My Lords, I thank noble Lords for their questions and for the important points raised in this debate. I will try to answer as many as I can in the time available, and, where I am not able to, I will ensure that we write to noble Lords.
The noble Baroness, Lady Bowles, asked about progress on co-operation agreements. That is an ongoing process, and we will of course keep this House updated on that process of engagement over the next few months. My noble friend Lord Trenchard asked whether we should continue with a policy of holding to equivalence with the EU regime. That is certainly our policy at the moment, because that is how the City has worked over the past 40 or so years. However, by being in control of our own regulatory policy, we will have the opportunity in the coming years to keep reviewing that. The noble Baroness, Lady Kramer, made the important point that the growth is now in Asia. By having our own regulatory regime, we will have the flexibility to consider those opportunities.
My noble friend Lady Wheatcroft raised a number of questions. Possibly the most important one was whether the EU will grant equivalence. We are of course at the tail end of these negotiations, a time at which things will be most fraught. It would certainly be absolutely in the interests of the EU to grant equivalence, but I cannot prejudge the outcome of the discussions over the next few weeks.
On the capacity of our regulators to take on these decisions, we have engaged in depth on this issue and we are assured that they have this resource. Fees will be a matter for individual regulators in order to recover their costs in processing any applications.
My noble friend Lady Altmann asked what provision should be made beyond the 12-month period to process these applications. Certainly, that was the period of time that was considered reasonable. My noble friend made a perfectly reasonable point that the transition period has seemed tight, but we have had the worst pandemic in nearly at 100 years in the middle of it, so I am confident that we can deliver on that. She raised one or two other technical questions on defined benefits, and I will write to her in an attempt to answer them.
The noble Lord, Lord Bruce, made one or two points on paragraph 7.2 which states,
“The UK has now left the EU with a deal.”
While decisions on equivalence are autonomous and unilateral in many areas of financial services, it is essential to understand the approach of the other party when deciding how to approach an area of cross-border activity. While the UK has undertaken an assessment of the EU, we will not be making equivalence decisions at this stage; we will make decisions where and when we determine that it is in the UK’s interest. Our ambition is to achieve a reciprocal equivalence, supported by the effective regulatory co-operation of an ambitious FTA, and we continue to work towards that goal. We continue to believe that comprehensive mutual findings of equivalence between the UK and the EU are in the best interests of both countries. However, as I said in relation to earlier questions, it will be a very rough few months. We must be perfectly realistic about that.
My noble friend Lady McIntosh asked about the handling of a breach. The normal rules of public law will apply, and, after the transition period, equivalence will be covered by provisions in retained EU law, as amended under the European Union (Withdrawal) Act 2018.
The noble Baroness, Lady Kramer, asked about the status of the negotiations. We have completed round 7. We have been clear in discussions throughout that this intensified process continues to be constructive, but there are still significant differences. Our preference is to leave with an FTA as long as it guarantees our political and economic independence, and these are tricky issues.
On plans for divergence, as I mentioned on an earlier question, we are committed to regulatory autonomy but at this stage to providing as much equivalence as we can. We are committed to the highest standards of regulation and the appropriate levels of supervisory oversight. In many areas we already go beyond what the EU rules require. Where we make changes, they will be for good reasons, but our starting point will be what is right for the UK, our economy and to ensure financial stability.
The noble Lord, Lord Tunnicliffe, raised a number of questions. He was worried about the quality of the guidance documents and felt that they were not in a spirit of providing clarity. That is a fair criticism, and I will certainly encourage officials to try to provide a more accessible guidance for future SIs, which I expect we will have over the next few weeks and months.
The noble Lord asked whether the instrument, which provides for subsequent co-operation agreements and regulatory decisions, introduces any significant
new policy. I can confirm that that is correct; the provisions in this SI complement existing provisions and make minor amendments to earlier EU exit instruments and retained EU law but do not alter the policy of the earlier instruments or introduce any new policy.
The noble Lords, Lord Tunnicliffe and Lord Bruce, asked about the progress on the questionnaires, which have a deadline of the end of June of this year, and about the implications of not having met that deadline. We returned all 17 questionnaires received from the EU as part of its assessment process. The returns totalled some 2,500 pages. We received the first questionnaire only in late March, and the last 250 pages of questions reached us only at the end of May. The equivalence assessments are a technical process which each side is carrying out separately and are not linked to the UK-EU trade negotiations. Many, if not most, of the questions relate to explaining the details of the rules and regulations in the UK and the rules and regulations that we share with the EU. We have made sure that the EU has the information it requires to make a positive decision for the UK for all regimes, and we have always been clear that as the UK and EU start from a position of having very similar financial services regulations, that should be a straightforward process. We continue firmly to believe that comprehensive mutual findings of equivalence between the UK and the EU are in the best interests of both parties.
The noble Lord, Lord Tunnicliffe, asked about statements from my colleague the Economic Secretary, which he believes are optimistic. Equivalence is a unilateral autonomous process that is distinct from the FTA negotiations, and the politicisation of the financial services sector is not in anyone’s interest. The financial stability that underpins our economy and the EU’s economy depends on trust and predictability in relation to regulatory matters. A thriving financial services sector is clearly important to our economy but also to the EU’s economy. The UK is a global financial hub. Among other things, it channels investment into Europe cost effectively and manages the assets of millions of EU firms and consumers. Fragmentation of that market would be costly and disruptive and, given the shock of the pandemic over the past few months, it would be an odd decision for the EU to make that more difficult for its member states.
The noble Lord asked what is my assessment of the impact on cross-border financial services trade between the EU and the UK if the equivalent ruling is not given, or at least not in a timely manner. We continue firmly to believe that comprehensive mutual filings of equivalence between the UK and the EU are in the interests of both parties. We remain open and committed to continuing the dialogue with the EU about its intentions on this. The financial stability that underpins our economy and that of the EU depends on trust and predictability in relation to regulatory matters.
This SI is needed to ensure that the UK continues to have a robust and functioning equivalence framework for financial services in the UK during and after the end of the transition period. The SI will also make minor amendments to modify the errors in onshore legislation. I hope that the Committee has found this
afternoon’s sitting informative. I will write on technical questions that I have not been able to answer. I hope that noble Lords will join me in supporting these regulations.