Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018 — House of Lords, 2018-11-28
Topic: Mixed Topics
Sharon Bowles (Liberal Democrats, Centre to centre-left): My Lords, once again I thank the noble Lord, Lord Bates, for his introduction and declare my interest as a director of the London Stock Exchange plc. I will speak on many of the things that the noble Baroness, Lady Drake, has just mentioned. I too echo the feelings of Secondary Legislation Scrutiny Committee (Sub-Committee B) about being asked to approve this legislation in the absence of the FCA policy. Even if it is not completed, we could have been given more clues about its shape and type of content In its reply to the sub-committee, the Treasury says the response to the FCA consultation is needed first. I think that refers to the FCA consultation that came out last Friday, and I wonder whether it was timed to come out after we would have, under the normal scheme of things, approved this the previous Wednesday. So was it actually being kept away from our beady eyes? I could not get around to looking at it until today; in fact, I could not even find it when I looked earlier. In fact, it just repeats that the policy is yet to come. It is 986 pages long, but on pages 39-41 I found some useful information. It says: "We will issue a statement of policy on how the temporary powers will be used" That refers to the transparency regime. Everything else in there just details the powers it has been given I found a little more useful information around page 770, but only about the new Article 17A of the relevant BTS, which appears to say how it will operate those waivers that will remain, such as "large in scale", and how it will operate deferred publication on venues—but these are not actually among the main things that the FCA has been given the power to suspend The only firm policy we have been given is that the FCA does not have the necessary resources and that some of the most controversial, industry-disliked parts of MiFID II and publication on waiver volumes are to be suspended by up to four years. It is a major policy change to go from mandatory measures to suspension for such a long period and yet the Government say that they aim to preserve existing outcomes of the transparency regime as far as possible I shall go on to test that statement in a moment but, before I do, I should mention that the Treasury, in reply to the Secondary Legislation Committee, in Appendix 1, states: "A properly considered statement of policy on the use of the temporary powers would need to be informed by", the FCA consultations. However, there is nothing in the FCA consultations that informs how the policy of suspension will be used. In another reply, it states: "HM Treasury received no objections from any of the industry stakeholders on the way these powers would be used by the FCA" So it seems that industry has been consulted. However, it was not a public consultation—I have looked for that too. Industry has been spoken to and has some knowledge of what is going on but we, who have to approve this legislation, are the ones most kept in the dark. This is a decision in search of a policy and that is not the way properly to treat Parliament I shall go on to test the statement about preserving existing outcomes of the transparency regime as far as possible. With equities, the double-volume cap is suspended because the FCA does not have all the information, but here there is a mitigating measure in that the FCA can suspend two of the transparency waivers for six months at a time. The formulation used for the suspension of those waivers is, "if the FCA considers that it is necessary to do so to advance the FCA’s integrity objective under section 1D of FSMA" I have asked the Minister to confirm whether the policy intention of the double-volume cap—which, broadly speaking, is to limit the amount of dark trading—is fully encompassed in that integrity objective, taken together with the additional conditions of having reference to consumer protection, competition and the pre-Brexit thresholds. I ask this question about the integrity objective because the FCA objectives as defined in FSMA are not coupled to MiFID II, and historically UK regulators have gone to less-strict standards. For example, on best execution, the UK regulators always went with "all reasonable efforts"—indeed, I remember the fight to get that wording into MiFID I—rather than the strict "best endeavours" that the EU finally went out with as the standard of MiFID II. So if we fall back on FSMA objectives, my concern is that they are not as strict as the requirements of MiFID II There is a mechanism here for the FCA to address the dark-trading policy, but it is thrown into doubt by the statement that there will be no publication of trading under waivers and that the FCA will not have sufficient data. Does this mean that there will be no way of checking whether the FCA has done its job? I do not understand why the FCA will not have data, because it collects UK data. What lack of data is preventing information under the equity waivers when they are used There are other things that the FCA could also do. Under MiFID I, venues had the task to monitor waivers and impose restrictions under conduct of business rules. My next question is: is the FCA empowered to revert to such a mechanism should they wish and are there any plans to do so? I certainly have not seen any in the consultation because it was all silent about how these powers would be used. Concerning equities, my conclusion is that there is, possibly, the ability to live up to the statement about preserving the outcomes of the transparency regime because there is a substitute regime, but there is still no way for observers to know that if there is no information about the use of waivers.