Financial Services (Implementation of Legislation) Bill [HL]

Report

Clause 1: Power in respect of EU financial services legislation with pre-exit origins

Amendment 1

1: Clause 1, page 1, line 9, leave out from “appropriate” to end of line 11 and insert— “(1A) In subsection (1)(b) “adjustments”—(a) in relation to legislation mentioned in subsection (2)(a), (b), (c), (d) or (f), means provision to mitigate or remedy deficiencies in the legislation arising from the withdrawal of the United Kingdom from the EU, and(b) in relation to legislation mentioned in subsection (2)(e) or (g), means changes to reflect, or facilitate the transition to, the United Kingdom’s new position outside the EU, but does not include changes that result in provision whose effect is different in a major way from that of the legislation.”

My Lords, I thank all noble Lords for their engagement in this Bill not just in Committee on 8 January, when we had an excellent session looking at the Bill to see how it could be strengthened, but also when we followed that up in various interactions with Peers in the gap after that. There was a meeting on 22 January in which we shared some of the ideas at that point, and that conversation has continued. I place on record our gratitude particularly to the noble Lords, Lord Davies and Lord Tunnicliffe, but also to the noble Lord, Lord Sharkey, the noble Baronesses, Lady Bowles and Lady Kramer, and to my noble friends Lord Hodgson and Lord Leigh for their interaction. I also thank the noble and learned Lord, Lord Judge, for his impromptu legal advice in Committee.

Amendment 1 has been grouped with an amendment in the name of the noble Lord, Lord Davies, and the convention is that I cannot pre-empt what he will say. I will listen to him very carefully, and will simply move my amendment at this stage and address the concerns and issues raised in the noble Lord’s amendment at the end.

Amendment 1 is designed to perform two functions. The first change, as set out in the proposed new subsection (1A)(a), is in response to a recommendation by the Delegated Powers and Regulatory Reform Committee—I again place on record my thanks and appreciation to it for its scrutiny, published in the 42nd report of that committee, under the chairmanship of my noble friend Lord Blencathra. In its report, the committee noted that, for those files listed in the Schedule which are still in negotiation, the justification for the power to adjust is that it is not now possible to know what the final form of that legislation will be. However, the DPRRC noted that the same justification could not be used for files already agreed, and it recommended that the power to adjust be limited only to the files in the Schedule to the Bill. I can now say that the Government are able to implement the DPRRC’s recommendation. These files have been settled while the UK has been an EU member and has been around the negotiating table at all stages with a full voice. We accept the principle that this is settled law that has received UK sign-off and that, as such, an ability to fix deficiencies is more appropriate than one to make policy adjustments.

Noble Lords will note that delegated acts under the prospectus regulation—which my noble friend Lord Leigh has taken a close interest in—are detailed in Clause 1(2)(e) of the Bill. They have not joined the prospectus regulation in the category of files which we note as being agreed but not yet in force. Under the prospectus regulation, the Commission is required to adopt delegated acts by 21 January 2019. However, it has not yet done so and as such, we have been unable to move this section. With the leave of noble Lords, should the Commission publish between now and Third Reading, the Government will look to remedy this issue at that stage.

The second purpose of this amendment is set out in proposed new subsection (1A)(b). This is in response to the considerable concern in Committee about the term “adjustments” in the Bill, which could provide the Government with the ability to make wholesale changes to these pieces of financial services legislation. While the Government are clear that the term “adjustments” is inherently limiting, we of course understand the desire for certainty and clarity. In order to address this—and I thank the noble Lords, Lord Sharkey and Lord Davies, from whose amendments in Committee we have taken inspiration—the proposed new subsection (1A)(b) makes the limited nature of the power clear. The Government will only be able to make adjustments that reflect or facilitate the transition to the United Kingdom’s new position outside the EU, but that does not include changes that result in provisions whose effect is different in a major way from that of the legislation. This new wording clarifies the limitations on the power to make adjustments while, crucially, still allowing for some changes that may be needed as the UK will not have been at the negotiating table when these files were finalised nor, for that matter, will it have been advocating on behalf of the UK financial services industry during that process.

I know we will discuss the term “major” in more detail in the amendment from the noble Lord, Lord Davies. I will listen very carefully to the comments he makes and seek to offer some reassurances in my response. In short, the intent here is to make clear that, when domesticating the files in question, such adjustments would be possible only to better achieve a similar outcome to the original file but simply with a better fit for UK -specific circumstances. This limited flexibility is crucial. I hope noble Lords will forgive me for repeating a point I have made previously when debating this Bill: without the ability to make adjustments to these files, a deficiency-fixing power will be inadequate. We would be left in a position where the power in the Bill was, perhaps, unusable for the files in the Schedule. In a no-deal scenario, without any of the benefits of an implementation period, it is hard to imagine we would want to domesticate in full pieces of legislation that had been finalised without UK input or a voice for the UK financial services industry. Should we not be able to domesticate these under this Bill, it would leave us requiring primary legislation in each and every instance in order to adopt the latest international regulatory standards.

The issue of how we, as a legislature and as a Government, deal with the future volume of financial services legislation that is at present agreed at EU level is not one for this Bill. I reiterate that this Bill is not the Government’s proposed long-term solution for all financial services legislation going forward. The Government will take forward its proposals for a sustainable, long-term model in due course. This Bill is instead a short-term, time-limited solution to some of the uncertainties that would result from a no-deal scenario. I hope that these limitations, which should be considered together with the much-strengthened reporting requirements which we will discuss later, will provide the assurances noble Lords were seeking. I again place on record my appreciation to all noble Lords who have contributed and enabled us to lay this amendment before the House. I beg to move.

Amendment 2 (to Amendment 1)

2: Clause 1, in subsection (1A)(b), leave out “major” and insert “significant”

My Lords, the Minister is to be congratulated on the way in which he has handled this Bill. In Committee, we raised several significant issues and pressed him to consider our arguments carefully. He has certainly done that and has brought back to the House Amendment 1, a position with which we are in agreement.

We are mindful of the background that all these efforts are being conducted against. This very afternoon, the House of Commons is struggling to achieve a position, and the Prime Minister hopes to achieve a position in which this Bill will be utterly redundant because we will have left the European Community with an agreement. But it is obviously right that, in an area of such importance to our economy as the services industry, we have legislation in place that takes account of the extremely serious situation that would arise if we left the European Community without a deal.

The Bill would, however, play its part in fulfilling the regulatory machinery necessary for the services industry, but without doubt additional work would have to be done at that stage. Given that we have done a great deal to help create European law in this area, it would be remiss if we left the services industry without effective regulation and less equipped than it was while we were part of the European Union, if in fact we leave without a deal.

As he would expect, I join the Minister in paying tribute to my noble friend Lord Tunnicliffe, who has played a significant part in examining the Bill and producing insights into what could be done, upon which the Minister has been able to build quite successfully. I also pay tribute the noble Lord, Lord Sharkey. He has stayed involved with the Bill and has offered the best possible advice on a number of occasions. His persistence and insights on these issues have been invaluable, together with those of the noble Baronesses, Lady Kramer and Lady Bowles, both of whom have played a significant part in these discussions.

My Lords, we welcome all the government amendments to the Bill. We particularly welcome Amendment 1, which greatly improves the Bill’s structure and clarity. As we pointed out in Committee, it was not helpful to try to deal with two different categories of legislation via one mechanism. Amendment 1 puts that right.

Proposed new subsection (lA)(a) deals with settled EU legislation now in force in the same way in which Section 8 of the European Union (Withdrawal) Act does and narrowly restricts the adjustments that can be made. Proposed new subsection (lA)(b) deals with legislation not yet in force in the EU but under current discussion—legislation that is in flight. Here the adjustments are less constrained. I note the Minister’s comment that the legislation contained in subsection l(2)(e) dealing with the prospectus regulation may come into force before Third Reading and could therefore be moved at that stage into the proposed new subsection (lA)(a), leaving only the in-flight legislation in the schedule to be covered by proposed new subsection (lA)(b).

In their amendment, the Government have significantly tightened the meaning of the previously rather controversial word “adjustments”, as it applies to the in-flight legislation in the schedule. Their amendment sets down what in this context adjustments may and may not do. When it comes to what adjustments may do, the new wording has it right. The changes are,

“to reflect, or facilitate the transition to, the United Kingdom’s new position outside the EU”.

I think this is close enough to the restrictions in Section 8 of the European Union (Withdrawal) Act. When it comes to what adjustments may not do, the new text states that they may,

“not include changes that result in a provision whose effect is different in a major way from that of the legislation”.

I am pleased that this is a much tighter restriction than that contained in the original text but I have some concerns about the use of “major”, which is why I have added my name to the amendment in the name of the noble Lord, Lord Davies, which proposes the word significant in place of major. In the ordinary use of those words, “significant” imposes more constraint than does “major”. It seems to be entirely possible for some difference in effect to be significant without in itself being major. An OED definition of “significant” is: