Exiting the European Union (Financial Services) — House of Commons, 2019-02-18
Topic: Domestic Commerce
John Philip Glen (Conservative, Centre-right): I will examine that and, if I may, I will come back to it and seek to clarify it when I wind up this debate 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 Prudential Regulation Authority and the Financial Conduct Authority in the drafting of this instrument, and there has also been engagement with the financial services industry, including the publication of this instrument in draft, along with an explanatory policy note on 9 January. 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 turn now to the Money Market Funds (Amendment) (EU Exit) Regulations 2019, which relate to the establishment, management, and marketing of money market funds. Such funds invest in highly liquid instruments, and provide a short-term, stable cash-management function to financial institutions, corporations and local governments. They are commonly used by investors as an alternative to bank deposits. The regulations formed part of the response to the 2008 global financial crash to preserve the integrity and stability of the EU market, and to ensure that money market funds are a resilient financial instrument. They do so by ensuring uniform rules on prudential requirements, governance and transparency for managers of these funds. Money market funds can either be structured as undertakings for collective investment in transferable securities—UCITS—or as an alternative investment fund. Therefore, they are regulated as UCITS or as an alternative investment fund, in addition to being regulated as a money market fund. The regimes for UCITS and alternative investment fund managers have been separately amended to reflect the UK leaving the EU by the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 and Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018, which were taken through Committee, where I believe I was joined by the hon. Member for Oxford East (Anneliese Dodds), and have now been approved in both Houses and will be made shortly. In a no-deal scenario, the UK would be outside the EEA, and outside the EU’s legal, supervisory and financial regulatory framework. EEA money market funds, which currently provide the majority of money market services in the UK, would not be able to continue to service UK clients. The money market funds regulation therefore needs to be updated to reflect this and ensure that the provisions work properly in a no-deal scenario First, these draft regulations remove references to the Union which are no longer appropriate and to EU legislation which will not form part of retained EU law. These references will be replaced by references to the UK and to relevant domestic and retained EU legislation. Secondly, in line with the general approach taken to the onshoring of EU legislation, the SI will transfer functions currently within the remit of EU authorities; from the European Securities and Markets Authority to the FCA, and from the European Commission to Her Majesty’s Treasury As the UK’s regulator for investment funds and the current national competent authority for money market funds, the FCA has extensive experience in the asset management sector, and it is therefore the most appropriate domestic institution to take on these functions from the European Securities and Markets Authority. This statutory instrument transfers all powers exercised by ESMA to the FCA. The FCA will become responsible for technical standards on how funds should stress test their funds, and it will gain two operational powers to establish a register and reporting template for money market funds This statutory instrument transfers any power currently exercised by the Commission to the Treasury, in line with the other statutory instruments that we have taken through. Those powers all relate to creating rules concerning standards for money market funds, such as their liquidity and quantification of credit risk As I have mentioned, EU money market funds are structured and further regulated as UCITS or alternative investment funds. This statutory instrument makes provision to ensure that EU money market funds can use the temporary marketing permissions regime, as legislated for in the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 and the Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018. Following an assessment by the FCA and the submission of a written statement to both Houses, the Treasury will be able to extend that by a maximum of 12 months at a time. It will also allow for EU money market funds that are currently marketing into the UK, and any subsequent UCITS sub-funds, to continue to market into the UK for up to three years after exit day. This statutory instrument amends the scope of the regulation to apply to the UK only, with the effect of only allowing the marketing of UK-authorised MMFs or MMFs managed by UK fund managers. However, further amendments maintain the eligibility of EEA MMFs with temporary permissions to continue to market in the UK at the end of the temporary marketing permissions regime if they gain the required permissions to market as a third country fund under the UK domestic framework Money market funds that are UCITS will be required to gain authorisation under section 272 of FSMA, while the managers of money market funds that are alternative investment funds will need to notify under the national private placements regime. The UK currently has a very small domestic market that relies heavily on EEA money market funds, so these provisions address the cliff-edge risks that could arise as a consequence of defaulting to a UK-only market. That will ensure that local government, businesses and other UK investors can continue to access their investments and have a choice of money market funds to use for cash management As with the previous statutory instrument, the Treasury has been working very closely with the FCA in the drafting of this statutory instrument and engaging with the financial services industry. I would like to put on record my gratitude to TheCityUK for convening appropriate representative bodies throughout the process. In November the Treasury published the statutory instrument in draft, along with an explanatory policy note, to maximise transparency to Parliament and industry In summary, the Government believe that the proposed legislation is necessary to ensure that the framework for money market funds continues effectively, and that the legislation continues to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope colleagues will join me in supporting the regulations I would like to respond to the point raised by the hon. Member for Aberdeen North (Kirsty Blackman). Parliament will amend the regulations as necessary for a deal scenario. If we have a deal, an amendment process would apply to all the regulations that we have taken through. Most of them would need to be repealed, but we would do so according to the terms of the deal. I have nothing more to say at this point, and I commend these regulations to the House.