26.The purpose of this instrument is to ensure that the UK has a “coherent and functioning financial services equivalence framework” during and at the end of the Transition Period (TP). HM Treasury (HMT) explains that the instrument proposes provisions for UK regulators to establish cooperation arrangements with the relevant authorities for an European Economic Area (EEA) state, such as the European Securities and Markets Authority or the European Free Trade Association supervisory authority, and to take regulatory decisions concerning EEA firms or products before the end of the TP. The financial services regimes covered by the provisions include benchmarks; credit rating agencies; central securities depositories; over-the-counter derivatives, central counterparties and trade repositories; markets in financial instruments; prospectuses; and securities financing transactions. The proposed amendments are to provide UK regulators with the necessary powers to complete the actions that are required to ensure that HMT equivalence decisions during and after the TP can take effect in practice, and that there is an appropriate framework for equivalence in retained EU law after the end of the TP. Under this process, there would first be an equivalence determination made by HMT by direction under the Equivalence Regulations 2019, with subsequent cooperation arrangements and regulatory decisions governed by this instrument.
27.The Committee first considered this instrument in May when it was laid before Parliament as a proposed negative instrument for sifting under the European Union (Withdrawal) Act 2018 (EUWA). At the time, the Committee agreed with the proposed negative procedure, as did the House of Commons European Statutory Instruments Committee. Following these sifting decisions, the instrument was laid before Parliament under the negative procedure for regular scrutiny on 10 June as SI 2020/583. The Committee became aware, however, that the coming into force date had changed from “the end of the implementation period” in the proposed negative instrument to “exit day” in SI 2020/583. This is a substantial difference and makes a retrospective provision, as exit day was 31 January 2020. The Department for Business, Energy and Industrial Strategy informed us on 11 June that because of these issues the SI would have to be revoked and replaced. We are disappointed that nearly a month after the issues were identified, the revocation Order has not yet been laid, while the end of the 40-day prayer period is approaching. We expect the Department to revoke the instrument at the earliest opportunity and to include in the Explanatory Memorandum an explanation of what has gone wrong. While we do not have any concerns about the policy substance of the instrument, we note that, as the replacement instrument will also be made under the EUWA, it will have to be laid initially as a proposed negative instrument for sifting.
28.This instrument clarifies how the new insolvency and restructuring measures introduced by the Corporate Insolvency and Governance Act 2020 (“the 2020 Act”) apply to limited liability partnerships (“LLPs”). The Department for Business, Energy and Industrial Strategy (BEIS) explains that while the 2020 Act directly applies the new moratorium provisions to LLPs, this instrument sets out how this will be done in practice. The instrument specifies, for example, where the powers and responsibilities lie in an LLP in relation to applying for a moratorium and how LLPs may make use of new provisions, such as the “cross-class cram down” feature, which allows dissenting classes of creditors or members to be bound to a restructuring plan if they would be no worse off under the plan than they would be in the next most likely outcome if the plan was not sanctioned. BEIS estimates that there are currently around 50,000 LLPs in the UK, compared to more than 4.35 million companies.
12 Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc.) (EU Exit) Regulations 2019 (), see: SLSC (Sub-Committee B) (Session 2017–19 HL Paper 273).