Q1: The Explanatory Memorandum to the Regulations states: “An explanatory policy note setting out the necessary deficiency fixes was published on 22 November 2018, with Parts 1 to 6 of the instrument published in draft on 12 December 2018.” Part 7 deals with the financial regulators’ transitional powers; Part 8 with regulators’ fees. These are of considerable potential interest to stakeholders. Why were these Parts were not included in the draft instrument of December 2018? Has HM Treasury had any stakeholder reaction to Parts 7 and 8?
A1: As noted in the Explanatory Memorandum to the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019, the Treasury published an explanatory policy note on 22 November 2018 setting out many of the changes made in the instrument to the Financial Services and Markets Act 2000 (FSMA) and subordinate legislation. The Treasury later published many of the provisions in this instrument in draft on 12 December 2018 after engaging with key industry stakeholders, in order to familiarise firms with many of the legislative changes introduced in this instrument. Given that the Treasury was continuing its engagement with stakeholders on the drafting of the regulators’ temporary transitional power at the time this instrument was published in draft, the Treasury decided not to include the drafting of the temporary transitional power, which appears in Part 7 of the instrument, before the drafting had been finalised. The Treasury believed that publishing the draft temporary transitional power prematurely could have had negative impacts on firms’ preparations if subsequent changes to the drafting were made.
Although the provisions were not included in the published draft of this instrument, the Treasury had taken several steps to ensure that stakeholders were aware of the intention to bring forward such measures. In June 2018, the Treasury published a paper14 on its approach to financial services legislation under the EU (Withdrawal) Act 2018, in which the Treasury set out its intention to provide the financial services regulators with powers to introduce transitional measures that they could use to phase in or defer new requirements for EEA firms after exit day in a no deal scenario. On 8 October 2018, the Treasury further published an explanatory policy note15 on the regulators’ temporary transitional power, setting out in more detail the policy intention of this temporary power to inform industry of the Treasury’s no-deal contingency preparations. Our proposals for the temporary transitional power were positively received and identified as prudent and pragmatic by key stakeholders in our industry engagement. In addition, on 29 January 2019 a hearing with the Treasury Select Committee took place on the regulators’ temporary transitional powers, and committee members expressed support for the power as necessary to mitigate disruption to firms.
Firms have welcomed the preparations that the Treasury has put in place to avoid disruption to their activities in a no deal scenario.
With regard to Part 8 of this instrument which relates to the regulators’ fee-raising powers, the provisions in this part of the instrument ensure that the regulators can continue to raise fees as they currently do, in a no deal scenario. These amendments therefore have minimal impact on industry given that these amendments do not change the way that the regulators currently charge firms fees. We have been in regular contact with the regulators in the drafting of these provisions, as well as the other provisions in this instrument, to ensure that they function appropriately. The decision to include these provisions in this instrument was taken after the instrument was published in draft, and therefore these provisions were not included in the published version. Given that the Part 8 provisions do not affect the way firms carry on their activities and have minimal impact on firms, the Treasury did not believe it necessary to publish these in draft before the instrument was laid.
5 February 2019
14 HM Treasury (HMT), Approach to financial services legislation under the EU (Withdrawal) Act 2018 (9 August 2018): https://www.gov.uk/government/publications/financial-services-legislation-under-the-eu-withdrawal-act [accessed 7 February 2019].
15 HMT, Proposal for a temporary transitional power to be exercised by UK regulators (8 October 2018): https://www.gov.uk/government/publications/proposal-for-a-temporary-transitional-power-to-be-exercised-by-uk-regulators [accessed 7 February 2019].