I am grateful to all noble Lords who have taken part in this debate and I shall try to deal with the issues that have been raised. A common theme is the issue of reciprocity, first raised by the noble Lord, Lord Sharkey, and touched on by the noble Lord, Lord Tunnicliffe, and my noble friend Lord Deben. As a matter of EU law, it is for the EU to decide who gets access to data held in the EU and we cannot in the SIs tell the EU what to do. However, we hope that it will take steps to protect financial stability—the consequences would be serious if it did not—and the Government are working to avoid a no-deal exit.
In the meantime, we are taking steps to minimise the disruption for the UK, and there have been some helpful indications on the issue of reciprocity. We welcome the announcements that the EU and some individual member states have made to date, which indicate that they would take steps to mitigate some of the risks. The Commission has taken a positive step in legislating to give the UK temporary equivalence for CCPs in a no-deal scenario, and the ESMA announced last week that all three UK CCPs will be recognised, mitigating a key no-deal risk to stability. Certain other member states, such as Germany and Sweden, have also announced various contingency measures. We stand ready to intensify our engagement, engage in bilateral discussion wherever possible and co-operate with EU institutions on preparedness for all scenarios, because it is in our mutual interest to lessen the risk of disruption to households and businesses in both the UK and the EU.
My noble friend Lord Deben asked a question which I think he has asked before about the resources of the FCA. Each time a Minister has said that these are very small incremental obligations, he has asked: what happens if you add them all up? It is a good question. Under the EU securitisation regulation which has applied from January this year, the PRA and the FCA already carry out most of the functions conferred on them by this SI. The main responsibilities transferring to the FCA relate to the authorisation and supervision
of a small number of trade repositories and the publication of STS notifications on its website. We do not honestly think that this will create a significant burden for the FCA, which has specialist expertise in place and has made extensive preparations, including training supervisors, in anticipation of the implementation of the EU securitisation regulation and the onshoring of its requirements.
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I am confident that the regulators are sufficiently resourced to carry out their responsibilities under the SI diligently and effectively, as they have told us. They are making adequate preparations at the FCA and are effectively resourced ahead of March 2019. A significant proportion of the FCA’s business plan’s resources are focused on our forthcoming exit. Since 2015, it has increased its staff numbers in response to increases in the scope of regulatory activity, including EU withdrawal. This spring, the FCA will publish its 2019-20 plan setting out its planned work for the coming year. As I have already told my noble friend, the chief executive, Andrew Bailey, has said that he expects to hold FCA fees steady for a year or two, assuming that there is an implementation period; if not, it can increase its fees should it need to increase its income in the event of no deal.
The noble Baroness, Lady Kramer, asked why we were changing the geographical scope of STS securitisations and whether we recognise EU STS securitisations without domestic oversight. One option would have been to insist that all three parties must be located in the UK. That would have placed enormous restrictions on the UK market, which we do not want. For the regime to succeed, the domestic markets for STS securitisations needs an opportunity to grow. Restricting the regime to domestic parties, as I said, would constrain and limit the UK market. Our approach in this instrument enhances liquidity while retaining appropriate supervisory oversight. I imagine that the criteria for what scores as an STS would remain the same. This supports choice for issuers and investors.
However, to ensure that we balance the need for business certainty and market liquidity against the regulatory challenges associated with EU STS recognition, we have time-limited our solution to EU STS securitisations. Regarding the rest of the world, no other country currently has implemented a domestic STS regime, so this SI does not open the UK up to risky practices in jurisdictions with weaker standards. It allows cross-border securitisation of parties in the UK to benefit from the stricter standards in the regulation.
On national promotional banks, I take the point made by the noble Baroness, Lady Kramer. Under the EU securitisation regulation, exposures to national promotional banks are exempt from the requirements; that has all sorts of advantages, as the noble Baroness mentioned. In a no-deal scenario, the UK would fall outside the scope of this exemption in the EU, and domestic institutions, such as the British Business Bank, would not be able to benefit from the EU’s exemptions. This SI therefore removes the exemption for EU national promotional banks, ensuring that under the domestic regime, only UK national promotional banks can benefit from the exemption. That is in line
with our general policy of treating the EU as a third country in a no-deal, no-implementation period scenario. We have raised this point with industry. My understanding is that it is not likely to create significant difficulties for UK firms and, in any event, the FCA and the PRA will be able to rely on their transitional powers to mitigate any cliff-edge impacts.
The noble Baroness, Lady Bowles, asked about the removal of the draft regulations and mentioned two particular articles. The SI implementing the securitisation regulations makes changes to ensure that the legislation operates in a domestic context after exit. The changes in Articles 6(7)(a) and (b) do not remove UK regulators’ ability to supervise synthetic securitisations. They will continue to have that power. The changes to the references to technical standards reflect the cross-cutting approach taken in other financial services legislation. As per my answer to the noble Baroness, Lady Kramer, we did not want to give preference to EU banks over and above any other promotional bank.
I hope that I have answered noble Lords’ questions. If not, I undertake to write to them.