Public Record, Disclosure of Information and Co-operation (Financial Services) (Amendment) (EU Exit) Regulations 2019

Motion to Approve

That the draft Regulations laid before the House on 21 January be approved.

My Lords, as a great deal of financial services activity takes place across borders and across regulatory regimes, the ability of national regulators to co-operate with each other and to exchange information is vital if they are to discharge their supervisory functions effectively. As noble Lords will know, an important function performed by financial services regulators is the gathering of supervisory information from firms. Regulators use this information so they can ensure that regulated firms are operating in a way consistent with regulatory requirements so that they are alerted to any development that may need supervisory intervention.

The information gathered by regulators is often confidential and commercially or market-sensitive, so it is right that there are strict rules and safeguards on how regulators share such information with other regulatory authorities. EU law currently plays an important role in setting these rules. In order to ensure the effective functioning of the single market in financial services, the EU has developed a joint supervisory framework for national regulators and supervisory bodies in the EEA. This makes co-operation and the sharing of certain supervisory information between EEA national regulators mandatory. In addition to that, the EU has established the European supervisory authorities—ESAs—which are responsible for co-ordinating the approach of EEA national regulators. Co-operation and the sharing of certain information with the ESAs is also mandatory for EEA national regulators.

As well as setting out what information should be shared, EU rules include restrictions and safeguards. In the UK, these rules are implemented by Part 23 of the Financial Services and Markets Act 2000—or FiSMA, as it is known—and the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001. For third-country authorities, there are additional restrictions when disclosing confidential information. The UK regulator may need to be satisfied that the third-country authority has protections for confidential information in place that are equivalent to those of the EU. There may also be a requirement to enter into a co-operation agreement with the third-country authority. In addition, if the UK regulator is disclosing confidential information to a third-country authority which originated from an EEA authority, the UK regulator may need to seek the consent of the EEA regulator which originally disclosed the confidential information.

If the UK leaves the EU without an agreement, the EU has confirmed that it will treat the UK as a third country and the UK will also need to treat EEA states as third countries. The UK will be outside the single market and the EU’s joint supervisory framework. References in this legislation to this framework, and to EU legislation and EU bodies, will be deficient and will need to be corrected so that the UK’s disclosure rules for confidential information will work effectively.

In particular, the rules will need to be amended to reflect the third-country relationship which will exist between the UK and EEA states. After exit, it would not be appropriate to provide different rules and protections on the disclosure of confidential information by UK authorities depending on whether the confidential information is being shared with an EEA authority or authorities of non-EEA states. If the rules were left unamended, the UK would afford additional protections and less onerous restrictions to EEA states compared with other third countries.

In addition, where there are currently requirements to seek the consent of an EEA authority before onward disclosure of information, these requirements will be retained only if an equivalent requirement exists in relation to seeking consent from a non-EEA authority. The instrument also provides for a transitional arrangement which will ensure that any confidential information received by a UK regulator before exit day will continue to be treated in accordance with the relevant provisions that existed before exit day.

While it is necessary to amend the UK implementation of rules around disclosure of confidential information to ensure that they continue to operate effectively once the UK is outside the EU, it must be stressed that these amendments are in no way intended to diminish the level of co-operation that exists between the UK and EEA regulators. The Government and UK regulators believe that effective co-operation and co-ordination is essential for the effective supervision of financial services. UK authorities will be doing everything possible to ensure that effective co-operation continues. UK regulators have always been key players in the global supervision of financial services, as is demonstrated by the close and co-operative arrangements we have with regulators in countries outside the EEA.

After exit, it will be necessary for the UK regulators to enter into co-operation agreements with EEA national regulators and with the European supervisory authorities. These agreements will help ensure that a high level of co-operation and information sharing will continue. Both the Government and UK regulators attach very high priority to putting these agreements in place, and I am pleased to report that UK and EU regulators are making good progress in their discussions to finalise these agreements. The Treasury has been working very closely with the Bank of England, the PRA and the FCA in the drafting of this instrument. There has also been engagement with the financial services industry, including publication of this instrument in draft, along with an explanatory policy note, on 9 January this year.

In summary, the Government believe that the proposed deficiency fixes are necessary to ensure that the UK has a clearly defined and operable set of rules for the disclosure of confidential information. I hope colleagues will join me in supporting these regulations. I commend them to the House.

Amendment to the Motion

Moved by

At the end insert “but this House regrets that no consultation was undertaken on these Regulations.”

I do not have anything to add on consultation or assessment, but the Minister just said that discussions with the EU about a new regime are in progress. He was speaking extremely quickly, but I think he said that good progress was being made. Could he tell the House whether he expects that an agreement will be reached by 29 March? I beg to move.

We support this statutory instrument, but I have a couple of quick questions. In paragraph 2.7, the EM notes that:

“In certain exceptional instances, a similar requirement to seek consent from the originating regulator applies where the confidential information originated from a third-country regulatory authority”.

That seems a little opaque. I could not find anywhere in the SI what these exceptional circumstances might be. That may well be my fault but I would be grateful if the Minister could point me at the relevant parts of it or, even better, explain what these circumstances are.

Finally, I was puzzled as to why the SI’s introduction of transitional provision, described in paragraph 2.16 of the Explanatory Memorandum, was necessary. That paragraph says:

“In addition, this instrument introduces a transitional provision so that any confidential information that was received on or before exit day will continue to be treated in line with the relevant provisions in EU regulations and directives as they had effect before exit day”.

That raised two questions for me. The first is one of necessity. Would this eventuality not be covered by the general transposition of EU law into UK retained EU law? The second is to do with the wording of the paragraph in the EM, which refers to information received on exit day. But we are scheduled to leave the EU at 11 pm on exit day, so what happens to confidential information received between 11 pm and midnight on exit day?

My Lords, looking through this statutory instrument to see whether there were any policy shifts, as far as I can understand it, the EEA countries have better protection for their confidential information than third countries do. This statutory instrument takes that special protection away and then requires agreements to be concluded. That would seem to be the wrong way around. I would have thought that the protection which the EEA states have—that before the information can be passed on, permission must be sought from the originating country—would be better extended to other third countries. This would be a better position for the management of confidential information than what is referred to in the Explanatory Memorandum as a series of agreements, followed by instructions to staff. It is a bit late to have a debate on such an obscure point but if the Minister were to read Hansard tomorrow and send me a letter on this point, I would value that.

Again, I thank noble Lords for their scrutiny and questions. I give notice that I may need to write on one or two of them, if they would accept that, but I will say a little about how the negotiations are going. In my enthusiasm to communicate the details of this instrument to the House, I perhaps went a bit fast but I did indeed say that the negotiations were going well.

UK and EU authorities have made good progress in their discussions on a memorandum of understanding, which includes essential provisions for confidential information-sharing and co-operation. It is our hope that these will be in place by exit day. Both UK and EU regulators recognise the importance of effective co-operation and are working hard to finalise co-operation agreements. We fully expect these agreements to be in place by exit day, as part of preparations to deal with a no-deal scenario. More broadly, Members will be well aware of the top priority we have attached to putting in place a range of transitional arrangements, designed to mitigate the impact of no deal.

The noble Lord, Lord Sharkey—eagle-eyed as ever—spotted the gap between 5 pm and 11 pm. I am guessing that it is a standard cut-off point—a sort of close-of-business setting on the day in question—but perhaps that is not the case. I am told that exit day is defined in the EU withdrawal Act as 11 pm on 29 March, specifically; yes, I am aware of that. I think the point was made that it says 5 pm but there might be something else winging its way to me.

The noble Lord, Lord Sharkey, also mentioned confidential information and made a good point on that. Under Section 348 of FiSMA, “confidential information” means information which,

“relates to the business or other affairs of any person”,

that was received by the FCA, the PRA, the Bank of England, the Secretary of State or specified people instructed or employed by them for the purpose of discharging their functions; and it is not prevented from being confidential information because, for example, it has already been made available in public.

At this late and extreme hour, the noble Lord, Lord Sharkey, seems to have discovered a missing six hours in the regulatory regime that is going to govern the financial services industries of the United Kingdom and Europe, and what might happen for the exchange and disclosure of confidential information. Assuming that those six hours can be repaired overnight, I beg leave to withdraw.

Amendment to the Motion withdrawn.