My Lords, we have no comment to make on the second statutory instrument in this group, except to say that we agree with what the Minister said during the debate in the Commons that for the entirely consequential changes brought about by this instrument “consequential” means “necessarily following on from” not “of consequence”.
We support this instrument, but we have a little more to say about the first. As a mathematician by education, I should start by saying how pleased I was to see e—Euler’s number, the base of natural logarithms —make an important appearance on page 2 of the instrument, albeit without any explanation at all for the reader of what it might mean. I think that may be rather odd.
The EM explains that the discount factor—a means of reducing the amount of capital that small and medium-sized firms hold for their trading and derivative activities—was removed in error from the capital requirements regulation, both here and in the EU. Reinstating it via this SI will help ensure that the UK remains competitive with other jurisdictions. We entirely support this remedial measure but note the SLSC’s comments about the matter. The Minister has already mentioned some of them.
The question really is: how is it that the mistake, and it was a mistake, was introduced into the UK after it had already been corrected in the EU? Does this not suggest incompetence or, at the very least, insufficient awareness of relevant activity in key trading partners? What steps has the Treasury taken to eliminate this kind of error?
We also support the extension of the transitional period for third-country benchmark regimes for five years to 31 December 2030. As the Minister said, if we
were to lose access to these third-country benchmarks, it could weaken our position as a centre for global FE and derivatives. This SI gives us six years to sort out a new regime, as I believe the EU is also contemplating.
How, when and with what do we intend to replace these transitional arrangements? What steps are currently being taken to make sure that we do indeed replace them, or are we content to extend this supposedly transitional arrangement indefinitely? Are we engaged in discussion with our EU counterparts over the matter? The Treasury told the SLSC that the risks arising from the extension of the transition period were “small, manageable and temporary”. The Minister mentioned and addressed that issue, but I would be grateful if she could expand on exactly what the risks are, how they are manageable and why they are temporary. Having said all that, I close by saying that we support this SI.