As the country was watching mystified at last night’s extraordinary antics in the House of Commons, it was easy to forget that the prorogation of Parliament has a greater impact than simply making a lot of MPs furious. Buried beneath all the ceremony and speeches, is the reality that five key bills designed to prevent the UK facing regulatory black holes in the event of a no-deal Brexit have fallen and will not be carried over into the next session of Parliament. The Financial Services Bill, the Trade Bill, the Agriculture Bill, the Fisheries Bill and the Immigration Bill have now been effectively abandoned by government, raising questions about the future for key UK industries, and the UK’s workforce in a no-deal Brexit scenario.
The Financial Services Bill: what was in it?
The Financial Services Bill would have given HM Treasury the temporary power to match any changes to EU financial services law made before the UK leaves the EU for two years following a no-deal Brexit. This would effectively ensure the UK would maintain the same financial services regulatory regime as the EU in the short-term, even in the event of no-deal. The Treasury would then have been allowed to implement any changes without needing a parliamentary vote for two years, speeding up the process.
The Bill previously stalled in the House of Commons due to an anticipated rebellion on a cross-party amendment that would have forced new tax transparency rules on British Overseas Territories, including the Channel Islands. The amendment would require Crown Dependencies to set up public share ownership registers by 2020. The likelihood of the amendment passing resulted in the government cancelling a vote on the Bill on 4 March 2019, has and it never returned to the House of Commons.
Will the Financial Services Bill return to Parliament?
Like other Bills not passed by the time Parliament was prorogued, the government had the option of carrying the Bill over into the next parliamentary session but has chosen not to do so. The Bill could be reintroduced when Parliament returns on 14 October, but this is unlikely given the government’s concerns with the Crown Dependencies amendment and the loss of any hope of a majority for its legislative agenda. Given the high chance of an almost immediate vote to call a general election when Parliament returns, the most likely option is that the fate of the Bill will be left for the next government to consider.
What happens if we leave the EU without the Bill passing?
In the event of a no-deal Brexit, the UK will be recognised as a ‘third country’ by the EU. As a third country, UK-based financial services would lose automatic access to the EU. If the EU does not recognise regulatory equivalence between the UK and EU, additional restrictions are likely to apply. The Financial Services Bill was a means of ensuring the financial services sector could avoid regulatory divergence – its absence presents significant regulatory risks for the sector. The government has said the legislation is needed to keep financial services regulations up to date and that not having the power to do this “represents a risk to the reputation, global competitiveness and efficiency of the UK’s financial markets.”
Failure to pass the Bill is unlikely to cause any initial issues for the Financial Services sector in the event of a no-deal Brexit, but it creates a long-term risk of regulatory divergence that may create issues for cross border financial services. If the UK needs to introduce new legislation to match EU law every time one is introduced, we face the prospect of continually attempting to catch up with the EU, creating short term regulatory divergences that may disrupt business flows while legislation makes its way through Parliament (assuming Parliament is willing or able to pass legislation at all).
How can we help?
The loss of the government’s majority has made the future of no-deal planning legislation and all other Bills highly uncertain. WA Investor services can support investors in scenario planning for the months ahead, ensuring you are ahead of the curve when it comes to the unpredictable world of policy and regulation in the current climate.