European Union (Withdrawal) Bill — House of Lords, 2018-03-12
Topic: Domestic Commerce
Matthew Carrington (Conservative, Centre-right): My Lords, I am conscious of the hour and shall try to be as brief as I can with what I am sorry to tell your Lordships is a rather technical proposed new clause. Therefore, what I have to say may be slightly tedious, but the new clause is intended to be helpful to the Government The new clause suggests a way in which the UK and the EU 27 working together—however improbable that may appear at times—could resolve some of the issues around the provision of financial services from the UK to the EU 27 and, perhaps as importantly, from the EU 27 into the UK. It is not a fully worked out scheme and could not be at this stage. To be capable of adoption, it would require agreement in the Brexit negotiations. It is, however, pretty much in line with the Prime Minister’s proposals in her speech at Mansion House on 2 March and the Chancellor’s in his speech on 7 March, so it might just be an acceptable way forward The importance of the financial services sector to the UK economy and the significance of the Brexit process to the sector are well understood by your Lordships. What is often called the City is not just London, with its leading position as a financial centre; it is important to the UK as a whole. Of the 2.2 million people who work in financial and related professional services in the UK, 1.5 million work outside London My new clause proposes a mechanism by which this very important sector might operate to best advantage in the UK and in the EU 27 after the UK’s withdrawal from the EU. I would like to be able to claim that this proposal is all my own work but, in reality, it is based on work undertaken by the International Regulatory Strategy Group, a practitioner-led group drawn from across the UK-based financial services sector, co-sponsored by the City of London Corporation and TheCityUK The new clause is based on the principle of mutual market access rather than the EU’s third country equivalence regime. To quote the Chancellor in his speech last Wednesday, "that regime would be wholly inadequate for the scale and complexity of UK-EU financial services trade" The basis of the proposed new clause is the requirement to produce a report on market access set out in subsection (1). Currently, cross-border access for firms is given by passporting, as it is known, under the single market directives. A supplier of financial services obtains authorisation in the form of a licence from the regulator in its home country and that will then allow it to operate in any other member state without needing to obtain a separate licence from the regulator in that state Inevitably, passporting will disappear when the UK leaves the EU. The proposed new clause requires a report to be produced detailing the arrangement which might take its place, to enable trade to continue without the need for local licensing. Essentially, the arrangement seeks to confer mutual market access between the EU 27 and the UK without local licensing based on the terms of a free trade agreement This is, admittedly, ambitious, but needs to be seen in the context of the current arrangement of complete alignment and passporting. If a licence-free arrangement cannot be fully agreed, the requirement for a licence for international trading should be applied only where strictly necessary. The overarching objective to allow this arrangement to work would be, to quote the Prime Minister’s Mansion House speech, based on, "the ability to access each other’s markets, based on … maintaining the same regulatory outcomes over time" Proposed subsection (2) sets out what needs to be achieved to make this aspiration reality I should make it clear that these paragraphs do not require that the regulatory requirements are the same. Rather, the objective is to frame the criteria for mutual market access as being that the UK’s and EU 27’s requirements are sufficiently aligned to enable the desired regulatory outcomes to be achieved. Of course, the financial regulations in both the UK and the EU 27 will change over time—and at times, quite dramatically. Resolving this problem is covered in subsection (2)(e), which covers the need to set up a forum for regulatory alignment, a joint UK-EU 27 body whose functions are set out in subsection (3). This forum would have a big role in sorting out the problems arising from regulatory divergence. The joint UK-EU 27 forum would facilitate proactive and co-operative engagement between the UK and EU 27 to resolve the problems I could expand further on the detail and, of course, I have not attempted to cover in this proposed new clause the consequential issues, such as arbitration and enforcement mechanisms. That alone is a subject on its own and bears on the arrangements for the independent institutional structure which replaces the ECJ’s oversight. I hope, however, that what I have set out would provide a collaborative, objective framework that is reciprocal and mutually agreed, and could be relied on by business. Indeed, it may be a framework which could also be adapted to business sectors beyond financial services. I beg to move.