My Lords, as a great deal of financial services activity takes place across borders and across regulatory regimes, the ability of national regulators to co-operate with each other and to exchange information is vital if they are to discharge their supervisory functions effectively. As noble Lords will know, an important function performed by financial services regulators is the gathering of supervisory information from firms. Regulators use this information so they can ensure that regulated firms are operating in a way consistent with regulatory requirements so that they are alerted to any development that may need supervisory intervention.
The information gathered by regulators is often confidential and commercially or market-sensitive, so it is right that there are strict rules and safeguards on how regulators share such information with other regulatory authorities. EU law currently plays an important role in setting these rules. In order to ensure the effective functioning of the single market in financial services, the EU has developed a joint supervisory framework for national regulators and supervisory bodies in the EEA. This makes co-operation and the sharing of certain supervisory information between EEA national regulators mandatory. In addition to that, the EU has established the European supervisory authorities—ESAs—which are responsible for co-ordinating the approach of EEA national regulators. Co-operation and the sharing of certain information with the ESAs is also mandatory for EEA national regulators.
As well as setting out what information should be shared, EU rules include restrictions and safeguards. In the UK, these rules are implemented by Part 23 of the Financial Services and Markets Act 2000—or FiSMA, as it is known—and the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001. For third-country authorities, there are additional restrictions when disclosing confidential information. The UK regulator may need to be satisfied that the third-country authority has protections for confidential information in place that are equivalent to those of the EU. There may also be a requirement to enter into a co-operation agreement with the third-country authority. In addition, if the UK regulator is disclosing confidential information to a third-country authority which originated from an EEA authority, the UK regulator may need to seek the consent of the EEA regulator which originally disclosed the confidential information.
10 pm
If the UK leaves the EU without an agreement, the EU has confirmed that it will treat the UK as a third country and the UK will also need to treat EEA states as third countries. The UK will be outside the single market and the EU’s joint supervisory framework. References in this legislation to this framework, and to EU legislation and EU bodies, will be deficient and will need to be corrected so that the UK’s disclosure rules for confidential information will work effectively.
In particular, the rules will need to be amended to reflect the third-country relationship which will exist between the UK and EEA states. After exit, it would not be appropriate to provide different rules and protections on the disclosure of confidential information by UK authorities depending on whether the confidential information is being shared with an EEA authority or authorities of non-EEA states. If the rules were left unamended, the UK would afford additional protections and less onerous restrictions to EEA states compared with other third countries.
In addition, where there are currently requirements to seek the consent of an EEA authority before onward disclosure of information, these requirements will be retained only if an equivalent requirement exists in relation to seeking consent from a non-EEA authority.
The instrument also provides for a transitional arrangement which will ensure that any confidential information received by a UK regulator before exit day will continue to be treated in accordance with the relevant provisions that existed before exit day.
While it is necessary to amend the UK implementation of rules around disclosure of confidential information to ensure that they continue to operate effectively once the UK is outside the EU, it must be stressed that these amendments are in no way intended to diminish the level of co-operation that exists between the UK and EEA regulators. The Government and UK regulators believe that effective co-operation and co-ordination is essential for the effective supervision of financial services. UK authorities will be doing everything possible to ensure that effective co-operation continues. UK regulators have always been key players in the global supervision of financial services, as is demonstrated by the close and co-operative arrangements we have with regulators in countries outside the EEA.
After exit, it will be necessary for the UK regulators to enter into co-operation agreements with EEA national regulators and with the European supervisory authorities. These agreements will help ensure that a high level of co-operation and information sharing will continue. Both the Government and UK regulators attach very high priority to putting these agreements in place, and I am pleased to report that UK and EU regulators are making good progress in their discussions to finalise these agreements. The Treasury has been working very closely with the Bank of England, the PRA and the FCA in the drafting of this instrument. There has also been engagement with the financial services industry, including publication of this instrument in draft, along with an explanatory policy note, on 9 January this year.
In summary, the Government believe that the proposed deficiency fixes are necessary to ensure that the UK has a clearly defined and operable set of rules for the disclosure of confidential information. I hope colleagues will join me in supporting these regulations. I commend them to the House.
Amendment to the Motion