My Lords, as with other instruments we have debated today, these have been laid under the EU withdrawal Act. This instrument is part of the Treasury’s legislative programme to ensure that, if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning UK legislative and regulatory regime for financial services.
In December 2017, the Treasury announced that legislation would be brought forward to establish a temporary permissions regime enabling EEA firms operating in the UK to continue their activities here for a limited period after withdrawal. At the same time, it was also announced that legislation would be brought forward to ensure that contractual obligations not covered by that regime could continue to be met, helping protect the interests of UK customers of EEA financial services firms. The legislation setting out the temporary permissions regime for firms that passport under the Financial Services and Markets Act 2000 was debated and passed by this House last autumn, in the form of the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018.
Separately, legislation for temporary regimes for non-UK central counterparties, EEA payments and e-money institutions, and trade repositories has also been debated and passed by your Lordships’ House. This instrument therefore delivers on the second commitment: to ensure that those financial services contracts not captured by the temporary permissions regime can continue to be serviced. It similarly ensures continuity for customers of financial services providers that do not enter other temporary permissions regimes, or that exit these temporary regimes without full UK authorisation or recognition. Specifically, this instrument makes provision for passporting EEA firms, non-UK central counterparties, EEA payments and e-money institutions and trade repositories to wind down their operations in an orderly manner. It will apply to those firms that no longer wish to operate in the UK, and to those that exit the temporary regimes without permission from UK authorities to carry on new business here. The approach taken in this instrument aligns with that of other statutory instruments being laid under the EU withdrawal Act. It delivers on the Treasury’s commitments and is vital to the financial services sector and its UK customers.
Turning to the substance of the instrument, many noble Lords will be familiar with the EU law that allows EEA firms, non-UK central counterparties and trade repositories to provide regulated services in the UK on the basis of being authorised in their home member state, or recognised or registered by the relevant EU authority. In a no-deal scenario, the UK would be outside the EEA and outside the EU’s legal, supervisory and financial regulatory framework. Once the EEA frameworks providing for passporting rights, recognition of central counterparties and registration of trade repositories fall away, we will need to avoid widespread disruption to the provision of financial services, which would ultimately affect UK businesses and consumers. This instrument inserts provisions into the existing temporary regimes to allow for orderly winding down
of existing contractual obligations or services, providing continuity and certainty for UK customers of those firms that do not enter the temporary regimes, or that exit them without full UK authorisation, recognition or registration.
Specifically, these draft regulations establish four distinct run-off regimes related to four different temporary regimes, covering EEA firms passporting under the Financial Services and Markets Act 2000, non-UK central counterparties, EEA payments and e-money institutions, and trade repositories. This instrument is necessary to minimise disruption to users and providers in the UK financial services sector in a no-deal scenario. The temporary regimes which have been established go a long way towards mitigating the risks of disruption and uncertainty. Without the additional wind-down provisions, however, some UK businesses and consumers could nevertheless see disruption to their existing contracts or services.
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In these provisions, we are giving firms that will not be permitted to carry out new business in the UK enough time to allow most existing contracts to reach their natural conclusion, while also providing sufficient time for firms to make alternative arrangements for any long-term obligations. This instrument will allow firms with pre-existing contractual obligations to continue to meet these obligations, providing certainty and fairness to both providers and users, and showing that the UK remains open for business and that it takes legal certainty and business continuity seriously.
The Treasury has been working very closely with the Bank of England, the PRA and the Financial Conduct Authority in drafting this instrument. It has also engaged with the financial services industry, which has supported this measure, and will continue to do so. On 17 December, the Treasury published the instrument in draft, along with an explanatory policy note to maximise transparency to Parliament and to the industry.
The measures in this instrument are a pragmatic response to ensuring service continuity if the UK leaves the EU without a deal. The importance of the provisions in this instrument is reflected in the announcement of December 2017, which made it clear to the industry well in advance of exit day that the Treasury would put forward legislation to deliver these regimes.
In summary, the Government believe that the proposed legislation is necessary to ensure that existing contractual obligations can continue to be met, thereby avoiding disruption and losses for UK businesses and consumers in the event that the UK leaves the EU without a deal or an implementation period. I hope that this explanation is helpful and that noble Lords will join me in supporting this measure, which I beg to move.