My Lords, the amendment is a very probing amendment—a very “proby” probing amendment—and an illustration of what technical changes could look like, not just with the money laundering regulations but in financial services more generally. It is a vehicle to discuss further what transposition from an EU directive means. The interest is in the contrast between the sort of things I am going to talk about and what happens through the withdrawal Bill. I drafted the amendment as an add-on to preserved money laundering regulations. While it could be what Schedule 2 could look like, it could be used in the context of the withdrawal Bill, which I understand has to be even more generic. However, it all looks rather “smoke and mirrors” and is not clear on the scope of what might be considered appropriate or redundant, or what might emerge from it. I confess that what I have produced was initially based on my own little check-list of what I might look for in the future, and I thought it would be useful to discuss it.
The amendment says that the Minister “may” make regulations, but some of the points are essential and here, we should at some point say there “shall” be carry-over of the relevant policy elements. That is what I am driving at—that one should not lose the policy framework.
Paragraphs (a), (f) and (g) are simply terminology corrections: instead of defining financial institutions with reference to the EU capital requirements directive and markets in financial instruments directive, one just transposes that into a UK list of entities. That is doubtless the sort of thing the Government will be doing. I also suggest changing amounts in euros to sterling. In the context of the fifth money laundering directive, one should probably go further and also be able to change the amounts by regulation. I would have no problem with that.
However, paragraph (b) should perhaps contain “shall”. It provides that reports, reviews and guidelines that were previously to be done by European supervisory authorities be taken over and carried out by UK supervisors, and policy guidance be carried over,
“to take account of international developments”.
My fear here is that in eliminating what are regarded as superfluous EU references, we inadvertently end up disregarding the policy. As my noble friend pointed out, the Government have not addressed the loss of policy framework alongside putting in compensation
for a loss of power framework. The Government have said repeatedly that they do not intend to change policy in making post-Brexit or ready-for-Brexit changes, but then you cannot leave behind some of the policy that came from the EU. On the money laundering directives, that would include provisions on proportionality.
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The problem can be seen both within this Bill and the European Union (Withdrawal) Bill: so much is left to what the Minister considers relevant and can be omitted at the slightest whiff of an EU mention, rather than being converted. The policy points are changed to power, but they lose that dimension.
The European supervisory authorities have to take account of quite a lot more within a directive—what is in the recitals, and the framework around delegated powers. None of that is ever transposed into our regulations. Further, when you cut off the cascade down, that input is not there. Paragraph (c) of the new clause states that the Commission’s reports and guidance should be put into a UK-equivalent setting, and paragraph (d) covers delegated legislation, which could come from the Commission or under the advice of European supervisory authorities.
I could be generous and say that the reason why none of that appears in the Bill or is carried over is that the UK, when focusing on transposing EU legislation, does only what is legally necessary and sometimes adds gold-plating that it can blame the EU for. It remains blind to any cascade effect, because that will come in through regulatory technical standards that will automatically have to be picked up by our supervisory authorities. It is a very specialist issue, but important to all financial services. If you do not provide for transposing the policy framework, you have lost something. Our supervisors will then not necessarily be taking into account the same things as the European supervisory authorities.
These are not big things but they are important safeguards for businesses, which have been told that they will have, more or less, a standstill arrangement, but there is no certainty. We know that businesses are trying to get some certainty about Brexit, but the Government cannot give it to them because the negotiations are ongoing. If businesses bothered to cast their minds over Bills such as this, they would suddenly say, “My goodness, there is no certainty here! Why do I want to spend my money on internal audit to ensure that all these checks and balances are continuing as now, when it might all be thrown out of the window and a completely different regime might come in?”. These policy points have practical application, and I would certainly be prepared to have conversations about how they could be incorporated.
Returning to the amendments, paragraphs (e) and (h) cover things that might need to be done with regard to the EEA such as passporting references. Again, these things will be done anyhow, but we have to make decisions: will the EEA be the same as a third country or will it have special status? There are probably more things that we will need to look at in the payment part of the directive, but I do not want to keep your Lordships here all night. I just want to reinforce that if
you promise no change of policy—that is what the White Paper said about the withdrawal Bill, and it is therefore probably meant to be carried over into this Bill—and if the Government want to depart substantially from that, it is not part of the Brexit adjustment and should be done on a consultation and evidence basis. There is no indication that that will happen. The legislation is therefore ephemeral.
I drafted the amendments to show what a slightly more predictable outcome might look like in conjunction with the money laundering regulations. I beg to move.