Documents considered by the Committee on 31 January 2018 Contents

Meeting Summary

The Committee looks at the significance of EU proposals and decides whether to clear the document from scrutiny or withhold clearance and ask questions of the Government. The Committee also has the power to recommend documents for debate.

Brexit-related issues

The Committee is now looking at documents in the light of the UK decision to withdraw from the EU. Issues are explored in greater detail in report chapters and, where appropriate, in the summaries below. The Committee notes that in the current week the following issues and questions have arisen in documents or in correspondence with Ministers:

Fifth Anti-Money Laundering Directive

European Defence Industrial Development Programme

EU-ACP economic partnership

Working Conditions Directive

Statutory Audit

Enhancing law enforcement cooperation and border control: strengthening the Schengen Information System

Waste policy

Common Agricultural Policy

North Sea demersal stocks

Summary

Fifth Anti-Money Laundering Directive

The European Parliament and the EU Member States have agreed on amendments to the EU’s Anti-Money Laundering Directive (AMLD). The legislation requires banks and other businesses handling financial transactions (“obliged entities”) within the EU to apply due diligence to their customers, and report suspicious activity to the authorities. Since 2015 the legislation also obliges EU countries to maintain central registers of the beneficial ownership of both companies and express trusts.

Under the changes to the Directive now agreed, Member States will have to grant public access to information on beneficial ownership held on each EU country’s Register of Trusts, subject to a “legitimate interest” test, the conditions for which must be defined in law by each individual Member State. Other changes relate to retrieval of bank account information; the extension of money-laundering checks to auctioneers and estate agents; and the interconnection of national registers. Most of the provisions of the new legislation will take effect in 2019 and 2020, meaning the Directive will have to be applied in the UK under any post-Brexit transitional arrangement.

The Committee has cleared the legislation from scrutiny as the text has been finalised. However, we are awaiting further information from the Treasury about the resources the Government is mobilising to ensure that information on beneficial ownership of UK-registered companied and trusts is verified and accurate.

Cleared from scrutiny; drawn to the attention of the Home Affairs, Justice and Treasury Committees.

European Defence Industrial Development Programme

The EDIDP is a new EU funding instrument for the development of military prototypes, as part of the larger European Defence Fund. The Member States adopted their position on the EDIDP proposal in December 2017, with the Government overriding scrutiny. The UK supported the Council’s position as it provides for some, albeit limited, participation of UK entities in the EDIDP after Brexit (and any transitional period).

There are a number of concepts contained in the Council’s position which require further clarification, to establish how easy it would be for UK organisations to participate in the EDIDP-funded projects after Brexit. This is one of the Government’s key objectives in the post-Brexit relationship with the EU on defence cooperation.

Not cleared from scrutiny; further information requested; drawn to the attention of the Defence Committee.

EU-ACP economic partnership

The Commission has requested formal permission from the Council to open negotiations with 79 countries in Africa, the Caribbean and the Pacific (ACP) on a successor to the current EU-ACP trade and partnership agreement (the Cotonou Agreement). The proposal is highly relevant in the context of Brexit, as the UK’s economic and political relationship with numerous developing countries in the Commonwealth currently take place via the wider EU-ACP fora. The UK also provides one of the strongest voices for support to these countries, especially in the Caribbean and the Pacific.

The Cotonou Agreement expires in 2020, and the Government is currently seeking to secure a carry-over of its applicability after the UK ceases to be a Member State. The effects of failing to secure this would be disruptive since the agreement also provides the framework for the disbursement of the European Development Funds, to which the UK is contributing funding totalling another £4 billion during the post-Brexit transitional period.

With respect to the successor arrangement the EU wants to negotiate, the Government has not made clear whether the UK will seek to become a non-EU, non-ACP party to the new Agreement. If it is not, it presumably will have to negotiate a new UK-ACP agreement (possibly using Cotonou as a template), or pursue new bilateral arrangements with individual ACP countries. Whether it has the negotiating resources to do so in parallel to negotiating a new UK-EU free trade agreement is questionable.

Not cleared from scrutiny; further information requested; drawn to the attention of the Foreign Affairs and International Development Committees.

Working Conditions Directive

The European Commission has proposed a new Working Conditions Directive, which would update the existing Written Statement Directive (which requires new employees to be informed in writing about their employment conditions), as well as seeking to introduce a statutory definition of ‘worker’ and new material employment rights relating to probationary periods and exclusivity clauses for zero-hours workers. The Directive also contains provisions allowing workers to challenge their dismissal if based on seeking to enforce these new rights.

The Committee has kept the proposal under scrutiny, in light of the Government’s concerns that the Directive could have unintended consequences in the context of UK employment law. We have also used our powers under Standing Order 143 to request the opinion of the BEIS and Work & Pensions Committees on the proposal in light of their recent inquiry into working conditions.

Not cleared from scrutiny; opinion requested from the Business, Energy and Industrial Strategy and Work and Pensions Committees.

Proposed Insolvency Directive on restructuring and second chances for business and entrepreneurs

This proposed Insolvency Directive is a very significant proposal to harmonise aspects of Member States’ insolvency law. Although it is unlikely that the UK would have to implement an adopted Directive before Brexit, in November the Committee asked the Government about the impact of a transition period on implementation.

We are also keeping under scrutiny an opinion of the ECB on the proposed Directive. It is relevant because it has called for wider harmonisation which would be problematic for the UK if it had to implement the proposed Directive.

The Government now responds to the Committee’s questions. It considers it still unlikely that the UK would have to implement the Directive during a transition period. In terms of voluntary alignment post Brexit/transition, the Government has, in any event, been consulting on a similar preventive restructuring framework to that proposed in the Directive.

Not cleared from scrutiny; further information requested.

Waste policy

A provisional agreement has been reached on new recycling targets up to 2035, but the Minister reports that the Government has yet to decide whether or not to support the agreement. The Committee notes that, if adopted, the UK would be required to apply this legislation under the terms of the proposed post-Brexit transition agreement. The Committee also queries the Government’s indecision in the light of the professed commitment to ambitious recycling targets in the recent 25 year environment plan.

Cleared (by Resolution of the House on 08/03/2016); drawn to the attention of the Environment, Food and Rural Affairs Committee, the Environmental Audit Committee, the Communities and Local Government Committee, the Welsh Affairs Committee, the Scottish Affairs Committee and the Northern Ireland Affairs Committee.

Enhancing law enforcement cooperation and border control: strengthening the Schengen Information System

The Government has decided to opt into a proposed Regulation to improve the functioning of the Schengen Information System (“SIS II”) and enhance cross-border police cooperation in tackling serious crime and terrorism. The Committee asks the Government when it expects the Regulation to be adopted, whether it is likely to take effect during any transitional/implementation period agreed with the EU and how this would affect the Government’s preparations for implementing the legislation. The Committee notes that there is no precedent for a non-EU third country to participate in SIS II unless it also participates in the Schengen free movement area. It says that the Government will need to demonstrate why an exception should be made to allow the UK to continue to participate in SIS II post-exit once it is outside the EU and Schengen and no longer bound by EU rules on free movement. The Committee seeks further information on the implications of a “no deal” and the possibility of obtaining information contained in SIS II alerts on a bilateral basis from individual Member States.

Not cleared from scrutiny; further information requested; drawn to the attention of the Home Affairs Committee, Justice Committee and Committee on Exiting the European Union.

Statutory Audit

A report on developments in the statutory audit markets in EU Member States provides an opportunity for the Committee to scrutinise the implications of Brexit for a sector in which the UK is very successful. A highly developed regulatory framework for statutory audit exists at EU level, which facilitates cross-border audit activity of various kinds, including recognition of auditors qualifications, pan-European partnerships, intra-group activity and sharing of documents. The Committee concludes that European Commission adequacy and equivalence decisions would be needed to retain the status quo, in the absence of which a range of negative consequences would arise: UK audits would cease to be valid in the EU and UK audit firms would have to register with each Member State and be subject to additional oversight from local regulators, and UK audit firms would have to be restructured out of pan-European partnerships. While some relocation of audit activity to the EU27 is possible, restrictive national rules and the dominance of UK capital markets mean that there is a limit on the proportion of UK audit activity which EU operators could take.

Not cleared from scrutiny; further information requested.

Common Agricultural Policy

The European Commission has set out ideas for the orientation of the EU’s Common Agricultural Policy from 2021. Central to the Commission’s vision is common objectives with more decentralised design and delivery of policy. The Committee notes that the direction of EU agricultural policy is relevant to the UK given the intention to continue a strong trading relationship between the UK and the EU post-Brexit. The Committee seeks confirmation that UK officials and Ministers will engage with the EU on the respective EU and UK approaches to future agricultural policy once the UK has published more details of its intentions. A commitment is also sought to provision by the Government of a detailed assessment of the areas of convergence and divergence between the UK and EU.

Not cleared; further information requested; drawn to the attention of the Environment, Food and Rural Affairs Committee.

North Sea demersal stocks

Agreement has been reached on this proposal to agree a framework under which detailed management measures for North Sea demersal fisheries (such as cod, haddock, plaice, saithe, sole and whiting) should be managed. The Committee is satisfied with the agreement, but draws attention to the Minister’s ambiguity on application of EU fisheries rules during the implementation period and to the Minister’s reluctance to make any comment on the application of detailed implementing rules agreed and applicable during any implementation period. The Committee notes that we will monitor closely the negotiations on the future UK-EU fisheries relationship with a view to how it will affect co-operation under legislation such as this, as well as implications for the modification of EU fisheries legislation as retained EU law.

Cleared; drawn to the attention of the Environment, Food and Rural Affairs Committee.

Documents drawn to the attention of select committees:

(‘NC’ indicates document is ‘not cleared’ from scrutiny; ‘C’ indicates document is ‘cleared’)

Business, Energy and Industrial Strategy Committee: European Accessibility Act [Proposed Directive (NC)]; Statutory audit [Report (NC)]; Parental and Carers’ Leave Directive [Proposed Directive (NC)]; Working Conditions Directive [Proposed Directive (NC)]

Communities and Local Government Committee: EU Legislation on Waste [Proposed Directives (C)]

Defence Committee: European Defence Industrial Development Programme (EDIDP) [Proposed Regulation (NC)]

Digital, Culture, Media and Sport Committee: European Accessibility Act [Proposed Directive (NC)]

Environmental Audit Committee: EU Legislation on Waste [Proposed Directives (C)]

Environment, Food and Rural Affairs Committee: Common Agricultural Policy Reform [Communication (NC)]; EU Legislation on Waste [Proposed Directives (C)]; Multiannual Plan for Demersal Fishing Stocks in the North Sea [(a) Proposed Regulation, (b) Executive Summary, (c) Impact Assessment (C)]

Committee on Exiting the EU: Statutory audit [Report (NC)]; Enhancing law enforcement cooperation and border control: strengthening the Schengen Information System [Proposed Regulations (NC)]

Foreign Affairs Committee: New EU partnership with Africa, the Caribbean and the Pacific [Recommendation (NC)]

Health Committee: Carcinogens and Mutagens Directive (Phase I and Phase II) [(a) Proposed Directive (C), (b) Proposed Directive (NC)]

Home Affairs Select Committee: Fifth Anti-Money Laundering Directive [Proposed Directive (C)]; Enhancing law enforcement cooperation and border control: strengthening the Schengen Information System [Proposed Regulations (NC)]

International Development Committee: New EU partnership with Africa, the Caribbean and the Pacific [Recommendation (NC)]

Justice Committee: Fifth Anti-Money Laundering Directive [Proposed Directive (C)]; Enhancing law enforcement cooperation and border control: strengthening the Schengen Information System [Proposed Regulations (NC)]

Northern Ireland Affairs Committee: EU Legislation on Waste [Proposed Directives (C)]

Scottish Affairs Committee: EU Legislation on Waste [Proposed Directives (C)]

Transport Committee: European Accessibility Act [Proposed Directive (NC)]

Treasury Committee: European Accessibility Act [Proposed Directive (NC)]; Statutory audit [Report (NC)]; Fifth Anti-Money Laundering Directive [Proposed Directive (C)]

Welsh Affairs Committee: EU Legislation on Waste [Proposed Directives (C)]

Women and Equalities Committee: European Accessibility Act [Proposed Directive (NC)]; Parental and Carers’ Leave Directive [Proposed Directive (NC)]

Work and Pensions Committee: Parental and Carers’ Leave Directive [Proposed Directive (NC)]; Working Conditions Directive [Proposed Directive (NC)]; Carcinogens and Mutagens Directive (Phase I and Phase II) [(a) Proposed Directive (C), (b) Proposed Directive (NC)]





2 February 2018