Delegated Legislation Committee
Draft Jurisdiction and Judgments (Family) (Amendment etc.) (EU Exit) Regulations 2019 Draft Civil Partnership and Marriage (Same Sex Couples) (Jurisdiction and Judgments) (Amendment Etc.) (EU Exit) Regulations 2019
The Committee consisted of the following Members:
Chair: Sir David Amess
† Black, Mhairi (Paisley and Renfrewshire South) (SNP)
† Duffield, Rosie (Canterbury) (Lab)
† Frazer, Lucy (Parliamentary Under-Secretary of State for Justice)
† Goodwill, Mr Robert (Scarborough and Whitby) (Con)
† Hair, Kirstene (Angus) (Con)
† Herbert, Nick (Arundel and South Downs) (Con)
Lucas, Ian C. (Wrexham) (Lab)
† McGinn, Conor (St Helens North) (Lab)
† Maclean, Rachel (Redditch) (Con)
† McMorrin, Anna (Cardiff North) (Lab)
Malhotra, Seema (Feltham and Heston) (Lab/Co-op)
† Menzies, Mark (Fylde) (Con)
† Milling, Amanda (Cannock Chase) (Con)
† Peacock, Stephanie (Barnsley East) (Lab)
† Percy, Andrew (Brigg and Goole) (Con)
† Qureshi, Yasmin (Bolton South East) (Lab)
† Wragg, Mr William (Hazel Grove) (Con)
Medha Bhasin, Committee Clerk
† attended the Committee
Ninth Delegated Legislation Committee
Wednesday 30 January 2019
[Sir David Amess in the Chair]
Draft Jurisdiction and Judgments (Family) (Amendment etc.) (EU Exit) Regulations 2019
I beg to move,
That the Committee has considered the draft Jurisdiction and Judgments (Family) (Amendment etc.) (EU Exit) Regulations 2019.
With this it will be convenient to consider the draft Civil Partnership and Marriage (Same Sex Couples) (Jurisdiction and Judgments) (Amendment etc.) (EU Exit) Regulations 2019.
As always, Sir David, it is a pleasure to serve under your chairmanship. The two draft instruments form part of the Government’s preparations for the event that the UK should leave the EU without a deal. They relate solely to our no-deal preparations.
The Jurisdiction and Judgments (Family) (Amendment etc.) (EU Exit) Regulations relate to the arrangements in family law that will apply when we leave the EU. They deal with the rules that determine which court should hear a family law matter, and they cover co-operation between the courts in the recognition of the judgments of EU courts. They will repeal the EU rules, because the reciprocity of those rules across member states will be lost when the UK leaves the EU; EU member states will no longer apply them to cases that involve the UK. The relevant matters will be governed instead by existing international conventions and a combination of new and pre-EU domestic rules.
Before I go into the detail of the draft regulations, it may be helpful if I outline the existing arrangements in the EU in respect of the law on this area. There are two applicable EU regulations: the Brussels IIa regulation and the maintenance regulation. The Brussels IIa regulation provides the rules that determine which court has the jurisdiction to hear various family cases—for example, whether a divorce hearing in a case with a cross-border element should take place in the UK or in another EU member state. The regulation covers divorce and matrimonial disputes; parental responsibility disputes, such as disputes between parents over the residence of their child or contact with their child; and care proceedings. It also provides for the recognition and enforcement of one member state’s judgment in all member states. Similarly, the maintenance regulation sets out rules about which EU member states’ courts have jurisdiction in cross-border cases that concern family maintenance, and about the recognition and enforcement of judgments.
What will change if we leave the EU without a deal? Without an agreement to cover these matters, the Brussels IIa regulation and the maintenance regulation will no longer operate effectively between the UK and the EU. Even if the UK tried to apply those rules after exit, the EU27 would no longer be obliged to apply them in relation to the UK because we would be a third country. For example, they would not be required under the regulations to enforce or recognise decisions of courts in the UK. In the light of those circumstances, the draft regulations will revoke the Brussels IIa regulation and the maintenance regulation, but that does not mean that we will be left without rules on international co-operation.
The UK is a contracting state to a number of Hague conventions in the field of family law that cover many of the same areas as the Brussels IIa regulation and the maintenance regulation. In particular, the 1996 Hague convention covers similar ground to the Brussels IIa regulation in respect of jurisdiction, recognition and enforcement of judgments and co-operation between authorities in matters of parental responsibility. All EU member states are bound by that convention: the UK and all EU member states are contracting parties, so it applies between us and each of them.
I am confused by paragraph 7.3 of the explanatory memorandum to the draft family regulations, which states that the
“instrument amends domestic law so that the 1973 Hague Convention…will again operate between the UK and those EU Member States party to them where appropriate.”
Are all EU states party to the convention, or are there cases in which certain countries are not?
There are the Hague conventions of 1970 and 1996. All EU member states are party to the 1996 convention. In addition, we have the 2007 Hague convention, which contains similar recognition and enforcement rules and provisions on co-operation between authorities as those in the maintenance regulation, and which applies to all EU member states except Denmark.
We have ensured that the UK will, in the event of a no-deal exit, be a contracting state under the 2007 Hague convention after exit. We will continue to use the wide rules in the Family Law Act 1986 for the recognition in the UK of overseas divorces, and those in the Civil Partnership Act 2004 for the recognition of such dissolutions. There will be some gaps in coverage and the potential loss of effectiveness and efficiency. In particular, there is no Hague convention covering the grounds of jurisdiction for divorce or maintenance.
For jurisdiction in maintenance cases, the draft statutory instrument makes provision to return, therefore, to the rules of common law or statutory rules that operated before the maintenance regulation and other relevant instruments came into force. We will also amend our common law in relation to the jurisdiction for divorce cases. The Brussels IIa jurisdiction grounds presently apply to all cases, regardless of whether there is any overseas connection or whether any overseas connection is to an EU member state or to a state outside the EU.
Those grounds have applied for a long time and will have the benefit of familiarity, having been tried and tested. We will replicate in domestic law the applicable Brussels IIa grounds for England and Wales and Northern Ireland, and make a further ground of sole domicile applicable to all cases.
I am grateful to the Minister for indulging me. To be absolutely clear, does this mean that there will be some EU states with which we will not have a framework for the recovery of such payments, or is it a blanket framework that every EU country will be under?
I understand that all member states sign up to the Hague convention. In fact, the EU signs up to the Hague convention, and therefore the member states are signed up as parties under the umbrella of the EU.
There are a number of additional matters to raise. In relation to the first statutory instrument, we are very grateful to family law practitioners for raising two issues about maintenance that we are urgently considering. Both are technical and complex. The first relates to jurisdiction and remedies under the Children Act 1989 and whether, in returning to the pre-EU position, the instrument has inadvertently narrowed the jurisdiction of the English and Welsh courts and the type of financial awards they can make. The Government’s position is that the current position is appropriate, and there is no intention to reduce or narrow the provision available to families. The Government will bring forward a further SI to address that.
The second issue relates to whether, post exit, an English or Welsh court will have the power to rule on pension-sharing arrangements in cases where a person does not have a connection to England or Wales but is unable to bring the claim elsewhere. Although only a small number of cases will be affected, we will consider whether that issue should be addressed.
I shall now deal with the draft Civil Partnership and Marriage (Same Sex Couples) (Jurisdiction and Judgments) (Amendment etc.) (EU Exit) Regulations 2019. The UK Government’s position has always been that we will apply the same rules on jurisdiction, recognition and enforcement to same-sex divorce and civil partnership dissolution as we do to opposite-sex divorce.
As Brussels IIa does not apply in relation either to civil partnership dissolution or to divorce between same-sex couples, our domestic law mirrors the relevant provision for those cases. It is entirely appropriate to take a similar approach to determining jurisdiction, recognition and enforcement as that taken for opposite-sex couples. That is what the regulations will do.
Many of us in this place would like civil partnerships to be extended to different-sex couples. Would further changes to the regulations be required for their provisions to apply in such cases, or would that happen automatically if we extended civil partnerships to non-same sex couples?
That is a matter that we would consider at the appropriate time, but my right hon. Friend makes a very good point. We are looking at those issues and are committed to them.
In conclusion, without a deal in place, there would be no overarching framework between the UK and the EU, as there is under existing mechanisms. We are therefore ensuring that, if we leave without a deal, our legal system will continue to work effectively for our citizens through the international arrangements we have in place and by going back to common law. If Parliament approves the withdrawal agreement, which includes an implementation period, and passes the legislation necessary to implement that agreement, the Government will defer the coming into force of these instruments until the end of the implementation period. If a deal on our future relationship is reached, we envisage that the instruments will be revoked in their entirety.
It is a pleasure to serve under your chairmanship, Sir David. We will abstain on both statutory instruments. Colleagues will be relieved to hear that most of my comments will relate to the draft family regulations; we understand the need for the draft civil partnership and marriage regulations, and I have no observations on them.
It is important to observe that the draft family regulations will ensure that the existing reciprocity between EU member states and the United Kingdom in matters pertaining to marriage, divorce, annulment, parental responsibility and maintenance no longer applies after exit day. The draft regulations make some provision for cases that start before exit day. Disappointingly, however, an impact assessment for the instrument has not been published.
We would support the draft regulations in the event of no deal, as it would be inappropriately unilaterally to continue those mechanisms. However, the scale of the loss of international functionality in family law in the event of no deal must be stressed. The lives of UK and EU27 citizens have become intertwined over the past 40 years. There are approximately 1 million British citizens living in other EU member states, and some 3 million EU nationals living in the United Kingdom. To illustrate the scale of all this, at the moment there are approximately 16 million cross-border disputes on family law matters, 14,000 international divorces and approximately 1,800 child abduction cases in the European Union.
Currently, families in the UK have the following benefits. The regulation on mutual recognition of protection orders helps to enforce orders made to protect victims of domestic violence or harassment across borders. The European enforcement order provides a streamlined procedure for enforcing uncontested claims, for example where there has been an out-of-court settlement, which is extremely useful. The maintenance regulation provides for a series of measures aimed at facilitating the payment of maintenance claims in cross-border situations.
The Brussels II regulation allows mutual recognition of divorce orders, decides the jurisdiction and forum of divorce cases, and promotes close collaboration of courts and national welfare authorities in matters of children and jurisdiction, recognition and enforcement of children orders, child protection and child abduction. Brussels II also provides an automatic system of recognition of contact orders; ensures easier enforcement of child arrangement orders, which decide where a child lives and how much time they spend with each parent; and allows cases to be transferred to the court that is best for the child and the case.
If we were to leave without a deal, we would have to fall back on the international arrangements, which are not as comprehensive. While we are pleased that the 2007 Hague convention has been signed by the United Kingdom in its own right, rather than through its European Union membership, and while I hear what the Minister said about signing up to various international conventions meaning that the situation would not be as bad, they are limited as to what they can do. Our current arrangements are far superior, very easy and straightforward.
One of the issues is that the arrangements that we will have to fall back on—the international agreements or the common law—were often something that only affluent people could have afforded. People who have lower incomes, do not have access to decent legal aid or are vulnerable adults are the ones who will suffer the most, because they do not have the resources or knowledge to deal with such cases.
I totally agree with my hon. Friend, which is why I alluded to that issue earlier. Without a formal assessment by the Ministry of Justice, which I hope it will carry out, we can say that under the current arrangements seamless laws are applied and we do not have to worry about getting judgments or orders. Of course, most people are able to take advantage of those arrangements, especially—to reiterate what I said earlier—people who do not have much money or assets and vulnerable adults. Those people are able to access their rights, which they will not be able to do in the same way once we exit the European Union.
Leaving the European Union without a deal will cause a tremendous amount of problems for many families and people across the United Kingdom, especially people who are not financially well off, those who are on benefits and those who cannot access legal aid. They are going to have a horrific and horrendous time.
I want to start by saying that I appreciate that the instruments are very dense and technical. Will the Minister write to me to clarify a couple of things? The part that particularly concerns me is child maintenance. I would like clarification that child maintenance comes under the Hague convention and that there will be no EU member states where we do not have a framework in respect of child maintenance in particular. I appreciate that that is something that the Minister can go away and find out.
I am keen to find out exactly when it is intended that the full impact assessment will be published, as was said by the hon. Member for Cardiff North. If we do not have a date for the full impact assessment, I would appreciate the reasoning behind why we are ploughing on ahead when we have not had the chance to review things properly.
At the moment, I am still going to vote against the motions, for the simple reason that I find it incredible that neither of the instruments has been subject to formal consultation, when we have such an unprecedented event about to happen. That is the first thing that is a real red flag for me.
I also find it incredible that there are no plans to issue any guidance. The explanatory memorandum to the draft family regulations says that the Government have spoken to
“law stakeholders and leading family law practitioners”,
but at the bottom of the same page it says,
“rules on divorce etc…and parental responsibility legal aid will require relevant businesses, charities and voluntary bodies to familiarise themselves and adjust their administrative arrangements to deal with the new rules.”
The Government themselves recognise that the regulations will have a huge impact on many bodies that people are incredibly reliant upon.
I understand the hon. Lady’s point on consultation. However, the Government are surely trying to maintain the current situation. Governments consult when changing things, but the Government are currently endeavouring to ensure that, following Brexit—whether with a deal or without a deal—people can maintain their rights and maintain the same opportunities to bring cases, whether on child maintenance or divorce.
I fully appreciate the right hon. Gentleman’s point, and I have to say that, in essence, I agree. It is the job of Government to try to think of things that will actually work. However, with the greatest of respect, the Government have had the last two years to organise all this. To be doing it at the last minute, without providing enough information, is not good enough. The attitude is almost, “This will have to do,” because we are near the deadline. I find it hard to see how the Government can assure us that the statutory instruments will have a positive impact, when their one reason is that there will be workable rules. That is like saying, “Och, at least we have something.” I am really unimpressed with what has been provided. It is certainly not enough to change my mind at this moment in time.
With the greatest of respect, the Government are not exactly renowned for their transparency or for keeping their opinion the same on everything. With that in mind, the draft instruments do nothing to inspire me with confidence. They are not good enough and they are not adequate to fill the gap, so I will have to vote against them.
Thank you for the opportunity to reply, Sir David.
The hon. Member for Bolton South East was absolutely right to identify the importance of this area. Three million EU nationals live in this country, and the EU has recognised that if we move forward with a deal, it would be interested in co-operating in this area, such is the importance of family law.
I will touch on a couple of important points that were made by Members from across the Committee. On guidance, the Government released a technical notice last September dedicated to civil judicial co-operation that set out what will be our approach in the event that we are unable to reach a deal, so people have had some time to analyse our approach and to think about it carefully.
There has been the suggestion that we have not done a formal consultation. I assure Members and the public that my Department has engaged fully with legal practitioners and the judiciary to understand these complex areas. We have a Brexit Law Committee that advises us, comprised of professional lawyers—both barristers and solicitors—and representatives from the City and the judiciary. It has sub-committees, including a family sub-committee, which regularly meets my officials. I have also done a roundtable on family law matters, to ensure that the difficult issues we face are dealt with.
I appreciate the Minister’s giving way; she has been very kind to me throughout our proceedings. However, we can only go by what is in front of us. I have no doubt that the Minister has a jam-packed diary, but the explanatory notes to the draft family regulations clearly say:
“There has been no formal consultation on this instrument.”
Given the importance of the kind of stuff we are talking about, we need more than that to be able to support the draft instruments.
I understand what the hon. Lady says. While there might not have been a formal consultation, in the governmental sense, I assure her that we look at these issues with professionals, internally and externally, to ensure that we take the right course.
There are impact assessments. They are published online with the draft instruments themselves. I am happy to share those with any Member. My officials have undertaken a full impact assessment for these draft instruments, which found that we should expect a cost increase for Her Majesty’s Courts and Tribunals Service, because we expect case volumes to increase and there might be the risk of parallel proceedings in other EU countries. However, we are taking steps in relation to those matters.
On the point the hon. Member for Paisley and Renfrewshire South made about the 1970 Hague convention on divorce and legal separation, it is true that only 12 EU member states are party to it. The convention was implemented in the UK by the Family Law Act 1986. Its rules allow generous recognition provisions for overseas divorces to be recognised in the UK, whether or not the country in which the divorce was granted is a party to the 1970 convention, providing minimum criteria are met. We have been clear that, regardless of the outcome of Brexit, we will support developing the scope and coverage of international family law conventions, including the 1970 divorce recognition convention.
To assuage the concerns of the hon. Member for Paisley and Renfrewshire South about Scotland specifically, Scotland is not necessarily taking the same approach as England, Wales and Northern Ireland to all such matters. The draft family regulations revoke Brussels IIa for England and Wales and Northern Ireland; it does not revoke it for Scotland, except for the provisions of Brussels IIa relating to the child abduction override—otherwise, Scotland is making its own provisions. The instrument revokes the maintenance regulation for all parts of the UK, except in relation to ongoing proceedings. Obviously, the Hague convention issue will apply across the UK.
I hope that I have dealt with the points that have been made. If any remain, or if there are others, I am happy to write to Members. I therefore recommend that the provisions of the draft statutory instruments become law.
Draft Civil Partnership and Marriage (Same Sex Couples) (Jurisdiction and Judgments) (Amendment etc.) (EU Exit) Regulations 2019
Motion made, and Question put,
That the Committee has considered the draft Civil Partnership and Marriage (Same Sex Couples) (Jurisdiction and Judgments) (Amendment etc.) (EU Exit) Regulations 2019.—(Lucy Frazer.)
Draft Motor Vehicles (International Circulation) (Amendment) (EU Exit) Order 2019
The Committee consisted of the following Members:
Chair: Mr Nigel Evans
† Afolami, Bim (Hitchin and Harpenden) (Con)
† Blunt, Crispin (Reigate) (Con)
† Day, Martyn (Linlithgow and East Falkirk) (SNP)
† Donelan, Michelle (Chippenham) (Con)
† Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op)
† Foxcroft, Vicky (Lewisham, Deptford) (Lab)
† George, Ruth (High Peak) (Lab)
† Green, Chris (Bolton West) (Con)
† Harrison, Trudy (Copeland) (Con)
† Jayawardena, Mr Ranil (North East Hampshire) (Con)
† Knight, Sir Greg (East Yorkshire) (Con)
† Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con)
† Murray, Ian (Edinburgh South) (Lab)
† Nandy, Lisa (Wigan) (Lab)
† Norman, Jesse (Minister of State, Department for Transport)
† Sheerman, Mr Barry (Huddersfield) (Lab/Co-op)
† Turner, Karl (Kingston upon Hull East) (Lab)
Matthew Congreve, Mariam Keating, Committee Clerks
† attended the Committee
Tenth Delegated Legislation Committee
Wednesday 30 January 2019
[Mr Nigel Evans in the Chair]
Draft Motor Vehicles (International Circulation) (Amendment) (EU Exit) Order 2019
I beg to move,
That the Committee has considered the draft Motor Vehicles (International Circulation) (Amendment) (EU Exit) Order 2019.
It is a great pleasure to serve under your chairmanship, Mr Evans. Following the UK’s decision to leave the EU in the 2016 referendum, the Government have been working tirelessly to develop a positive future relationship with the EU. The Department for Transport is currently working on the mutual recognition of driving licences and the possibility of achieving an agreement with EU member states. We must prepare for all scenarios, however, and that is what this draft legislation does.
If approved, the order will enable a charge of £5.50 for an international driving permit, to be levied for an IDP issued in the format specified in the 1968 Vienna convention on road traffic. The document will guarantee the recognition of UK driving licences after exit day, and recognise 1968 format IDPs when presented by overseas visitors to Great Britain, in the same way that this country already does for IDPs issued under the earlier 1949 Geneva convention on road traffic and the 1926 Paris convention on motor traffic.
Paragraph 7.2 of the explanatory memorandum refers to two conventions: the 1968 convention and the 1949 convention. If someone applies for an international driving permit, will it cover only one of those conventions, or will it be a dual-purpose permit that covers both?
My concern is that most British holidaymakers go to Spain—it is the No. 1 destination—but, as I understand it, Spain is covered by the 1949 convention and not the 1968 convention. Someone who wishes to go to Spain and who applies for the 1968 convention permit will therefore not be allowed to drive in Spain. I am anxious that the public are not misled, with ensuing chaos.
My right hon. Friend’s point is well taken; he is absolutely right to point out that Spain is governed by the other convention. People travelling to Spain will need that IDP. If they are travelling to Spain through France, they will need an IDP for both countries. That is well set out on the Post Office website and other websites, including gov.uk. We hope that will do a lot to alleviate any possible concerns.
The document would guarantee the recognition of UK driving licences after exit day and will also recognise 1968 format IDPs when presented by overseas visitors to Great Britain, in the same way we already do in this country for IDPs issued under the earlier 1949 Geneva convention and the 1926 Paris convention. All formats of IDP will cost £5.50, which, it is important to emphasise, is a charge that has not increased since 2004.
Although UK nationals will not be required to purchase an IDP if, as we expect, this country achieves agreements across the EU, the amendment is still required as the 1968 format IDP will be required to guarantee licences when driving in over 75 countries outside the EU. It is therefore important that the amendment is approved, since the 1968 Vienna convention will still come into force on 28 March 2019, irrespective of whether the UK ceases to be subject to EU law on 29 March or at the end of the implementation period.
I apologise to the Minister for arriving late; my Whip sent me to Committee Room 12, where I sat rather bemused because the wrong statutory instrument was being discussed.
This issue is becoming increasingly complicated, is it not? Yesterday I had a delegation from the insurance industry in my office. They pointed out that the green card that goes with the driving licence will not be valid after we leave the European Union, which means that no British driver in Europe will be protected against being hit by an uninsured driver. Does that not make life very dangerous for anyone from this country intending to drive in Europe?
The fact of the matter is that, at the moment, many countries may be required to recognise it by law, but on the ground they may not do so. One of the effects of an IDP is precisely to give a recognisable, international-standard document that allows any police or enforcement agency to see under what licensing arrangement the person is travelling. There is no doubt a slight increase in the complexity, which is a result of the requirement needed to exit the EU. However, this provision is activated only in the unlikely contingency that we do not have an EU-wide relationship that allows for mutual recognition, but we fully expect to.
Will the Minister meet the insurance industry? They are exercised about this. If someone gets hit by an insured driver in Britain, there is a security that automatically delivers protection. The one called the green card for people driving in Europe will end, so every driver from Britain who goes through continental Europe will be at risk of being hit by an uninsured driver with no insurance cover. Will he assure me that he will meet the insurance industry to talk about that?
I have learned over many years that interventions from the hon. Gentleman are rarely short, and this has been no exception. I meet the insurance industry very regularly, and I promise him that its representations have not been unheard or unmade in this context. He is right to highlight them, but they are only one part of the wider picture. This order has no direct effect on insurance as such; it is about the driving permits themselves.
UK motorists drive to Europe every year, using ferries or the Eurotunnel, and they drive in Europe, whether for business or leisure. UK holidaymakers rightly want the option of hiring a car while abroad. Although the Government are still in the process of achieving agreements with the EU, as I have described, we are committed to minimising disruption to UK motorists following our exit. The Department is taking the appropriate measures to facilitate that.
The 1968 convention facilitates international road traffic and increases road safety through consistent traffic rules. In preparation for exit day, this country ratified the 1968 Vienna convention on 28 March 2018. That international agreement will come into force one year later, on 28 March—the day before the UK leaves the EU. Following exit day, the convention will guarantee the recognition of UK vehicles and driving licences when used in 23 EU member states, plus Norway and Switzerland and more than 70 other countries globally. The earlier 1926 and 1949 conventions also remain in place, guaranteeing UK licences in four EU member states, plus Iceland and more than 40 countries globally, including Japan and the USA, if the motorist presents the supporting IDP with their driving licence.
My right hon. Friend is absolutely right to ask that question—as he can imagine, it was the first question that I and officials asked. It is not possible in law because of the nature of the conventions and the relationships they bear to one another. We are fettered by the way in which the international structure of those conventions works. I would like nothing better than to have a consolidated format that could be applied for, but unfortunately it is simply not possible because of the way the treaties work.
The changes made by this statutory instrument will provide certainty for UK motorists driving in the EU following exit day in a no-deal scenario. The SI specifically will amend provisions of the Motor Vehicles (International Circulation) Order 1975 to implement provisions of the 1968 convention concerning IDPs. These amendments will extend the 1975 order to the 1968 format IDP and extend the power to charge a fee for the issue of IDPs to IDPs issued under the 1968 convention in addition to those issued under the earlier conventions. The 1968 format IDP will cost £5.50 and will be valid for three years. This amendment therefore ensures that UK motorists can exercise their international legal rights to drive in the countries that are party to the 1968 convention once it comes into force for the UK on 28 March of this year.
The amendments also provide for the recognition of a 1968 IDP issued to non-UK residents by another country that is party to the convention, for those who may be temporarily visiting the UK. Although the UK will continue to recognise both EU and non-EU driving licences for up to 12 months, IDPs may provide immediate recognition and legitimacy at the roadside if the licence is not printed in the Roman alphabet. While we are still seeking agreements with member states on licence recognition and exchange, the SI will ensure that IDPs provide certainty for UK motorists who seek to travel in the EU following exit day.
IDPs under previous international conventions have been issued for many years, so the concept is not new, but the SI will expand the number of countries in which IDPs can be used and will enable the Government to issue a document covering them for the 1968 convention. The 1968 format IDP has a longer validity period and therefore reduces the frequency of reissue. To ensure that UK drivers will be able to get hold of these documents, we have significantly increased the numbers of issuing post offices: from this Friday—assuming that the Committee is content with the SI—2,500 post office branches will be issuing the document to licence holders, a huge increase compared with the 89 post offices that issue them today. I hope that colleagues will join me in supporting the order, which I commend to the Committee.
It is always a pleasure to see you in the Chair, Mr Evans, and a privilege to serve under your chairmanship. This instrument is necessary. As we have heard, it applies specifically to international driver permits for those UK residents driving within EU member states, but, as we have also heard, there is a cost to it, because those applying for a permit will have to pay a fee. It is only necessary if we leave the European Union without a deal, which is why the Prime Minister should categorically make it clear that we will not be leaving without a deal.
We support the instrument, but I have one or two questions for the Minister. First, is the Department ready with any additional resources that might be required to administer permit applications? Secondly, what will that additional administrative cost be? Thirdly, we are very close to leaving the European Union—I happen to believe that it is a terrible mistake, frankly, but the reality is that the date looms very large indeed—so is the Department ready to provide guidance to members of the public who will, in my view unnecessarily, have to apply for these permits?
It is a pleasure to serve under your chairmanship, Mr Evans. I am grateful for the summaries from the Front-Bench spokespersons. I have one question, which the Minister partially answered by indicating that there would be 2,500 post offices geared up by Friday. In July last year the Department suggested that up to 4,500 post offices could be issuing the permits, so could the Minister update me on whether that will be rolled out to the others, and on the timescale for doing so?
Does anyone else wish to speak?
I think, Mr Evans, that the decisive and energetic interventions have exhausted the volcanoes on my side of the Committee. I am grateful to the Opposition and Scottish National party spokesmen for their contributions and for their support for this small but important piece of legislation. I am sure that the hon. Member for Kingston upon Hull East will understand that this is not the place to rehearse the already considerable arguments over the benefits or no of no deal, but I will pick up on the three specific points he raised about the order.
The hon. Gentleman asked whether the Department is ready with additional resourcing. As he will be aware, the vast preponderance of the resourcing for this falls on the Post Office. To pick up on the point made by the hon. Member for Linlithgow and East Falkirk, we have talked historically about up to 4,500 post offices. The first 2,500 of them are primed and ready to go; were it required, in the case of extreme levels of demand, we would be able to go to 4,500, but it is a staged process. That seems sensible, because at the moment we issue about 110,000 IDPs a year. Obviously that will go up, for reasons that hon. Members have described, but we want to be able to address whatever the demand may be, and we have made that contingency arrangement.
The price of £5.50 has been set on a cost recovery basis and therefore covers the cost involved. With regard to DFT guidance, the hon. Member for Kingston upon Hull East will be aware that it is already on the gov.uk website, on post office websites and on the AA and RAC websites, at least—I am sure that other motoring organisations will feature it in due course. There will be no absence of available guidance for people who are making journeys. Of course, it is widely understood that one of the effects of Brexit may be to create some complications for international travel, so we expect that guidance to be widely sought and reviewed.
I am grateful to the Minister for giving way again; the volcano is not entirely exhausted. Does he have any plans to introduce an international driving permit app or to make the permit available so that motorists can have it on their phone, rather than needing to carry a paper copy around with them?
That is a very interesting and helpful suggestion. As my right hon. Friend will be aware, at the moment it is not possible to apply online for the 1968 convention permit. We are therefore unable to offer that service, because the format is determined by the conventions, but I am very grateful to him for that constructive suggestion, and I will ask officials to look again at whether the applicable law may permit something. I recognise, and I am sure the Committee recognises, that that would have considerable value. I will leave it there. I am grateful for all the interventions that have been made and for the support of the Opposition parties and my own colleagues.
Question put and agreed to.
Draft Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 Draft Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019
The Committee consisted of the following Members:
Chair: Mr Adrian Bailey
† Berger, Luciana (Liverpool, Wavertree) (Lab/Co-op)
† Blackman, Kirsty (Aberdeen North) (SNP)
† Bridgen, Andrew (North West Leicestershire) (Con)
† Davies, Chris (Brecon and Radnorshire) (Con)
† Dodds, Anneliese (Oxford East) (Lab/Co-op)
† Glen, John (Economic Secretary to the Treasury)
† Green, Kate (Stretford and Urmston) (Lab)
† Jones, Darren (Bristol North West) (Lab)
† Knight, Julian (Solihull) (Con)
† McGovern, Alison (Wirral South) (Lab)
† Robinson, Mary (Cheadle) (Con)
† Smith, Jeff (Manchester, Withington) (Lab)
† Stevenson, John (Carlisle) (Con)
† Stewart, Bob (Beckenham) (Con)
† Tracey, Craig (North Warwickshire) (Con)
† Walker, Thelma (Colne Valley) (Lab)
† Whittaker, Craig (Lord Commissioner of Her Majesty's Treasury)
Jack Dent, Committee Clerk
† attended the Committee
Eleventh Delegated Legislation Committee
Wednesday 30 January 2019
[Mr Adrian Bailey in the Chair]
Draft Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019
I beg to move,
That the Committee has considered the draft Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019.
With this it will be convenient to consider the draft Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019.
It is a pleasure to serve under your chairmanship, Mr Bailey.
As the Committee is aware, the Treasury has been undertaking a programme of legislation to ensure that if the UK leaves the European Union without a deal or an implementation period, there will continue to be a functioning legislative and regulatory regime for financial services in the UK. To deliver that, the Treasury is laying statutory instruments under the European Union (Withdrawal) Act 2018, and a number of SI debates have taken place in this place and in the House of Lords. The draft SIs to be debated today are part of that programme. The approach taken in this legislation aligns with that in other SIs laid under the Act, providing continuity by maintaining existing legislation at the point of exit but amending where necessary to ensure that it works effectively in a no-deal context.
The subjects of the two sets of draft regulations being debated together today are collective investment schemes and long-term investment funds. The draft SIs relate to the management, administration and marketing of investment funds, which are investment products created to pool investors’ capital and invest it in financial instruments such as shares, bonds and other securities.
Within the EU, the framework covering regulated funds predominantly sold through retail investors is provided by the directive on the undertakings for collective investment in transferable securities, commonly known as UCITS. Long-term investment funds are a sub-category of alternative investment funds that promote long-term investment such as in infrastructure, small and medium-sized enterprises and real assets. They are often sold to institutional investors, such as pension funds.
Alongside the regulations on alternative investment fund managers, on venture capital funds and on social entrepreneurship funds that were approved by this House on 16 January and in the other House on 22 January, the draft instruments under discussion will ensure a functioning UK investment fund regime if we leave the EU without a deal.
In a no-deal scenario, which is not the policy or aspiration of the Government, the UK would be outside the single market and outside the EU’s legal supervisory and financial regulatory framework. Therefore, retained EU and domestic law relating to the regulation of UCITS and long-term investment funds needs to be updated to reflect that, to ensure that the provisions work properly in a no-deal scenario.
I will first outline the changes in the collective investment schemes regulations. Overall, this instrument will maintain the investment rules of UCITS, as set out in the EU directive. However, it will make changes to address deficiencies and to ensure a functioning regime. First, the draft regulations remove references to the Union and to EU legislation, which will no longer have legal effect, replacing them with references to the UK and UK legislation where appropriate. That includes removing references to the passporting system and binding requirements for information sharing. The instrument will also establish a distinction between the UCITS regimes in the UK and the EU. Funds authorised in the UK will be called UK UCITS.
Secondly, all UK UCITS must have a depositary that is incorporated in the UK or another European economic area state. Currently, it is possible for an EEA firm to establish a branch in the UK and to carry out the functions of a depositary. To ensure proper regulatory oversight, however, the draft instrument will remove that provision and will instead ensure that all depositaries of UK UCITS are incorporated in the UK.
Similarly, the instrument will ensure that management companies of UK UCITS are incorporated in the UK, whereas currently they may be incorporated in the UK or another EEA state. However, to align the changes with the temporary permissions given to EEA firms passporting into the UK by the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018, the draft regulations provide a transitional arrangement so that the requirements for managers and depositories of UK UCITS to be incorporated in the UK do not affect such depositories or managers if they have temporary permission to operate in the UK.
Thirdly, the draft regulations will transfer the power to make binding technical standards from the European Securities and Markets Authority to the Financial Conduct Authority. As the UK’s national competent authority within the EEA, the FCA is already responsible for supervising investment funds and has extensive expertise and experience making rules relating to the sector. The draft regulations will give the FCA the power to specify the information that the operator of the fund must provide to the FCA for the operation of a UCITS fund.
To offer continuity for EEA funds and the UK customers they service, the regulations create a temporary marketing permissions regime for EEA UCITS to continue to market into the UK. That was part of the announcement by the Government in December 2017 to create a temporary permissions regime for EEA firms and funds. It will allow an EEA UCITS that currently markets into the UK under a passport, and subsequent new sub-funds of an existing umbrella fund, to continue to market to UK customers, as it could before exit day, for a period of up to three years.
Following an assessment by the FCA on the effect of extending or not extending the period, the Treasury will have the power to extend the period for a maximum of 12 months at a time, in line with other transitional regimes that have been put forward. In order to ensure transparency in the process, the Treasury will make a written ministerial statement to both Houses in the event of the Treasury seeking to extend the temporary power, prior to any statutory instrument being laid.
By the end of the temporary marketing permissions regime, the fund will need to gain recognition to continue to market to retail investors in the UK, as any other third-country fund is currently required to do. That will be under the current procedure outlined in section 272 of the Financial Services and Markets Act 2000. The Government are committed to reviewing the process and bringing forward legislation as necessary to ensure the UK can continue to efficiently recognise overseas funds.
The draft regulations also amend the Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018, to bring forward the commencement date of the provisions relating to the temporary marketing permissions regime for alternative investment funds. That will allow the FCA notification window to operate as intended and at the same time as the regime outlined in the regulations.
I move on to the draft long-term investment funds regulations. Long-term investment funds are a further sub-category of alternative investment funds, which was introduced in 2015. However, it has to be said that the take-up across the EEA has been extremely limited. The FCA states that, as of December 2018, there are currently no such funds set up in the UK and therefore we believe there will be no impact on businesses or consumers. However, in line with the Government’s approach to European legislation and powers granted under the withdrawal Act, the regulations ensure that there is a functioning framework for long-term investment funds in the UK.
Like the collective investment schemes regulations, this SI maintains the existing investment rules for funds domiciled in the UK and addresses any deficiencies in legislation, including removing references to the EU and replacing them with references to the UK. It will also create a UK-only label of “long-term investment fund” to reflect that these funds will be in the UK and subject to UK rules.
Finally, as long-term investment funds are a sub-category of alternative investment funds, EEA managers of European long-term investment funds will be able to make use of the temporary marketing permissions regime for alternative investment funds, as legislated for in the Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018, debated earlier this month. The Treasury has been working extremely closely with the FCA in the drafting of the instrument and has engaged with the financial services industry and will continue to do so. In November and December 2018, the Treasury published the instruments in draft, along with explanatory policy notes, to maximise transparency to Parliament and industry.
In summary, the Government believe that the proposed legislation is necessary to ensure that there is a functioning investment funds framework in the UK, which would provide continuity for UK investors and our asset management sector should we leave the EU without a deal or an implementation period. I hope colleagues from different parties will join me in supporting these regulations, which I commend to the Committee.
It is a pleasure to serve on the Committee with you in the Chair, Mr Bailey. I am very grateful to the Minister for his explanatory remarks. Once again, I sit opposite him to discuss a statutory instrument that would make provisions for a regulatory framework after Brexit in the event that we crash out without a deal, which I hope is less likely following the House’s decision last night. On each previous occasion, my Labour Front-Bench colleagues and I spelled out our objections to the Government’s approach to secondary legislation.
The volume and flow of secondary legislation on our exiting the EU is deeply concerning for accountability and proper scrutiny. The Government have assured the Opposition that no policy decisions are being taken, but establishing a regulatory framework inevitably involves matters of judgment and raises questions about resourcing and capacity. Secondary legislation ought to be used for technical, nonpartisan and uncontroversial changes, because it allows limited accountability. Instead, the Government continue to push through contentious legislation with high policy content by using this vehicle. As legislators, we have to get this right. These regulations could represent real and substantive changes to the statute book, so they need proper, in-depth scrutiny. In this light, the Opposition want to put on record our deepest concerns that the process regarding these regulations is not as successful and transparent as it should be.
The Minister spelled out the fact that the first SI relates to the 2009 UCITS directive, which sets out a common set of standards for investor protection for regulated investment funds that can be sold to retail investors in the EU. The directive established a passporting system to enable UCITS to be marketed and sold to the general public throughout the EU, and to enable UCITS management companies to manage UCITS that are located in other member states. The directive was transposed into UK law through domestic legislation and FCA rules. Many would say that the directive has been successful: it has facilitated far greater choice for investors, and I understand that there are now more than 10,000 funds available to UK investors as a result of the directive. Almost three quarters of those are passported in from the EU27 under the UCITS directive. A large number of non-UK UCITS funds are managed by UK businesses under the directive—by asset value, it is £1.8 trillion-worth out of the £9 trillion industry across Europe. Some £375 billion-worth of that is held by UK investors.
I should express my gratitude to the industry for providing me with those figures. It has indicated that in the event of a no-deal Brexit, UCITS funds from the EU27 could not be marketed to UK investors in a straightforward manner. Furthermore, it would not be easy to list UCITS exchange-traded funds on the London Stock Exchange. Given that this SI largely preserves the status quo on the availability of UCITS funds and exchange-traded funds—albeit temporarily—there is support in the industry for the intention behind it, because there would undoubtedly be problems under a no-deal Brexit.
None the less, the Minister needs to answer some questions on this SI. It is essential that we properly understand its impact—not least because, in common with so many others that we have considered in Committee, it uses secondary legislation to amend primary legislation, which is of course the definition of Henry VIII powers. In addition, the FCA and others have raised considerable concerns about unregulated collective investment schemes, or UCIS. Many of us have heard horror stories about these, with examples that have badly let down their investors or even operated as Ponzi schemes. In the circumstances it is essential that regulations are sufficiently encompassing and do not lead to unsophisticated investors being presented with overly risky products. At the same time, the asset management industry, particularly people who are involved with investment in UCITS, is an important part of the financial services industry. Given that the industry supports one in 10 jobs in our country, it is a matter of regret that our Government have failed to prioritise seeking a better deal for financial services as part of their negotiations, and that the quest for passporting rights was quickly dropped in favour of some form of equivalence. Of course, whether to agree that will be entirely in the European Commission’s gift.
That has already led to economic activity in this area shifting out of our country. Companies from Hermes Investment Management to Legg Mason, Janus Henderson Investors, Jupiter Asset Management and Polar Capital all appear to have created additional positions, functions or operations in the EU27 rather than the UK because of the need to secure service continuity for current and future investors. As I understand it, the issue of delegation, which is essential in this area, is still not fully resolved. It remains unclear on what basis UK companies will be able to manage investments for fund companies based in the EU27. I hope that the Minister updates us on when he expects the Commission to give ESMA the green light to enable concrete discussions to take place on that score.
My second question relates to the legal basis for the draft regulations. They are said to be made under both the European Communities Act 1972 and the EU (Withdrawal) Act. Surely it is rather peculiar to have those two parent Acts, given that one is about giving effect to EU law whereas the other is about inherited EU law. Perhaps the Minister can explain why those Acts form the basis for the draft regulations.
Thirdly, we have been provided with an impact assessment for the draft regulations, albeit we received it just this morning. Clearly that is better than nothing, but it gave us limited time to acquaint ourselves with the impact assessment.
Thank you. That impact assessment suggests there will be a need to charge inbound EEA passporting firms as third-country firms, but that to
“reduce the impact of leaving the EU on funds, the government has committed to reviewing Section 272,”
which governs this process. It adds:
“This will be done through a future legislative vehicle.”
It would be helpful if the Minister provided us with some details about that. Does he envisage that happening at the end of the three-year temporary permissions regime or at some other point? It would, of course, require legislative change.
I turn to the draft Long-term Investment Funds (Amendment) (EU Exit) Regulations. I am grateful to the Minister for explaining the basis for that instrument. As he explained, the EU regulation has been used far less than many would have hoped, given that it was intended to encourage long-term investment.
There are two issues with the SI. The first concerns empowerment of the FCA. My colleagues and I have frequently referred to the fact that the process of legislating for no deal has in many cases provided the FCA with unprecedented powers, potentially overshooting what is required to transpose the EU acquis. Indeed, colleagues will not have missed the conclusions by City A.M. following the recent Treasury Committee hearing on this subject; it stated that the process involves regulators being given “‘unprecedented’ powers”—its words, not mine. However, in this case, we seem to have undershooting, specifically in relation to the FCA’s powers to create a register of ELTIFs.
ESMA, the EU-level regulator, does not merely have the ability to create a register of ELTIFs; it is under a duty to do so. However, the draft regulations only empower the FCA to keep such a register; they do not require it to do so. There is a direct contradiction between regulations. Article 3 of the 2015 EU regulation on ELTIFs states:
“ESMA shall keep a central public register”.
The draft regulations do not just substitute “FCA” for “ESMA”; they give the FCA a power, rather than a duty, to keep a register. Regulation 6 states:
“The FCA may keep a central public register”.
I note the use of the word “may”, not “must” or “shall”. The Minister needs to explain that discrepancy before the Committee can accept this SI.
There seems to be a drafting mistake. The draft regulations seem to empower the FCA to designate ELTIFs as such across the EU, rather than empowering it to recognise them as such within the UK for the purposes of then recognising them as the new category of LTIFs. To try to explain this horrendously complicated area, I am going to differentiate my pronunciation of ELTIFs—European LTIFs—and LTIFs, the new category the Government suggest they are creating. This point is very difficult to explain without having the relevant pieces of legislation in front of us. The Minister will remember the comments of my hon. Friend the Member for Garston and Halewood (Maria Eagle) in a previous Committee.
I am grateful to the Minister for that clarification, if that is the case. However, even if it were not the case previously, there is a prima facie argument that it would be useful for Committees of this type to be able to see in the committee room the previous regulation and be able to compare it with what is being suggested. Otherwise, it is extremely hard for us to understand exactly what is being proposed in some of the very complex changes that are being implemented.
That difficulty had its apogee with the MiFID—markets in financial instruments directive—transposition regulation. I will not go into all the details; I have discussed the matter with the Minister many times. The Opposition had hoped to debate that subject on the Floor of the House because it was recognised in that case that a Keeling schedule was necessary, effectively to track changes. It would be helpful for Members in all such Committees to be able to see the direct impact of changes from this no-deal legislation. Otherwise, it is very difficult to understand.
Even if the documentation that was made available to MPs beforehand related to the relevant legislation, that would be a slightly better position than the one we are in now, and it would not require a Government Minister actually to bring the legislation with him.
I absolutely agree with the hon. Lady. She is right that it would be helpful. In many cases, we are talking about the initial legislation, which itself was relatively complex and has often been amended. It would be useful for all of us during this complex process to have some aid in that regard.
In its amendment of article 5.1 of the EU regulation, the statutory instrument would give the FCA an extra-territorial power that it should not have. That is obviously fairly problematic because, whatever kind of Brexit occurs, ELTIFs will continue to exist under EU as well as UK law. It is EU-level authorities that will provide their initial designation for the EU27. To explain that quickly, articles 4 and 5 of the ELTIF regulation set out the conditions for the designation and authorisation of ELTIFs. In the draft regulations presented to us today, article 7 amends articles 4 and 5.1 of the EU regulation in quite a strange direction.
Article 4 refers to LTIFs, but article 5.1 talks about applications for authorisations of ELTIFs and says that application for authorisation as an ELTIF shall be made to the FCA, and sets out the process for application for LTIFs. I am sorry that this is very complicated but it underlines the confusing nature of the SI.
It seems that the proposed article 5.1 as amended is wrong because ELTIFs will continue to exist under EU law after Brexit. It will not be in the FCA’s gift to recognise and authorise them outwith the UK. We need just a small change to article 5.1, which should read: “An application for authorisation within the UK as an ELTIF shall be made to the FCA.” Will the Minister assure us that he will look into that and seek to amend the legislation accordingly, if that concern proves genuine and is not just my reading of the text?
I will make a few comments. My colleague on the Opposition Front Bench has spoken about various things, including the register of ELTIFs that the FCA will be empowered to hold. It would be useful if the Government, although not necessarily changing the wording from “may” to “shall”, would let us know whether it is their intention that the FCA hold the register.
If the Minister made a statement in that regard, it would make it clear whether it is the Government’s intention for the FCA to use the power that it will have. That would be helpful to the Committee’s understanding, and that of anybody poring over this legislation, of whether the FCA should be doing this or whether it is something it could get away with not doing. I am not suggesting that the FCA would try to get away with not holding a register, but if it does not have to, it might decide that doing so is less important. A Government statement on that would be incredibly helpful.
I will raise a couple of other things. In a recent Delegated Legislation Committee I raised draft legislation appearing on the Government website and individuals’ access to it. It did not feel as if I received a very good answer that time, so I will press the Minister on it again. How many people access draft legislation on that website? How many hits are there? Is it the case that only five people view it, or is it significantly more? The explanatory memorandum to the draft instrument says that it has been on that website. Knowing how many people accessed it would be helpful in our understanding of whether the Government publicise it enough and that people know about it and access it. That would be incredibly useful.
On the policy direction of the draft instrument, one thing it does—as do many things we are doing around no-deal planning—is remove reciprocity with the EU. I understand the desire for that in many cases, but it is not clear whether attempting to remove reciprocity is Government policy in all cases or whether they are prioritising some of these things for a reciprocal agreement with the EU. If it is the latter, it would be helpful for Ministers to make clear to us whether the Government will seek a standalone reciprocal agreement on these specific things, in order to make things smoother in the event of no deal. That is particularly the case with the recognition of what we are discussing. If the LTIF and ELTIF regulations are similar, at least in the initial stages, before there is any kind of regulatory divergence, the UK’s recognising EU certifications of these things on day one would be relatively sensible, rather than assuming that there has been divergence by day one, which we all know there will not have been.
I understand that the Minister will probably not have this information today, but it would be useful if in future Committees he could provide information on whether it is the Government’s intention to seek a reciprocal agreement on these specific standalone measures in the event of a no-deal Brexit. That may be less important for some of the draft instruments that are coming through and more important for those around flight, for example.
Finally, I am very pleased that the Minister ensured that the impact assessment was sent to us, although I am concerned about the short timescale available to look at it. I confess that I have not had time to look at it in nearly the level of detail that I would have liked, because we only received it this morning and I have been quite busy today.
However, the Minister was quite good in the last DL Committee on which we served in explaining the impact assessment process and how we reached the stage we are now at. My understanding is that they are drafted by the Treasury and then go to the Regulatory Policy Committee, which assesses whether they are fit for purpose. I received some information that basically suggests that that committee did everything it could to turn those assessments round in the quickest possible time, and did its best to comply when asked to do so in a truncated timescale. The impact assessments sent to the committee by the Treasury have been responded to in eight days on average.
Impact assessments have not been provided to us in several of these DL Committees, which does not appear to be the fault of the Regulatory Policy Committee. The Minister held his hands up and apologised for not having those impact assessments, which I appreciate. My concern going forward is that, when the Treasury creates impact assessments that go to the Regulatory Policy Committee, it should learn from what has happened so far and ensure that those impact assessments going to the Regulatory Policy Committee are fit for purpose in the first place so that, if possible, they can get through at the first time of asking, rather than taking a bit longer.
That is a big issue because I think it is unreasonable to expect Committees to take decisions without having the impact assessment provided to us. If we are going to see more statutory instruments being introduced than we have ever seen before, which is the case, given that there are still hundreds that have not even been to the European Statutory Instruments Committee at this point, then we need to ensure that any impact assessments sent to the RPC are turned around as quickly as possible and are fit for purpose in that first instance. If that means that the Government cannot present an SI to us next week and must do so the week after, I would prefer that, so that the Committee is in the best possible position to take decisions on it.
Those are a variety of questions, and the Minister will probably not be surprised by any of them—he may have been surprised by the questions from my Opposition colleague, but not so much mine, because they were pretty much par for the course, so I hope he has answers to at least some of them.
Once again, I will begin by thanking the hon. Members for Oxford East and for Aberdeen North for their thorough examination of the statutory instruments; I will do my very best to answer in detail the points that they have made, and where I cannot, I shall write to them as soon as I possibly can.
The hon. Member for Aberdeen North discussed impact assessments. We now have an impact assessment, which was circulated, as she acknowledged, at 10 past 10 this morning and covers all the statutory instruments that will be laid until 11 February. There has been a desire on my part and that of my officials to meet the necessarily exacting standards of the RPC. As I say, that is my responsibility, but I would point out that this is an unprecedented process, doing 53 SIs for financial services, 45 of which have now been laid, and working on each one individually. I hope the existence of the impact assessments up to 11 February—obviously there will be some more after that—will give her some comfort, but the points that she made have been heard.
I will come on to the other points that the hon. Lady made, but I will now turn to the issues raised by the hon. Member for Oxford East. She made some initial observations with respect to the volume, flow and appropriateness of the SI mechanism that I may have heard before, but I acknowledge her sincerity and take them in the spirit in which they are intended. We are acting within the terms of the withdrawal Act, and I have never sought to pretend that this process is optimal, but it is a practical measure to give business continuity and give the industry the answers they are concerned about.
I also recognise that the degree of uncertainty is not helpful, but I draw the attention of the hon. Lady and the Committee to the remarks of Sam Woods, deputy governor of the Bank of England, who said in April last year that we would have 5,000 to 10,000 jobs moved by day one, which is between 0.5% and 1% of financial services jobs in the UK. There is an enormous resilience in the financial services sector, and this process is about ensuring that there is minimal disruption in the event of no deal.
Moving on to the specific points made by the hon. Lady, she said that in a no-deal scenario, EU UCITS could not be marketed in a straightforward manner in the UK. The temporary marketing permissions regime is intended to prevent the market disruption that would result from a sudden end to passporting rights. The regime ensures that the business model of EEA fund operators marketing into the UK can continue for a temporary period while we transfer to the UK-only regime. That includes the new sub-funds, and reflects our intention to allow EEA firms and funds to continue their business operations for a temporary period.
If we did not allow new sub-funds to enter the temporary permissions regime after exit day, there would be a significant risk to the role of the London Stock Exchange as a global hub for exchange-traded products. Therefore, including sub-funds in the temporary marketing permissions regime reduces the risk to the London Stock Exchange and ensures continued access for UK customers to new EEA funds in future. That was a direct change from laying this SI in November and December; we laid it again on 6 December in response to feedback from the markets. There is an iterative process, hence the time constraint that puts pressure on the impact assessment.
The hon. Lady raised the issue of assurances on ESMA and on portfolio delegation. I refer to the comments of the chair of ESMA, who said on 3 October that in the case of a no-deal Brexit, EU regulators and ESMA
“should have in place with our UK counterparts the type of MOUs that we have with a large number of third country regulators…ESMA has coordinated the preparations for such MOUs together with the EU27 NCAs.”
More recently, the Luxembourg regulator stated that the
“delegation of investment management, portfolio management and, or risk management to UK undertakings shall continue to be possible without any disruption post-Brexit”.
I wish it could be more transparent and sooner, but I am convinced and assured that that work is going on and that it will be completed in time.
The hon. Member for Oxford East raised the issue of why the FCA was not required to keep a register of LTIFs and the issue of the power not the duty. The power to keep the register is being transferred to the FCA. As there are currently no LTIFs set up in the UK, there is no register of those funds online. The FCA keeps a register of small UK AIFMs that manage similar funds, European venture capital funds and European social entrepreneurship funds.
The best thing is for me to obtain some assurance from the FCA about its plans, which are, in reality, at a relatively early stage because we are simply trying to transition over at this point. The detail of its ongoing regime and responsibilities will be a matter for it to convey in due course.
We have been told throughout the process that there will be no watering down of regulations under the withdrawal Act. I appreciate that this is an abstract case, because we do not yet have a category of investments operating in the UK that would fall into that designation, but that is not to say that one will not be created in future. If we do not have that requirement, there would surely be that resiling. Will the Minister endeavour to talk to the FCA to make sure that, if such investments start to operate in the UK, it will keep a register of them? Surely that is what the EU legislation requires.
I am sympathetic to what the hon. Lady says, but she has to understand that the regulator is the regulator, and it will have reasons in terms of the market actors around that. My view is that it would be entirely appropriate for the regulator to have that register, and I would expect to see clear market-driven reasons for why it would not be necessary. Again, it would not be responsible for me to make a commitment without knowing all the background factors, but I will write to the regulator to express the Committee’s concerns and ask what its approach would be in the circumstances where those funds existed in the United Kingdom.
I am grateful to the Minister for what he has said, but the regulator is required to carry out what this House requires it to do. If we are talking about ESMA, it is meant to carry out what it has been required to do by EU-level policy makers. That EU legislation requires that the register shall be kept, so we need something more emphatic if we are to stick to the existing distribution of responsibilities.
It is an interesting debating point. Had the hon. Lady seen the report of my appearance yesterday before the Treasury Committee with the chief executive of the FCA and the deputy governor of the Bank of England, she would know that we work collaboratively with the industry to do what is right. The intention of this process is not to deregulate in any way—there is no attempt by the Treasury to create some wriggle room to remove the obligation of the FCA. I understand the hon. Lady’s point, and I expect there to be continuity between the current and future regimes on the FCA’s reporting requirements. I will seek clarification on that point.
One last time, Minister. If the UK Government are trying to do what they tell us they are trying to do—to replicate EU law in UK law—the most sensible thing to do would be to start with a requirement for the FCA to keep this. Should there be a change and it is decided that it is not necessary, we can then legislate down the line with secondary legislation to say, “Actually, we feel like this is not appropriate for our regulatory regime.”
I think I have said all I can on that matter at this point. I will move on to the drafting point on territorial power for the FCA, which the hon. Member for Oxford East raised. I will consider that point carefully—there may be a drafting error. It is difficult for me to be certain about that now, but I will respond in due course.
The hon. Member for Aberdeen North raised the issue of how many people engaged with the draft legislation. She will probably not be surprised to know that I do not have the numbers in front of me, but we have sought wide engagement with the industry and stakeholders as the legislation has developed, which can be seen in the fact that we relayed on 6 December following engagement on the sub-funds point. I am happy to examine any data on that and write to her on that matter.
The hon. Member for Oxford East made a point—I think it was also made by the hon. Member for Aberdeen North—about the Government’s general policy of reciprocity in the prioritisation of certain areas in a no-deal scenario. We want to continue to engage constructively with EU partners and be in a position to deliver on the political declaration in a negotiated deal, in which we would respect the autonomy of both sides but would be ambitious about the degree of collaboration on recognition. We think that that is realistic—there is a very strong relationship with our regulators across the EU, and we expect that to continue.
I have answered most of the points that have been made. If there are any others, I shall write to both hon. Ladies on the Opposition Benches. I have demonstrated why we need this SI to pass in the event of the UK leaving the EU without a deal, and I hope the Committee can now support the regulations.
Question put and agreed to.
That the Committee has considered the draft Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019.
Draft Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019
Motion made and Question put,
That the Committee has considered the draft Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019.—(John Glen.)