European Union (Withdrawal) Bill — House of Lords, 2018-03-12
Topic: Domestic Commerce
Hugh Trenchard (Conservative, Centre-right): My Lords, I listened with interest to the amendment proposed by my noble friend Lord Carrington of Fulham and supported by the noble Baroness, Lady Falkner. I accept that my noble friend is trying to be helpful to the Government, but for various reasons I nevertheless feel unable to fully support his amendment. I understand well that the amendment reflects the proposals put forward by the IRSG in its paper published last September, prepared in collaboration with Hogan Lovells. That report has been endorsed by TheCityUK and the City of London Corporation, which support IRSG The reasons why I cannot support the amendment are, first, that it is not appropriate or helpful to put into legislation, at this stage, the detail of any future regulatory collaboration with the EU, let alone on financial services. Secondly, the report which the amendment would require the Government to prepare, like other reports which other amendments discussed today have called for, would be quite onerous and time-consuming. Thirdly, it is not helpful for our negotiators if we argue against ourselves, and especially unhelpful to incorporate amendments into law which appear to accept that it is desirable, even necessary, to treat continuing alignment with EU regulations as being a greater priority than aligning our regulations with those of the SEC in the United States, the FSA in Japan, or other regulators in other countries with significant financial markets. Fourthly, the Government have already stated their intention to negotiate an implementation period following exit day when things would be largely the same, including, as I understand it, for the financial services sector. This amendment appears to assume that everything changes on exit day In his excellent recent speech at the Mansion House, the Chancellor referred to a framework to supervise, "separate evolution of rules to deliver the same results", and to resolve disputes. I believe there is a danger that this would place too much pressure on UK regulators to continue to align completely the UK’s rule book with that of the EU 27. This would make it more difficult to agree any kind of mutual recognition of standards with other financial regulatory regimes around the world. For example, the City Corporation and Tokyo Metropolitan Government have recently entered into a memorandum of understanding to collaborate more closely on financial services, and this could be developed in future to include some kind of mutual regulatory recognition of standards Of course, the City will survive if there is not a deal which covers financial services. The EU regulators have forced upon us Solvency II, AIFMD and MiFID II, to name but three directives which have cost the City dear in terms of higher costs, fewer jobs and fewer revenues than would otherwise have been the case. We should not agree to align more closely to EU rules than to US rules, Japanese rules or the rules of any other major financial centre in the world. Once our regulators recover their independence from the EU regulators, their influence in shaping best practice rules at the global level will be enhanced, not diminished. Of course, while the inclusion of financial services in our FTA would be better than its exclusion, our negotiators need to be very aware of the significant upside for the City in recovering our regulatory independence The amendment, in proposed new subsection (2)(a), refers to the degree of alignment "necessary" between the regulatory provisions of the EU and UK. I submit that this is a rather subjective concept. What is important is that our regulators will establish the best regulatory regime for our markets, retaining the highest standards for which London is rightly held in high regard and participating fully in discussions with regulators of the other major financial markets, within IOSCO and other bodies, with a voice commensurate with the size and scope of our markets As my noble friend Lord Hill of Oareford said in his interesting speech at Second Reading, our withdrawal from the EU is allowing Europe already to move in directions that we have traditionally resisted, whether that is a financial transactions tax, more screening of overseas investment or more centralisation of supervision of financial services. As we now have to choose between effectively remaining in the single market and being free to make our own rules where we want to, we must surely place a greater priority on being able to shape our own future than on preserving the status quo Mark Hoban, chairman of IRSG, has proposed a forum for regulatory alignment, referred to by my noble friend, whereby the UK and the EU can work together to implement new global and international standards. That is fair enough, although I do not think it is in the City’s interests to do this with the EU exclusively. Furthermore, my noble friend’s amendment is silent on the proposed forum’s relevance to new global and international standards and relates only to a perceived need to maintain regulatory alignment with the EU alone. If I were a banker in the EU 27 or the finance director of a major EU 27 company wishing to raise money in the capital markets, I would certainly not want the EU to impede my access to the UK’s financial markets, but I have not yet heard of any proposed EU regulation or directive requiring the Commission to continue to align closely to UK regulations My noble friend’s amendment indicates a frame of mind which I believe casts us too much in the role of supplicant, where we do not need to be. Does the Minister recognise that the City would worry less about the downside and show more confidence in the upside of Brexit if the Government showed more leadership and enthusiasm for the City’s role as the leading international financial centre, unfettered by the EU’s cumbersome and somewhat dirigiste regulatory framework, while maintaining the high standards and proportionate regulations that provide the necessary protections and financial stability for investors and borrowers, but without burdening market participants with unnecessary costs or with measures that inhibit the innovation that has helped to make London the great success it is?