Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019 — House of Lords, 2019-10-01
Topic: Domestic Commerce
James Bethell (Conservative, Centre-right): My Lords, I express my thanks for an informative debate on this technical but incredibly important measure. I give particular thanks to the noble Baroness, Lady Bowles, who gave us a good trot around the history of some of the regulations and described in very honest terms her central role in the background of some of these instruments. I remember well her front-line role in fighting for Britain’s interests in this matter during a very difficult period I start by answering her question about whether the clearing suspension can be extended. The instrument allows the Bank of England to suspend the clearing obligation for up to 12 months, with the consent of the Treasury. This means that the Bank can decide to issue a suspension lasting for any period up to 12 months, based on its assessment of the situation. For instance, it may determine that a suspension for six months is the best option, but the suspension cannot be extended. However, if the conditions of the suspension of the clearing operation continue to be met, we would expect the Bank to institute a new suspension if necessary, which would again require the consent of the Treasury The question was asked: can the pension scheme clearing exemption be renewed or extended? This instrument allows the Treasury to extend that exemption for up to two years at any time by regulation, if no alternative can be found for the UK market. Importantly, this means that it could be renewed if no solution were to be found Will there be a permanent solution to the pension scheme exemption? Currently, requiring a pension scheme to clear trades in a CCP can lead to disproportionate costs, especially the requirement to pay margin on CCP in cash. A technical solution would address this problem: for example, it would involve finding a way for the pension scheme to meet its obligations to the CCP without turning long-term assets into cash. Any solution must not pose a risk to the CCP. However, currently the EU has been unable to find a solution which accomplishes that, and the Government will continue to work with UK CCPs and pension schemes on that important question. This will ultimately be decided according to what the technical solution will look like The noble Baronesses, Lady Bowles and Lady Kramer, and the noble Lord, Lord Davies, all raised questions about the Explanatory Memorandum. Their points were well made and the concerns behind them are completely understood, but I reassure the House that the Government remain utterly committed to doing a deal. However difficult that may seem, that remains the commitment, and that includes a deal on financial services. The Explanatory Memorandum continues to reflect the Government’s policy, but of course we should be ready for all scenarios, which is why we are here today The noble Baroness, Lady Kramer, raised an important point on the question of divergence. I should like to reassure her on that. This SI aims to ensure continuity—that is its whole ethic and philosophy—and consistency with EU laws. This is not about divergence. I remind the House that the SI has been warmly welcomed by business after a long period of consultation, and if concerns about divergence were still outstanding, I am sure the industry would have voiced them The noble Baroness also asked about regulatory arbitrage, about which I should similarly like to reassure the House. Our onshoring approach aims to preserve existing regulation as much as possible. We also want to maintain maximum supervisory co-operation with the EU to avoid regulatory arbitrage of any kind. She also asked whether the trading obligation will be suspended automatically. I should like to reassure the House that in the EU, the trading obligation would not be automatically suspended. For the UK, we have made the trading obligation suspension automatic on suspending the clearing obligation. I hope that is understandable The noble Lord, Lord Davies, asked whether the Government will implement the remaining aspect of the EMIR REFIT and how that implementation would happen. The purpose of this SI is to address deficiencies that will arise in UK law if the UK leaves the EU without a deal. It cannot address aspects of the EMIR REFIT which are not in application. We are working with regulators and industry to ensure that the remaining provisions in EMIR REFIT are implemented in an appropriate manner for the UK In conclusion, I reassure the House that every effort has been put into the consultation on these important regulations. Industry has lent an enormous amount of support to them and they have been laid before the House for a considerable time. In that spirit, I ask the House to approve these regulations.