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  • John Glen – 2021 Statement on London Capital and Finance

    John Glen – 2021 Statement on London Capital and Finance

    The statement made by John Glen, the Economic Secretary to the Treasury, in the House of Commons on 19 April 2021.

    On 17 December 2020, I announced that the Treasury would set up a compensation scheme for bondholders who suffered losses after investing in London Capital & Finance (LCF) (HCWS678)[1]. This statement provides an update on the Government’s approach, including the details of the scheme and the next steps for bondholders.

    LCF was a Financial Conduct Authority (FCA) authorised firm which issued unregulated non-transferable debt securities, commonly known as “mini-bonds”, to investors and then speculatively invested the funds received in a number of underlying businesses. LCF went into administration in January 2019 and at the point of failure 11,625 bondholders had invested around £237 million.

    This has been a very difficult time for LCF bondholders, many of whom are elderly and have lost their hard-earned savings. As I noted in my last statement, for some, this will have formed part of an investment portfolio, but for others, it will have represented a significant portion of their savings.

    One of the key purposes of regulation is to ensure that investors have the right information to understand their risk. Within this system even a regulator doing everything right will not be able to, and should not be expected to, ensure a zero-failure regime. That is why statute has established the Financial Services Compensation Scheme (FSCS), which is the compensation scheme for customers of failed financial services firms in the UK. Its scope is strictly limited and it is only able to pay out when a relevant regulated activity has been undertaken. The FSCS has considered LCF claims in detail and has been able to protect around 2,800 bondholders, paying out over £57 million in compensation.

    It is an important point of principle that Government do not step in to pay compensation in respect of failed financial services firms that fall outside the FSCS. Doing so would create the wrong set of incentives for individuals and an unnecessary burden on the taxpayer. However, the situation regarding LCF is unique and exceptional. After considering the issues in detail, the Government have decided to establish a compensation scheme for LCF bondholders. The scheme I am announcing today appropriately balances the interests of both bondholders and the taxpayer and will ensure that all LCF bondholders receive a fair level of compensation in respect of the financial loss they have suffered.

    LCF’s business model was highly unusual, both in its scale and structure. In particular, it was authorised by the FCA despite generating no income from regulated activities. This allowed LCF’s unregulated activity of selling mini-bonds to benefit from the “halo effect” of being issued by an authorised firm, helping LCF gain respectability and grow to an unprecedented scale before it failed, resulting in losses for thousands of bondholders.

    A complex range of interconnected factors contributed to the scale of losses for LCF bondholders. Clearly individuals have responsibility for choosing investments that are suitable for their risk profile. The high interest rates on offer from LCF, particularly when compared with deposit accounts, should have prompted questions from potential bondholders about the risks. While some may have understood those risks and invested anyway, LCF’s disclosure materials and marketing strategy may have led others to believe they were investing in a product that was far safer than it was.

    Bondholders have reported LCF using a range of dishonest tactics to persuade them to invest. For example, some novice investors have said they were encouraged to declare themselves to be sophisticated and experienced, thereby enabling them to access products that should have been out of reach. Furthermore, LCF appears to have adopted flawed investment and marketing strategies and paid high commissions of up to 25% to the sales agent.

    Bondholders have been badly let down by LCF, but they have also been let down by the regulatory system that is designed to protect them. The independent investigation led by Dame Elizabeth Gloster[2], which the Government published at the end of last year, concluded that the FCA did not discharge its functions in respect of LCF in a manner which enabled it to effectively fulfil its statutory objectives during the relevant period.

    While I have not seen evidence that would indicate that the regulatory failings at the FCA were the primary cause of the losses incurred by LCF bondholders, they are a significant factor that the Government have taken into account when deciding to establish this scheme. Indeed, the Government do not ordinarily step in to pay compensation to consumers in relation to allegations of fraud, investment losses, mis-selling or mis-buying of investments. I would, however, like to make it clear that neither the Government nor the FCA accept any legal liability for the failure of LCF or the losses incurred by its bondholders.

    In these extraordinary circumstances, the Government have decided to establish a compensation scheme. However, it is imperative to avoid creating the misconception that Government will stand behind bad investments in future, even where FSCS protection does not apply. That would create a moral hazard for investors and potentially lead individuals to choose unsuitable investments, thinking the Government will provide compensation if things go wrong. The ultimate responsibility for choosing suitable investments must remain with individuals.

    To avoid creating this misconception, and to take into account the wide range of factors that contributed to the losses that Government would not ordinarily compensate for, the Government will establish a scheme that provides 80% of LCF bondholders’ initial investment up to a maximum of £68,000. Where bondholders have received interest payments from LCF or distributions from the administrators, Smith & Williamson, these will be deducted from the amount of compensation payable. The scheme will be available to all LCF bondholders who have not already received compensation from the FSCS and represents 80% of the compensation they would have received had they been eligible for FSCS protection.

    Around 97% of all LCF bondholders invested less than £85,000 and therefore will not reach the compensation cap under either the Government scheme or the FSCS. The Government expect to pay out around £120 million in compensation in total and the scheme to have paid all bondholders within six months of securing the necessary primary legislation, which the Government will bring forward as soon as parliamentary time allows.

    Bondholders do not need to do anything at this stage and Government will provide further details on how the scheme will operate in due course. The scheme will be simple and straightforward to navigate. Bondholders will not need to use a claims management company, solicitor or any other organisation to help them claim.

    I am mindful that some individuals may be anxious to receive their compensation and I urge bondholders to be vigilant to the risk of scammers posing as services to help them claim. To reiterate, the scheme has not opened yet and bondholders should await further announcements from the Government on next steps.

    One of the challenges highlighted by Dame Elizabeth Gloster’s report is that, despite exhibiting many of the characteristics of other regulated financial services activities, the issuance of mini-bonds is not currently a regulated activity. The Government are committed to ensuring the financial services sector is well regulated and consumers are adequately protected, and the Treasury is therefore today launching a consultation on proposals to bring the issuance of mini-bonds into FCA regulation. This consultation is the culmination of a review into the regulation of mini-bonds that I announced in May 2019 and delivers on one of the recommendations made in Dame Elizabeth Gloster’s report.

    In addition, the FCA is continuing its work to address the recommendations in Dame Elizabeth Gloster’s report, including through its ongoing transformation programme. A number of important steps have already been taken and I welcome the FCA’s commitment to report publicly on the progress of these vital reforms.

    Finally, I wish to reiterate my sympathy for LCF bondholders. I hope the compensation offered by the Government scheme will offer some relief to the distress and hardship suffered and provide closure on this difficult matter.

  • John Glen – 2021 Statement on the Mortgage Guarantee Scheme

    John Glen – 2021 Statement on the Mortgage Guarantee Scheme

    The statement made by John Glen, the Economic Secretary to the Treasury, in the House of Commons on 14 April 2021.

    It is normal practice when a Government Department proposes to undertake a contingent liability in excess of £300,000 and for which there is no statutory authority, for the Minister concerned:

    to present a departmental minute to Parliament, giving particulars of the liability created and explaining the circumstances; and

    to refrain from incurring the liability until 14 parliamentary sitting days after the issue of the minute, except in cases of special urgency.

    I am writing to notify Parliament of a contingent liability that has been created by the Government from the introduction of the new mortgage guarantee scheme. The scheme will be open to new mortgages submitted by participating lenders from 19 April 2021, but the liability will not be incurred until lenders start to submit mortgages to the scheme, which is not expected until May at the earliest.

    By way of background, the mortgage guarantee scheme was announced at the Budget on 3 March 2021. The scheme will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of 5% on homes with a value of up to £600,000. Under the scheme all buyers will have the opportunity to fix their initial mortgage rate for at least five years should they wish to. The scheme, which will be available for new mortgages up to 31 December 2022, will increase the availability of mortgages on new or existing properties for those with small deposits. The guarantee will be valid for up to seven years after the mortgage is originated.

    Exposure against this contingent liability would take place in the event that the sum of commercial fees paid by lenders would not be sufficient to cover calls on the guarantee. There will be a cap on the size of the Government’s contingent liability under the scheme of £3.9 billion.

    Authority for any expenditure required under this liability will be sought through the normal procedure. HM Treasury has approved this proposal.

    I will also lay a minute today on this matter.

  • John Glen – 2021 Statement on the Bilateral Loan to Ireland

    John Glen – 2021 Statement on the Bilateral Loan to Ireland

    The statement made by John Glen, the Economic Secretary to the Treasury, in the House of Commons on 13 April 2021.

    I would like to update Parliament on the loan to Ireland.

    In December 2010, the UK agreed to provide a bilateral loan of £3.2 billion as part of a €67.5 billion international assistance package for Ireland. The loan was disbursed in eight tranches, and the final tranche was drawn down on 26 September 2013. Ireland has made interest payments on the loan every six months since the first disbursement.

    On 26 March, in line with the agreed repayment schedule, HM Treasury received a total payment of £406,428,318.19 from Ireland. This comprises the repayment of £403,370,000 in principal and £3,058,318.19 in accrued interest.

    HM Treasury has also provided a further report to Parliament in relation to the loan as required under the Loans to Ireland Act 2010. The report relates to the period from 1 October 2020 to 31 March 2021. It reports fully on the two final principal repayments received by HM Treasury during this period. The loan has been repaid in full and on time.

    A written ministerial statement on the previous statutory report regarding the loan to Ireland was issued to Parliament on 5 October 2020, Official Report, column 18WS.

  • John Glen – 2021 Statement on Normal Minimum Pension Age Consultation

    John Glen – 2021 Statement on Normal Minimum Pension Age Consultation

    The statement made by John Glen, the Economic Secretary to the Treasury, in the House of Commons on 11 February 2021.

    The normal minimum pension age is the minimum age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge (unless they are taking their pension due to ill health). The normal minimum pension age is currently age 55. This minimum helps to ensure that tax relieved pension savings are used to provide an income, or funds on which an individual can draw, in later life. In 2010 the minimum pension age was increased from age 50 to 55. In 2014, the coalition Government announced that the normal minimum pension age would increase from age 55 to 57 in 2028.

    Since the normal minimum pension age was introduced, life expectancy at birth for both men and women has continued to increase, according to the latest data from the Office for National Statistics. It has continued to increase since the announcement in 2014. Increasing the normal minimum pension age reflects increases in longevity and changing expectations of how long we will remain in work and in retirement. Raising the normal minimum pension age to age 57 could encourage individuals to save longer for their retirement, and so help ensure that individuals will have financial security in later life.

    The Government therefore reconfirm their intention to legislate to increase the normal minimum pension age to age 57 on 6 April 2028 and are today publishing a consultation on how to implement the increase. The consultation is available at

    www.gov.uk/government/consultations/increasing-the-normal-minimum-pension-age-consultation-on-implementation.

    The increase to age 57 will not apply to those who are members of the firefighters, police and armed forces public service pension schemes. This reflects the unique nature of these occupations. The consultation also sets out the proposed protection regime for some other pension savers. The Government do not intend for this increase to apply to individuals who already have unqualified rights to take a pension at an earlier age. Protected pension ages will be specific to an individual as a member of a particular scheme, so protection will not apply to other schemes where there is no existing right held.

    People in the UK are living longer, and the proportion of over-50s in the labour force is continuing to increase. The Government recognise the importance of supporting over 50s to remain active in the labour market and are committed to supporting them to find and retain employment. The Government are working with employers via the business champion for older workers to enable over-50s to retain employment and are aiming to provide early and targeted employment and skills support to help individuals move back into work, including into new sectors.

    This consultation on implementing the increase in normal minimum pension age will run for 10 weeks.

  • John Glen – 2021 Comments on Buy Now Pay Later Schemes

    John Glen – 2021 Comments on Buy Now Pay Later Schemes

    The comments made by John Glen, the Economic Secretary to the Treasury, on 2 February 2021.

    Buy-now-pay-later can be a helpful way to manage your finances but it’s important that consumers are protected as these agreements become more popular. By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford – the same protections you’d expect with other loans.

  • John Glen – 2020 Speech to the TheCityUK Conference

    John Glen – 2020 Speech to the TheCityUK Conference

    The speech made by John Glen, the Economic Secretary to the Treasury, on 19 November 2020.

    Good morning everyone

    It’s a real privilege to speak to you all today.

    While I immensely value the way that technology has enabled us to communicate with one another over the past months…

    I very much look forward to talking to you live and in person again – just as I have in the past.

    The theme of today’s event is revitalisation.

    Or perhaps, to borrow the phrase the Chancellor used last week, a “new chapter”.

    But before I turn to that subject – I’ll start with a moment of reflection.

    I’ve been Economic Secretary for almost three years now.

    That might not sound very long – but believe me it is aeons in politics.

    A lot has changed since I started in the job – both within the financial services sector and more widely but over the past eight months, Covid-19 has transformed our lives.

    I don’t underestimate for one moment, the test of leadership this pandemic has presented to you all – the people at the helm of this vitally important industry.

    But you’ve risen to the challenge.

    As the Chancellor said last week, the past months have shown your sector at its best.

    It’s your industry that has safeguarded the savings and pensions of millions of people through the choppiest waters imaginable.

    It’s your frontline workers, in banks and call centres, who have helped people access the vital financial services they need.

    And it’s your sector that has helped the Government swiftly and efficiently issue £60 billion of loan payments that have helped keep one million businesses afloat.

    So, thank you for everything you’ve done and continue to do.

    We’re acutely aware of the disruption caused by the further restrictions, that we recently had to introduce to combat the virus.

    We are grateful for your patience and we’ll be setting out further detail on our next steps as soon as possible.

    But now I want to look slightly further ahead.

    New Vision for FS

    And I’m particularly glad to speak to you today because this event is very timely.

    This moment, as we come to the end of the Transition Period, and begin our economic recovery from coronavirus marks the start of a new chapter for this country’s financial services industry.

    And last week the Chancellor, began that chapter, by setting out the Government’s vision for the future of the sector.

    It’s a vision of an open industry, where British finance and expertise drives trade, commerce and prosperity with partners in Europe and around the world.

    A technologically advanced industry, that uses all its ingenuity and talent to deliver better outcomes for consumers and businesses.

    A greener industry, that harnesses innovation and finance to tackle climate change and protect our environment.

    And above all, an industry that serves the people of this country, acting in the interests of communities and citizens creating jobs, supporting businesses, and driving growth as we direct all the strength of this country towards economic recovery.

    Needless to say, this vision will be based on world-beating regulation that is agile and responsive, along with safe and stable markets.

    Last week I laid the legislative foundations of that vision with the Financial Services Bill.

    While the Chancellor announced new policy in three areas that underpin our vision: Openness, technology and green finance.

    Openness to international markets

    I’ll turn to the first point – openness.

    Our approach is very simple. We want to become the most open and competitive financial services centre in the world.

    And our most urgent task right now is to give certainty on our approach to regulation.

    To achieve that, we need to decide on our approach to equivalence; one of the central mechanisms for managing our cross-border financial services activity within the EU and beyond.

    We strongly believe it is in the UK and EU’s mutual interest to reach a comprehensive set of decisions on mutual equivalence.

    As I think you know, our ambition had been to manage these decisions cooperatively with the EU.

    However, it has become clearer that there are many areas where the EU is not prepared to even assess the UK in the short to medium term – despite having a wealth of information at its disposal.

    We’ve no wish to politicise this situation but we simply can’t allow the uncertainty to rumble on interminably – that’s no good for industry or the economy.

    It’s time for us to move forward and do what’s right for the UK.

    That’s why last week we published a set of equivalence decisions for the EU and EEA member states, based on outcomes based proportionate assessments.

    It’s a step that should provide the certainty and stability you, as industry, need, and deliver our goal of open, well-regulated markets.

    We’ve taken a principled approach, aiming to be open, predictable and transparent, as we’ve made those decisions.

    In addition, we’ve published a detailed framework for our general approach to equivalence, taking a technical, outcomes-based approach which prioritises stability openness and transparency.

    It’s important too that our UK businesses benefit from a level playing field, as far as possible.

    As I’m sure you’re aware, UK financial services businesses cannot currently reclaim input VAT on exports to the EU.

    So, to make sure UK financial services exports to the EU remain competitive, we will treat them the same as exports to other countries.

    This means UK firms will be able to reclaim input VAT on financial services exports to the EU – support worth £800 million per year.

    And just as we are focused on providing certainty to financial services after the Transition Period we also want to help your industry seize new opportunities outside the EU.

    Earlier this year we took a major step forward with our partnership with Switzerland.

    While we recently had a productive economic and financial dialogue with India – and hope to hold a dialogue with Brazil before the end of the year.

    We’ve also just signed a trade deal with Japan that goes further than the EU’s financial services deal, and that will take effect in January.

    And financial services are a key feature of talks with other partners, such as the US, Singapore, Australia and New Zealand.

    In addition, last week we announced our intention to launch a call for evidence on our overseas regime…

    This will allow us next year, to tailor our future approach to enable market access to investment funds from other countries.

    And to build on the 113,000 jobs already supported by the asset management industry, we’ve also said we are going to publish a consultation on reforming the UK investment funds regime.

    We’ve also heeded the investment industry’s request that we make it easier to invest in longer term, illiquid assets, such as infrastructure.

    I know this is also an area of interest for TheCityUK.

    So, I was delighted that last week we set out our ambition to have a Long Term Asset Fund and have it up and running within a year.

    This won’t just be good for savers and the industry.

    It will also be good for the UK, boosting investment in the vital infrastructure that will support our economic recovery.

    Technology

    While our investment industry is one of the jewels of our financial services sector, so is our thriving fintech industry…

    a sector that has generated 76,000 jobs, right around the country.

    So, now let me turn to the next part of our vision for financial services – technology.

    We want to reach our full potential in this area.

    That’s why we’re looking forward to studying the recommendations of Ron Kalifa’s independent review, on how the UK can become the leading destination for starting up, growing and investing in FinTech firms.

    In addition, we continue to take a leading role in the global conversation on Central Bank currencies…

    with the Treasury and the Bank of England considering whether and how central banks can issue their own digital currencies.

    On that note, we’re going to launch a consultation on our regulatory approach to StableCoins.

    And this will help us seize the opportunities of this emerging form of payment but ensure it meets the same minimum standards as more traditional methods.

    While we’re on that subject, we’ve all seen how digital and contactless payments are helping to keep the economy moving throughout the pandemic.

    And through our Payments Landscape Review, we’ve been considering the new challenges and risks that arise from this rapid switch to these new forms of payments.

    We do have some work to do on this front.

    So, I’m delighted that we received over 60 responses to the review to help inform our decisions. And we’ll be setting out our next steps early in 2021.

    Green Finance

    I’ll move on now to the last area of policy I’d like to discuss today – harnessing the power of financial services to tackle climate change.

    This is a real personal priority of mine.

    In fact, last time I spoke to you, I talked about the need to turn this challenge into a spur for technological, economic and social progress.

    Because we really do want to take a lead here.

    That’s why last year we launched the Green Finance Strategy – to mobilise investment in clean and resilient growth.

    And now as we prepare to host the COP 26 UN climate conference next year and the G7 conference, we have a real chance to shape the future agenda in this area.

    So, I’m delighted that last week we announced our intention to introduce mandatory Taskforce on Climate Related Financial Disclosures, requirements across the economy by 2025, with a significant portion of requirements in place by 2023.

    This is a really significant moment. It makes this country the first to go beyond ‘comply or explain’ or ‘as far as able’ requirements while the UK’s TCFD Taskforce Interim Report, also published last week, sets out how we will meet this important commitment.

    We’ve also said that we’ll issue our first ever green sovereign bond.

    I know that it’s something some of you have been calling for some time – so I’m delighted to show you that we’ve made progress on this front.

    Wider Programme of Regulatory Reform

    These policies begin a new chapter for financial services.

    And they are part of an ambitious programme of regulatory reform being undertaken by the Government.

    Because now we’ve left the EU, we have the opportunity to take back control of decisions governing the sector and to be guided by what is right for the UK – to regulate differently and regulate better.

    As I mentioned earlier, last week, the Financial Services Bill had its second reading in Parliament, marking the next stage of our reform agenda.

    The Bill will deliver several existing government commitments and will help ensure the UK maintains its world leading regulatory standards, as well as ensuring our openness with international markets.

    And, we’re also taking a fundamental review of our Financial Services Regulatory Framework.

    This will allow us to consider how we may need to change the way we make and shape our future rules, now we have left the EU while building on the strengths of our existing framework and on the role played by our independent financial service regulators.

    We’re also carrying out a number of other reviews in areas that we know are a priority for industry…

    including looking at the Solvency II Directive to make sure it properly reflects the unique features of the UK insurance sector.

    So, as you can see, we are at the start of a new chapter.

    And while all of this is going to keep me and my team busy.

    It’s not a job for us alone. It’s going to take the collective efforts of us all.

    And I really do mean all of us – from the biggest bank to the smallest fintech start-ups in every part of the country.

    Indeed, as the Chancellor said last week financial services are not synonymous with the City of London.

    That’s why, over the coming weeks, I’ll be making a point of meeting those of you based outside of the Capital, as I know that you are going to play a crucial part in realising our vision.

    I’ll wind up by saying that I really do mean that it is a privilege to talk to you today.

    And I very much look forward to working with you all over the weeks and months ahead so we can together make this next chapter for your sector even better than the one before.

    Thank you.

  • John Glen – 2020 Comments on the UK Fintech sector

    John Glen – 2020 Comments on the UK Fintech sector

    The text of the comments made by John Glen, the Economic Secretary to the Treasury, on 20 July 2020.

    The UK is one of the leading places in the world to start and grow a fintech firm, and I am determined to ensure this continues. The sector is worth around £7 billion to our economy and will therefore be vital in ensuring both that the country bounces back post-Coronavirus, and continues to be at the forefront of financial innovation now we have left the EU.

    This independent review will help us to uphold and enhance our global reputation, support growing firms, and promote the integration of new technologies across financial services to the benefit of businesses and their customers.

  • John Glen – 2020 Statement on Financial Markets after Exiting the European Union

    John Glen – 2020 Statement on Financial Markets after Exiting the European Union

    Below is the text of the statement made by John Glen, the Economic Secretary to the Treasury, in the House of Commons on 16 June 2020.

    I welcome my opposite number, the right hon. Member for Wolverhampton South East (Mr McFadden), to his place. He has a distinguished history of public service and I look forward to a constructive dialogue with him today and on future occasions.

    As the House will be aware, the Treasury has been undertaking a significant programme of financial services legislation since 2018, introducing almost 60 statutory instruments under the European Union (Withdrawal) Act 2018. It has been an enormous privilege for me to do the vast majority of those measures. These SIs were made prior to exit day—31 January 2020—and covered all essential legislative changes needed to ensure a coherent and functioning financial services regime at the point of exit, had the UK not entered a transition period.

    The European Union (Withdrawal Agreement) Act 2020 received Royal Assent in January this year. The 2020 Act contains a general rule that delays those parts of the SIs that would have come into force immediately before, on or after exit day, so that they instead come into force by reference to the end of the transition period, which we leave at the end of this year. Over the course of this year the Treasury will therefore, where necessary, continue to use powers under the European Union (Withdrawal) Act 2018, as amended by the 2020 Act, to prepare for 1 January 2021. This will involve the Treasury bringing forward a small number of SIs that, in particular, will ensure that recently applicable EU legislation will operate effectively in the UK at the end of the transition period. The SIs before the House today are two such instruments. The approach taken in these SIs is aligned with the general approach established by the EU (Withdrawal) Act 2018, providing continuity by retaining existing legislation at the end of the transition period but amending where necessary to ensure effectiveness in the UK-only context.

    I turn to the draft Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020. From now on, I will refer to this instrument as the OTC SI. In preparation for the UK’s withdrawal from the EU on 31 January 2020, Parliament approved several ​EU exit instruments to ensure that the European market infrastructure regulation would continue to operate effectively in the UK at the point of exit. EMIR was updated on 1 January this year by a regulation known as EMIR 2.2, which now applies in the UK. The OTC SI that we are discussing today address deficiencies in the UK’s post-transition framework arising as a result of that update.

    EMIR is Europe’s response to the G20 Pittsburgh commitment in 2009 to regulate over-the-counter derivative markets in the aftermath of the last financial crisis. EMIR mandates the use of central counterparties, known as CCPs, to manage risk between users of derivative products. EMIR has been effective in increasing the safety and transparency of derivative markets, thereby reducing the associated risks that users may face, and UK CCPs play an essential role in reducing systemic risk and ensuring the efficient functioning of global financial markets.

    EMIR 2.2 introduced an updated third country or non-EU CCP supervision framework, including an updated recognition regime. This means that EU authorities can have greater oversight over third country CCPs that are systemically important to the EU. Perhaps the most substantial update in EMIR 2.2 is the ability for the European Securities and Markets Authority to tier third country CCPs according to their systemic importance to the EU as part of the recognition process. ESMA will now take on certain supervisory responsibilities for systemic third country CCPs known as tier 2 CCPs.

    This OTC SI updates the UK’s recognition framework in line with EMIR 2.2 by transferring ESMA’s new powers to the Bank of England after we leave the transition period. That includes the ability to tier non-UK CCPs as part of the recognition process, and to supervise non-UK CCPs that are systemically important to the UK. The Bank of England has already been given the power to recognise non-UK CCPs wishing to operate in the UK in an earlier SI under the EU (Withdrawal) Act. EMIR 2.2 also empowers the Commission to adopt delegated Acts setting out the details of how the framework will function in practice. This includes how tiering and deference to the rules of home authorities referred to as “comparable compliance” will function. This instrument transfers the power to establish these frameworks to the Bank of England.

    Since the Bank already has responsibility for safeguarding financial stability in general, and managing systemic risk in CCPs in particular, this is an appropriate conferral of functions as it allows the Bank to manage the systemic risk posed by some non-UK CCPs in a way that is appropriate for the UK. The statutory instrument therefore transfers the remaining Commission functions—including the power to deploy the so-called location policy—to Her Majesty’s Treasury.

    Under EMIR 2.2, ESMA can recommend to the Commission that a third-country CCP that is felt to be substantially systemically important should lose permission to offer some services to EU clearing members, unless those services are offered from inside the EU. This is referred to as the location policy, the inclusion of which in EMIR 2.2 the UK did not support because of concerns that it could lead to market fragmentation and reduce the benefits provided by the global nature of clearing. However, the powers in the European Union (Withdrawal) Act 2018 under which we introduced the SI extend only ​to the addressing of deficiencies arising from withdrawal. During the passage of that legislation, commitments were made that the powers would not be used to make significant policy changes, so I am not going to deviate from that.

    The OTC SI transfers the powers to use the location policy to the Treasury, subject to advice from the Bank of England and appropriate procedural safeguards and transitional provisions. I assure the House that because of the very different nature of the UK’s clearing markets, it is hard to foresee circumstances in which the Bank would appropriate the use of that tool in practice. EMIR 2.2 also makes changes to internally used supervisory and co-operation mechanisms but, as the UK is no longer part of the EU, those provisions are removed by the SI.

    Finally, the OTC SI updates the recognition powers set out in the temporary recognition regime, which was established by a previous SI to enable non-UK CCPs to continue their activities in the UK after exit day, while their recognition applications are assessed. This SI updates the recognition requirements in line with the new EMIR 2.2 provisions. The Treasury has worked closely with the Bank of England to prepare the instrument and has also engaged with the financial services industry, as we have done throughout. The draft legislation has been publicly available on the legislation.gov.uk website since 24 February, and the instrument was laid before Parliament on 25 March.

    In summary, the OTC SI is necessary to ensure that existing EMIR legislation will continue to function effectively in the UK from the end of the transition period, following the updates made in EMIR 2.2. In particular, it will ensure that the UK has the tools necessary to manage the financial stability risks posed by some of the largest non-UK CCPs.

    Let me turn my attention towards the second of tonight’s SIs, the Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2020. Although this SI makes amendments to approximately 20 pieces of legislation, the number and nature of the amendments are modest and minor. They act to preserve the effect of recent changes to EU legislation in the UK, and in doing so limit any impact on business that would otherwise arise at the end of the transition period.

    Primarily, this SI fixes deficiencies in recently applicable EU legislation, which is congruous with the Treasury’s approach to previous financial services EU exit instruments and the approach required by the European Union (Withdrawal) Act 2018. It also revokes pieces of retained EU law and UK domestic law that it would not be appropriate to keep on the statute book at the end of the transition period.

    This SI contains a small number of minor clarifications and corrections to previous financial services EU exit instruments. The House will be aware of the unprecedented scale of the legislative programme that the Treasury has undertaken, which has been carried out with rigorous checking procedures. However, errors are unfortunately made on occasion, and when they arise it is important that they are corrected as soon as possible. This has happened previously, and I will continue to be completely transparent when such shortcomings become apparent.​

    I note that this SI also includes provisions initially included in the Cross-Border Distribution of Funds, Proxy Advisors, Prospectus and Gibraltar (Amendment) (EU Exit) Regulations 2019, which were laid using the made affirmative procedure in October 2019, when at the time it was necessary to ensure that the SI was in place prior to the previous exit date of 31 October. That SI subsequently ceased to have effect, but it is important that those provisions, which include amendments to the UK’s prospectus regime to ensure it remains operational in a wholly domestic context, are in force before the end of the transition period. Those provisions have therefore been included in this IS.

    I would like to say a few words on the amendments that this SI makes to a previous EU exit instrument, the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019, which I shall now refer to as the equivalence SI. The equivalence SI allows the Treasury to make equivalence directions for EEA states during the transition period for specified provisions. Today’s SI adds additional equivalence regimes to the scope of the power for the Treasury to make equivalence directions for EEA states during the transition period. This is through the inclusion of provisions relating to central securities depositories, which are entities that hold financial instruments and trade repositories that collect and maintain records of derivative trades.

    This SI also amends the existing drafting on the length of the direction power to tie it to the end of the transition period. This will enable Ministers to make directions during the transition period to come into force at the end of the transition period, granting equivalence to the EEA for those regimes. Finally, this SI clarifies that the Treasury can impose limitations on the application of state-level equivalence decisions in granting equivalence to the EEA—for example, in response to EU conditions placed on the UK. As with the OTC SI, the Treasury has been working closely with the financial services regulators in the drafting of this instrument and has engaged with the financial services industry.

    In conclusion, the Government believe that these instruments are necessary to ensure that the UK has a coherent and functioning financial services regulatory regime at the end of this year when we leave the transition period, and I hope that the House will join me in supporting them. I commend the regulations the House.

  • John Glen – 2020 Statement on Pension Reforms

    John Glen – 2020 Statement on Pension Reforms

    Below is the text of the statement made by John Glen, the Economic Secretary to the Treasury, in the House of Commons on 25 March 2020.

    The Government are developing proposals to address the unlawful age discrimination identified by the Court of Appeal in the 2015 reforms to the judicial and firefighters’ pension schemes.

    On 15 July 2019, the Government announced they would take steps to remove this discrimination retrospectively [HCWS1725]. It confirmed that this would apply to pension scheme members with relevant service across all those public service pension schemes that were introduced in 2014 and 2015, regardless of whether individuals had made a claim. This is a complex undertaking, and it is important to get it right.

    Since February 2020 relevant pension schemes have been conducting technical discussions with member and employer representatives to seek initial views on the Government’s high-level proposals for removing the discrimination.

    I am grateful for the constructive engagement of trade unions, staff associations, public service employers and other stakeholders in these discussions. The Government are considering the initial views of stakeholders and continuing to work through the details of the technical design elements of the proposals. Detailed proposals will be published later in the year and will be subject to public consultation. The Government will welcome views on these proposals.

    For the avoidance of doubt, members of public service pension schemes with relevant service will not need to make a claim in order for the eventual changes to apply to them.

    I would like to reassure members that their pension entitlements are safe. The proposals the Government are considering would allow relevant members to make a choice as to whether they accrued service in the legacy or reformed schemes for periods of relevant service, depending on what is better for them. The Government will provide more detail later in the year, but if an individual’s pension circumstances change as a result, the Government may also need to consider whether previous tax years back to 2015-16 should be reopened in relation to their pension.

    The Government will also set out their proposal to remove the discrimination for future service in the forthcoming consultation.

    In January 2019, the Government announced a pause to the cost control mechanism in public service pension schemes, due to uncertainty about benefit entitlements arising from the McCloud judgment. Alongside their proposals for addressing discrimination, the Government will also provide an update on the cost control mechanism.

  • John Glen – 2020 Statement on Problem Debt

    John Glen – 2020 Statement on Problem Debt

    Below is the text of the speech made by John Glen, the Economic Secretary to the Treasury, in the House of Commons on 6 February 2020.

    The Government are establishing breathing space to help those individuals in problem debt. Today, the Government are updating the House in order to reaffirm our commitment to implementing this in 2021, as planned, and to provide figures from the impact assessment which is also published today.

    Breathing space will provide a period of up to 60 days, where people in problem debt would be protected from enforcement action by their creditors and the accrual of further interest and fees on their debts.

    This protection will help those in problem debt move towards a sustainable debt solution. The protections from enforcement action, fees and charges will encourage more people to seek out debt advice and to seek it earlier. It will provide them with the time and space to work with their debt adviser in an environment free from creditor pressure, in the knowledge their debt would not escalate due to further interest or charges. This will help give people the time and space they need to choose the right debt solution for them.

    To ensure that breathing space works for everyone, people receiving treatment for mental health crisis will be able to enter breathing space without seeking advice from a debt adviser. They will be able to remain in breathing space for the period of their crisis treatment and a further 30 days.

    In its impact assessment, the Government forecast;

    700,000 people to be helped by breathing space in the first year, rising in time to over 1 million a year.

    25,000 – 50,000 a year are expected to receive a breathing space via a specific route designed to support those in mental health crisis treatment.

    The Government impact assessment can be found here:

    https://www.gov.uk/government/publications/breathing-space-impact-assessment