Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019 — House of Lords, 2019-03-05
Topic: Domestic Commerce
Susan Kramer (Liberal Democrats, Centre to centre-left): My Lords, I begin with a thank you. My noble friend Lord Sharkey and I—I know that the noble Lord, Lord Tunnicliffe, will speak for himself, as he always does so well—very much appreciated the opportunity to meet the Minister, the Economic Secretary and key staff to talk in detail about this statutory instrument. I completely concur with the comments of the Treasury Select Committee that these are sweeping powers which, under normal circumstances, I do not think anybody, in any part of this House, would dream of granting to a regulator. However, under the circumstances we would face in a no-deal scenario, it seems vital that the regulator has the ability to mitigate a crisis cliff edge for key parts of the financial services industry I note that in the guidance published by the Bank of England and the FCA last Friday, they will be attempting to limit the transitional period, as the Minister said, to 15 months, so that firms will manage within that 15-month period to go from where we are now, essentially—let us call it scenario A—to life outside the EU in a no-deal scenario, which we will call scenario B. It would give them some 15 months, typically, but with the capacity to extend that to two years if necessary. Also, the Bank of England has made exceptions for the bail-in rules, the stay in resolution rules and the FSCS rules, all of which relate closely to financial stability. We appreciate that it would be very hard to provide any transitional time for those rules and their consequences, but does the Minister have any comment to make around the significance of deciding on those three exemptions? Can he confirm that, if we were to have no deal and find ourselves in that reality and the regulators decided that the situation was better managed by finding some flexibility around these three rules, the regulator has given away the capacity to do so? Or does it retain an opportunity to change its mind and provide some mechanism for adjustment? One would hope that that was not necessary. Across the credit rating agency assessments, we will get only a 12-month extension, though I think all of us recognise that that is probably not problematic for any of the players In our discussion, as the Minister indicated, we asked for more frequent reporting than just 12 months from now. It seemed a bit like closing the stable door after the horse has bolted to wait for that period. We very much appreciate that the Treasury and the regulators have agreed that they can update us every six months: that is exceedingly helpful. We also appreciate the description that the Minister gave when he had to make a correction, which we perfectly accept is a very minor correction. The noble Baroness, Lady McIntosh, picked up the fact that the complexity here is extraordinary. It is very hard to predict, very hard to track and very hard to play through the scenarios and understand exactly how each needs to be handled, certainly in advance. So I think we might find ourselves trying to take advantage of the offer from the regulators of specific discussions if a particular issue arises. I am grateful again that the Minister has had a conversation with the regulators that led them to say that that will be open to us: it is exceedingly welcome This underscores the point of the noble Baroness, Lady McIntosh, about the extent to which, given all this complexity, there might be some way to provide some mapping of exactly what is happening where—what is moving and what is changing. That is a big ask at the moment, I understand, but if there could be some thought around that, it would be very useful, not just to this House and the other place but to the industry, which I am sure must be struggling with all this, although it very much appreciates the detailed engagement it has had with the Treasury, with Ministers and with the regulators. If we move to a practice of mapping under such circumstances, that might be a healthier environment to get to. It was one of our asks of the Minister that he felt he could not commit to at this point Our second ask was for some specific examples. My noble friend Lord Sharkey is unable to be here. He was particularly concerned to work through some specific examples in his head, so he may come back to ask for something more detailed. I particularly appreciated that the Minister gave an example of an issue that, as he knows, has exercised me: how do we manage the fact that our major financial institutions have significant exposure to EU and EEA assets and will incur higher capital ratios because they will no longer have preferred status if we leave on a no-deal basis? I was very glad that he gave us that particular example We very much hope that we do not have to use this, and it would be exceedingly helpful to know that we are not going to have no deal, because despite all the preparation that I understand is being done with real concentration and thought, it does not deal with the fact that there is going to be an almighty problem. I can see firms—all of them, though they are competitors—in different stages, different states with different micro-problems, all of which regulators are trying to manage so that there is no knock-on effect on financial stability or to the economy. It is going to be an extraordinarily difficult situation to manage, and anything we can do to make sure it does not happen will be extremely useful. If I can encourage anyone in this House to take no deal off the table, let me use this opportunity to do so.