Pat McFadden – 2020 Speech on Financial Markets after Exiting the European Union

Below is the text of the speech made by Pat McFadden, the Labour MP for Wolverhampton South East, in the House of Commons on 16 June 2020.

Like many who have spoken in the Chamber today, on the fourth anniversary of her death, my thoughts are very much with our former colleague Jo Cox and her family.

As we heard from the Minister’s opening statement, these statutory instruments are quite technical in nature. I would like to thank him for his welcome, and to thank him and his officials for providing some briefing on their meaning and effect. Overall, these instruments seek to replicate at national level the regulatory regime for financial services to which we currently subscribe—and which in many cases the UK designed—at EU level. Until the end of the transition period, we will of course continue to follow the EU’s regulatory rulebook. This is about what will happen in January if, as the Government confirmed last week, the end of this year marks the end of the transition period.​

As the Minister outlined, the regulations cover areas such as money laundering, supervision, central counterparties, the cross-border distribution of funds and the desire to maintain the pre-Brexit relationship between the UK and Gibraltar on financial services. In most of these cases, they are taking the supervision of the rules governing these areas from EU bodies and transferring them to either the Treasury, the Bank of England or the Financial Conduct Authority.

On the detail, I have a few questions I would like to put to the Minister. On the money laundering provisions, why is the current duty to co-operate with supervisors in other countries being removed and replaced with the weaker power to co-operate if we so choose? In what circumstances would we not want to co-operate to tackle money laundering, which can fund everything from international terrorism to the drugs trade? On cross-border distribution of funds, can the Minister confirm that these statutory instruments enshrine the loss of passporting rights for our financial services that will result from the Government’s decision to withdraw from the single market as well as from the EU itself? On equivalence determinations, can he confirm that, although these SIs create a regime for the UK to make decisions on the regulatory regime in other countries, as yet we have no guarantee that our own regulatory regime will be regarded as equivalent by the rest of the EU?

We can only hope that this exercise in taking back control is a little more convincing than last week’s decision on border checks from the Cabinet Office. After having four years to prepare, the Government dropped their plans for border checks on goods because we simply could not implement them, even though our own goods will be subject to border checks when we export them overseas.

Paragraph 36 of the political declaration, on which the current negotiation is based, states that the UK should have concluded its equivalence assessments by the end of this month. If we are only now legislating to take the powers to do that, can that exercise possibly be completed in just two weeks’ time?

Taken together, these changes and others in similar statutory instruments represent a significant increase in the functions and power of the Treasury, the Bank of England and the Financial Conduct Authority. What accountability arrangements will there be for those bodies in the exercise of their new powers? Alongside the transfer of functions, accountability must surely be enhanced if claims of restoring parliamentary sovereignty are to mean anything in reality.

More broadly, there is an obvious contradiction at the heart of all this. These regulations are intended to ensure continuity for UK financial services at the end of the transition period, yet the Government’s stated intention for withdrawal is to erect new trade barriers between our financial services and the rest of the EU, so even as we replicate at UK level the EU regulations that we played such a big part in designing, we are pursuing a course that will be incapable of replicating the market access that we have at the moment.

That is not my judgment; it is the stated aim of Government policy. It is the equivalent of one of the shops reopening this week and putting lots of new stock in its window but telling a substantial proportion of its ​previous customers that they are no longer welcome to shop in the store. For all the debate there has been about Brexit, its impact on services has not been debated nearly as much as it should have been.

We are not dealing here with just-in-time supply chains and trucks on ferries; we are dealing with regulations and rules. We are taking the area that makes up 80% of our economy and, in the case of financial services, a sector in which we trade at a substantial surplus with other countries, and inserting new barriers between us and our nearest customers. The fact that the sector is resigned to that and has established alternative bases in Dublin, Luxembourg or wherever does not change the reality of it.

We do not intend to divide the House on these measures, because regulatory continuity is better than not having a regime in place at all, but no amount of duplication can avoid the basic fact that although we can replicate the rules, we cannot replicate the market access to which these rules apply at the moment and for which they were designed in the first place.