Uncertificated Securities (Amendment and EU Exit) Regulations 2019 — House of Lords, 2019-02-25
Topic: Mixed Topics
George Young (Conservative, Centre-right): On behalf of my noble friend Lord Bates, I beg to move the regulations. As the instrument is grouped with the draft Investment Exchanges, Clearing Houses and Central Securities Depositories (Amendment) (EU Exit) Regulations 2019, also laid before the House on 17 January, I shall speak also to that. The Uncertificated Securities (Amendment and EU Exit) Regulations 2019 amend UK law as necessary in order to ensure that the directly applicable EU central securities depositories regulation, or CSDR, operates effectively in the UK. The instrument uses the powers in Section 2(2) of the European Communities Act 1972 to do this. Both instruments also use the powers in Section 8 of the European Union (Withdrawal) Act 2018 to prepare for a scenario in which the UK leaves the EU without a deal or an implementation period. The approach being taken in this legislation aligns with that of previous SIs that we have just debated First, I will cover the uncertificated securities regulations SI, which amends the uncertificated securities regulations 2001—or the USRs. This instrument concerns the electronic registering and transfer of securities such as bonds or shares, specifically on computer-based systems. Certain requirements within the USRs are also subject to the CSDR, which creates a common authorisation, supervision and regulatory framework for central securities depositories, or CSDs, across the EU. This SI makes the necessary changes to UK legislation to ensure that the EU regime operates effectively in the UK. In addition, the instrument contains provisions that address deficiencies in UK law and retained EU law that arise due to the UK’s withdrawal from the European Union The changes made to implement the CSDR will come into effect on the day after the instrument has been made in Parliament in any scenario. However, the changes made under the EU withdrawal Act to fix deficiencies in the legislation arising as a result of the UK’s withdrawal from the EU will come into effect on exit day only in the event that the UK leaves without a deal or an implementation period First, the SI makes amendments to ensure that the USRs align with both the EU regulation and the UK implementing legislation concerning the CSDR. This includes authorisation and recognition of CSDs and Article 49 of the CSDR. Article 49 of the CSDR allows issuers the right to issue securities into a CSD in any EU member state. Accordingly, amendments have been made to ensure that no provisions in the USR are incompatible with this right. By removing the duplication between CSDR and USR requirements for operators of relevant systems, the instrument provides clarity to the industry in this area. Further, USR operators can now gain operator status by virtue of gaining recognised CSD, EEA, CSD, or third-country CSD status for CSDR and FSMA purposes, not via the USR recognition regime, which is revoked by this SI Secondly, the SI provides transitional provisions to ensure that operators of systems approved as operators under the USR can continue to operate under the amended version of the USR, pending their authorisation or recognition as a CSD under the CSDR regime. The USR SI also inserts a provision into the CSDR 2014 regulations which grants the Bank of England the power to charge fees to third-country CSDs. This is considered necessary in relation to its new role in recognising third-country CSDs following exit day under the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018, which were agreed in this place. Finally, the SI amends Article 15 of the short-selling regulation to change its current scope from the EU to the UK. This change is to ensure legal certainty about the scope of this provision in the regulation after exit day The investment exchanges, clearing houses and central securities depositories instrument addresses legal deficiencies in parts of the domestic legislation that outlines certain regulatory requirements for recognised investment exchanges—RIEs—EEA market operators, central counterparties, or CCPs, and CSDs operating in the UK. RIEs include firms such as the London Stock Exchange and the London Metal Exchange; EEA market operators include firms such as Deutsche Börse and Euronext Paris, which also provide services in the UK; CCPs include firms such as LCH, LME Clear and ICE Clear Europe; and the UK CSD is Euroclear UK & Ireland. These entities form the backbone of UK markets, facilitating the trading, clearing and settlement of financial instruments. Amendments introduced through this instrument are generally technical in nature and are not intended to make policy changes, other than where appropriate to reflect the UK’s new position outside the EU and to ensure a smooth transition to this situation I will now outline briefly the key amendments that this instrument makes to the Financial Services and Markets Act 2000, or FSMA. First, in a no-deal scenario the UK would be a third country outside the EU financial services framework and therefore outside the current passporting system, meaning any references to EEA passport rights would become deficient at the point of exit. The instrument therefore removes the FSMA provisions relating to the exercise of EEA passporting rights by EEA market operators into the UK and the provisions that allow recognised investment exchanges to make passporting arrangements into EEA states. This would mean that any EEA market operators currently operating in the UK via a passport would no longer be able to do so from exit day, just as UK recognised investment exchanges would no longer be able to passport into other EEA states Instead, EEA market operators who currently make use of passport rights can, if they wish, make use of the existing third-country regimes for investment exchanges that are provided for in UK law to carry on their activities in the UK. For instance, they can apply to the Financial Conduct Authority to become a recognised overseas investment exchange. The FCA published information outlining how firms should go about doing this on its website on 14 September 2018 Secondly, the SI removes obligations relating to information sharing and co-operation with EU authorities, again to reflect the UK’s position outside the EU in a no-deal scenario. The Government took the same approach in a number of other financial services SIs previously approved by Parliament. As stated with those SIs, and as I said a few moments ago, this change does not preclude UK authorities co-operating with their EU counterparts in future through existing third-country frameworks, as they currently do with non-EEA regulators Specifically, the instrument removes the obligation on the FCA to inform the European Securities and Markets Authority—ESMA—and the competent authorities of EEA member states when it suspends or removes a financial instrument from trading on a venue that falls under its jurisdiction. However, the FCA will still be required to make such decisions public. In addition, the FCA will no longer be obliged to require venues under its jurisdiction to suspend or remove a financial instrument from trading if the FCA becomes aware that the same instrument has been suspended or removed from trading in an EEA member state Thirdly, a provision in FSMA that currently applies to the Prudential Regulation Authority is being extended to the Bank of England. The relevant provision places a duty on the Bank to take such steps as it feels are appropriate to co-operate with other persons, whether in the UK or elsewhere, with similar regulatory or financial stability functions. This provision is being extended to the Bank of England to ensure that co-operation can continue in relation to the new functions it is taking on as part of this legislation.