will seek to provide more clarity on that. I managed to get the number of full-time equivalents, but I knew that if I gave some information, more would be requested, so I will seek that out. In its business plan it is funded by a levy and it would be able to move quickly, should it need additional resources.
With regard to UK fund managers passporting into the EEA, the Government are only able to take legislative action in relation to EEA fund managers who passport into the UK; we cannot determine the outcome the other way around. However, again, for the comfort of the Committee, I draw attention to the statement made by the chair of the European Securities and Markets Authority on 3 October 2018, in which he said:
“In the case of a no deal Brexit, NCAs and ESMA should have in place with our UK counterparts the type of MOUs that we have with a large number of third country regulators…ESMA has co-ordinated the preparations for such MOUs together with the EU27 NCAs.”
That is also supplemented by the remarks of Andrew Bailey of the FCA to the Treasury Committee last December, when he estimated that the cost of EU withdrawal for the FCA has been less than initially expected, thanks in part to the temporary permission regimes that the Government have enacted, and which the alternative investment fund managers SI and a number of others have set up.
Mr Baron
I take on board that the Minister has just quoted ESMA and all the rest of it. The trouble is that investment trusts are not well understood within the EU. It is all right for them to say, “We are happy with things,” but if they are inherently deficient, we have to step up to the plate.
John Glen
Let me just finish with the points made by the hon. Member for Oxford East and then I will come to my hon. Friend’s points.
On the point about regulations on UCITS, I think the hon. Member for Oxford East was asking whether removing the AIF-related reporting requirements for the EEA UCITS, despite their being defined as alternative investment funds, will reduce transparency, in essence. It will not. This instrument carves out reporting requirements on alternative investment funds for funds that obtain recognised status from the FCA, to be sold as UK retail investments. As a result of that recognition process, the FCA will already receive all the information necessary for the effective supervision of the funds.
I want to come to the points made by my hon. Friend the Member for Basildon and Billericay. He kindly offered me the device of writing to him by letter, but in essence he set out a series of concerns, which he raised previously in a similar Committee in October, about the distinctions between the investment trust and the unit trust, and the application of key information documents and how they can be misleading. He drew my attention again to the concerns of the different industry bodies. For the edification of the Committee, I wrote to him, as he pointed out on 26 October. In Q1 2019, the FCA will publish its feedback.
My hon. Friend’s point about the obligation of the Government versus the regulator is very fair. I will reflect on his comments and have a regular dialogue. I met the chairman of the FCA this week. I have regular conversations and meetings with the chief executive, and I will make those points to him. That has to be set within the context that I am not licensed by this process to innovate, although I recognise that we must also accept that over the last 10 years we have reached a level of authority and reputation, when it comes to regulatory breadth and depth of oversight, that is commonly welcomed.
My hon. Friend has quite reasonably drawn attention to the lack of familiarity in the EU framework with some of the instruments in some jurisdictions outside the UK, which means that the appropriateness of those conclusions has sometimes been contested. I very much understand the issue.
Anneliese Dodds
I am grateful to the Minister for giving way; he is being very generous overall. Might I gently suggest that, as a Committee, we surely need to know whether the Government raised these kinds of issues at any point in their capacity in the Council, in their relations with MEPs in the Parliament or in their relationship with the Commission?
Of course, as the Minister mentioned, this is a separate process that the Government are undertaking. The UK has frequently drawn attention to the specificities of the British financial sector during the creation of many of these regulations; I experienced that regularly as a Member of the European Parliament. I am not clear whether the British Government made any entreaties about how the KIDs were set up and whether they appropriately covered investment trusts, but surely that would have been the stage. If we start to say that they should be changed at this stage, without having made those entreaties, I think that would raise eyebrows—to put it mildly.
John Glen
I respect the deep—deeper than my own—personal experience of both hon. Members who have spoken about that matter. In terms of the previous engagement of the British Government through their representations as the documents were constructed, I cannot account for that now, but I am happy to write to the hon. Lady about it.
The point that my hon. Friend the Member for Basildon and Billericay is making is that, in the future, when we leave the EU, we will have to take account of the combination of responsibilities to broadly align with common expectations in like-minded investment communities and to attend to real challenges that lead to perverse investment decisions and outcomes for investors, which my hon. Friend is very familiar with.
I hope that has covered the points raised. If there are other points that I have not answered, I will be happy to write to hon. Members.
Mr Baron
May I remind the Minister of the sense of urgency that is required? It is not just that the date of the 29th is looming, but that the FCA, if one were being charitable, has been slow out of the traps—that is not just my opinion, but that of a number of trade bodies—and appears somewhat slow in coming to review the whole situation. Pressure from the Government would help.
John Glen
I accept that. In the context of Q1 of this year, with respect to no-deal preparations, the Financial Services (Implementation of Legislation) Bill on in-flight files is going through the other place at the moment to put in place a mechanism to have discretion to onshore, or not, files that are live. They have to be the priority at the moment, but the point is well made and I have heard it. I will make representations.
I hope I have demonstrated that the regulations are needed to ensure that alternative investment funds continue to operate effectively in the UK if the UK leaves the EU without a deal or an implementation period. I hope that the Committee has found the debate informative and will now be able to support the regulations.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018.
draft Venture Capital Funds (Amendment) (EU Exit) Regulations 2018
Resolved,
That the Committee has considered the draft Venture Capital Funds (Amendment) (EU Exit) Regulations 2018.—(John Glen.)
draft Social Entrepreneurship Funds (Amendment) (EU Exit) Regulations 2018
Resolved,
That the Committee has considered the draft Social Entrepreneurship Funds (Amendment) (EU Exit) Regulations 2018.—(John Glen.)
Draft Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2018
John Glen Excerpts(7 years, 2 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2018.
May I say what a pleasure it is to serve under your chairmanship this morning, Ms McDonagh? As the Committee will be aware, the Treasury has been undertaking a programme of legislation to ensure that if the UK leaves the EU without a deal or an implementation period, there will continue to be a functioning legislative and regulatory regime for financial services in the United Kingdom. To deliver that, the Treasury is laying statutory instruments under the European Union (Withdrawal) Act 2018, several of which have already been debated in both Houses, with plenty more to come—we have another tomorrow afternoon.
The draft regulations are part of that programme. They will fix deficiencies in UK anti-money laundering law to ensure that it continues to operate effectively post exit. Their approach aligns with that of other statutory instruments laid under the 2018 Act, providing continuity by maintaining existing legislation at the point of exit but amending it where necessary to ensure that it works effectively in the event that we leave the EU without a deal in place.
Many hon. Members present will be familiar with the existing anti-money laundering legislation. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 set out the requirements for regulated firms to combat money laundering and terrorist financing. The EU funds transfer regulation specifies the information that must accompany electronic transfers of funds. The Oversight of Professional Body Anti-Money Laundering and Counter Terrorist Financing Supervision Regulations 2017 established the Office for Professional Body Anti-Money Laundering Supervision within the Financial Conduct Authority early in 2018.
Anti-money laundering legislation is designed to combat illicit finance while minimising the burden on legitimate businesses. In a no-deal scenario, the UK will be outside the European economic area and the EU’s legal, supervisory and financial regulatory framework, so the three pieces of anti-money laundering legislation that I mentioned will need to be updated to reflect the UK’s new position and ensure that their provisions work properly. The changes that the draft regulations will make to the UK’s anti-money laundering regime will primarily affect the financial services sector, but their impact will be minimal and we have engaged extensively with industry to ensure that affected firms are aware of them.
First, the draft regulations will transfer to the FCA responsibility for making technical standards to specify the additional measures that credit and financial institutions with branches or subsidiaries abroad are required to take. Such standards are of a similar type to those that the FCA already makes and are in an area in which it has deep technical expertise, so it is the appropriate body to take on that responsibility. The transfer of this power is necessary because the relevant standards are currently made by the European Commission.
Secondly, the draft regulations will remove the obligation for certain UK persons to have regard to guidelines published by the European supervisory authorities. The UK will be outside the EU’s regulatory framework, so it would be inappropriate for UK persons to be legally required to have regard to those guidelines. However, it is important to remember that firms will continue to be required, under the broader obligations of the FCA, to have regard to guidance developed by the UK supervisory authorities and industry bodies.
Thirdly, the draft regulations will equalise the regulatory treatment of EEA member states and third countries for correspondent banking relationships, which arise when one bank provides banking services on behalf of another. Currently, UK financial institutions apply enhanced due diligence measures to correspondent banking relationships with financial institutions outside the EEA, but those measures are not required for intra-EEA relationships. The draft regulations will equalise regulatory treatment so that enhanced due diligence will be required for all correspondent banking relationships. That change better aligns with the Financial Action Task Force standards on the issue and with the existing practice of many UK institutions that apply enhanced due diligence because of the risks associated with correspondent banking relationships.
Fourthly, the draft regulations will equalise regulatory requirements with respect to the information about the payer and payee that accompanies the electronic transfer of funds. UK payment service providers will be required to provide the same volume of information to accompany transfers into EEA member states as to other countries. Those changes are being made to reflect the UK’s new position outside the EU’s regulatory framework. The position of the Crown dependencies within the UK’s payments area will remain unaffected.
Finally, the current money laundering regulations require certain information to be communicated to EU institutions. Those provisions will be removed, as they will no longer be appropriate once the UK ceases to be a member of the EU.
The House of Lords Secondary Legislation Scrutiny Committee queried the change in requirements to transmit information to EU institutions. It also queried whether the FCA will co-operate with its counterparts in other countries to combat illicit finance. However, the draft regulations’ changes to information submission requirements relate to specific duties to provide directly to EU institutions information such as the national risk assessment of money laundering and terrorist financing. Legal obligations to submit such information would be inappropriate once the UK leaves the EU, but it is important to emphasise that UK supervisory authorities, including the FCA, will continue to have an obligation to co-operate, as they consider appropriate, with overseas anti-money laundering authorities in relation to firms that have offices in the UK.
The Treasury has worked closely with the FCA in drafting the regulations. We have also engaged with the financial services industry on them and will continue to do so in relation to other statutory instruments in the onshoring programme. To maximise transparency for Parliament and industry, we published the instrument in draft in November, along with an explanatory policy note.
The Government believe that the draft regulations are necessary to ensure that the UK’s anti-money laundering and counter-terrorist financing regime operates effectively and that the legislation will continue to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope that colleagues will join me in supporting them; I commend them to the Committee.
John Glen
It is a pleasure to respond to the hon. Members for Oxford East and for Aberdeen North, who raised a series of thoughtful questions. I have to say at the outset that the draft regulations are about creating the functioning regime that we will need in a no-deal situation. A whole range of points that were raised were discussed during the passage of the Sanctions and Anti-Money Laundering Act 2018, but I will seek to respond to them.
The hon. Member for Oxford East raised concerns about the EU’s high-risk third country list. I can confirm that we will use the Sanctions and Anti-Money Laundering Act to update the high-risk register. We will use the affirmative procedure, which will enable Parliament to vote on any changes. International standards will be considered as part of any updates.
The hon. Lady also raised the Financial Action Task Force and its recommendations, and I will come on to some of those around the resourcing of the FIU. However, it is important for the Committee to understand that the comprehensive review of the UK regime that took place last year, which is done on a 10-year basis, judged the UK to be in the best state of all 60 countries that have been evaluated. However, I acknowledge that there are pieces of work that need to be undertaken to improve it.
There has been an 80% reduction in Scottish limited partnerships.[Official Report, 17 January 2019; Vol. 652, c. 9MC.] The Department for Business, Energy and Industrial Strategy, which leads on this area, published a report in December that set out a series of elements, including tighter regulation, the need for a firmer connection to the UK, increased transparency of information and giving the registrar the power to strike off dormant partnerships. I accept that there is work to be done, but progress is being made.
The hon. Members for Oxford East and for Aberdeen North raised the issue of co-operation with the EU. Paragraph 84 of the political declaration explicitly sets out that the UK and the EU should co-operate on anti-money laundering. I am not able to give chapter and verse on specific mechanisms, but it is important to remind the Committee that the UK is known as a world leader in setting the agenda in this area and it is inconceivable that the Government would not wish to continue to take a lead in driving forward these standards.
Obviously in a no-deal scenario, work would have to take place to establish how the FCA’s relationship with the EU would work, in the context of a thorough and holistic piece of legislation on financial services. The Treasury, working across Government with the Home Office and the Ministry of Justice, takes its responsibilities in this area very seriously. I gave evidence to the Treasury Committee’s inquiry on economic crime and we look forward to its report, which will guide us and to which we will respond.
The Home Office leads on the resourcing of the FIU and the SARs reform work, so I am not able to give a detailed answer, but shall write to the hon. Member for Oxford East.
Anneliese Dodds
Would the Minister mind also writing to me to indicate when the Government will release their response to the consultation on creating an offence of failure to prevent economic crime?
John Glen
I would be happy to respond on that matter as well.
A point that often comes up in these discussions is the resourcing of the FCA. I acknowledge the great work that it has done over the last 18 months in helping the Government to prepare these SIs. It is funded by an industry levy and has set out in its business plan the resources involved in working towards exit. The Government are confident that the FCA has made adequate preparations ahead of leaving. If additional resources are needed in the event of no deal, it would be able to raise those funds very quickly, but we would all be in a situation where we would have to do things that we had not anticipated. This programme of SIs is about getting to the basic starting point that allows us to have confidence in the regulatory regime, but I do not deny that a considerable amount of work would need to take place.
On maintenance of standards and equivalence with the EU on anti-money laundering, the hon. Member for Oxford East discussed the use of the word “may” versus “must”. I want to clarify that what we have removed is the obligation to report in a specific way, as per the legislation. It is not our intention to remove ourselves from either the spirit or substance of that obligation; it is just that it would be inappropriate to leave a legal obligation to an entity when we are a third party. That is the only way that I can describe it.
To expand further on future co-operation, through the bilateral agreement with the EU, we expect to have an expansive relationship that would have a wide scope of cross-border activity. The changes in the SIs do not preclude deep co-operation between UK and EU regulators in the future. It is desirable to have that co-operation.
The hon. Member for Aberdeen North raised the burden on banks’ IT systems. When one makes a transfer between one bank and another, if it is in an unfamiliar, non-mainstream destination in Africa—I will not name an individual country for fear of getting a letter from its ambassador—some checks would be done, because the bank would then obviously receive those funds. A check would be done on that, but because that sort of transaction is inherently risky, the same degree of checking will need to take place—and does take place in practice in the banking industry—with countries in the EU that are more familiar to us. Broadly, there is harmony on that matter anyway.
I mentioned the SARs reform, which the Home Office leads on. We anticipate that new IT will provide a more user-friendly portal for reporters from all sectors and that improved data processing, storage, analytics and distribution will be required. Work is being done across the Treasury, the Home Office and the MOJ to look at how we can refine that.[Official Report, 17 January 2019; Vol. 652, c. 10MC.] At the moment, the basic problem is that there is a high volume of SARs and we could better interrogate that data pool.
The hon. Member for Oxford East mentioned the concerns raised by the Thames Valley police and crime commissioner. He has also raised them with me and I will get in touch with him about them. Obviously, we do not rest on our laurels with respect to the FATF evaluation. I have mentioned the concerns that the Government have acknowledged in terms of the FIU, and the improvements to SARs and to the Companies House register, on which we expect a Government report in Q1 or Q2 of this year.
The statutory instrument is needed to ensure that the UK’s anti-money laundering and counter-terrorism financing regime operates effectively and that the legislation functions appropriately if the UK leaves without a deal. I hope that I have adequately responded to the points raised.
Kirsty Blackman
When the Minister was talking about the resourcing of the FCA in the event of a no deal, he suggested that it would be able to draw down extra money very quickly. Is he basically suggesting that, in the event of a no deal, on 1 April, Parliament will come in and approve lots of money to be given to lots of different Government agencies to deal with that scenario, or will that happen in advance of a no deal? We have only 80 days to go.
John Glen
My colleague the Chief Secretary has set out comprehensive budgets for each Department for the financial year with respect to a no deal, and a process for urgent requests. The FCA would be able to raise its levy autonomously and separately from Government. It will have contingency arrangements for doing that quickly. I obviously cannot address all Government agencies and Departments, because it will be done through different Ministers in different Departments, but I can say that the Treasury has fully communicated the process for making additional requests in a no-deal situation to all Ministers in all Departments.
Kirsty Blackman
What about communicating that to Parliament rather than just to Ministers? I know that the scrutiny process is rubbish and Parliament does not have much say on Government spend generally, but surely it should have some say on that.
John Glen
If I take the Department for Education, for example, where a large portion of the budget is for providing food in schools, in a no-deal circumstance where additional costs might be associated with that food, the Minister would need to make a statement to Parliament about that and respond to it. Inherently in the process, there is a mechanism for the Government and different Departments to bring matters to Parliament. They would need to justify where they would spend that additional money and the basis for it. With respect, I think that is beyond the scope of the statutory instrument—at least, that is my judgment.
John Glen
I am sorry for that. I hope the Committee has found the debate informative and will now be able to support the regulations.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2018.
HBOS Reading: Independent Review
John Glen Excerpts(7 years, 3 months ago)
Westminster HallRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship, Sir Christopher. I acknowledge the work of my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) in securing this debate and making an excellent speech, as he has done on several occasions this year in this place, and setting out a case that was well reasoned in many elements. I also pay tribute to the hon. Members for Strangford (Jim Shannon) and for East Lothian (Martin Whitfield), who made fine contributions to the debate.
As we have heard today and in previous debates this year, incidents of banking misconduct and fraud have had a severe impact on some small and medium-sized enterprises. It has been and remains a top priority of mine in office to face up to the issues that have been generated by the cases that have been raised. I am conscious that many of the eight Back-Bench Members who have taken part in this debate will have heard sad and unfortunate stories from their constituents about how the actions of banks have affected them and their businesses. That includes not only the events at HBOS Reading, but the actions of the RBS Global Restructuring Group and the mis-selling of interest rate hedging products.
I begin by reminding Members that we expect the highest standards of behaviour across the financial sector. That is why the Government have introduced a number of necessary changes to restore public trust in financial services, such as the senior managers and certification regime. Before I address the substance of today’s debate, it is important that we pause for a moment to recognise the contribution that banks make to both the UK economy and our society. As the hon. Member for Aberdeen North (Kirsty Blackman) rightly said, it is necessary for banks to lend to SMEs. Lloyds Banking Group has, for example, increased its net lending to SMEs by £3 billion since 2014 and plans to triple that by 2020. Lloyds is the market leader in providing basic bank accounts, which help vulnerable customers, and its “Helping Britain Prosper” plan sets out a number of commitments on behaviour, diversity and charitable support.
However, I recognise that there has been a great deal of justified anger, within Parliament and beyond, regarding the fraud that was perpetrated against small businesses through the actions of individuals at the HBOS Reading branch. It is important to remember that the events at HBOS Reading constituted criminal activity. As such, it was right that those responsible were brought to justice, as my hon. Friend the Member for Thirsk and Malton pointed out. The FCA continues to conduct an enforcement investigation into the events surrounding the discovery of misconduct at HBOS Reading, resuming an investigation placed on hold at the request of Thames Valley police. I will be keenly following the progress and outcome of the investigation.
In addition, Lloyds Banking Group has appointed Dame Linda Dobbs, a retired High Court judge, as an independent legal expert to consider whether issues relating to HBOS Reading were investigated and appropriately reported to authorities at the time by Lloyds Banking Group, following its acquisition of HBOS. It will consider issues raised by the Project Lord Turnbull report referred to by my hon. Friend. Dame Linda’s findings will then be shared with the FCA.
It is right that Lloyds set up a compensation scheme for businesses affected by the events at HBOS Reading, overseen by Professor Russel Griggs. That scheme has seen offers made to all customers within its scope, with 90% of customers accepting the offer. However, I acknowledge the concerns that Members have raised about the Griggs scheme. Those concerns have certainly been heard, and I am pleased to announce that Lloyds has agreed with the FCA that Lloyds will commission a post-completion review to quality-assure the methodology and process of the Griggs scheme. [Interruption.]
Overseen by an independent person, that review will go above and beyond a normal lessons-learned exercise. The independence of the person appointed to lead the review is vital. In particular, I would expect that person not to have been employed by Lloyds in any way, and to be able to demonstrate complete operational independence from Lloyds. I am pleased that Lloyds has committed to publishing the review once it has concluded, and I welcome Lloyds’ commitment to implementing any recommendations it produces. I have been consistently clear that it is vital that we get the right processes and procedures in place, to ensure that SMEs can obtain fair redress and resolve disputes with their banks.
Mr Vaizey
I know that my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) will wind up the debate, so I feel a bit premature intervening on the Minister, who is a good friend. However, he will have heard the reaction in the Gallery to his announcement. It seems to me that it is just a re-wrapping of the current problem. Perhaps he will meet some of the Members in the Chamber, and some of the business owners affected, to hear and see what has actually been going on.
John Glen
I will happily meet my right hon. Friend—a distinguished former Minister who has been fighting on these matters for many years—and my hon. Friend the Member for Thirsk and Malton. Of course I acknowledge the cynicism and concern of those present about the independence of this mechanism, but, as I said, Lloyds has committed to publishing the independent review once it is concluded and implementing any recommendations that it produces. My officials have been working with the FCA to ensure that that comes to pass. I take the concerns about how it progresses very seriously, and will happily meet Members to discuss them.
In the recent Budget, the Chancellor stated the Government’s support for the FCA’s plans to expand eligibility to complain to the Financial Ombudsman Service to small businesses as well as micro-enterprises. Expanding the remit of the FOS will ensure that from 1 April 2019 well over 99% of all UK businesses will have access to fast, free and fair dispute resolution. I am aware that concerns have been raised about the capability of the FOS to adjudicate effectively in such cases, and I discussed those concerns with the Chair of the Treasury Committee just last week.
The FOS has announced its plans to create a ring-fenced, specialist unit to take on the additional cases, and for that unit to be supported by a panel of external SME experts. I welcome those plans, and I will visit the FOS early in the new year to check on how they are progressing. The FCA has also committed to reviewing the expansion of the FOS remit within two years of its coming into force, in addition to its usual oversight processes. I trust that that will reassure some hon. Members who have voiced concerns about the capability of the FOS.
I have also been clear that banks need to work hard to restore businesses’ trust in their institutions. That is why I welcome the banking industry’s recent commitment to establishing two independent voluntary ombudsman schemes, in response to Simon Walker’s review of dispute resolution for SMEs. One of those schemes will address complaints from SMEs with a turnover of £6.5 million to £10 million. The other will address unresolved historical complaints from SMEs that have not already been through a formal process.
I am pleased that the banking industry has set out the key principles for the operation of the scheme to address unresolved historical complaints. Independence, expertise, transparency and the right to an appeal are all hallmarks of a fair and robust process, and it is right that they underpin any approach to dispute resolution. I welcome the banking industry’s commitment to having those schemes up and running by September 2019. I look forward to seeing progress on establishing the implementation steering group very soon, and I am pleased that representatives from the all-party parliamentary group will have a role in that process.
The benefits of an ombudsman-style approach are clear, but I recognise that some hon. Members have advocated again today for the establishment of a tribunal to resolve disputes between banks and SMEs. An ombudsman-style approach can deliver fast, free and fair dispute resolution for SMEs, making decisions based on what is fair and reasonable. I believe that a tribunal, on the other hand, would need the regulation of SME lending, potentially restricting SMEs’ access to credit. It would still require SMEs to pay for expensive legal expertise, and it could make decisions only on a strict legal basis. That is why I believe that an expanded FOS remit, alongside the establishment of further independent ombudsman schemes as announced by UK Finance, will ensure the best outcomes for SMEs.
I highlight again that the Government, financial regulators and industry have done considerable work to tackle bad practice and to ensure that SMEs have access to appropriate dispute resolution and redress mechanisms. The all-party group on fair business banking and finance has been a key part of that work, and I sincerely commend its determination in the work that it has undertaken to ensure that SMEs are fairly treated.
The events at HBOS Reading constituted criminal activity. As such, it was right that those responsible were brought to justice. However, more clearly needs to be done to restore SMEs’ trust in the financial services industry. From the numerous meetings that I have had this year with a wide range of stakeholders, it is clear that we are all determined to deliver the best outcomes for SMEs.
I will closely follow the review of the Griggs scheme. I understand the concerns, but it is a significant step forward that that review will take place, and I will monitor the implementation of both the expanded FOS remit and the industry’s independent voluntary ombudsman schemes. I am confident that we have the right regulatory regime and dispute resolution mechanisms in place for the future. Events similar to those at HBOS Reading should not occur again, and I will do everything in my power in office to ensure that we learn the lessons from those appalling incidents years ago.
Draft Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018
John Glen Excerpts(7 years, 3 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018.
May I say what a pleasure it is to serve under your chairmanship, Mr Sharma? The Treasury has been undertaking a programme of legislation to ensure that if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning legislative and regulatory regime for financial services in the UK. The Treasury is laying before Parliament statutory instruments under the European Union (Withdrawal) Act 2018 to deliver that, and several of them have already been debated in this place, and in the House of Lords. The SI being debated today is part of that programme. It was debated in the House of Lords on 28 November.
The regulations address legal deficiencies in the EU markets in financial instruments regulation and its accompanying directive; in the UK legislation implementing the directive; in other related domestic financial services legislation; and in EU delegated regulations. I will refer to those collectively as MiFID II. The instrument is extremely important for the financial services sector, as without it, essential components of financial services legislation would become inoperable, should the UK leave the EU without a deal. The approach taken in the legislation aligns with that of other SIs being laid before Parliament under the European Union (Withdrawal) Act 2018: it provides continuity by maintaining existing legislation at the point of exit, but amending deficiencies where necessary and introducing transitional provisions to ensure that it works effectively in a no-deal context.
MiFID II is a significant set of EU legislation that regulates the buying, selling and organised trading of shares, bonds and more complex financial instruments. It governs the practices of investment firms, exchanges and portfolio managers among others, and came into effect across the EU on 3 January 2018. One feature of MiFID II is that it requires buyers and sellers on financial markets to disclose data, such as price and volume information for their trades, to bring transparency to the process of price formation in financial markets.
Exemptions from those requirements are available in several cases, and formulae are used to calculate whether a trade may fall under an exemption. They are generally specified by reference to a proportion of pan-EU trading data. However, in a no-deal scenario, the UK may no longer have access to the pan-EU data that the European Securities and Markets Authority uses to calculate the appropriate thresholds. Calculating those thresholds at a UK-only level may create different thresholds in the UK and the EU. That may create opportunities for regulatory arbitrage and market disruption.
The instrument therefore grants the Financial Conduct Authority new flexibilities and a set of temporary powers, which will last for a period of up to a maximum of four years from exit day, to address certain operational difficulties that the FCA may face after exit. The powers will allow the FCA some controlled flexibility over how the MiFID II transparency regime is operated. The FCA’s temporary powers are required because the FCA will not be immediately ready on exit day to operate the transparency regime independently. One challenge facing the FCA is that it does not at present collect all the data that it will require to operate the transparency system on exit day. The FCA will need time to build appropriate IT systems to collect the data required to operate the transparency regime.
The FCA will also need to consider market movements in the immediate aftermath of the UK’s exit from the EU before it can estimate an equilibrium on which to base certain adjustments to the UK’s transparency regime. Accordingly, the FCA’s powers will include the ability to freeze certain pre-exit-day transparency calibrations, so that they have continued binding effect on exit day and for a period thereafter, until such time as the FCA can collect and produce its own data.
The FCA will also have temporary powers to suspend certain transparency provisions during the transitional period. For instance, it will have the power to stop the dark trading of shares, to ensure that such dark trading does not unduly harm price formation in UK markets. To be clear, the intention in granting the temporary powers is to enable the FCA to operate the transparency regime in the UK from exit day and beyond.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
I am sorry, but I have not read the regulations, so the Minister may be able to help me. Do they also provide the FCA with the additional skills and resources it will need to undertake that rigorous and important role?
John Glen
The hon. Lady is absolutely right to draw attention to the significant resources that will be required. The FCA has been in conversation with my officials in the Treasury, and we are reassured that it is in a position to do the work, and that it can do so under the provisions of the levy that it has.
Sir Greg Knight (East Yorkshire) (Con)
Will the Minister confirm, for the avoidance of all doubt, that all the powers in the regulations are temporary and time-limited, and that the powers do not give rise to the right to increase taxation?
Mr Sam Gyimah (East Surrey) (Con)
If the powers are temporary, it would be helpful to know what kind of regime we would have in the long term in the event of a no deal, and whether that would still make us competitive in this area.
John Glen
This SI onshores the existing MiFID II regime under the terms of the European Union (Withdrawal) Act 2018. Circumstances that the Government do not wish for—no deal—would clearly necessitate additional legislation in the next Session. I am working with officials to develop that legislation, so that we would maintain the most competitive regime possible in a no-deal situation, but that falls without the scope of this statutory instrument.
John Glen
In a no-deal situation, there will be a variety of scenarios with respect to the nature of our relationship with the EU; the calibration of our long-term competitive regime for financial services would depend on the calibration of that relationship, and legislation would be brought forward in the light of that.
I will make progress. To be clear, the intention in granting these temporary powers is to enable the FCA to operate the transparency regime in the UK from exit day and beyond, and to maintain existing outcomes, as far as that is reasonably possible. The 2018 Act does not empower the Government to make non-deficiency-related policy changes to EU legislation. If the Treasury is satisfied that the FCA is ready to undertake its transparency functions, the four-year transitional period may be ended earlier by the Treasury by the issue of a direction that must be laid before both Houses and published.
Some longer-term flexibility will also be given to the FCA to reflect the fact that it may not have access to pan-EU trading data after exit, and therefore may need to use reliable trading data from other countries when calculating certain transparency thresholds.
Mr David Lammy (Tottenham) (Lab)
Given the extensive nature of the measure, could the Minister outline what further resources he has made available to the FCA to deal with this? Is there some sort of impact assessment of the FCA’s capability?
John Glen
We have been working closely with the FCA for several months since the SI was published on 5 October. The FCA has discretion to increase its levy if it needs additional resources. That is not something it has communicated to us up to this point, but we have an active, ongoing weekly dialogue. That is a matter for it to bring forward in due course if necessary.
The report of the Secondary Legislation Scrutiny Committee, Sub-Committee B, which was published on 1 November, focused primarily on the transparency regime. It mentioned the adequacy of resourcing for the FCA to carry out its new responsibilities—an issue that has already been raised. The Treasury has been working closely with the FCA to deliver the programme of legislation. It is clearly important that the regulators be adequately resourced to deal with the impact of the UK’s withdrawal from the EU. I reiterate that I have full confidence that the FCA has the expertise required to run an effective transparency regime in the UK, irrespective of the outcome of the negotiations with the EU.
The FCA will also publish a statement of policy about how the temporary powers will be used before exit day. That statement of policy and any subsequent changes to it will come into effect only if the Treasury does not raise an objection to it on specified grounds. The Treasury may object to an FCA statement if it would potentially prejudice an international agreement that the UK hoped to reach, or if the Treasury believes that it may lead to a breach in international obligations. In a no-deal scenario, it is important that the Treasury is able to manage negotiations with international partners effectively. This objection mechanism is a sensible way of ensuring that.
Parliament will, of course, be able to scrutinise and question Treasury Ministers and the FCA further on their approach to the temporary powers—for example, through the Select Committee system—as Parliament does now. The SLSC report also noted that it would have been helpful if the FCA’s policy statement on the use of these powers had been made available to the House before this debate. That has not been possible, given the time the FCA needs to consider the drafting of such a statement. However, the FCA has provided assurance that a statement of policy will be ready at least four weeks before exit if the UK leaves the EU without a deal.
I turn to the other issues in this instrument. Currently, certain regulatory functions under MiFID II are carried out by EU authorities—principally, the European Commission and the European Securities and Markets Authority. The Commission and ESMA will, naturally, have no mandate to carry out these functions once the UK leaves the EU. Therefore, this instrument transfers the functions of the Commission to the Treasury and ESMA’s functions to the FCA and the Bank of England. It also transfers responsibility for making binding technical standards that specify the detailed regulations that firms must abide by from ESMA to the FCA, the Bank of England or the Prudential Regulation Authority. That is consistent with the approach set out in the Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018, which were debated in this House on 10 October 2018.
This instrument also deletes provisions in retained EU law that would become redundant when the UK leaves the EU, such as requirements regarding automatic recognition of an action by an EU body, and other references to EU bodies and EU member states. In line with the Government’s overall approach, this instrument removes obligations on UK authorities to co-operate and share information with European economic area authorities, although this does not preclude UK authorities from co-operating and sharing information with EEA authorities on a discretionary basis.
Another important set of revisions concerns the treatment of third-country regimes. Under MiFID II, certain elements of a third country’s regulatory and supervisory regime may be deemed by the European Commission to be equivalent to the requirements of MiFID. For example, under MiFID II, trading in certain instruments must take place on recognised markets. If a third country is deemed equivalent for that purpose, MiFID II allows trading to take place on those third-country markets. To ensure that the MiFID II equivalence regimes can continue to operate effectively in the UK after exit, the Treasury will take on the European Commission’s function of making equivalence decisions for third country regimes. Existing Commission equivalence decisions are also incorporated into UK law so they will continue to apply to those third countries.
Debbie Abrahams
I extend my earlier question to the capability in the Treasury. Are there sufficient skills and resources in the Treasury to undertake its new and additional roles?
John Glen
Absolutely. I can confirm that those skills exist. New equivalence decisions issued by the Treasury will be laid before Parliament and will be scrutinisable.
To provide as much certainty to business as possible, the Government have introduced a temporary permissions regime, as set out in the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018, which were made on 6 November. That will enable relevant EEA firms operating in the UK through a passport to continue their activities in the UK for a limited period after exit day, and will allow them to apply for UK authorisation, or transfer business to a UK entity, as necessary.
This instrument makes special provisions for EEA firms that intend to operate in the UK under the temporary permissions regime by ensuring that they will not be deemed in breach of the UK’s MiFID II rules if they can demonstrate that they comply with corresponding provisions in the EU’s MiFID II rules. This is necessary because, in the absence of such provisions, legal conflicts could arise that may impede the activities of firms operating under the temporary permissions regime in the UK in certain areas, and that may require them to comply with duplicative regulations.
This provision will apply only to certain provisions of MiFID II during the temporary permissions regime, and only where the EEA MiFID II requirement has equivalent effect to the UK MiFID II requirement. This instrument will also put in place transitional arrangements for data reporting service providers, which are entities that report details of transactions to regulators and publish information under the transparency regime.
Finally, under the transaction reporting regime in MiFID II, investment firms are required to submit a report to their national regulatory authorities following the execution of a trade. Those transaction reports are used by regulators to detect and prevent market abuse. UK branches of EEA firms do not send reports to the FCA, but rather send them to their home regulator, which can then share them between EU regulators. As we will no longer be part of that system, the draft regulations will require UK branches of EEA firms to report to the FCA, in the same way that UK branches of non-EEA firms are required to do. In addition, this instrument provides that firms must continue to report on trades in financial instruments admitted to trading, or traded, on trading venues in the UK and in the EU. That will maintain the existing scope for the monitoring of markets by the FCA and will minimise disruption and adjustment costs for firms.
The Treasury has been working closely with the FCA, the Bank of England and industry bodies—representing large and small firms—in the drafting of these regulations. The Treasury published the instrument in draft, along with an explanatory policy note, on 5 October 2018 to maximise transparency to Parliament, industry and the public, ahead of laying it before Parliament. Regulators and industry bodies have generally been supportive of the provisions in this SI.
To conclude, the Government believe that it is necessary to ensure that MiFID II continues to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope that colleagues will join me in supporting the draft regulations. I commend them to the Committee.
John Glen
I listened carefully to the Opposition’s remarks, and I will try hard to give a thorough response. Before I get into the detail, it is important to set out clearly that this programme of 70 SIs is about ensuring that if there is an outcome that the Government do not want—no deal—we have a comprehensive regime in place; that is something that we are determined to deliver across financial services.
I listened carefully to what the hon. Member for Stalybridge and Hyde and others said about where the debate should take place. I acknowledge that this is complex legislation, but the terms of the European Union (Withdrawal) Act and the Joint Committee on Statutory Instruments say that it is within our powers to conduct the process in this way, in this place. I recognise that that is disputed, but all I can do is draw attention to the Joint Committee’s judgment.
I will need to write to the hon. Gentleman on the issue of inducement, but the point of the European Union (Withdrawal) Act is to maintain the standards that applied while we were in the EU. I reiterate that business decisions are not in my gift as Economic Secretary, but all SIs are approved on the Floor of the House.
A point was made about Keeling schedules. The Treasury will not produce Keeling schedules for anything else. This is undeniably complex legislation. We will produce Keeling schedules in a number of instances. They are internal documents that have not been sufficiently validated for publication, but Parliament decided when it passed the European Union (Withdrawal) Act that powers could be used in that way to prepare us for exit.
On the transitional period being four years, it took approximately four years to develop the detail of the current transparency system and to put in place the systems needed to operate it. The calibration of the current regime is based on EU data. If, in the circumstances following the UK’s exit from the EU, it is not possible or desirable to use such data, the regime will need to be recalibrated to ensure that it achieves its intended effects. That will involve changes to the binding technical standards, the FCA developing the necessary IT infrastructure to operate the regime, and industry having adequate time to implement changes, hence the length of time.
The experience of implementing the current regime taught us that it is necessary to take the time to get things right, rather than rushing complicated policy and operational challenges through. However, the Treasury can end the transitional period at an earlier date if it considers those processes to have been completed, and that the FCA has the ability to run the MiFID II transparency regime before the end of the four-year period.
A point was made about the transitional regime reducing the transparency of trading within the UK, given the FCA’s powers to suspend certain transparency obligations, such as those applying to non-equities. The FCA has the power to suspend specified transparency obligations in respect of certain instruments during the transitional period. For instance, the FCA may suspend pre and post-trading transparency obligations in respect of bonds and structured finance products during the transitional period. It can use those powers only where that would advance the FCA’s integrity objective—and there are other constraints on its use of the powers. It is not intended or envisaged that the FCA would use those powers to effect a general or long-term suspension of transparency requirements in the UK; it would use them to match a suspension of those requirements in the EU. Without those powers, a suspension in the EU could create regulatory arbitrage between the UK and the EU—something that we wish to avoid.
I acknowledge the points made by the hon. Member for Glasgow Central about the costs of regulatory and IT processes and the number of institutions affected—3,300 in the UK and 1,650 in the EEA. Of course, the assessment sets out the one-off costs and the ongoing costs. I accept that it would be preferable not do have to do this, but I point out that those sums would be divided over a quite large number of institutions.
As to the appropriateness of delegation, essentially the decision is made on the appropriate functional expertise. The FCA and the Treasury worked very closely leading up to the publication on 5 October. Firms are supportive, and they seek the continuity and orderly market functioning that are imperative for the City and the economy. I accept overall that the process is not perfect, but we have undertaken it in good faith, to establish a functioning regime in a no-deal situation.
I hope that that answers the questions that have been raised. The Government believe that the regulations are necessary, and I hope that the Committee will support them.
Question put.
Draft Capital Requirements (Amendment) (EU Exit) Regulations 2018
Draft Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018
John Glen Excerpts(7 years, 3 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Capital Requirements (Amendment) (EU Exit) Regulations 2018.
The Chair
With this it will be convenient to consider the draft Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018.
John Glen
It is a pleasure to serve under your chairmanship, Ms Buck. As has been said before, Her Majesty’s Treasury, as part of preparations for the UK’s withdrawal from the EU, is laying statutory instruments under the European Union (Withdrawal) Act 2018 to ensure that there continues to be a functioning legislative and regulatory regime for financial services in the UK in the event of a no-deal scenario. That includes the two SIs we are debating today, which will fix deficiencies in UK law relating to the UK’s prudential regime for credit institutions and for bank resolution. As with other SIs that the Treasury has laid and debated under the 2018 Act, they are designed to provide continuity at the point of exit by maintaining existing legislation, but amending it where necessary to ensure that it works effectively in a no-deal context.
The first SI being considered today concerns the prudential rules that apply to banks, investment firms and building societies under the framework set by the EU capital requirements regulation and capital requirements directive. The second SI relates to the bank recovery and resolution directive, which sets out requirements for ensuring that bank failures can be managed in an orderly way and provides a common EU framework for firm resolution. In a no-deal scenario, the UK would be outside the European economic area and the EU financial services framework. The SIs will make amendments to retained EU law so that the legislation would continue to function effectively in a no-deal scenario.
The draft capital requirements regulations will make amendments to the retained EU capital requirements regulation and the domestic secondary legislation that implemented the EU capital requirements directive. The draft regulations will make the following principal amendments. First, they will make changes to the group consolidation regime for liquidity and capital. Current EU legislation allows EU banking groups to report a single set of figures for their activities across the EU. The SI will amend those requirements, so that they operate at UK level only. That will not affect the application of consolidated capital requirements, which are already calculated and reported on a national basis, but it will introduce an additional layer of liquidity consolidation in the UK, as liquidity is currently consolidated at EU level.
Secondly, the draft capital requirements regulations will remove the preferential capital treatment available for exposures to certain EU institutions and assets, including sovereign debt. For example, the EU capital requirements regulation does not require firms to hold capital for EU sovereign debt, because it rates those exposures with a zero risk weighting. That is to incentivise investment in certain EU asset classes. In line with our general approach, we will not grant the EU unilateral preferential treatment in the absence of an assessment of equivalence after exit day. We would therefore not automatically continue with the regime of preferential capital treatment for EU assets.
The draft capital requirements regulations will also remove the requirement for UK regulators to seek approval from EU institutions for the use of macroprudential tools to deal with systemic risk, including action that may need to be taken in a financial crisis.
Sir Oliver Heald (North East Hertfordshire) (Con)
My understanding is that during the implementation period, we will continue to take the EU laws in this area, so the CRR will be part of our law anyway, and we will look to maintain that position until we reach a new agreement. Is the Minister saying that if we had a no-deal exit, we would do something different and we would not want to retain the position in that way while we negotiated a Canada deal or something of that sort?
John Glen
I am grateful for my right hon. and learned Friend’s intervention. What we would do in a no-deal scenario in respect of CRR II, which is in flight at the moment within the EU, would be to use the Financial Services (Implementation of Legislation) Bill, which came before the House of Lords last week and will hopefully come to the Commons at some point in late January. That would give us discretion on how or whether to implement the file that would then land after our exit from the EU, or part of that file, based on what makes sense for the UK economy. We have listed in that Bill all in-flight files, and we would make a decision on the suitability of its inclusion in UK law at a future point following our exit.
To conclude on the first SI, removing the requirement to seek approval from EU institutions is necessary so that UK regulators are able to continue to exercise the macroprudential functions that Parliament has given them. Effective exercise of those functions is essential to maintaining the stability of the UK financial system.
Moving on to the second statutory instrument, the bank recovery and resolution SI will amend the Banking Act 2009 and related domestic and retained EU legislation, with the following principal amendments. First, the draft regulations will amend the scope of the UK’s third-country resolution recognition framework to include EEA-led resolutions. This will ensure that in a no-deal scenario, the same approach will be followed for EEA countries and other third countries in recognising third-country resolution actions. We have that arrangement now with the USA, for example, and we would have to treat EU countries in the same way, or similarly. The UK’s approach to recognising third-country resolution actions has been and will continue to be consistent with our G20 commitments.
The refusal of the UK to recognise a third-country resolution action is only permitted where the Bank of England and the Treasury are satisfied that one or more statutory grounds for refusal exist. Those grounds are: first, that recognition would have an adverse effect on UK financial stability; secondly, that it is necessary for the Bank of England to achieve one or more of its special resolution objectives; thirdly, that a third-country resolution action treats UK creditors less favourably; fourthly, that recognition would have material fiscal implications for the UK; or fifthly, that recognition would be unlawful under the Human Rights Act 1998.
Secondly, the bank recovery and resolution SI will remove deficient references that require UK regulators to follow the specific operational and procedural mechanisms set out in the bank recovery and resolution directive to co-operate with EEA authorities. The removal of these references will not, however, prevent UK regulators from choosing to co-operate with their EEA counterparts after exit. UK regulators will remain able to share information with EEA authorities in the same way that they currently do with authorities in third countries, such as the United States. Additionally, the UK will continue to participate in international crisis management groups, which enhance co-operation between home and host authorities of systemically important banks. Finally, the draft regulations address deficient cross-references to the bank recovery and resolution directive in UK legislation, and ensure that delegated regulations retained by the European Union (Withdrawal) Act continue to be workable following exit.
In line with the approach the Government are taking across all files laid under the European Union (Withdrawal) Act, both SIs transfer a number of functions currently within the remit of EU authorities, in particular the European Banking Authority and the European Securities and Markets Authority, to the relevant UK bodies. Those functions, such as the development of detailed technical rules on certain provisions of the regulations, will now be carried out by appropriate UK authorities, namely the Financial Conduct Authority, the Prudential Regulation Authority or the Bank of England. This is appropriate, given the regulators’ expertise in prudential and resolution policy and in the supervision of global firms. The regulators are currently undertaking public consultations on the changes they propose to make to binding technical standards. The SIs further confer regulation-making powers on the Treasury to replace delegated powers that were previously conferred on the European Commission, in line with the approach taken across other Treasury legislation.
To summarise, the Government believe that both SIs are needed to ensure that the regulatory regime applying to banks, building societies and investment firms works effectively if the UK leaves the EU without a deal or an implementation period. I hope that colleagues across the Committee will join me in supporting the regulations, which I commend to the Committee.
John Glen
I thank the hon. Members for Stalybridge and Hyde and for Glasgow Central for their questions, and acknowledge concerns about the rigour of the process. All I can say to the Committee is that I am doing everything I can to ensure that it is as rigorous as possible.
For both statutory instruments, there was significant engagement with industry and the regulators. The draft Capital Requirements (Amendment) (EU Exit) Regulations 2018 were laid on 21 August, with an explanatory note seeking to draw out concerns. The draft Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 were laid on 8 October for consideration.
The hon. Member for Stalybridge and Hyde accurately characterised the global drivers of the regulations. I want to address the specific concern he raised about the directive on the change in capital requirements consequent on our leaving in a no-deal scenario. He is right to say that the capital requirements regulation specifies how much capital and liquidity firms must hold against different types of exposures. He is right that certain EU assets are subject to a 0% risk weight, meaning that no capital needs to be held against those exposures. However, in a no-deal scenario, the UK will treat the EU as a third country and vice versa.
Without an assessment of equivalence between the EU countries and the UK, the EU would end preferential capital treatment for UK exposures, so it has been Government policy not to grant the EU unilateral preferential treatment in the absence of equivalence, and the SI makes the appropriate amendments to ensure that EU sovereign debt is no longer treated more favourably than other assets of a similar nature.
John Glen
Perhaps I may just make the next point, and see whether it addresses the hon. Gentleman’s concern.
EU sovereign debt will none the less retain the low risk ratings that sovereign debt typically attracts. In addition, we are introducing transitional powers for the regulators to phase in the new requirements. That is up to two years, mitigating much of the impact.
Jonathan Reynolds
I am grateful for that clarification, and for the second point in particular. I understand the political case for not having a unilateral preferential regime that is not reciprocated by the EU. However, when we think about all the market volatility and stress that no deal gives us, to reclassify the capital adequacy of UK resident banks feels quite difficult, even if it is phased in over a period of two years, which is not that significant to be honest.
Mr Richard Bacon (South Norfolk) (Con)
May I say how delighted I am that the Government are taking an approach that allows discretion? That was one enormous problem at the time of the financial crash, which was also a sovereign debt crisis. The hon. Member for Stalybridge and Hyde forgot to mention who was in charge at the time. That crisis was exemplified perhaps most clearly by Gordon Brown standing outside the shiny new Lehman Brothers office when it opened, shortly before the crash. The capital regime was so inadequate at the time under that regime—
Mr Bacon
Yes indeed. Part of the problem with the sovereign debt crisis—perhaps the biggest problem—was the equal treatment of lots of different kinds of sovereign assets, such as Greek Government bonds, when in fact they were nothing like equal. That led to the distortion that helped to cause the problem.
John Glen
The Government and regulators are clear on the imperative to work closely with industry to ensure that change is not disruptive for firms. UK regulators will be given the ability to phase changes in over the next two years. We will treat all third countries similarly, which means, to answer the point made by the hon. Member for Glasgow Central, continuing to co-operate through international crisis management groups to plan and resolve issues with cross-border firms. The UK’s participation, and enthusiasm to participate, in such forums will be undiminished. Nothing in the draft regulations will change how the UK co-operates with third countries.
The hon. Member for Stalybridge and Hyde raised the bank recovery and resolution SI and concerns around the appearance of disengagement. There is no intention whatsoever for the UK Government or regulators to be isolated in any way. We will continue to participate. However, these steps are necessary to domesticise our regulations in the context of a no-deal scenario.
The hon. Member for Glasgow Central has on several occasions, and perfectly sensibly, mentioned the regulatory burden and additional costs. She is right to draw attention to the £1.7 million assessment for the capital requirements SI and the £400,000 for the bank recovery SI. I point out to her that those are one-off familiarisation costs. For the 1,000 companies she mentioned, they are one-off costs of around £1,700 and £1,200 for some of the very biggest institutions. I accept that it would be desirable for them to not have those costs, but it will be necessary in a situation in which we do not secure a deal.
Sir Oliver Heald
If we were to import all European law into our law in a form that was ineffective and hopeless, would there be costs to the City and to our financial institutions of having an ineffective system? It is all very well for the hon. Member for Glasgow Central to criticise the cost of the regulations, but without them we would not have a system that works.
Alison Thewliss
Will the Minister tell me a bit more about how the costs have been communicated to the 1,009 businesses and the 350 businesses that will be affected?
John Glen
As I mentioned, the regulations were laid on 21 August and 8 October. There was engagement with industry during that intervening period, and those costs will have been made clear during that time. We have tried to be as transparent as possible and to engage as closely as possible with different trade bodies and, through them, with firms, so that there is an understanding of the costs.
The Government believe that the regulations are needed to ensure that prudential and resolution regimes applying to banks, building societies and investment firms work effectively if the UK leaves the EU without a deal or an implementation period. We do not want to lose the progress in establishing these regimes that we have made over the last 10 years. I hope the Committee has found this sitting informative and will join me in supporting the regulations.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Capital Requirements (Amendment) (EU Exit) Regulations 2018.
Draft Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018
Resolved,
That the Committee has considered the draft Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018.—(John Glen.)
Draft Privacy and Electronic Communications (Amendment) (No. 2) Regulations 2018
John Glen Excerpts(7 years, 3 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Privacy and Electronic Communications (Amendment) (No. 2) Regulations 2018.
It is a pleasure to serve under your chairmanship again, Mr Austin. For most people in the UK, pensions are their largest financial asset, but that, unfortunately, makes pensions an attractive target for fraudsters. Pension scams can have a significant and devastating impact on people’s lives. Scams can lead people to face retirement with a greatly reduced income and unable to build their pension savings back up.
From recent debates in the other place, I am aware of the strength of feeling on tackling cold calling. As well as being a nuisance, cold calling is the most common method used to initiate pension fraud. According to Citizens Advice’s most recent statistics, 97% of pension fraud cases brought to it originated from a cold call. That is why the Government are taking action to ban pensions cold calling.
Before I discuss the regulations, I will briefly explain how the current system works. The Privacy and Electronic Communications (EC Directive) Regulations 2003—PECR—permit firms to cold call consumers for marketing purposes, subject to a couple of exceptions, which are where the consumer has notified the caller that they do not wish to receive such calls, or has listed their number on the telephone preference service. The current regime, therefore, permits cold calling unless a consumer has proactively opted out.
The purpose of these regulations is to amend PECR in order to much more tightly restrict firms from cold calling consumers about their pensions. The regulations do that by creating an explicit opt-in regime that prohibits all such calls unless one of two tightly drafted exemptions applies and the caller is authorised by the Financial Conduct Authority or is the trustee or manager of a pensions scheme. The exemptions mean that the ban does not have an unnecessary or disproportionate impact on legitimate activities.
It is important to highlight that the exemptions do not apply to so-called introducers, which are the marketing firms that seek to establish leads that they then pass to financial advice firms. Introducers undertake the majority of pensions cold calling. Under the proposed regulations, there are no circumstances under which introducers are permitted to call consumers about their pensions.
The first exemption applies where the consumer has given consent to the caller to receive direct marketing calls about their pension. It has been included so that consumers can seek information on pension products. The regulations are fully in line with the general data protection regulation, which sets a high standard for consent. Consent must be actively given—for example, the use of pre-ticked boxes is not permitted.
The second exemption applies where the consumer has an existing client relationship with the caller, such that they would expect to receive such calls. It means that individuals can receive information about investment opportunities from firms with which they have a client relationship.
To help to future-proof the regulations, the definition of “direct marketing in relation to pension schemes” has been drafted widely, which will help to ensure that we capture new activities that may evolve in future, as well as activities that we know scammers already use.
Martin Whitfield (East Lothian) (Lab)
On the changing approach taken by the scam companies, will the regulations cover the use of texting and contact through messaging? I know from constituents’ experiences that a response by way of text is deemed to be consent and they then get the phone call.
John Glen
I am grateful to the hon. Gentleman for making that point. The pensions cold calling ban does not include direct marketing via texts and emails, because they are already closely restricted under PECR. Under regulation 22, texts and emails are restricted unless consumers have given consent. That is an opt-in regime.
Martin Whitfield
To pursue that point, is the Minister saying that a response to a text is not deemed to be consent for a subsequent phone call?
John Glen
Those regulations deal with that matter; I am dealing today with the banning of cold calling. I will move on to enforcement, and then I will be happy to respond.
The ban will be enforced by the Information Commissioner’s Office, a world leader in the protection of information rights. The ICO’s tough enforcement powers include fining offenders up to £500,000. I am also pleased to say that from Monday next week, 17 December, directors of companies making unlawful calls may also be personally liable for penalties of up to £500,000.
Patricia Gibson (North Ayrshire and Arran) (SNP)
The Minister says that named directors “may” be liable. Will he give us clarity on what “may” means in that context?
John Glen
What I mean is that there is scope for them to be fined up to £500,000, according to the breach that they have committed. That will be a matter for the ICO to adjudicate.
I would like to take this opportunity to thank industry and charity stakeholders for their engagement with the consultation over the summer. As a consequence, I am pleased to say that we have a set of regulations that our stakeholders can get behind. I emphasise that the Government do not consider this ban to be “job done”. We understand that scammers are skilled at adapting to circumstances and that scams are constantly evolving. As such, we will continue our efforts to understand and take action on future scams.
Project Bloom, a cross-Government taskforce established in 2012 and currently led by the Pensions Regulator, continues its work to tackle scams and identify emerging threats. In addition, the Government are committed to limiting the statutory right to transfer, to help prevent funds transferring from occupational pension schemes into fraudulent ones.
In conclusion, the Government believe that the proposed legislation is necessary to help protect consumers from pension fraudsters, and I hope colleagues will join me in supporting the regulations, which I commend to the Committee.
Anneliese Dodds (Oxford East) (Lab/Co-op)
I am grateful to the Minister for explaining the rationale for the measures. Of course, we have talked in previous Committees about other statutory instruments arising out of them. This is a significant problem; I understand that more than 11 million pensioners, in particular, are being targeted annually by cold callers, with fraudsters making 250 million calls a year, which is the equivalent of eight per second. That is a huge problem, and behind those figures there is a significant human impact on some vulnerable people.
As the Minister will be aware, during the Committee stage of the Financial Guidance and Claims Act 2018 the Labour party called for the FCA, rather than the ICO, to be given functions in respect of the ban on unsolicited direct marketing relating to pensions. The FCA has much stronger powers than the ICO and can strike off members who contravene the rules. We also called for an offence to be created for the use of information obtained through cold calling.
Will the Minister explain his response to those points? I have looked through the accompanying material and it is not crystal clear to me which body will be responsible for enforcing the ban, or whether the respective powers of the FCA, as against those of the ICO, have been taken into account in this determination.
I am concerned about the restricted powers of the ICO. I am sure that the Minister is aware of the views of various representative bodies. In particular, the Fair Telecoms campaign has intimated that the ICO has restricted means of ensuring compliance. I recall sitting on a previous Committee examining delegated legislation related to other parts of the Act, where we discussed transferring authority to the FCA precisely because it is a more powerful and authoritative body. It would be useful to hear more about that.
Secondly, it would have been helpful to ban the use of information derived from cold calls. That would have resulted in firms that provide financial services covered by the FCA being banned from using information gathered by introducers, thereby breaking that part of the chain. I know that that idea was not accepted by the Government, but has the Minister considered other means of dissuading such forward use of that information?
Thirdly, perhaps I have not got to grips with the relevant part of the legislation, but it is not clear to me exactly who the draft regulations will cover with respect to the telephone preference service register. The Fair Telecoms campaign maintains:
“This change in regulation will only affect the behaviour of callers who are currently checking numbers on the TPS register before making calls. For those who do not it simply adds to the cases that may be the subject of action by the ICO, rather than making any significant change.
Targets with their numbers on the TPS—the basis for many of the statistics given about the volume of calls alleged to be covered—are not affected in any way by this measure. It is understood that 80% of UK households have their number recorded on the TPS. At best, this measure can only affect the remaining 20%.”
Will the Minister clarify whether the draft regulations are focused on those not covered by the telephone preference service? If so, is it the Government’s view that the service is sufficient? It would be helpful to hear the Government’s thinking on the matter.
Fourthly, the Minister states that the draft regulations are in line with GDPR requirements, but some have suggested that their consent provisions are weaker than those in the GDPR. It would be helpful to understand where the exact language used about consent in the draft regulations has come from and why it is formally different from the language used in the GDPR.
Fifthly, as I understand it the regulations are drafted to cover only cases in which there is specific reference to
“funds held, or previously held, in an occupational pension scheme or a personal pension scheme”.
Cases in which a caller fails to make specific reference to the source of the funds that may be used for an unwise investment will therefore not be covered. Is the Department aware of that potential loophole? We can all imagine a particularly inventive and devious caller simply manipulating their sales script to comply with the letter but not the spirit of the draft regulations by talking in general terms without referring to a specific existing personal or occupational pension scheme.
Finally, may I push a little harder on the issue raised by my hon. Friend the Member for East Lothian? Would a response to a text message that was legal under PECR be sufficient to enable future cold calls within this regime?
Anneliese Dodds
The Minister shakes his head, helpfully. I will take that as a no, but it would be great to get a response to my other questions.
Patricia Gibson
I welcome the proposals, as far as they go. The Minister may be aware that I have long campaigned against the whole culture of cold calling on the grounds of the distress, disturbance and alarm that it causes and the door that it leaves gapingly open to scammers of all kinds.
I was interested to hear the Minister say that the UK Government will implement my Bill to make named directors responsible, the Unsolicited Marketing Communications (Company Directors) Bill—in September, I think he said. The Government exactly reprinted and resurrected my Bill in the name of one of their own Back Benchers; that was ironic, given that one of the Bill’s goals was to deal with scammers, but its implementation is very welcome. However, there is a very serious point to be made.
If all consumers are to receive welcome protection from cold callers on receipt of their pension, surely the Government must concede that cold calling, in and of itself, leaves all consumers open to fraud or heavy-handed sales techniques. So far, at least, it seems that protection from cold calling is not to be extended to all consumers. I know that that issue is not in the Minister’s remit today, but it is an interesting point. Will he explain why the Government are not extending that protection? There has been a delay of more than two years in the important policy of using named directors’ responsibility to protect not only those with pension pots, but all consumers.
I welcome the common-sense approach outlined by the Minister under which the consumer will be able to receive marketing calls about their pension if they have explicitly consented to that. Of course, explicit consent cannot mean just ticking a tiny wee box at the bottom of a page of very small writing; it has to be more robust than that. People should not opt in to receive pension marketing calls by accident. Opting in must be clear and explicit. What assurances can the Minister give about that?
We are told that the general data protection regulation
“sets a high standard for consent”.
Will the Minister give us more detail about what that high standard looks like and what it involves?
I have concerns about the ICO being able to take action against organisations that contravene the regulations. We know that, in the past, companies that faced heavy penalties from the ICO for various breaches simply closed down and reopened with the same staff and premises under a different name. That is why named director responsibility matters so much. I welcome the Minister’s comment that it will be enshrined in law in September—
Patricia Gibson
Excellent. I am very pleased to hear what the Minister has to say, and I welcome that. I have waited a long time for it. There has been a delay over named director responsibility. We want it not just for people with big pension pots, important as they are, but for all consumers in all industries. The two-year delay was a wasted opportunity. I wonder how many people have been swindled while we have waited.
The ICO can take any enforcement action it likes, but without named director responsibility it is a paper exercise because companies simply phoenix and evade their responsibilities. Penalty notices without named director responsibly are pie in the sky; they will not deter scammers.
I welcome these measures, and I am very pleased to hear about the December deadline that the Minister set out. I think he understands my reservations about this not being extended across every industry. For pension pots, this will stop scammers calling people without fear of reprisal and, when they receive a notice of penalty, simply putting it in the bin because it does not mean anything.
I urge the Minister to go back to his colleagues and make the case for real protection for all consumers in all industries. The Government supported named director responsibility for this measure, but we need to stop scammers across the board, not just in the area of pensions.
John Glen
I thank the hon. Members for Oxford East and for North Ayrshire and Arran for their points, which I will try to respond to as fully as I can. I will start with the last point, about the delay. All I can say is that, since I have been in office, this is something I have focused on. It came out of the legislation that was introduced in the spring. I am pleased that we are at this point. I cannot account for the delay fully, but I am glad we are at this point today.
The hon. Member for East Lothian asked whether, if someone has opted into receiving text messages, they are opting into receiving calls. The answer is no, because the GDPR requires granular consent to something clear and specific. Consent to receiving a text is not consent to receiving a call.
Martin Whitfield
Just to clarify, the experience that I am aware of is that a text message was used, which itself invited consent. The caller used the consent given by the response to the text message to phone again. The measure talks about the specific line that the caller has been authorised to use, but I wonder whether the Minister understands that, in the regulations, the consent to approach a person has to be for the telephone number/line, in which case the text messaging system would not be consent at any time.
John Glen
As I say, text messages are not the subject of these regulations, which relate to the PECR. I am relying on box notes to clarify the point. I will have to take this away and write to the hon. Gentleman. I understand the specific example that he has raised, and I will not leave him in any ambiguity on that point. Currently, my understanding is that one cannot opt in to receive cold calling by text message, but I will write to him as soon as I can on that matter.
The hon. Member for Oxford East raised issues relating to the ICO and the FCA. I will not rehearse those points again, as we have already have discussed them, but I will respond to the concern about the effectiveness of the ICO as an enforcement body. The ICO will enforce restrictions on unsolicited electronic direct marketing under PECR, and it is appropriate that the planned ban is enforced through that existing framework. As we have discussed, the ICO has tough enforcement powers, including a fine of up to £500,000. There would be a risk of confusing consumers and industry if we had different cold calling enforcement regimes for different sectors. If the Committee agrees to introduce the ban, the FCA will work closely with the ICO where breaches of the rules by FCA-authorised firms are identified and, crucially, the ICO will be able to enforce bans on introducers that are outside the FCA’s remit, because they are not FCA-authorised firms.
The hon. Member for Oxford East also talked about the telephone preference service. This statutory instrument would change it from an opt-out to an opt-in regime, which makes restrictions on pensions cold calling much tighter. In addition, although not all consumers are aware of the TPS, those listed on it would still be protected by the ban.
The ICO’s guidance is indeed clear that consent under PECR is to be understood in accordance with GDPR. Although the FCA is not prohibiting the use of personal data collected by third parties through cold calling, the Government and the FCA will keep the proposal under review as the effectiveness of the ban is monitored. An authorised firm that accepts business from an introducer must meet the FCA’s regulatory requirements, including carrying out due diligence on the introducers they transact with. If customers are given unsuitable advice by an introducer, the authorised firm may be held responsible and subject to regulatory action. The FCA has alerted investment advisers and authorised firms to their responsibilities when accepting business from unauthorised introducers or lead generators. Organisations are already required to process or handle personal data in accordance with the Data Protection Act 2018 and GDPR.
I assure the hon. Members for Oxford East and for North Ayrshire and Arran, and the Committee as a whole, that the Government are engaged in an ongoing process. As I said in my opening remarks, this is not “job done”. I recognise that there are a range of concerns from consumer organisations and different parts of the industry about whether further restrictions or bans should be in place. One of the reasons for the draft instrument is that, in future, we can introduce additional restrictions more speedily should they be required.
Kerry McCarthy (Bristol East) (Lab)
On a slightly different topic, in 2015, a constituent of mine, 92-year-old Olive Cook, committed suicide by throwing herself over the Avon gorge. That hit the national headlines because she had been inundated with calls from charities. She was on the databases of 99 different charities, and a lot of them would trade in her details. To stop cold calling now, has the Minister considered the lessons that we tried to learn and the work of the Charity Commission to try to stop cold calling following that incident?
John Glen
I am extremely sorry to be reminded of that case. The regulations introduce a ban on pensions cold calling, but I would be happy to look into the matter and see what the collective conclusion of Government was on that particular case and its implications. I am happy to examine that in the context of my previous remarks.
The hon. Member for North Ayrshire and Arran spoke about a more comprehensive cold calling ban. As I tried to indicate, pensions cold calling is a special case where levels of consumer detriment are particularly high. The Government are committed to taking action. I accept that, for some, action has not been taken as quickly as it could have been, but a balance has to be struck between ensuring that consumers are adequately protected and providing the right conditions for legitimate direct marketing industry to operate.
Patricia Gibson
Nobody wants to stop businesses going about their lawful work, but if we had named director responsibility across every sector, that would allow legitimate businesses to thrive, while the scammers and the cowboys would be the ones to suffer.
John Glen
I am happy to look at appropriate additional measures, in the light of the evidence presented. I would like to draw the Committee’s attention, for example, to situations where utilities companies use calls to prospects to secure a switch to their service, or where the publishing industry uses calls to consumers who have indicated some affinity with the brand. Many national newspapers and magazine publishing houses use that approach. I am not, in this response, indicating that the Government are closed off to any further moves, but it has to be done on an evidential basis.
Patricia Gibson
The examples that the Minister has given are of legitimate businesses going about their normal work. We are not talking about that sort of business; we are talking about the ones that phone up, pester, scare, disturb, annoy and scam people.
John Glen
Fraud is fraud, and with actionable fraud the police can be contacted in such circumstances. With respect to the cold calling mechanism, I have said all I can on that. The Government are open on the basis of evidence to move forward.
The hon. Lady also raised the issue of how the Government will ensure that consumers do not accidentally give consent through ticking a box on a form. To give clarity on what GDPR sets out, it is a high standard of consent, requiring a positive opt in. Any default method, such as a pre-ticked box, does not constitute consent under GDPR, as I made clear in my opening remarks. Guidance to firms on complying with GDPR highlights that that request for consent must be prominently displayed, clear and specific, and separate from the terms and conditions.
I hope that that deals—
Anneliese Dodds
I am sorry to interrupt the Minister, who has been generous and helpful in his responses. I have one question remaining, which might fit into the rubric of what he has said about Government being open to further tightening, if necessary. I have handed over my speaking notes, but I recall that the legislation refers specifically to occupational or other pension schemes, and how a scammer or somebody selling inappropriately could use general talk of pensions to get into that conversation, and thus creatively comply. Will the Minister’s Department look at that carefully?
John Glen
I am clear that this is about pensions cold calling. I understand what the hon. Lady is saying about loopholes, in the sense that that conversation could hide that intent. It would be appropriate for me to reflect on that and write to the hon. Lady and the Committee. She raises a fair point, and the last thing we want to do is leave such ambiguity out there.
To conclude, this legislation will make a real impact in tackling pensions scams, deterring pensions cold callers by making their actions illegal and signalling to consumers that legitimate companies will not cold call them about their pensions. I hope the Committee will have found the sitting informative and will join me in supporting the regulations.
Question put and agreed to.
Oral Answers to Questions
John Glen Excerpts(7 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
The Economic Secretary to the Treasury (John Glen)
It is Government policy to explore options for the sale of corporate and financial assets where there is no longer a policy reason to retain them and value for money can be secured for taxpayers. All asset sales are subject to a rigorous value-for-money assessment before they can go ahead.
Meg Hillier
In the Government’s pursuit of paying down the debt, they are at risk of selling off assets that could be of benefit to the public in the long term. Although the Economic Secretary talks about the modelling, we know from our work on the Public Accounts Committee that the model is very debatable in exactly what the benefit and disbenefit will be to the public in the long term. Will he commit to assessing every upcoming sale rigorously and making sure that the Treasury is learning, so that it is not selling off the family silver and taking things away from the British public that belong to them?
John Glen
I read the report published by the hon. Lady’s Committee, and I recognise the need for a rigorous value-for-money assessment of every sale. That is why, with respect to student loans, which was the subject of the Committee’s last report, I was pleased that the NAO said that
“the sale achieved prices at the upper end of these estimates”
and that
“the transaction…achieved value for money.”
The Government will continue to be guided by that in every transaction they undertake.
Michael Fabricant (Lichfield) (Con)
Julie Elliott (Sunderland Central) (Lab)
The Economic Secretary to the Treasury (John Glen)
The Government have undertaken analysis to understand the impact of different EU exit scenarios on public sector net borrowing, which is a UK-wide metric, and we have published an assessment of the economic impact of EU exit on different sectors. For example, the analysis shows that manufacturing sectors are estimated to have a significantly higher output in the White Paper scenario than under the no-deal scenario.
Julie Elliott
I thank the Minister for that response, but is it not true that Office for National Statistics figures in the last few months have shown a 0.9% decline in manufacturing and a worrying 6.6% decline in the automotive sector? What are the Chancellor and the Minister doing to provide certainty to businesses in this area about the impact of this Government’s chaotic Brexit policy?
John Glen
I am grateful for the hon. Lady’s question. The automotive issue is related to other factors, including diesel. The Government are focused on investing in infrastructure in the north-east. I think that she would be very pleased to know that since 2010, we have had 66,000 new jobs in the north-east as a consequence of more business growth.
Sir Desmond Swayne (New Forest West) (Con)
I can introduce my hon. Friend to manufacturers who find it significantly easier to export to the rest of the world than to the EU. Is there a lesson in that?
John Glen
I think my right hon. Friend is right to say that the Treasury is looking at growth opportunities across the whole world, and that is why the Chancellor set out in his Mansion House speech the aspiration to have global financial partnerships that make the best of those opportunities.
Mr Speaker
I am perfectly open to the hon. Member for Bedford (Mohammad Yasin) coming in on this question if he is minded to do so, but I am not psychic, so I cannot anticipate his wishes. He needs to stand if he wishes to do so.
John Glen
There is considerable analysis from the Bank of England and the Government’s analysis of the long-term effect of the different options, with a significant reference paper demonstrating the different scenarios and what lies behind them. The Government are seeking to deliver on the decision of the British people in the referendum in a way that maximises the opportunities for the British economy.
Jack Brereton (Stoke-on-Trent South) (Con)
Sandy Martin (Ipswich) (Lab)
The Economic Secretary to the Treasury (John Glen)
The City is very content with the deal we have on financial services, under which we would seek and secure enhanced equivalence decisions six months before the end of the implementation period, and the degree of dialogue with and support from the City has been constant throughout.
Stephen Kerr (Stirling) (Con)
Given the £900 million of additional funding for the Scottish block grant announced in the Budget, what discussions has the Chancellor had with the SNP Scottish Government about following his example and cutting business rates?
John Glen
Following on from the Budget, we have a series of measures to assist credit unions to expand their role in delivering affordable credit across communities. We have a scheme of work over the next three months to pilot interest-free loans and prize-linked saving schemes, to help credit unions to grow as they have been doing in recent years.
Joseph Johnson (Orpington) (Con)
What do the Government make of the Centre for European Reform’s report this week that warned of a 60% fall in UK financial services exports to the EU in the event that we lose access to the single market and put a free trade agreement in its place?
Mr Jim Cunningham (Coventry South) (Lab)
What impact will Brexit have on our universities, particularly in Coventry? More importantly, our universities do projects with Europe and also work closely with the manufacturing industry, including companies such as Jaguar Land Rover. What are we going to do about that?
Kevin Hollinrake (Thirsk and Malton) (Con)
Thank you, Mr Speaker. Banks that are guilty of the scandalous mistreatment of small businesses are allowed to design and oversee their own redress schemes, including determining the level of compensation paid to the victims. Does the Minister agree that Parliament and the regulator should take control of those processes?
John Glen
I have always said that the banks need to do more to restore their relationship with SMEs, and I welcome the scheme that UK Finance has announced to address unresolved historical complaints. I look forward to meeting my hon. Friend next week, with the Chancellor, to discuss the Government’s position.
Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)
The Inverness and Highlands city region deal was agreed a little while ago, and that is very good news. A whole shedload of money has been spent on Inverness—well done, Inverness!—but precious little has been spent on the outlying areas, including Wick and Thurso. That is surely not in the spirit of the deal. Should there not be an audit of this kind of deal in future?
Ruth George (High Peak) (Lab)
In the next two months, the Royal Bank of Scotland will close all but 56 branches in cities across England, leaving banking deserts in towns and rural areas like mine. What is the Chancellor doing to use the Government’s shareholding to exert public pressure on RBS and ensure that we have no banking deserts?
Sir Oliver Heald (North East Hertfordshire) (Con)
Is my right hon. Friend aware that one of the most successful companies in our country, Johnson Matthey in my constituency, is committed to having a fair-deal, not a no-deal Brexit because it feels that it is vital that there should be an orderly retreat, not chaos? Does he agree that the Prime Minister’s deal would achieve that?
Anti-money Laundering and Counter-terrorism Financing regime
John Glen Excerpts(7 years, 3 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
The UK is one of the world’s largest and most open economies, and a leading global financial centre. That brings it with the heightened risk of illicit financial flows from money laundering and terrorist financing. The Government are committed to tackling the threat that this presents to our security and prosperity. The Government have taken robust action over recent years to clamp down on illicit finance, protecting our citizens and helping legitimate businesses to thrive.
The Financial Action Task Force (FATF) is the global standard setter for anti-money laundering and counter-terrorist financing (AML/CTF). The FATF published its mutual evaluation report of the United Kingdom on Friday 7 December. The report recognises that the UK’s AML/CTF regime is the strongest of the over 60 countries assessed by FATF and its regional bodies to date.
The UK received the highest rating possible in four out of the 11 areas of the report, and received a rating of “substantial” in a further four areas. In particular, the report highlights the UK’s efforts on:
Taking significant steps to understand and coordinate the UK’s response to the threat of illicit finance, including publishing two national risk assessments in 2015 and 2017;
Working with international partners to tackle illicit finance, through a strong legal framework and a liaison network spanning over 160 jurisdictions;
Aggressively investigating and prosecuting money laundering, with over 1,400 convictions a year, and adopting new tools such as unexplained wealth orders;
Using all available measures to disrupt terrorist financing, including criminal justice measures, confiscating funds, and financial sanctions;
Preventing the misuse of companies and trusts, and acting as a global leader by adopting a public register of company beneficial ownership and a register of trusts with tax consequences;
Promoting effective global use and implementation of financial sanctions against terrorists and against proliferation of weapons of mass destruction;
The Government recognise that there is more to be done and is progressing with a series of measures to redouble its fight against economic crime.
The National Economic Crime Centre (NECC), housed within the National Crime Agency, has recently been launched. Tasked with co-ordinating the national response to economic crime, the NECC will ensure operations achieve the greatest sustained impact on threats the UK faces, and will lead a new approach to economic crime in the UK.
In line with this, the UK will take forward its ambitious reform of the suspicious activity reporting regime. This will provide an improved IT system to help the UK’s Financial Intelligence Unit (UKFIU) process, analyse and distribute the nearly 500,000 SARs received annually by UKFIU, and will also drive up the quality and use of SARs across the UK’s system. The NCA is increasing the staffing of the UKFIU by more than 30% this year, with further increases envisaged in future years.
The Government plan to legislate in 2019 to introduce a register of beneficial ownership for overseas entities which own or purchase UK property, which is being developed by the Department for Business, Energy and Industrial Strategy (BEIS). The Government also plan to take further action to mitigate the risks presented by the misuse of limited partnerships, in line with the consultation response published today by BEIS. In addition, BEIS will look further at controls over who registers companies in the UK, what information they have to provide, and how assurance is provided over that information.
The 2017 National Risk Assessment noted the steps that UK supervisors are taking to strengthen their approaches and collaboration in the fight against illicit finance. Complementing this ongoing work, the Government launched the office for professional body AML supervision (OPBAS) earlier this year, which will continue its work with supervisors to help improve standards and consistency across the UK’s regime.
The FATF report underlines where more work can be done and will help to focus these efforts over the coming years. The Government are considering the recommendations in the report and will publish their response to these in due course.
A copy of the report has been deposited in the Libraries of both House.
[HCWS1162]