The 3rd and 4th sittings of the Public Bill Committee debate on the FSM Bill took place on 25 October. After the evidence sessions from witnesses on 19 October, the line-by-line scrutiny of the Bill has now started. The Committee made good progress, with most parts of the Bill being agreed and ordered to stand part of it. The debate included:
- In relation to legislative changes following Brexit:
- Peter Grant’s proposal that Treasury should not be permitted to revoke any retained EU financial services laws if it would be prejudicial to the interests of consumers. Mr Grant said his party, the SNP, was close to voting against the Bill in second reading because they do not believe that it will be possible, given the scale and speed of the process, to replace it with something at least as good. So Parliament should be given a choice as to whether the proposed replacement is suitable;
- Dame Angela Eagle for Labour said that the opposition does not have a problem with the principle of the repeals but is concerned about how the wide ranging power proposed in Clause 1 will work – given the experience of how long it took and how many mistakes were made in onshoring the EU legislation on Brexit;
- Shaun Bailey for Conservative acknowledged the concerns but also the need for speed;
- Tulip Siddiq for Labour welcomed the opportunity to tailor the laws but wondered how the end of 2023 deadline had been arrived at;
- Andrew Griffith, Financial Secretary to the Treasury, replied that the Government does not seek divergence for divergence’s sake, and that there is no arbitrary backstop date (which anyway is not in the Bill). He also noted that the Bill is giving regulators significant power, but that the sheer volume of laws means Parliament cannot always be the rule setter. He stressed that the approach being taken is that which is already in FSMA, and noted the Government’s proposal for a public interest intervention power. He did not see the need for the amendment proposed by Peter Grant, and it was voted against, and Clause 1 and Schedule 1 were agreed;
- Andrew Griffith went on to explain how Treasury would modify EU law that it restates and how almost all changes will be subject to affirmative resolution. He said the Government will have to act within the admittedly broad powers given in the Bill but said these are constrained by existing objectives, parliamentary scrutiny and in relation to retained EU law;
- Andrew Griffith could not say when the Government amendment will be tabled for debate;
- On the efficient transfer of regulation to regulatory rulebooks, Andrew Griffith said clause 6 is designed to achieve this – and to exempt the regulators from the need to do a cost-benefit analysis when they are not making any real changes for firms. Clauses 3-7 (with minor amendment to clause 5) were ordered to stand as part of the Bill;
- On clause 2, a related clause together with Schedule 2, the Government is looking to deliver the most urgent post-Brexit reforms, for trading and trading venues. Angela Eagle noted the significant systemic risks should the reforms go wrong but on the whole the Committee was supportive of Clause 2 and Schedule 2;
- On clause 8, the “designated activities” regime for market participants, Peter Grant’s amendment would add businesses that seek to raise finance from the general public otherwise than by share issue within the regime – although he said the issue might be more appropriately addressed in the Economic Crime and Corporate Transparency Bill. He said the aim is to stop businesses that on the face of it have a different purpose from effectively raising money for their directors
- Andrew Griffith clarified that the amendment seeks to make it clear that non-equity security offers to retail investors can be covered by the designated activities regime, so it would extend to crowdfunding, and he assured Peter Grant that the changes to regulate offers of mini-bonds and similar products would address his concerns. Mr Grant did not agree but withdrew the proposed amendment;
- the proposed Government amendment to include the power to regulate cryptoassets under the designated activities regime recognises the need to regulate beyond stablecoins. Andrew Griffith also clarified that the new Clause 14 clarifies that cryptoassets would be brought within the regulated activities regime. Amendment 22 was agreed;
- Peter Grant’s proposed amendment to make nominated representatives of those carrying out designated activities liable where their organisation is liable met with support for the principle of addressing fraud but generally it was felt that this clause was not the place to do it and the amendment was not agreed;
- Andrew Griffiths explained the purpose of the Designated Activities regime and discussed the regulatory powers relating to it – in particular that Treasury should be able to future-proof criminal law on offences under the regime, but could not create new offences. Clause 8 and Schedule 3 were agreed.
- Amendment 36 would not allow the Government to amend devolved legislation, but Emma Hardy queried when the Government might use the “Henry VIII” power that is written in new section 71R and would allow Treasury to amend all legislation. Andrew Griffith said it was not envisaged to use it, but it might be necessary if references to EU laws were found in devolved administration laws. After heated debate, the amendment was voted down and amendment 37 withdrawn.
- Clauses 9-12 on CCPs and CSDs were discussed and ordered to stand part of the Bill;
- Clause 13 – 17 and Schedule 4 on testing of FMI technologies and practices were discussed. They were broadly welcomed, but some members were concerned about risk mitigation. The clauses were all ordered to stand part of the Bill;
- Clauses 18 and 18 on critical third parties were discussed and agreed to and will stand part of the Bill;
- Clause 20 and Schedule 5 on the financial promotion gateway were discussed as was the proposed amendment to prevent “shopping around” for approval. The clause was ordered to stand part of the Bill and the amendment withdrawn.