PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT First Delegated Legislation Committee DRAFT PACKAGED RETAIL AND INSURANCE-BASED INVESTMENT PRODUCTS (AMENDMENT)(EUEXIT)REGULATIONS2019 Wednesday 20 February 2019 No proofs can be supplied. Corrections that Members suggest for the final version of the report should be clearly marked in a copy of the report—not telephoned—and must be received in the Editor’s Room, House of Commons, not later than Sunday 24 February 2019 © Parliamentary Copyright House of Commons 2019 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 1 First Delegated 20 FEBRUARY 2019 Legislation Committee 2 The Committee consisted of the following Members: Chair: SIR HENRY BELLINGHAM † Caulfield, Maria (Lewes) (Con) Sobel, Alex (Leeds North West) (Lab/Co-op) † Clifton-Brown, Sir Geoffrey (The Cotswolds) (Con) † Thewliss, Alison (Glasgow Central) (SNP) † Duffield, Rosie (Canterbury) (Lab) † Tomlinson, Michael (Mid Dorset and North Poole) † Foster, Kevin (Torbay) (Con) (Con) † Glen, John (Economic Secretary to the Treasury) Walker, Thelma (Colne Valley) (Lab) † Hepburn, Mr Stephen (Jarrow) (Lab) † Whittaker, Craig (Lord Commissioner of Her Hoey, Kate (Vauxhall) (Lab) Majesty’s Treasury) † Hughes, Eddie (Walsall North) (Con) † Wragg, Mr William (Hazel Grove) (Con) † Merriman, Huw (Bexhill and Battle) (Con) † Reynolds, Jonathan (Stalybridge and Hyde) (Lab/ Harriet Deane, Committee Clerk Co-op) † Smith, Jeff (Manchester, Withington) (Lab) † attended the Committee 3 First Delegated HOUSE OF COMMONS Legislation Committee 4 with the PRIIPs regulation. As I set out in a letter to the First Delegated Legislation hon. Member for Oxford East (Anneliese Dodds) in Committee January, the FCA launched a call in July 2018 to seek industry and consumer input on the new requirements introduced by the PRIIPs regulation. That call for input Wednesday 20 February 2019 closed for responses on 28 September 2018, and the FCA is in the process of reviewing all the responses. It expects to publish its feedback statement in the next five [SIR HENRY BELLINGHAM in the Chair] weeks—in the first quarter of this year—and Treasury officials are engaging closely with it on these issues. Draft Packaged Retail and Insurance- I turn to the substance of the SI. In a no-deal based Investment Products (Amendment) scenario, the UK will be outside the EU and outside the (EU Exit) Regulations 2019 EU’slegal, supervisory and financial regulatory framework. The retained PRIIPs regulation therefore needs to be updated to reflect that and to ensure that the provisions 2.30 pm work properly in a no-deal scenario. The draft regulations The Economic Secretary to the Treasury (John Glen): make a number of changes. I beg to move, First, the SI will amend the territorial scope of the That the Committee has considered the draft Packaged Retail retained PRIIPs regulation to reflect the UK’s position and Insurance-based Investment Products (Amendment) (EU outside the EU. The EU PRIIPs regulation applies to Exit) Regulations 2019. any firm that manufactures, advises on or sells PRIIPs It is a pleasure to serve under your chairmanship, to retail investors in the EU. The SI amends the territorial Sir Henry. As the Committee will be aware, the Treasury scope of the retained regulation so that, following exit, has been undertaking a programme of legislation to it will apply only to firms that manufacture, sell or ensure that if the UK leaves the EU without a deal or advise on PRIIPs to retail investors in the UK. an implementation period, there continues to be a Secondly, the SI transfers functions currently in the functioning legislative and regulatory regime for financial remit of EU authorities to the relevant UK authorities. services in the UK. The Treasury is laying statutory Following exit, EU authorities will have no mandate to instruments under the European Union (Withdrawal) carry out such functions in the UK. The SI corrects that Act 2018 to deliver that, and a number of debates on deficiency by transferring the functions of the European those SIs have already been undertaken in this place Commission to the Treasury and the functions of the and the House of Lords. This SI is part of that programme. European supervisory authorities, or ESAs, to the FCA. The SI will fix deficiencies in UK law related to the European Commission powers to make delegated Acts EU packaged retail and insurance-based investment are transferred to the Treasury, and powers to make and products—PRIIPs—regulation to ensure that it continues correct deficiencies in binding technical standards are to operate effectively post exit. The approach taken in transferred from the ESAs to the FCA. That is in line the legislation aligns with that taken in other SIs laid with the approach we have taken across the financial under the EU withdrawal Act, providing continuity by services legislation that has been laid in recent weeks. maintaining existing legislation at the point of exit but Moreover, the SI expands an exemption from the amending where necessary to ensure that it works effectively requirements of the PRIIPs regulation for certain securities in a no-deal context. issued by public sector bodies in the European economic Many Committee members will be familiar with PRIIPs. area so that it covers public sector bodies in the UK and PRIIPs are investment products offered to retail investors, all third countries. This will ensure that no such securities such as investment funds, life insurance policies with an fall into the scope of the regulation in the UK on exit investment element, and structured investment products. day, and that the UK treats EEA countries in the same Retail investors may invest in PRIIPs as an alternative way as other third countries, as it is obliged to. to depositing cash in a savings account, and PRIIPs are Furthermore, the EU PRIIPs regulation contains an sold primarily by asset managers, banks and insurers. exemption from its requirements for all undertakings The EU PRIIPs regulation, which came into force on for collecting investment in transferable securities— 1 January 2018, aims to make it easier for retail investors UCITS—funds until 31 December 2019. UCITS funds to compare similar financial products through the are a common type of retail investor fund and must be introduction of a standardised disclosure document domiciled in an EEA state. Both UK and EEA-domiciled called a key information document, or KID. The KID UCITS are sold widely in the UK. They are subject to a must display important information about the financial disclosure framework set out in the UCITS directive, product, such as performance scenarios, risks and costs, separate from the PRIIPs disclosure framework, until in a standardised way. Any firm selling or advising on a the exemption ends. The draft instrument maintains PRIIP to a retail investor in the EU must provide them that exemption in the UK for all UCITS funds, including with a KID. EEA UCITS, ensuring that both UK and EEA funds Before I go into detail about the functions of the SI, can continue to adhere to the existing UCITS disclosure let me say that the Government recognise that industry framework until this exemption ends. has raised several issues with the underlying PRIIPs Finally, the draft instrument deletes provisions in the regulation. However, the Government are not able to retained PRIIPs regulation that will become redundant use the powers of the EU withdrawal Act to make any once the UK leaves the EU. The draft instrument deletes policy changes. That illustrates the constraints of the references to EU regulators and to administrative sanctions withdrawal Act in this regard. Nevertheless, the Financial powers for national regulators, which have already been Conduct Authority has taken action in relation to issues brought into UK law and granted to the FCA through 5 First Delegated 20 FEBRUARY 2019 Legislation Committee 6 UK implementing legislation. The draft instrument also I particularly note the exemption applied to UCITS deletes obligations in the PRIIPs regulation for the funds that the Minister just described, which I attribute FCA to co-operate with EU counterparts. UK authorities to the fact that a KID is now an integrated obligation of will instead be able to share information with EU the latest version of UCITS. I would be grateful if the counterparts through existing domestic provisions for Minister could confirm—perhaps in writing if it is not co-operation and information sharing under the Financial possible to do so now—whether that is the case, or Services and Markets Act 2000. whether it is simply a technical deficiency in the draft The Treasury worked closely with the FCA in drafting instrument? How will that affect the onshoring plans the instrument and also engaged the financial services and the statutory instruments relating to UCITS that industry on the draft instrument’s approach to correcting we have already passed? deficiencies. On 22 November 2018, the Treasury published I put on the record the Opposition’s objection to the the draft instrument, along with an explanatory policy decision to transfer functions to the FCA from the note, to maximise transparency to Parliament and industry European Insurance and Occupational Pensions Authority ahead of the draft instrument’s being laid. As mentioned, and the European Securities and Markets Authority, the draft instrument is only able to fix