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House of Commons Hansard
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General Committees
08 January 2019

Delegated Legislation Committee

Draft Ship and Port Security (Amendment etc.) (EU Exit) Regulations 2018

The Committee consisted of the following Members:

Chair: Mr Nigel Evans

† Afolami, Bim (Hitchin and Harpenden) (Con)

Bradshaw, Mr Ben (Exeter) (Lab)

† Brown, Alan (Kilmarnock and Loudoun) (SNP)

† Donelan, Michelle (Chippenham) (Con)

Evans, Chris (Islwyn) (Lab/Co-op)

† Foxcroft, Vicky (Lewisham, Deptford) (Lab)

† George, Ruth (High Peak) (Lab)

† Ghani, Ms Nusrat (Parliamentary Under-Secretary of State for Transport)

† Hollinrake, Kevin (Thirsk and Malton) (Con)

Johnson, Dr Caroline (Sleaford and North Hykeham) (Con)

† Killen, Ged (Rutherglen and Hamilton West) (Lab/Co-op)

† Letwin, Sir Oliver (West Dorset) (Con)

Mahmood, Shabana (Birmingham, Ladywood) (Lab)

† Shelbrooke, Alec (Elmet and Rothwell) (Con)

† Stewart, Bob (Beckenham) (Con)

† Tracey, Craig (North Warwickshire) (Con)

† Turner, Karl (Kingston upon Hull East) (Lab)

Jack Dent, Committee Clerk

† attended the Committee

Third Delegated Legislation Committee

Tuesday 8 January 2019

[Mr Nigel Evans in the Chair]

Draft Ship and Port Security (Amendment etc.) (EU Exit) Regulations 2018

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I beg to move,

That the Committee has considered the draft Ship and Port Security (Amendment etc.) (EU Exit) Regulations 2018.

It is a pleasure to serve under your chairmanship, Mr Evans. The UK maritime sector is thriving. We are one of the largest flag states, have one of the largest port industries and attract significant investment. We lead the world in many areas of maritime business services, education and research. Subject to parliamentary approval, the draft regulations will amend ship and port security legislation so that the current regime of protective security on board ships and at UK ports continues to operate following the United Kingdom’s withdrawal from the EU.

International agreements and European legislation form the bedrock of the UK’s well established ship and port security regime. The UK is a contracting party to the International Maritime Organisation’s safety of life at sea convention—SOLAS. In response to the perceived threats to ships and port facilities in the aftermath of the terrorist attacks in America on 11 September 2001, the international ship and port facility security code—ISPS—was adopted under SOLAS. The code established a range of protective security measures that are required to be taken on ships and at ports to protect vital infrastructure and people from acts of terrorism or violence. The code is set out in two parts: part A includes a number of mandatory provisions for signatory states, and part B, intended as guidance, contains measures for states to consider implementing to enhance the security of ships and port facilities.

In 2004, the convention and code were given a basis in EU law by regulation 725/2004 on enhancing ship and port facility security. The regulation provided for the harmonised implementation of the convention and the ISPS code within and across EU member states. It made implementation of the provisions of part A and specific elements of part B mandatory in all EU member states. The regulation is directly applicable in UK law, but it was further implemented, as far as was necessary, in domestic legislation by the Ship and Port Facility (Security) Regulations 2004. The 2005 port security directive complements the security measures introduced by the EU regulation by expanding the area of port that is subject to a protective security regime. The directive was transposed into UK law by the Port Security Regulations 2009, and by 33 separate designation orders that define the boundaries of ports across the UK.

The existing legislative regime ensures that proportionate security measures are in place on board ships and at the UK’s maritime ports. On withdrawal day, regulation 725/2004 will be converted into UK legislation and will become part of the body referred to as retained EU law. To ensure that retained EU law continues to function effectively after exit day, a number of changes are required to the text of EU regulation 725/2004, and the 2004 and 2009 regulations. The changes are designed to prevent, remedy or mitigate failings of, or deficiencies in, retained EU law resulting from the UK’s withdrawal from the EU. The policy behind the changes is that in the UK, there should be no practical change to, or noticeable impact on, how the industry daily operates an effective protective security regime.

Most of the changes to the current legislation are minor. Some involve the restatement of the retained EU law in a clearer or more accessible way, to make it fit for purpose within domestic legislation. The draft regulations also revoke regulation 324/2008, which established procedures across the EU for the European Commission to conduct inspections of UK ships and ports. Such inspections will neither be required nor appropriate following EU withdrawal; the Department for Transport and the Maritime and Coastguard Agency will continue to deliver a well established programme of ship and port inspections, to ensure that required security standards are met.

The draft regulations include provision for three more detailed, but equally necessary, corrections to the existing legislation. First, they amend article 3 of regulation 725/2004 in relation to domestic vessels. That does not alter or impact on current administrative practice, the categories of domestic vessel to which the legislation applies, or how those vessels are required to comply with the legislation.

Secondly, the draft statutory instrument includes provision to enable the direct application of future amendments made to the ISPS code. That will allow the legislation to keep in step with future changes and ensure that the UK is meeting its international obligations. As part of that provision, the Secretary of State will have the power to exclude any such change relating to international shipping by the making of regulations—as the Commission does currently—if it is determined that there is a manifest risk that implementation would lower the standards of the UK’s maritime security regime. Any future regulations made in that regard by the Secretary of State would be subject to parliamentary procedures.

Finally, the Port Security Regulations 2009 contain references to section 2 of the European Communities Act 1972, which will no longer be in force on exit day. To fix that deficiency in the legislation and to ensure that the Secretary of State can continue, under the legislation, to define or amend the boundaries of particular ports, the draft regulations rely on powers in the European Union (Withdrawal) Act 2018 to confer on the Secretary of State powers to continue to update or amend the existing suite of legislation. That power would be used when, for example, a port boundary is changed or a new port comes into existence. The amendments made to the 2009 regulations will ensure that the Secretary of State can continue to discharge all his statutory duties. The power in the draft regulations for the Secretary of State to make regulations will maintain the effectiveness and operability of ship and port security legislation following EU withdrawal.

In conclusion, the regulations before the Committee are intended to make changes that will ensure that the current legislative regime for ships and ports is able to operate effectively, and continues to meet the UK’s maritime security requirements, following EU withdrawal. I commend the regulations to the Committee.

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It is always an absolute pleasure to see you in the Chair, Mr Evans. I intend my remarks to be relatively brief, but I would be grateful if the Minister could answer one or two points. As she said, the regulations are part of the many aspects of EU law that fall into UK law under the Government’s withdrawal Act. They ensure that both converted EU ship and port security legislation and existing secondary legislation remain legally operable when we withdraw from the European Union.

We recognise that these changes are required, so we support them, but can the Minister explain whether there are any differences between what is currently in place and the UK’s post-Brexit implementation of the core international ship and port facility security code? I understand that the Secretary of State would be able to exclude certain amendments to the 1974 international convention for the safety of life at sea—SOLAS—and/or the ISPS code under limited powers held by the European Commission. It would be good if the Minister could explain how that process will work, and where the Secretary of State will be required to explain why certain amendments may be excluded.

It makes sense for the statutory instrument to erase obligations to report information to the Commission and to facilitate Commission inspections, but this is more significant than a tidying-up exercise. What new data and intelligence-sharing system will be in place post Brexit to ensure that security standards are maintained on ships arriving in the UK from EU and non-EU ports, and are sufficiently flexible to respond to emerging maritime security challenges, such as those we have seen in the channel this winter, with the migrant boat crossings and stowaways on cargo ships? Will the Maritime and Coastguard Agency be issued with increased resources to implement the regulations? I would be grateful if the Minister answered those points, but I am happy if she wants to put her answers in writing.

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I will be brief. I will not oppose the proposed changes, because it clearly makes sense to have this contingency for EU withdrawal. I am also well aware that the Department for Transport has more important things to do, such as making sure that ferry contractors actually have ferries, so that we can keep things running. It is fine to ensure that ports are safe, but we need ferries going in and out of those ports.

On no-deal contingency planning, can the Minister explain what else will be done to keep traffic flowing? It is quite obvious that yesterday’s exercise was a bit of a flop: only 89 lorries out of a planned 150 turned up to the no-deal exercise, and given that Dover gets 10,000 lorries per day, even 150 would be a drop in the ocean. Can she also explain what other regulations will be required if there is no deal and the UK leaves on 29 March?

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I am grateful to hon. Members for participating in this morning’s Committee, and turning up so early to deal with this important piece of legislation. The current protective security regime for ships in UK ports operates effectively; there is a range of measures in place to protect vital infrastructure, the travelling public, and those working in those environments from attack. The draft regulations make the appropriate changes to what will become the retained protective security legislation when the UK exits the European Union.

Turning to some of the points that have been raised this morning, a question was asked about security and standards on ships. I will do my best to ensure that more robust replies are provided in writing, but I will put on the record that the robust security standards at UK ports and on ships will continue following EU withdrawal. We must not forget that we have the fantastic, internationally renowned Maritime and Coastguard Agency, which does fantastic work and is well respected across the world; it will continue to do that work with even more detail post Brexit. It is important to note that most ships carry data on board, which exempts them from having to present it when they come into port. All we are asking is for the ship owners to press a button to make sure that information is available, if requested, when they are pulling into port. That data is already pooled and gathered. I will make sure that a more detailed response is provided to the hon. Member for Kingston upon Hull East.

It is important to note that the Department is making plans for all eventualities, including a no-deal Brexit. That is why we are undertaking exercises and modelling, working with local communities—whether in Kent or with the port of Dover—and doing everything we can to ensure that freight travels up and down our country with the least friction possible. Unfortunately, every exercise that we undertake is done under the full glare of the media and the public, but we would also be criticised if we were not implementing all remedies and not practising all of our modelling for a situation in which we exited without a deal. The statutory instrument is essential to ensure that ship and port security legislation continues to work effectively in the UK from day one after exiting. It enables the status quo in the UK to continue. I hope that the Committee has found this morning’s sitting informative and will join me in supporting the regulations.

Question put and agreed to.

Committee rose.

Draft Anti-social Behaviour, Crime and Policing Act 2014 (Amendment) Order 2018

The Committee consisted of the following Members:

Chair: Mr Laurence Robertson

† Ali, Rushanara (Bethnal Green and Bow) (Lab)

† Atkins, Victoria (Parliamentary Under-Secretary of State for the Home Department)

† Bebb, Guto (Aberconwy) (Con)

† Dakin, Nic (Scunthorpe) (Lab)

† Haigh, Louise (Sheffield, Heeley) (Lab)

† Hair, Kirstene (Angus) (Con)

† Hoey, Kate (Vauxhall) (Lab)

† Johnson, Joseph (Orpington) (Con)

† Lefroy, Jeremy (Stafford) (Con)

† Lord, Mr Jonathan (Woking) (Con)

† Mann, John (Bassetlaw) (Lab)

† Masterton, Paul (East Renfrewshire) (Con)

† Maynard, Paul (Lord Commissioner of Her Majesty's Treasury)

Siddiq, Tulip (Hampstead and Kilburn) (Lab)

Smith, Eleanor (Wolverhampton South West) (Lab)

† Stevenson, John (Carlisle) (Con)

Umunna, Chuka (Streatham) (Lab)

Jeanne Delebarre, Committee Clerk

† attended the Committee

Fifth Delegated Legislation Committee

Tuesday 8 January 2019

[Mr Laurence Robertson in the Chair]

Draft Anti-social Behaviour, Crime and Policing Act 2014 (Amendment) Order 2018

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I beg to move,

That the Committee has considered the draft Anti-social Behaviour, Crime and Policing Act 2014 (Amendment) Order 2018.

It is a pleasure to serve under your chairmanship, Mr Robertson. May I wish everyone on the Committee a happy new year?

The draft order, which was laid before both Houses on 5 November, will add Transport for Greater Manchester to the list of bodies that can apply to the courts for a civil injunction to address antisocial behaviour on their transport network. We introduced the Anti-social Behaviour, Crime and Policing Act 2014 to provide police, local authorities and other local agencies with flexible powers to enable them to respond quickly and effectively to tackle and prevent antisocial behaviour. The decision to use the powers will be an operational one for the police force, local authority or local agency entitled to use them under the Act. We are deliberately focusing on local agencies because we believe that they are best placed to decide when and in which circumstances to use the relevant powers to combat antisocial behaviour in their areas.

The powers include a civil injunction, which can be issued by the courts, on application, against any person aged 10 years or over whose behaviour

“has caused, or is likely to cause, harassment, alarm or distress”

to others. Such an injunction can include prohibitions to stop certain behaviours by the perpetrator, or positive requirements that focus on addressing the underlying causes of their behaviour. The bodies currently able to apply to the court for an injunction are the police, including the British Transport police; local councils and housing providers; Transport for London; the Environment Agency and Natural Resources Wales; NHS Protect; and the West Midlands combined authority.

I hope that the Committee agrees that adding Transport for Greater Manchester to the list makes a great deal of sense. It follows a request from TfGM and from the Mayor of Greater Manchester, Andy Burnham, and will help to ensure that TfGM can take swift action to address antisocial behaviour that takes place on Manchester’s transport network. To put the issue in context, in 2017 some 40 million passenger journeys were made using the Metrolink network in Manchester, while a total of 196 million passenger journeys were made on Manchester bus services.

The draft order will ensure that Transport for Greater Manchester has additional powers to deal with people who behave antisocially on its network. It comes in addition to work at a local level through the TravelSafe Partnership, which has had a great deal of success: in 2017-18, there were a total of 1,692 incidents of antisocial behaviour, a significant decrease from the preceding year’s figure of 3,984. The draft order is very much part of the work of Greater Manchester police, TfGM and agencies to ensure that passengers on the Manchester travel network are able to enjoy their journeys in peace and quiet. We are very happy to have introduced it, and we hope that it meets with the Committee’s approval.

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It is a pleasure to serve under your chairmanship, Mr Robertson. May I, too, wish you and the Committee a very happy new year?

I am pleased to say that the Opposition support the draft order, so I shall not detain the Committee for too long. As the Minister said, Transport for Greater Manchester and the Mayor have been calling since November 2017 for these powers, which their safer transport officers need to clamp down on the threat that antisocial behaviour poses on the network. They have been very clear that the powers will be used to combat persistent and well-known troublemakers by setting a clear standard of behaviour for perpetrators, stopping their behaviour from escalating, and placing positive requirements on them without criminalising individuals.

The reality of such civil orders is that they require authorities and personnel with knowledge and intelligence of the transport network to enforce them. Safer transport officers are best placed to identify troublemakers using the tools at their disposal and, once the order is enforced, to ensure it is complied with, so the Opposition are happy to give the draft instrument our full support.

I will ask just a few questions of the Minister. The power in the draft instrument is clearly welcome for Greater Manchester transport routes, but we know that the threat posed by antisocial behaviour on the transport network is prevalent across the country. The type of harassment and aggressive and threatening behaviour that powers in section 1 of the 2014 Act deal with are regrettably present every single day on trains, trams, tubes and buses across the country. As many as 43% of passengers have said they felt intimidated or threatened by antisocial behaviour while using the public transport network within the last year. What thought has the Department put into ensuring that the public can have confidence that local authorities can use the powers available to them to clamp down on antisocial behaviour, particularly on local bus services, which are fragmented and obviously not under local authority control in all areas?

In Sheffield—the area that I represent—neither the South Yorkshire passenger transport executive nor the Sheffield city region combined authority has those powers. How will this work practically in those circumstances? I know that the West Midlands combined authority has these powers in theory. What requests have the Government received from other combined authorities to take over these powers on transport networks? These powers are clearly best enforced by appropriate authorities with knowledge and intelligence of transport networks. It would be welcome if the Minister could outline what steps the Government are taking to ensure that that happens consistently and effectively nationwide.

Finally, it would be helpful to have—the Minister could perhaps write to Committee members, rather than listing it all now—data on how many times these powers have been used by each relevant authority.

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It would be remiss of Committee members not to record their congratulations and thanks for the outstanding leadership of the Mayor of Manchester—a huge loss to the House and to the parliamentary Labour party, but a gain to the people of Manchester. That ought to be on the record, because I am sure it is a unanimous view among Committee members.

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In the spirit of good will in this new year, I will not disagree with the hon. Gentleman, although I of course reserve the right to campaign robustly in any future mayoral election.

I thank the shadow Minister, the hon. Member for Sheffield, Heeley, for her support and for her questions on this important topic. She is absolutely right about the interest of other transport providers in being able to access these powers. We make it very clear that it is for individual transport providers to consider whether they may benefit from having the ability to apply directly for injunctions, and if so, to make the case for it. We will consider requests for additions to the list of bodies that may apply for injunctions on a case-by-case basis.

I am helpfully told by my hon. Friend the Member for Blackpool North and Cleveleys that when he served the Government in another capacity, the Department for Transport commissioned a review of crime on public transport. We are very conscious of how upsetting and serious it can be to witness not only antisocial behaviour but crime more generally on our journeys to and from work and leisure visits.

I will happily write to Committee members on the number of times these injunctions have been used, but it may be of interest to the hon. Member for Sheffield, Heeley, to hear that the British Transport police and Transport for London have used these injunctions on 72 occasions since 2014. Although that it is only one statistic, it none the less shows that the authorities rightly use the injunctions, which can be very powerful, on a considered basis. I commend the draft order to the Committee.

Question put and agreed to.

Committee rose.

Draft Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2018

The Committee consisted of the following Members:

Chair: Siobhain McDonagh

† Blackman, Kirsty (Aberdeen North) (SNP)

† Bradley, Ben (Mansfield) (Con)

† Burden, Richard (Birmingham, Northfield) (Lab)

† Cadbury, Ruth (Brentford and Isleworth) (Lab)

† Dodds, Anneliese (Oxford East) (Lab/Co-op)

† Glen, John (Economic Secretary to the Treasury)

† Harper, Mr Mark (Forest of Dean) (Con)

† Mak, Alan (Havant) (Con)

† Merriman, Huw (Bexhill and Battle) (Con)

† Moore, Damien (Southport) (Con)

† Morris, James (Halesowen and Rowley Regis) (Con)

Sheerman, Mr Barry (Huddersfield) (Lab/Co-op)

† Smith, Jeff (Manchester, Withington) (Lab)

† Walker, Thelma (Colne Valley) (Lab)

† Warburton, David (Somerton and Frome) (Con)

† Whittaker, Craig (Lord Commissioner of Her Majesty’s Treasury)

† Yasin, Mohammad (Bedford) (Lab)

Dominic Stockbridge, Committee Clerk

† attended the Committee

Second Delegated Legislation Committee

Tuesday 8 January 2019

[Siobhain McDonagh in the Chair]

Draft Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2018

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I beg to move,

That the Committee has considered the draft Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2018.

May I say what a pleasure it is to serve under your chairmanship this morning, Ms McDonagh? As the Committee will be aware, the Treasury has been undertaking a programme of legislation to ensure that if the UK leaves the EU without a deal or an implementation period, there will continue to be a functioning legislative and regulatory regime for financial services in the United Kingdom. To deliver that, the Treasury is laying statutory instruments under the European Union (Withdrawal) Act 2018, several of which have already been debated in both Houses, with plenty more to come—we have another tomorrow afternoon.

The draft regulations are part of that programme. They will fix deficiencies in UK anti-money laundering law to ensure that it continues to operate effectively post exit. Their approach aligns with that of other statutory instruments laid under the 2018 Act, providing continuity by maintaining existing legislation at the point of exit but amending it where necessary to ensure that it works effectively in the event that we leave the EU without a deal in place.

Many hon. Members present will be familiar with the existing anti-money laundering legislation. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 set out the requirements for regulated firms to combat money laundering and terrorist financing. The EU funds transfer regulation specifies the information that must accompany electronic transfers of funds. The Oversight of Professional Body Anti-Money Laundering and Counter Terrorist Financing Supervision Regulations 2017 established the Office for Professional Body Anti-Money Laundering Supervision within the Financial Conduct Authority early in 2018.

Anti-money laundering legislation is designed to combat illicit finance while minimising the burden on legitimate businesses. In a no-deal scenario, the UK will be outside the European economic area and the EU’s legal, supervisory and financial regulatory framework, so the three pieces of anti-money laundering legislation that I mentioned will need to be updated to reflect the UK’s new position and ensure that their provisions work properly. The changes that the draft regulations will make to the UK’s anti-money laundering regime will primarily affect the financial services sector, but their impact will be minimal and we have engaged extensively with industry to ensure that affected firms are aware of them.

First, the draft regulations will transfer to the FCA responsibility for making technical standards to specify the additional measures that credit and financial institutions with branches or subsidiaries abroad are required to take. Such standards are of a similar type to those that the FCA already makes and are in an area in which it has deep technical expertise, so it is the appropriate body to take on that responsibility. The transfer of this power is necessary because the relevant standards are currently made by the European Commission.

Secondly, the draft regulations will remove the obligation for certain UK persons to have regard to guidelines published by the European supervisory authorities. The UK will be outside the EU’s regulatory framework, so it would be inappropriate for UK persons to be legally required to have regard to those guidelines. However, it is important to remember that firms will continue to be required, under the broader obligations of the FCA, to have regard to guidance developed by the UK supervisory authorities and industry bodies.

Thirdly, the draft regulations will equalise the regulatory treatment of EEA member states and third countries for correspondent banking relationships, which arise when one bank provides banking services on behalf of another. Currently, UK financial institutions apply enhanced due diligence measures to correspondent banking relationships with financial institutions outside the EEA, but those measures are not required for intra-EEA relationships. The draft regulations will equalise regulatory treatment so that enhanced due diligence will be required for all correspondent banking relationships. That change better aligns with the Financial Action Task Force standards on the issue and with the existing practice of many UK institutions that apply enhanced due diligence because of the risks associated with correspondent banking relationships.

Fourthly, the draft regulations will equalise regulatory requirements with respect to the information about the payer and payee that accompanies the electronic transfer of funds. UK payment service providers will be required to provide the same volume of information to accompany transfers into EEA member states as to other countries. Those changes are being made to reflect the UK’s new position outside the EU’s regulatory framework. The position of the Crown dependencies within the UK’s payments area will remain unaffected.

Finally, the current money laundering regulations require certain information to be communicated to EU institutions. Those provisions will be removed, as they will no longer be appropriate once the UK ceases to be a member of the EU.

The House of Lords Secondary Legislation Scrutiny Committee queried the change in requirements to transmit information to EU institutions. It also queried whether the FCA will co-operate with its counterparts in other countries to combat illicit finance. However, the draft regulations’ changes to information submission requirements relate to specific duties to provide directly to EU institutions information such as the national risk assessment of money laundering and terrorist financing. Legal obligations to submit such information would be inappropriate once the UK leaves the EU, but it is important to emphasise that UK supervisory authorities, including the FCA, will continue to have an obligation to co-operate, as they consider appropriate, with overseas anti-money laundering authorities in relation to firms that have offices in the UK.

The Treasury has worked closely with the FCA in drafting the regulations. We have also engaged with the financial services industry on them and will continue to do so in relation to other statutory instruments in the onshoring programme. To maximise transparency for Parliament and industry, we published the instrument in draft in November, along with an explanatory policy note.

The Government believe that the draft regulations are necessary to ensure that the UK’s anti-money laundering and counter-terrorist financing regime operates effectively and that the legislation will continue to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope that colleagues will join me in supporting them; I commend them to the Committee.

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It is a pleasure to see you in the Chair, Ms McDonagh. May I wish everyone on the Committee a happy new year?

Once again, I must say that it feels a little like groundhog day: we are here again to discuss a Treasury statutory instrument that would make provisions for the financial regulatory framework after Brexit in the event that we crash out without a deal. On each such occasion, my Labour Front-Bench colleagues and I have spelled out our objections to secondary legislation being used in this manner, as well as the challenges of ensuring proper scrutiny of the sheer volume of legislation that passes through Delegated Legislation Committees. We have expressed many times our frustration about having to spend time and resources creating a framework that might never be used, and about the public money that has been spent on planning for what should not be viewed as a potential eventuality.

Because of the dangerous game now being played, statutory instruments considered by Committees such as this may not disappear into the ether on 29 March. They could represent real and substantive changes to the statute book, so they need proper and in-depth scrutiny. Equally, we must bear in mind the stress that financial markets would be under in the scenario that the Government allowed such a situation to materialise. Such instruments must be considered through that lens.

The draft regulations follow on from the Sanctions and Anti-Money Laundering Act 2018. I do not want to rerun the many issues of contention that were debated during the passage of that Act, but I think a few significant points that relate to the draft regulations bear further scrutiny, and I hope the Minister will respond to them.

First, it would be helpful to have further information about how the FCA will assess equivalence of third countries’ legislation, compared with that of EU countries, following the fourth money laundering directive. Will it use the Commission’s list initially and then expand or contract it in the future? If so, what methodology and resources will be used to undertake that? Such a process could obviously be very resource-intensive—a point that I shall come back to later.

Secondly, and relatedly, the existing legislation refers to the Commission’s high-risk third country list. The draft regulations would onshore the EU list as of exit day and then commit the UK to updating the list. I understand from debates in the other place that that would be undertaken via the affirmative procedure for reasons of speed.

Has the Government’s thinking developed on enabling parliamentary scrutiny of changes to that list? Clearly, there is a need for speed, but that surely has to be balanced with appropriate oversight. As with sanctions policy, it would surely make sense to co-ordinate this with the EU, even if it is not done formally, given the potential resource implications of having to research many different jurisdictions speedily. We do not have an indication in the accompanying notes of how that process would occur.

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I was going to ask a question in a similar vein about the high-risk countries. I would have less concern if the same list as the EU was used on day one. However, looking for comfort in the future, if the list is going to be changed, and particularly if it will diverge from the EU’s list, parliamentary scrutiny should be brought to bear on that.

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I absolutely agree with the hon. Lady. We have seen a lot of contention around the definition of which countries go on the list. There have been criticisms, even at EU level, of how transparent or otherwise that process has been for countries going on or coming off the list. It is therefore important that we get it right if we end up adopting this process in the UK. We need to make sure that it is fully transparent and accountable. It can have a significant impact on the jurisdictions that are affected, so I am grateful to the hon. Lady for raising that point.

Thirdly, I hope the Government will make clear what our co-operation with the EU on anti-money laundering efforts will look like in the future. Currently, we only seem to have the ubiquitous phrase that on this issue the Government are seeking a “deep and special” future relationship with the EU. The Minister provided us with a little more in his comments, saying that we would continue to engage with international processes—I am sorry I did not catch his exact wording.

We need more detail on this. That is important, given the current developments with the recast of the EU’s anti-money laundering machinery, including its decision to implement more transparency for trusts. The UK’s trust register, as I understand it, is not yet complete and it is not publicly available, even to the limited extent that is proposed in the reform of the anti-money laundering regime. That reform would cover business-like trusts and enable their beneficial owners—or the people who would benefit from their proceeds—to be viewable by those who could prove a legitimate interest in knowing about them, for example journalists as well as law enforcement agencies. That would go beyond the UK regime. It would be helpful to know how we, as a nation, envisage co-ordinating with that process.

We also need more information, given the continuing role of UK-based structures in facilitating hidden transactions. I was astonished to see, in response to a parliamentary question I tabled, that the Government’s loudly promoted crackdown on Scottish limited partnerships has been anything but. In October 2018, there were no less than 3,542 SLPs that said they could not reveal ownership information—which is, of course, now required by law—because of their own failure to obtain that information, and more than 600 that said they could not provide it because, despite knowing who their people of significant control were, they had not been able to collect the required particulars from them. Those figures had only reduced by almost a third and 12% respectively over the previous year, so there really has not been a crackdown in this area, despite what was promised. That is problematic, particularly when other countries are looking nervously at what is happening in relation to these shell companies in our jurisdiction, including EU countries.

Fourthly, I am unclear about one element of drafting. Regulation 8(b)(i) changes an emphatic “must” to a weak “may”, to coin a phrase—I am sorry, I could not help myself. Specifically, the amended regulations will state that the commissioners—HMRC—may, rather than must,

“make arrangements to ensure that the NCA are able to use information on the register to respond promptly to a request for information about the persons referred to in”

different regulations. It is not clear to me why that change has occurred. It seems to weaken the language and there is no explanation of it in the memorandum. Surely the parameters for such co-ordination are critical, especially in a context in which we lack any indication from the Government of when they will introduce their promised offence of failure to prevent economic crime, despite the consultation on the subject having ended many months ago.

Fifthly, and perhaps most substantially, there is—as with so many recent statutory instruments—a question about resourcing. Regulation 5(3)(b) grants the FCA the power to make further technical standards relating to the area. FCA funding has been increased by £5 million to cover withdrawal work, but as far as I can see, that is just to aid the transition; there does not seem to be any commitment to maintain increased funding to allow it to use the new powers that it has been given via such instruments. The FCA’s annual business plan includes the following statement about EU withdrawal:

“Although our Annual Funding Requirement has increased by £5m to cover EU Withdrawal work, we have still made difficult and challenging decisions about our priority activities across all business areas that are not related to work on EU Withdrawal, including limiting the number of new initiatives we’ve taken on. We recognise the particular significance of EU Withdrawal on wholesale financial markets, investment management and the general insurance sectors, and our decisions have been driven by our recognition of the capacity of industry to absorb change.”

Just yesterday, I discussed with the Thames Valley police and crime commissioner his concerns about resourcing for the FCA with respect to adequately identifying and prosecuting fraud—not an area that is covered by the EU withdrawal process, but one that needs to be provided for appropriately. There still seems to be a lack of recognition from the Government about the impact of this SI and others on the FCA’s existing work programme. The FCA’s activity was criticised in FATF’s assessment last month for having cited only eight firms and collected just £254 million in penalties for anti-money laundering violations over the past five years. The Minister mentioned OPBAS; I am sure that he will be aware that the supervision of professions, which was meant to be tightened up, streamlined and made more coherent through OPBAS, was another area criticised in FATF’s assessment.

Interestingly, the draft regulations make no mention of the National Crime Agency, despite concerns expressed in the FATF report about the lack of resources for the NCA, particularly its financial intelligence unit. The Committee may be aware that there has been considerable debate in the specialist press about whether the UK’s glowing assessment by FATF was warranted, particularly given the lack of action to better resource the NCA—an issue highlighted in FATF’s last evaluation in 2007, which stated that

“the UK financial intelligence unit needs a substantial increase in its resources and the suspicious activity reporting regime needs to be modernised and reformed.”

FATF also flagged continuing problems with the lack of verification of data on the Companies House register, a subject that I have repeatedly raised in the House. Because of the FIU’s lack of resources, FATF concluded that it

“misses the opportunity to search for criminal activity that might otherwise be missed by”

investigators who

“mine the SARs database for issues linked to their own geographical or operational remits.”

I understand that the UK assigns only nine employees to analyse hundreds of thousands of suspicious activity reports, or SARs, each year.

Back in 2007, the UK pledged that it would significantly increase the staffing level of the FIU to 200, but press reports from last October suggested that it has only 80 full-time employees and that the unit has actually lost one in five of its staff over the past 11 years. Apparently, the Government have committed to increasing staffing in this area, so it would be enormously helpful if the Minister provided some assurances on that score. It is not just the FCA that works on money-laundering issues, but the FIU in the NCA, so we need to know that it will be adequately resourced.

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May I start by wishing everyone a happy new year? I will not rerun the entire speech of the hon. Member for Oxford East, but I largely agree with what she said.

I have just a few points to raise. First, if the list of high-risk third countries, which the hon. Lady mentioned, is to change, it will be really important to have expertise in scrutinising those countries, so perhaps there should be a formal role for the Treasury Committee or the Foreign Affairs Committee to look at any proposed changes. Allowing the list to be considered by a group of MPs who are used to looking at such issues would reduce the likelihood of insufficient parliamentary scrutiny. People would still complain, but it would be less likely that people would say that changes to the list of high-risk countries had not been adequately scrutinised if they were looked at by one of those Committees in advance.

I am less concerned about the list in the first place if it is to be directly transposed from the EU’s list, because that is clearly working adequately for us at the moment. It is for changes that might come through in the future that a proper scrutiny process needs to be set up, to ensure that we all feel that these issues are looked at properly.

As was mentioned by the Opposition Front-Bench spokesperson and the Minister, there will be an obligation on the EU and the UK to co-operate. I appreciate that, but my concern is about the actual mechanisms that will be in place to allow that to happen. What mechanisms will be in place? Currently there are mechanisms because we are all part of the EU. How will conversation between those authorities be facilitated, and will that happen on as regular a basis as we would like?

We do not want to see a situation where the UK leaves the EU and is less good at tackling money laundering as a result, and we do not want to see the EU’s powers to tackle money laundering reduced either. Continuing that close co-operation is really important. If the Minister made clear through what mechanisms those conversations would happen, it would give us a level of comfort and assurance, rather than there being an obligation to co-operate but no clarity about how it will actually happen.

Lastly, the explanatory memorandum to the draft regulations states that

“certain credit institutions, financial institutions and payment service providers need to expand existing IT systems to reflect the greater levels of scrutiny that will need to be applied to correspondent banking relationships between the UK and EEA states”.

I accept that some of those organisations already scrutinise money laundering issues at that level, but some of them do not, as is reflected in that note. I would like the Government to explain what conversations they have had with such organisations about whether they are ready for the changes to be made to their IT systems, whether they are ready to expand their IT systems in the way that the Government say they need to, and whether they will be able to do that by the Government’s required date.

It is important, if we are putting an additional burden on companies and organisations, that we do not talk only to financial services trade bodies in general. The Government or their agencies should be talking to the individual companies that will have to make those changes to ensure that they are compliant at the beginning. We should ensure that they are compliant not just to make sure that they are compliant, but in order that money laundering is reduced as a result. It is important that the Government make it clear whether the companies will be ready, and if the companies will not be, what they are doing to make sure that the companies will be ready.

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It is a pleasure to respond to the hon. Members for Oxford East and for Aberdeen North, who raised a series of thoughtful questions. I have to say at the outset that the draft regulations are about creating the functioning regime that we will need in a no-deal situation. A whole range of points that were raised were discussed during the passage of the Sanctions and Anti-Money Laundering Act 2018, but I will seek to respond to them.

The hon. Member for Oxford East raised concerns about the EU’s high-risk third country list. I can confirm that we will use the Sanctions and Anti-Money Laundering Act to update the high-risk register. We will use the affirmative procedure, which will enable Parliament to vote on any changes. International standards will be considered as part of any updates.

The hon. Lady also raised the Financial Action Task Force and its recommendations, and I will come on to some of those around the resourcing of the FIU. However, it is important for the Committee to understand that the comprehensive review of the UK regime that took place last year, which is done on a 10-year basis, judged the UK to be in the best state of all 60 countries that have been evaluated. However, I acknowledge that there are pieces of work that need to be undertaken to improve it.

There has been an 80% reduction in Scottish limited partnerships.[Official Report, 17 January 2019; Vol. 652, c. 9MC.] The Department for Business, Energy and Industrial Strategy, which leads on this area, published a report in December that set out a series of elements, including tighter regulation, the need for a firmer connection to the UK, increased transparency of information and giving the registrar the power to strike off dormant partnerships. I accept that there is work to be done, but progress is being made.

The hon. Members for Oxford East and for Aberdeen North raised the issue of co-operation with the EU. Paragraph 84 of the political declaration explicitly sets out that the UK and the EU should co-operate on anti-money laundering. I am not able to give chapter and verse on specific mechanisms, but it is important to remind the Committee that the UK is known as a world leader in setting the agenda in this area and it is inconceivable that the Government would not wish to continue to take a lead in driving forward these standards.

Obviously in a no-deal scenario, work would have to take place to establish how the FCA’s relationship with the EU would work, in the context of a thorough and holistic piece of legislation on financial services. The Treasury, working across Government with the Home Office and the Ministry of Justice, takes its responsibilities in this area very seriously. I gave evidence to the Treasury Committee’s inquiry on economic crime and we look forward to its report, which will guide us and to which we will respond.

The Home Office leads on the resourcing of the FIU and the SARs reform work, so I am not able to give a detailed answer, but shall write to the hon. Member for Oxford East.

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Would the Minister mind also writing to me to indicate when the Government will release their response to the consultation on creating an offence of failure to prevent economic crime?

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I would be happy to respond on that matter as well.

A point that often comes up in these discussions is the resourcing of the FCA. I acknowledge the great work that it has done over the last 18 months in helping the Government to prepare these SIs. It is funded by an industry levy and has set out in its business plan the resources involved in working towards exit. The Government are confident that the FCA has made adequate preparations ahead of leaving. If additional resources are needed in the event of no deal, it would be able to raise those funds very quickly, but we would all be in a situation where we would have to do things that we had not anticipated. This programme of SIs is about getting to the basic starting point that allows us to have confidence in the regulatory regime, but I do not deny that a considerable amount of work would need to take place.

On maintenance of standards and equivalence with the EU on anti-money laundering, the hon. Member for Oxford East discussed the use of the word “may” versus “must”. I want to clarify that what we have removed is the obligation to report in a specific way, as per the legislation. It is not our intention to remove ourselves from either the spirit or substance of that obligation; it is just that it would be inappropriate to leave a legal obligation to an entity when we are a third party. That is the only way that I can describe it.

To expand further on future co-operation, through the bilateral agreement with the EU, we expect to have an expansive relationship that would have a wide scope of cross-border activity. The changes in the SIs do not preclude deep co-operation between UK and EU regulators in the future. It is desirable to have that co-operation.

The hon. Member for Aberdeen North raised the burden on banks’ IT systems. When one makes a transfer between one bank and another, if it is in an unfamiliar, non-mainstream destination in Africa—I will not name an individual country for fear of getting a letter from its ambassador—some checks would be done, because the bank would then obviously receive those funds. A check would be done on that, but because that sort of transaction is inherently risky, the same degree of checking will need to take place—and does take place in practice in the banking industry—with countries in the EU that are more familiar to us. Broadly, there is harmony on that matter anyway.

I mentioned the SARs reform, which the Home Office leads on. We anticipate that new IT will provide a more user-friendly portal for reporters from all sectors and that improved data processing, storage, analytics and distribution will be required. Work is being done across the Treasury, the Home Office and the MOJ to look at how we can refine that.[Official Report, 17 January 2019; Vol. 652, c. 10MC.] At the moment, the basic problem is that there is a high volume of SARs and we could better interrogate that data pool.

The hon. Member for Oxford East mentioned the concerns raised by the Thames Valley police and crime commissioner. He has also raised them with me and I will get in touch with him about them. Obviously, we do not rest on our laurels with respect to the FATF evaluation. I have mentioned the concerns that the Government have acknowledged in terms of the FIU, and the improvements to SARs and to the Companies House register, on which we expect a Government report in Q1 or Q2 of this year.

The statutory instrument is needed to ensure that the UK’s anti-money laundering and counter-terrorism financing regime operates effectively and that the legislation functions appropriately if the UK leaves without a deal. I hope that I have adequately responded to the points raised.

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Will the Minister give way?

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I am very happy to; I have obviously missed something.

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When the Minister was talking about the resourcing of the FCA in the event of a no deal, he suggested that it would be able to draw down extra money very quickly. Is he basically suggesting that, in the event of a no deal, on 1 April, Parliament will come in and approve lots of money to be given to lots of different Government agencies to deal with that scenario, or will that happen in advance of a no deal? We have only 80 days to go.

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My colleague the Chief Secretary has set out comprehensive budgets for each Department for the financial year with respect to a no deal, and a process for urgent requests. The FCA would be able to raise its levy autonomously and separately from Government. It will have contingency arrangements for doing that quickly. I obviously cannot address all Government agencies and Departments, because it will be done through different Ministers in different Departments, but I can say that the Treasury has fully communicated the process for making additional requests in a no-deal situation to all Ministers in all Departments.

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What about communicating that to Parliament rather than just to Ministers? I know that the scrutiny process is rubbish and Parliament does not have much say on Government spend generally, but surely it should have some say on that.

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If I take the Department for Education, for example, where a large portion of the budget is for providing food in schools, in a no-deal circumstance where additional costs might be associated with that food, the Minister would need to make a statement to Parliament about that and respond to it. Inherently in the process, there is a mechanism for the Government and different Departments to bring matters to Parliament. They would need to justify where they would spend that additional money and the basis for it. With respect, I think that is beyond the scope of the statutory instrument—at least, that is my judgment.

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Fascinating though it is.

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I am sorry for that. I hope the Committee has found the debate informative and will now be able to support the regulations.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2018.

Committee rose.