Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020 — House of Lords, 2020-06-18
Topic: Domestic Commerce
Joanna Penn (Conservative, Centre-right): As noble Lords have noted, this is quite a technical debate, and I will do my best to address the points that they have raised. I defer to their greater experience in previous roles, potentially having made some of these regulations as Members of the European Parliament and, as Members of this House, having taken through a large proportion of the regulations in the process of onboarding our financial services regulations in preparation for leaving the EU Several noble Lords raised the question of the new responsibilities that this SI gives the Bank of England as the regulator versus the powers that will, for example, come back to Her Majesty’s Treasury. The Bank’s new responsibilities are consistent with its existing responsibility for safeguarding financial stability in general and for managing systemic risks in CCPs in particular. Responsibility for recognising non-UK CCPs was transferred from ESMA to the Bank of England in a previous SI, and EMIR 2.2, which this SI translates into UK law ready for Brexit, transfers the responsibilities for tiering non-UK CCPs in the recognition process The Bank has been given two new supervisory powers over tier 2 non-UK CCPs through the extension of the existing supervisory framework and tools that apply in the UK. To ensure that the Bank can fulfil its supervisory obligations, it will be able to sign a memorandum of understanding with non-UK competent authorities of a recognised CCP. The Bank will also have the power to set further technical standards to specify the tiering criteria and establish a framework that allows for comparable compliance where the framework that a non-UK CCP operates under is recognised as comparable to the one that we have in the UK and is therefore satisfactory for regulatory purposes. These powers are going to the Bank rather than to the Treasury because of the Bank’s existing responsibilities for safeguarding financial stability and managing systemic risk in CCPs The question of the resources for the Bank to fulfil its obligations was raised by several noble Lords. We are confident that the Bank has made adequate preparations and is effectively allocating resources in order to manage its new responsibilities. Furthermore, it has already been assigned the ability to levy fees to fund the responsibilities arising from its role in relation to non-UK CCPs My noble friend Lord Wei asked about the Bank giving away the powers that it will receive under this statutory instrument. It will not be able to give away these powers; it will only be able to enter into supervisory co-operation agreements to manage how it uses those powers in practice Several noble Lords asked how we are progressing with the assessment of equivalence. As they noted, there was a commitment in the political declaration to undertake equivalence assessments by the end of June. We are working hard and are focused on fulfilling our obligations and commitment to conclude those assessments. I am afraid that I cannot expand further than that As I said, this is a very technical SI to move regulation from the EU to the UK in preparation for the end of the transition period, but several noble Lords asked what the prospects of the further politicisation of this process might be—in particular, with regard to the use of the location policy, about which concerns have been expressed. The UK regards the politicisation of financial services as being in no one’s interests. The financial stability that underpins our and the EU’s economies depends on trust and predictability in regulatory matters. What is more, the potential use of the location policy could result in the fragmentation of the clearing market, which, again, would undermine financial stability and increase costs for those involved The noble Lord, Lord German, asked what deal the Government are referring to in their Explanatory Memorandum. The deal is the withdrawal agreement, which this House and the House of Commons have spent a significant amount of time debating and agreeing, and which of course was endorsed by Parliament in January this year Several noble Lords asked about parliamentary scrutiny of the powers transferred under this SI. Of course, Parliament has several ways in which to scrutinise both the Government and the Bank of England—through Ministers appearing in this Chamber and through Select Committees The noble Baroness, Lady Kramer, asked about the use of the location policy, which I believe I have covered. We have brought in the power to use the location policy but have no intention of doing so That brings me to a question asked by several noble Lords—whether, through this SI or the broader process, we would lower our standards. This SI is intended simply to transfer EU powers into UK legislation and to amend any deficiencies that might arise through that process. Therefore, it does not diminish any regulation of the sector, and in fact it provides further protection for consumers by bringing into UK law protections that have been provided for through EU regulation The noble Lord, Lord Tunnicliffe, asked how many further SIs we might expect under this process. As he noted, the number is partly dependent on files that might come from the EU Commission during the rest of this year while we remain in the transition period. Therefore, I cannot give him a specific number but I hope I can reassure him that it will be much lower than the number we have seen so far during this process of bringing EU regulation into the UK system I do not believe that I have covered all the points raised by noble Lords and I hope that they will forgive me if I write to them on the outstanding matters. To conclude, this instrument is necessary to ensure that existing EMIR legislation continues to function effectively in the UK from the end of the transition period following the updates made by EMIR 2.2. In particular, it will ensure that the UK has an enhanced recognition regime, with the tools necessary to manage the financial stability risks posed by some of the largest non-UK CCPs. I hope that the House has found this afternoon’s debate informative and that it will join me in supporting these regulations.