Draft Uncertificated Securities (Amendment and EU Exit) Regulations 2019

First, the draft regulations make amendments to ensure that the USRs align with both the EU regulation and the UK implementing legislation concerning the CSDR. That includes authorisation and recognition of CSDs and article 49 of the CSDR. Article 49 allows issuers the right to issue securities into a CSD in any European economic area member state. Accordingly, amendments have been made to ensure that no provisions in the USRs are incompatible with that right. By removing the duplication between CSDR and USR requirements for operators of relevant systems, the instrument provides clarity to the industry in the area. Further, USR operators now gain operator status by virtue of gaining authorised CSD, EEA CSD or third-country CSD status for CSDR purposes, not via the USR recognition regime, which will be revoked by this SI.

Secondly, the SI will provide transitional provisions for UK operators of systems that were approved under the USRs before 30 March 2017, when the period for CSDs to apply for authorisation or recognition under the CSDR began. That transitional power ensures that operators can continue to operate under the previous USR regime, pending their authorisation or recognition as a CSD under the EU CSDR regime. The SI also inserts a provision into the UK’s Central Securities Depositories Regulations 2014 that grants the Bank of England the power to charge fees to third-country CSDs. That is considered necessary in relation to its new role in recognising third-country CSDs following exit day. That role was granted by the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018, which have been agreed by this House.

Finally, the draft regulations amend article 15 of the EU short selling regulation to change its scope from the EU to the UK. The change ensures legal certainty on the scope of that provision after exit day. To maximise transparency, the Treasury has worked closely on the instrument with the Financial Conduct Authority, the Bank of England and industry. The Treasury consulted on changes to the uncertificated securities regulations as part of implementing the CSDR in 2015, and undertook an informal consultation with industry in October 2018. The current form of the instrument, which includes EU exit changes, was laid on 17 January 2019.

Provisions relating to the consultation are dealt with in parts 1 to 4. Part 5 of the instrument deals with the EU exit changes.

We need to get to that cumulative effect.

The hon. Member for North East Hampshire made an interesting point about the fees and the powers going to the Bank of England. I have raised the issue of fees before, and it would be good to get more clarity on the scale, size, scope and application of the fees and how they would work. It seems that here and in all our other financial services SIs it is the Bank of England, the FCA and other bodies that are getting powers, not Parliament, which, as I am sure he would agree, is barely taking back control. I am sure that is not his intention with Brexit.

I acknowledge the broader points made by all three Members about the Bank of England’s fee-raising powers. I will evaluate thoroughly what has been said, and where I can bring greater clarity following discussion with officials, I will write to the Committee if that is appropriate.

The Government believe that the proposed legislation is necessary to ensure the smooth functioning of financial markets in the UK if it leaves the EU without a deal or an implementation period. Relevant parts of this SI are also needed in any scenario to ensure the effective functioning of the CSDR. I hope my comments clarify matters sufficiently and that the Committee will be able to support these regulations.