My Lords, as this instrument is grouped, with the leave of the House, I shall speak also to the draft Electronic Commerce and Solvency 2 (Amendment etc.) (EU Exit) Regulations 2019.
These two instruments are part of the same legislative programme that we have discussed previously in the House to ensure that, if the UK were to leave the EU without a deal or an implementation period, there continued to be a functioning legislative and regulatory regime for financial services in the UK. Both SIs have already been debated in the House of Commons.
The Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019 revoke a number of pieces of UK domestic law and retained EU law which it would not be appropriate to keep on the statute book after exit. The instrument also makes amendments to a number of financial services EU exit SIs to reflect other instruments that have been laid as part of the wider legislative programme, corrects minor errors identified in legislation, and makes amendments to ensure consistency between EU exit instruments.
The SI has five main components. First, it amends UK domestic law to ensure continuity with other legislation amended under the European Union (Withdrawal) Act. Specifically, it makes amendments to primary and secondary legislation that do not fall within the remit of changes made by other instruments. Specifically, the SI will remove references to EU institutions
and regimes in four Acts of Parliament; namely, the Insolvency Act 1986, the Financial Services and Markets Act 2000, the Income Tax Act 2007 and the Corporation Tax Act 2009. These amendments will ensure that provisions that are irrelevant in a UK-only context are not retained on the UK statute book.
Secondly, the SI makes minor technical amendments to 19 statutory instruments, including 12 other financial services EU exit instruments that have previously been debated in this House. A number of those amendments are made in this instrument because they are consequential on other instruments that have been made only recently, such as the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019. A minority of the amendments correct drafting errors and improve the clarity of drafting. For example, a duplicate provision is omitted from the Bank of England (Amendment) (EU Exit) Regulations 2018, as the same amendment is made by the Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018.
Thirdly, this SI revokes three UK statutory instruments that relate to EU regimes that will not be applicable to the UK in the event of a no-deal exit given that they implement EU law being revoked at exit day under separate instruments. Fourthly, the SI makes amendments to, or revokes, retained EU law to ensure consistency with other EU exit instruments that have been made and to remove references to EU institutions that will no longer be relevant post-exit. Fifthly, the SI makes transitional and saving provisions to address deficiencies that arise from the UK’s withdrawal from the EU and to limit disruption to the financial services industry if the UK leaves the EU without a deal.
On the substance of the second instrument, at present there exists a regime within the EEA to facilitate greater cross-border e-commerce activity, implemented by the e-commerce directive 2000—or ECD for short. E-commerce refers to commercial activity that takes place online only. This regime allows an EEA firm to undertake online-only activity in an EEA state other than its home state without being subject to regulation in that EEA country. This is on the basis that such firms will be subject to relevant regulation in their home state. In the field of financial services, this means that an EEA firm, excluding Solvency 2 insurers, can undertake online-only activity in the UK without needing authorisation from the Financial Conduct Authority.
In a no-deal scenario, the UK would be outside the EEA and not subject to the e-commerce directive. As a result, the reciprocal arrangement that permitted EEA e-commerce financial services providers to operate in the UK without being regulated in the UK will no longer be valid. The exclusion in the regulated activities order will therefore be revoked to prevent EEA e-commerce financial services providers being able to undertake online-only financial services activity in the UK without the appropriate authorisation from the FCA. With regard to the e-commerce directive, these draft regulations therefore revoke Article 72A of the regulated activities order, where the exclusion from UK regulation for EEA e-commerce financial services providers currently lies.
In addition, this SI revokes the bulk of the regulations in the Electronic Commerce Directive (Financial Services and Markets) Regulations 2002, which gave the FCA rule-making powers pertaining to incoming EEA e-commerce financial services providers. These will no longer be relevant post exit. To help protect the interests of UK customers of EEA financial services firms, and those firms themselves, it is necessary to implement a regime that allows contracts taken out under the current exclusion to continue to be legally serviceable. This instrument will therefore implement a run-off regime to allow EEA e-commerce firms to legally service financial services contracts that were taken out before commencement of the instrument, and which utilised the exclusion in the regulated activities order, for a limited time. Pre-existing financial services contracts taken out under the e-commerce exclusion will continue to be excluded from the scope of regulated financial services activities under the Financial Services and Markets Act 2000. This will enable EEA providers of e-commerce activity of a financial services nature to wind down their UK operations in an orderly manner. This will provide certainty and fairness to both providers and users of financial services, and demonstrate that the UK remains open for business and takes seriously legal certainty and business continuity.
These draft regulations also make minor changes to a Commission delegated regulation related to the EU Solvency 2 directive and EU securitisation regulation. This delegated regulation sets out the requirements for investments in securitisations that no longer comply with the risk-retention and qualitative requirements. Specifically, these regulations amend the delegated regulation to correct a cross-reference and add references to the UK regulators. These changes are necessary to reflect the UK’s position outside the EU.
In summary, the Government believe that these instruments are necessary to ensure that the UK has a coherent and functioning financial services regulatory regime once the UK leaves the EU, and that the legislation will continue to function appropriately if the UK leaves the EU without a deal or an implementation period. I hope noble Lords will join me in supporting these regulations. I beg to move.
2.30 pm