Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019

Motion to Approve

Moved by

That the draft Regulations laid before the House on 25 February be approved.

My Lords, as this instrument is grouped, with the leave of the House, I shall speak also to the draft Electronic Commerce and Solvency 2 (Amendment etc.) (EU Exit) Regulations 2019.

These two instruments are part of the same legislative programme that we have discussed previously in the House to ensure that, if the UK were to leave the EU without a deal or an implementation period, there continued to be a functioning legislative and regulatory regime for financial services in the UK. Both SIs have already been debated in the House of Commons.

The Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019 revoke a number of pieces of UK domestic law and retained EU law which it would not be appropriate to keep on the statute book after exit. The instrument also makes amendments to a number of financial services EU exit SIs to reflect other instruments that have been laid as part of the wider legislative programme, corrects minor errors identified in legislation, and makes amendments to ensure consistency between EU exit instruments.

The SI has five main components. First, it amends UK domestic law to ensure continuity with other legislation amended under the European Union (Withdrawal) Act. Specifically, it makes amendments to primary and secondary legislation that do not fall within the remit of changes made by other instruments. Specifically, the SI will remove references to EU institutions and regimes in four Acts of Parliament; namely, the Insolvency Act 1986, the Financial Services and Markets Act 2000, the Income Tax Act 2007 and the Corporation Tax Act 2009. These amendments will ensure that provisions that are irrelevant in a UK-only context are not retained on the UK statute book.

Secondly, the SI makes minor technical amendments to 19 statutory instruments, including 12 other financial services EU exit instruments that have previously been debated in this House. A number of those amendments are made in this instrument because they are consequential on other instruments that have been made only recently, such as the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019. A minority of the amendments correct drafting errors and improve the clarity of drafting. For example, a duplicate provision is omitted from the Bank of England (Amendment) (EU Exit) Regulations 2018, as the same amendment is made by the Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018.

Thirdly, this SI revokes three UK statutory instruments that relate to EU regimes that will not be applicable to the UK in the event of a no-deal exit given that they implement EU law being revoked at exit day under separate instruments. Fourthly, the SI makes amendments to, or revokes, retained EU law to ensure consistency with other EU exit instruments that have been made and to remove references to EU institutions that will no longer be relevant post-exit. Fifthly, the SI makes transitional and saving provisions to address deficiencies that arise from the UK’s withdrawal from the EU and to limit disruption to the financial services industry if the UK leaves the EU without a deal.

My Lords, I have no issues with the first of these SIs. It is another that deals with errors and omissions; I suspect we will see quite a number of them. I do have serious concerns about the second SI, but not with its content or the fact that we need it if we are to take the step of leaving with no deal. I want to understand what happens to the financial services industry as a consequence. Perhaps the Minister can help me with this. He will know that I have been involved, from the earliest days, with the development of fintechs in the UK. An example is crowdfunders, whether they are US ones that have created a core European subsidiary in the UK, or home-grown ones, of which we have quite a few. We have been a magnet particularly for young people across Europe with a tech and finance interest to come here and start their companies. Those companies have, essentially, been pan-European from the first breath that they took. For example, under the e-commerce directive, a crowdfunder has been able to put up a project and seek investments through its online presence—the only way it exists—all across the UK plus the 27.

I understand from the SI that a crowdfunder based in the EEA will no longer be able to seek investments from UK investors unless it goes through the process of registering with the FCA and having its UK activities regulated by the FCA. I suspect that most will not bother. When you have 450 million people you can go to, going to an additional 65 million is probably not worth the effort. It is taking on the burden of an additional regulator just for a small part of the investor base you will be catching on to. If you do, you have only one regulator to deal with, and I assume that this is reciprocal. So if I am a UK-based crowdfunder, do I now have to go to the regulators in every one of the 27 and seek to become registered, certified or whatever else it is, to be able to continue to raise those funds? It is unusual for a crowdfunder based in the UK to raise most of its money in the UK. As I said, these have been pan-European from the day they took their first breath. They think that way, they are structured that way and their employees are designed in that way. Are we, in effect, hearing a death knell for crowdfunding and a whole series of related fintechs that are UK-based but have been reliant for building their investor or participant base from a pan-European, 500 million-person community? If there is this consequence then I am extremely concerned. Perhaps the Minister can explain; I may have it completely wrong.

My Lords, I will speak mostly about the first SI, if only to moan a bit. Paragraph 3.6 of the Explanatory Memorandum says that the Secondary Legislation Scrutiny Committee,

“noted that the legislation proposed to be amended by the instrument includes: four Acts of Parliament; seven ‘pre-EU Exit’ statutory instruments; 12 ‘EU Exit’ statutory instruments that have been considered by the House during the last six months; and several items of retained EU legislation”.

As far as I can tell, there are 36 amendments in this SI which have no themes or interrelationship. To get a feel for how difficult it is to work on the SI, paragraph 2.6 of the Explanatory Memorandum gives up almost altogether and says:

“Part 3 also makes minor technical amendments to correct the following financial services EU exit instruments. Further information on these instruments can be found in the EMs accompanying the instruments on legislation.gov.uk”.

If I threw all that in, it would take hours. Indeed, if one devoted just 10 minutes’ attention to each amendment, it would take six hours to read the thing.

The Minister said, rather grandly, that this had been considered by the House of Commons. I too noted that fact and leapt at the Official Report to give me some help. It told me that the Commons committee sat at 6 pm —that is quite keen—but adjourned at 6.11 pm, having completed its work. Members devoted 11 minutes to this SI. I am sure that, due to their natural brilliance, they scrutinised it fully, but I am rather slower than that.

There is a real problem of how we get proper scrutiny. I sought help from the Civil Service, as one is invited to by the Explanatory Memorandum. As I understand it, the amendments fall into three groups. One group corrects errors; I would value knowing how many of the 36 are error corrections. Another group makes previous SIs compatible with those created subsequently by other departments. So we have one bit of government making SIs that create complications in another; it is a bit brave to consider creating complications in Treasury SIs.

I thank the noble Baroness and the noble Lord for their scrutiny and questions on these points. I shall do this in reverse order because I am waiting for a little further inspiration about fintech—it is arriving. The noble Lord, Lord Tunnicliffe, is always assiduous in these matters and drifts easily between bus operations in Northern Ireland and financial services across the European Union in his scrutiny of SIs. He raises a very serious point: the first of these documents runs to some 26 pages, and 26 pages of Explanatory Memorandum, while the second has 11 pages and 14 pages of Explanatory Memorandum, so there is an awful lot of detail.

During this process—we are now nearing the end of it—we have worked on some 52 statutory instruments and have been grateful for the way the noble Baroness and the noble Lord have engaged with us very constructively over the past four to five months. During that process, of course, there will be consequential amendments that were not foreseen, because some of the 48 affirmative statutory instruments that have gone through this House were laid after the previous ones were made, and therefore changes need to be made. We envisaged, when we began this, what we call an onshoring process to ensure seamless activity, so that there is no disruption for UK financial services. We always envisaged the need for some instrument such as this at the end that corrected any errors and dealt with consequential changes. All the amendments are being made to ensure a functioning financial services regulatory regime in the UK, in any scenario, when the UK leaves. These amendments ensure continuity and clarity.

The noble Lord asked me to make the very specific commitment that no policy changes are involved in these: that is certainly the case. To make policy changes would be in contravention of the letter and spirit of the withdrawal Act and we certainly would not do it. The approach has been consistent. He asked about the number of errors. Around eight drafting errors in previous EU exit financial services SIs are being corrected in this measure.

Will the Minister, if he has the opportunity, look into this? I know that crowdfunders and many others—I have tried to tell the Treasury a million times—use the e-commerce directive, not passporting rights. It has played a key role. Whether they can transfer from using the e-commerce directive to passporting rights, I am not clear, but it seems at least an issue somebody should look at.

I was just coming to that precise point, because the noble Baroness raises a serious point which is worthy and very important for us to look into further. I undertake to do that and to write to her, to copy in the noble Lord, Lord Tunnicliffe, and to place a copy in the Library. It is very important that we ensure that there is no unintended, deleterious impact on such an important sector of the UK financial services industry. With that, I commend the regulations to the House.

Motion agreed.