Sixty First Report Contents

Instruments of interest

Draft Code of Practice for the Welfare of Pigs

57.The draft Code of Practice for the Welfare of Pigs aims to replace the existing Code, which was issued in 2003, and to promote the welfare of animals by providing updated guidance on relevant farm animal welfare legislation and good standards of stockmanship. The Department for Environment, Food and Rural Affairs (Defra) explains that the draft Code reflects the most recent scientific, veterinary and husbandry advice and legislative changes, and will be the third of 10 existing farm animal welfare codes to be updated.13 The Codes for other livestock species will be updated in due course. The draft Code addresses key pig welfare issues and sets out improved practices, including on how to prevent tail biting and avoid the need to dock pigs’ tails routinely. It also provides updated and detailed advice on biosecurity and contingency planning. Defra held a six-week public consultation between January and March 2018 which received 30 responses, mostly from animal welfare organisations, the veterinary profession, members of the public and the livestock sector. According to Defra, most respondents agreed that the draft Code provides improved and up-to-date guidance. The draft Code has been scrutinised by the independent Farm Animal Welfare Committee which will also review any proposals by the Scottish and Welsh Governments for updated Codes to ensure consistency. Defra expects some limited familiarisation costs for the livestock sector.

Financial Services (Electronic Money, Payment Services and Miscellaneous Amendments) (EU Exit) Regulations 2019 (SI 2019/1212)

58.Building on earlier EU exit instruments, these Regulations make further changes to retained EU law on different aspects of the regulation of financial services. The Regulations have been laid under the urgent ‘made affirmative’ procedure to ensure that they come into force by exit day. HM Treasury (HMT) explains that, among other changes, the instrument clarifies and supplements transitional provisions for third country benchmarks to address the risk of disruption to businesses and consumers after EU exit. According to HMT, financial benchmarks are standards used in a wide range of markets to help set prices, measure performance or determine amounts payable under financial contracts. Current EU arrangements include an oversight regime and EU register for benchmarks that are administered outside of the EU. From 1 January 2020, such third country benchmarks may only be used for new contracts or products in the EU if they appear on the EU register. In the UK, the Financial Conduct Authority (FCA) will maintain an equivalent UK register of approved third country benchmarks after exit. Under the current arrangements, third country benchmarks that do not appear on the FCA register by 31 December 2019 may not be used in new contracts or products in the UK after this time. Third country benchmarks which appear on the EU register on exit day will be added to the FCA register for a period of two years. HMT says that in a ‘no deal’ scenario these transition periods would be insufficient: there would be a damaging cliff-edge risk when the UK’s third country transitional period ends at the end of 2019, as many third country benchmarks would not be on the EU or FCA register at that time and could no longer be used in the UK for new contracts and products, causing considerable market disruption. This instrument extends the transitional regime for third country benchmarks by three years, enabling UK firms to use these benchmarks until the end of 2022. HMT says that this will provide business with certainty and give administrators of third country benchmarks time to enter their benchmarks onto the FCA register. Asked about the number of third country benchmarks that are at risk of not being on the FCA register by the end of 2019, HMT said that it was not possible to quantify this. We are publishing HMT’s full response at Appendix 3.

Customs Safety and Security Procedures (EU Exit) (No. 2) Regulations 2019 (SI 2019/1219)

59.This instrument introduces changes to the customs safety and security regime that will apply in the UK after EU exit. It has been laid under the urgent ‘made affirmative’ procedure to ensure that it comes into force by exit day. HM Revenue & Customs (HMRC) explains that the current EU regime requires information on goods to be shared and risk assessed before they either arrive in or leave the EU. No declarations are required on goods moving between the UK and the rest of the EU, but goods arriving from non-EU countries require safety and security entry summary declarations and goods moving from the EU to non-EU countries require exit summary declarations. If the UK leaves the EU without a deal, UK businesses exporting to the EU will have to complete exit summary declarations and goods imported to the UK from the EU will require an entry summary declaration. HMRC says that stakeholders such as the haulage industry and ferry operators will not able to meet the new requirements from exit day. This instrument introduces measures to give UK businesses more time to adapt their systems, to assist the movement of goods and to help ease traffic at the UK-EU border. Amongst other changes, the instrument provides HMRC with a discretionary power for a period of 12 months to allow businesses more time to submit safety and security declarations for certain exports; clarifies that businesses may use combined, rather than separate, export and safety and security declarations; and introduces a 12-month transition period during which no entry summary declarations will be required for goods imported from territories where the UK currently does not require such declarations. HMRC says that the changes will not increase the security risk to the UK and will not have effect in relation to the trade in goods between Ireland and Northern Ireland which will be subject to different arrangements. HMRC plans to publish an updated assessment of the impact of a ‘no deal’ on the movement of goods shortly and is continuing to review its evidence and analysis of the impact of the end of any transition periods in this area. The Committee notes that while the Explanatory Memorandum states that there will be no significant impact on the public sector as a result of the new safety and security documentation requirements, there will be a significant wider impact, including in relation to the cost of an additional 900 staff that Border Force has recruited to prepare for EU exit.

Air Services (Competition) (Amendment and Revocation) (EU Exit) Regulations 2019 (SI 2019/1224)

60.These Regulations have been laid by the Department for Transport (DfT) using the ‘made affirmative’ procedure. In the accompanying Explanatory Memorandum (EM), DfT states that this instrument is an important part of the Government’s ‘no-deal’ preparations for aviation. Amongst other things, the instrument makes technical changes to the version of Regulation (EU) 2019/712, on safeguarding competition in air transport, retained by the European Union (Withdrawal) Act 2018 so that it continues to function after the UK has left the EU. The EM notes that: “The policy content of the retained Regulation (EU) 2019/712 will remain substantially unchanged. The effect of the changes made is that the Regulation will apply where practices distorting competition by countries other than the UK cause injury to the UK aviation industry”.14 Regulation (EU) 2019/712 provides the European Commission with the power to conduct an investigation where there is prima facie evidence of practices causing or threatening to cause injury to Union air carriers, and to adopt redressive measures where necessary. By virtue of changes in this instrument, it is the UK’s Civil Aviation Authority (“CAA”) which will examine the complaint. Paragraph 7.8 of the EM notes that the CAA will make a recommendation to the Secretary of State following its investigation, and the Secretary of State may then decide to adopt redressive measures. DfT additionally states that that “while the investigatory power of the instrument will lie with the CAA, it is possible that the Department for Transport will play a supporting role”.

Trade in Animals and Animal Products (Legislative Functions) and Veterinary Surgeons (Amendment) (EU Exit) Regulations 2019 (SI 2019/1225)

Animal Health and Genetically Modified Organisms (Amendment) (EU Exit) Regulations 2019 (SI 2019/1229)

61.These two sets of Regulations make changes to retained EU law in relation to the import of animals and animal products, the control of Transmissible Spongiform Encephalopathies and the release of Genetically Modified Organisms. Both instruments have been laid under the urgent ‘made affirmative’ procedure to ensure that they come into force by exit day. The Department for Environment, Food and Rural Affairs (Defra) explains that this approach ensures that the instruments will be on the statute book when the EU will vote in October on the UK’s request to be approved as a third country for the purpose of trade in animals and animal products after exit. Defra told the Committee that EU ‘no deal’ communications from June suggest that the European Commission intends to list the UK again as a third country, following an earlier listing in preparation of the 12 April 2019 exit date which became obsolete following the extension of the Article 50 period.15 SI 2019/1225 replaces an earlier instrument of the same title which was laid as a draft affirmative instrument but was withdrawn before Parliament debated and approved it. The Committee reported on the earlier instrument in July.16 SI 2019/1229, amongst other changes, updates references to the Trade Control and Export System (TRACES), the EU’s online tool for managing sanitary requirements for intra-EU trade and the import of animals and animal products. We asked Defra whether the UK system that is to replace TRACES will be operational on EU exit. The Department told us that a pre-final version of the UK’s new ‘Import of products, animals, food and feed system’ went live on 30 September 2019. We are publishing the Department’s full response at Appendix 4.

Capital Requirements (Amendment) (EU Exit) Regulations 2019 (SI 2019/1232)

62.These Regulations make changes to retained EU law on capital requirements, a key aspect of the EU’s prudential regulatory regime for banks, building societies and investment firms.17 The Regulations have been laid under the urgent ‘made affirmative’ procedure to ensure that they come into force by exit day. HM Treasury (HMT) explains that the instrument addresses deficiencies arising from recent changes to the EU’s regulatory regime which will apply in the UK by 31 October 2019. Amongst other changes, the instrument adjusts the geographical scope to reflect the fact that after EU exit, the new arrangements for capital requirements will apply in a UK-only context. The instrument transfers functions, such as the drafting of Binding Technical Standards, from the EU to the appropriate UK supervisory authorities. The instrument also removes references to new EU arrangements which will deal with failing banks that cannot go through normal insolvency proceedings without harming public interest and causing financial instability. Member States are required to implement these requirements by December 2020, but as this deadline falls after EU exit, the UK will not adopt the arrangements. HMT expects the impact to be limited, as UK authorities will continue to participate in cross-border cooperation on resolution issues through international Crisis Management Groups for Global Systemically Important Institutions (G-SIIs). The instrument also amends technical rules regarding how much capital and liquidity firms must hold against different types of exposures, such as exposure to central banks. The instrument removes the automatic preferential treatment for EU firms in this area and transfers functions to decide on the equivalence of third country exposures and prudential rules from the EU to HMT. The instrument also removes preferential treatment for EU firms in relation to loss absorbing equity and debt, known as the Minimum Requirement for Own Funds and Eligible Liabilities (MREL). According to HMT, this will increase the amount of MREL that some subsidiaries of EU G-SIIs operating in the UK will need to issue after EU exit. The Bank of England intends to introduce transitional arrangements to delay the impact of this change until 31 December 2020, giving firms time to adjust to the new obligations. We asked HMT for further information on the expected impact of the changes and are publishing the response at Appendix 5.

Prospectus (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/1234)

63.Building on an earlier EU Exit instrument,18 these Regulations make further changes to retained EU law in relation to the regulation of prospectuses. A prospectus contains information that investors use to decide whether to invest in a company’s securities; it needs to be published when securities, such as shares and bonds, are offered to the public or admitted to trading on a regulated market. The Regulations have been laid under the urgent ‘made affirmative’ procedure to ensure that they come into force by exit day. HM Treasury (HMT) explains that, amongst other changes, the instrument transfers functions that currently sit with EU authorities to the appropriate UK authorities: the function of developing Binding Technical Standards, for example, is transferred to the Financial Conduct Authority (FCA), while functions of the European Commission in relation to making delegated legislation and making decisions on the equivalence of prospectus rules in third countries are transferred to HMT. The instrument also clarifies the situation regarding prospectuses that have been passported into the UK. HMT explains that under current EU law a prospectus must be approved by the national regulator of a European Economic Area (EEA) country before it can be used. Once it has been approved, it is valid for a period of 12 months and can be passported for use in any other EEA country, without the need for further approval from that country’s national regulator. After exit, EEA firms will no longer be able to issue securities in the UK via an EEA passport and, instead, will have to secure approval of their prospectus from the FCA. As approved prospectuses are valid for a period of 12 months, however, some prospectuses may be passported into the UK with a period of validity that extends past exit day. This instrument clarifies that valid prospectuses passported into the UK will continue to be valid up to the end of their 12 months period of validity, even where this extends past exit day, and will be treated as if they had been approved originally by the FCA. HMT says that this will ensure a smooth transition for issuers of securities in the UK.

Competition (Amendment etc.) (EU Exit) (No. 2) Regulations 2019 (SI 2019/1245)

64.These Regulations address deficiencies in retained EU competition law. The Committee reported on an earlier EU exit instrument that sought to prepare the UK’s competition regime for the time after EU exit.19 The report concluded that “there remains uncertainty about the final parameters of he future UK competition regime, as many of the provisions put forward … may need to change, depending on the terms of the UK’s withdrawal from the EU and the nature of any future partnership agreement”. This new instrument addresses, amongst other issues, possible enforcement gaps which have arisen since the earlier instrument was debated and approved by Parliament. The Department for Business, Energy and Industrial Strategy (BEIS) explains that it was thought previously that the European Commission would continue to enforce merger commitments related to the UK which had been accepted before EU exit. In March 2019, however, the Commission published guidance indicating that after exit “parties may in certain circumstances consider requesting the Commission to waive, modify or substitute” merger commitments that address issues in UK markets. BEIS says that any change to or waiving of merger commitments could lead to an enforcement gap and damage UK consumers and businesses: UK authorities would be unable to enforce the original commitments or put in place new commitments to remedy the harm, as doing so would require them to consider retrospectively mergers that were cleared when the UK was a member of the EU. According to BEIS, this instrument addresses the enforcement gap by preserving in UK law EU decisions that include commitments that “relate to the supply or acquisition of goods or services” in the UK and by empowering the UK competition authorities to monitor and enforce these commitments. The instrument specifies a list of relevant EU decisions, including 12 anti-trust cases and 31 merger clearance cases. The instrument also ensures that any new EU decisions made between 15 August 2019 and exit day will be preserved if they contain relevant commitments. The powers granted to UK competition authorities to monitor and enforce the commitments will broadly mirror those available under the UK competition regime. The Regulations have been laid under the urgent ‘made affirmative’ procedure to ensure that they come into force by exit day.

Ecodesign for Energy-Related Products and Energy Information (Amendment) Regulations 2019 (SI 2019/1253)

65.This instrument amends UK legislation to reflect changes to EU law in relation to ecodesign requirements for servers and data storage products and energy labelling requirements for vacuum cleaners. The Department for Business, Energy and Industrial Strategy (BEIS) explains that, with effect from 1 March 2020, industry will have to meet new minimum energy performance and resource efficiency requirements for servers and data storage products. While the new requirements are set out in EU Regulations which apply directly in all Member States, this instrument updates the existing enforcement regime to ensure that the new requirements can be enforced. The instrument also deals with the annulment in EU law of energy labelling requirements for vacuum cleaners. This follows an application by Dyson Ltd to the General Court of the European Union in October 2013 which argued that energy labels for vacuum cleaners did not reflect real life conditions and therefore misled customers. The General Court ruled in favour of Dyson Ltd and annulled the relevant EU legislation with effect from 18 January 2019.20 BEIS explains that while the annulment has direct effect in the UK, this instrument ensures that the existing enforcement regime for energy labelling no longer refers to vacuum cleaners.

13 The other Codes that have been updated are the new Code of Practice for the Welfare of Meat Chickens and Meat Breeding Chickens (March 2018) and the new Code of Practice for the Welfare of Laying Hens (August 2018).

14 EM, para 2.4.

15 See: EU Communication on the state of play of preparations of contingency measures for the withdrawal of the United Kingdom from the European Union, 12 June 2019.

16 56th Report, Session 2017-19 (HL Paper 400).

17 Prudential regulation requires financial firms to control risks and hold adequate capital as defined by capital requirements.

18 Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/707), as reported by SLSC Sub-Committee A, 15th Report, Session 2017-19 (HL Paper 280).

19 Competition (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/93), as reported by SLSC Sub-Committee A, 5th Report, Session 2017-19 (HL Paper 221).

20 See: Judgment of the General Court (Fifth Chamber) of 8 November 2018, Dyson Ltd v European Commission, Case T-544/13 RENV.

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