1.The Committee has asked the Treasury for a memorandum on the following point:
Paragraph 3.5 of the Explanatory Memorandum states that the factors favouring the use of the affirmative procedure were outweighed by the importance of introducing the new regime without delay. Explain why, if the instrument is needed to be brought into force urgently it was not prepared earlier so that there would have been ample time for a draft to be approved by both Houses.
2.Drafting of the instrument began in March 2017. This proved to be more complex and time- consuming than had been expected; some of the complexities are described in paragraph 3 of the Explanatory Memorandum. It was clear from the outset that the instrument would have to be made under section 2(2) of the European Communities 1972 (“the 1972 Act”). But consideration was not given at the outset to the requirement for the affirmative resolution procedure when making a statutory instrument under section 22(1A)(b) of the Financial Services and Markets Act 2000 (“the 2000 Act”) to create a new regulated activity in relation to the setting of a financial benchmark under the 2000 Act. Although this section could not in the event be relied on as conferring the necessary powers, its existence made it preferable to use the affirmative resolution procedure under section 2(2) of the 1972 Act when creating a new framework for regulating financial benchmarks under the 2000 Act.
3.It was not realised that the use of the affirmative resolution procedure was preferable until the beginning of January 2018 when the draft instrument was going through the final internal legal checks prior to being made. By that point the time needed to schedule debates in both Houses would have significantly increased the delay and uncertainty for those who became subject to regulation under the EU Benchmarks Regulation 2016 from 1 January 2018. The ability of the Financial Conduct Authority as the relevant UK regulator to make relevant rules would also have been further delayed. Even using the negative resolution procedure the instrument was unfortunately not ready for making until 1 February due to the number of issues requiring to be addressed.
4.The Treasury very much regrets that it was unable to provide Parliament with the opportunity to debate the draft instrument. To prevent this situation from recurring, the Treasury is taking steps to ensure that full consideration is always given to the appropriate Parliamentary procedure at the outset of drafting statutory instruments and the timetable is set accordingly.
6 March 2018
Published: 16 March 2018