European Affairs — House of Commons, 2018-03-14
Topic: Mixed Topics
Paul Masterton (Conservative, Centre-right): I am pleased to speak in today’s general debate and talk a little about my views as we move towards phase 3, with a specific focus on the pensions, asset management and long-term savings industries and our future trade in those services Some 24% of people employed in the UK in the general insurance, life assurance and pensions sector work in Scotland—many in my constituency of East Renfrewshire, due to its access to the Glasgow financial district and the central belt as a whole, as well as the easy links down to London. These industries want a deal. Why? It is because no deal means that banks, insurance companies and fund managers could not provide services across the UK from the EU. Contracts, particularly for derivatives, which run over exit day could simply become unenforceable. Business liability insurance contracts often stretch decades ahead. Insurers could, as a result of a no-deal Brexit, lose their licence to do insurance in the customer’s jurisdiction. Cross-border pension payments from the UK into the EU and vice versa simply could not be paid. It would defy common sense not to have a Brexit deal on financial services, given that the insurance and long-term savings sectors are so largely aligned and integrated, and our trade in services is vital to both parties. The UK’s asset management industry is the second largest in the world, managing nearly £7 trillion-worth of assets, serving a global client base. Similarly, numerous investment funds used by pension providers are set up under Irish law or other EU-based jurisdictions. More than 150 UK managers are managing Irish funds right now, with more than 2,000 Irish-domiciled funds sold in the UK. That is more than €600 billion in fund assets managed by UK managers in Ireland on behalf of UK investors The Association of British Insurers said last summer that a no-deal Brexit is "unacceptable". The Pensions and Lifetime Savings Association was even more blunt when it said: "WTO-only would cause major disruption. On no account could the pension fund industry support a regime based only on WTO rules. This would be likely to cause economic harm, create regulatory barriers and undermine essential pensions support services." That was why the industry welcomed the Mansion House speech. Clarification and honesty of the reality of what we are confronting allows people to move forward. If we leave the single market, passporting, which is a central pillar of the EU financial services regime, will end. Currently, there are 336,421 passports held by UK firms, and many firms hold multiple passports for multiple member states. The London Market Group recently published figures suggesting that the UK insurance sector takes in £14 billion a year of business connected with the EU That clarity was needed. Now we need to start talking about successor arrangements, with the transitional period being a time for firms to adapt to changes in the marketplace and regulatory structures. A primary risk for institutions that access EU markets from the UK is the post-Brexit loss of that access on a short-term or longer-term basis, because no equivalence decision has been issued in time. A lack of agreement on equivalence would also affect elements of financial services infrastructure, such as access to clearing houses or payment services, or the provision of custody services to certain clients Bottoming out that equivalence process for the UK as a third country must be a priority. If we want to maintain and enhance this country’s position as the leading global financial centre, we will need to be regulated in accordance with the highest global standards. That is important for not just UK firms, but third-country institutions, such as those based in the US or Hong Kong, which cannot make use of the passport system and must establish an authorised presence in an EU member state. For this reason, many third-country institutions have chosen to base themselves in London through a UK subsidiary as their primary point of access to EU markets through passporting, and we want them to be able to continue to do so We also need to agree successor arrangements for passporting of deposit taking and lending business under the capital requirements directive and the alternative investment fund managers directive. Third-country recognition is absolutely vital, and the process for that needs to have been sorted out long before we have left. UCITS—undertakings for the collective investment of transferable securities—are required to have their management companies established in an EU member state, so a bespoke mutual recognition agreement that would allow UK entities to continue fulfil their UCITS roles will be necessary. Pension schemes are subject to EU legislation, both as institutional investors affected by EU financial market regulation, such as MiFID II—the markets in financial instruments directive—and the European market infrastructure regulation on the derivatives market, and, significantly, directly under the directive on institutions for occupational retirement provision, on workplace pension schemes. IORP II is due to be implemented in the UK by January 2019 During the negotiation of IORP II, the UK was successful in warding off the threat of an EU solvency regime for pensions, which could have resulted in a bill for British business of up to €650 billion. This remains on the agenda of EIOPA—the European Insurance and Occupational Pensions Authority—which is the EU-level pensions regulatory body. Everyone knows I would like the maximum possible access to the single market, but it is essential that any future moves by the EU to propose a new EU solvency regime should not apply to defined- benefit schemes in the UK. The absolute worst case scenario for UK pension schemes would be to find themselves more vulnerable outside the EU to the damaging regulation that was successfully blocked when the UK was inside the EU More broadly, a good trade deal is vital to the pensions industry because of the significance to employers that sponsor pension schemes across the manufacturing sector. A bad Brexit will have huge detrimental economic impacts on those sectors, which would put huge pressure on those employers’ ability to fund their schemes. Pension schemes need full access to the global financial markets, both for investments that will give them the resources to meet their pension commitments and for de-risking and hedging purposes so that they can manage their risks. We need the UK financial services industry to remain as strong and vibrant as it is today I have spoken in two Westminster Hall debates recently: one on the European Free Trade Association and one on alternatives to a no-deal Brexit. I shall not repeat what I said there, but I remain of the view that EFTA-EEA membership finds a neat balance by reflecting that the EU referendum result, although decisive, was not overwhelming. Is it a perfect option? No. I want that bespoke deal and believe and trust in the Prime Minister to bring back the best terms possible, but if we need a plan B, for whatever reason, it cannot be to crash out on World Trade Organisation rules. The Prime Minister should have the maximum flexibility she needs to do the right deal and should not being hemmed in by individuals and groups from either side of the Chamber Back in East Renfrewshire, are people dancing down the streets of Barrhead and Clarkston at the thought of Britain leaving the EU? No. But they are not drawing down the blinds and taking to their beds, either. What they want, and what they need, are practical, workable solutions to be put forward in the national interest, pragmatism over ideology, and optimism that is merited but grounded in reality. That is why the Prime Minister’s Mansion House speech was so welcome. This is a negotiation, but I hope that the EU will engage with the suggestions constructively and that we will be able, at long last, to move forward at pace.