Feed-in Tariffs (Closure, etc.) Order 2018

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1 HOUSE OF LORDS Secondary Legislation Scrutiny Committee (Sub-Committee A) 12th Report of Session Proposed Negative Statutory Instruments under the European Union (Withdrawal) Act 2018 Includes 2 Recommendations Feed-in Tariffs (Closure, etc.) Order 2018 Correspondence: HM Treasury EU Exit Secondary Legislation Criminal Offences Includes 5 Information Paragraphs on 6 Instruments Ordered to be printed 14 January 2019 and published 16 January 2019 Published by the Authority of the House of Lords HL Paper 263

2 Secondary Legislation Scrutiny Committee (Sub-Committee A) The Committee s terms of reference, as amended on 11 July 2018, are set out on the website but are, broadly: To report on draft instruments and memoranda laid before Parliament under sections 8, 9 and 23(1) of the European Withdrawal Act And, to scrutinise (a) every instrument (whether or not a statutory instrument), or draft of an instrument, which is laid before each House of Parliament and upon which proceedings may be, or might have been, taken in either House of Parliament under an Act of Parliament; (b) every proposal which is in the form of a draft of such an instrument and is laid before each House of Parliament under an Act of Parliament, with a view to determining whether or not the special attention of the House should be drawn to it on any of the grounds specified in the terms of reference. The Committee may also consider such other general matters relating to the effective scrutiny of secondary legislation as the Committee considers appropriate, except matters within the orders of reference of the Joint Committee on Statutory Instruments. Members Baroness Bowles of Berkhamsted Lord Haskel Rt Hon. Lord Trefgarne (Chairman) Rt Hon. Lord Chartres Lord Hogan-Howe Rt Hon. Lord Walker of Gestingthorpe Lord Faulkner of Worcester Rt Hon. Lord Lilley Lord Wood of Anfield Baroness Finn Lord Sharkey Registered interests Information about interests of Committee Members can be found in the last Appendix to this report. Publications The Sub-Committee s Reports are published on the internet at seclegapublications The National Archives publish statutory instruments with a plain English explanatory memorandum on the internet at Committee Staff The staff of the Committee are Christine Salmon Percival (Clerk), Paul Bristow (Adviser), Nadine McNally (Adviser), Philipp Mende (Adviser), Jane White (Adviser), Louise Andrews (Committee Assistant) and Ben Dunleavy (Committee Assistant). Information and Contacts Any query about the Committee or its work, or opinions on any new item of secondary legislation, should be directed to the Clerk to the Secondary Legislation Scrutiny Committee, Legislation Office, House of Lords, London SW1A 0PW. The telephone number is and the address is hlseclegscrutiny@parliament.uk.

3 Twelfth Report PROPOSED NEGATIVE STATUTORY INSTRUMENTS UNDER THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 Instruments recommended for upgrade to the affirmative procedure Electricity and Gas etc. (Amendment etc.) (EU Exit) Regulations 2019 Electricity and Gas (Market Integrity and Transparency) (Amendment) (EU Exit) Regulations 2019 Electricity Network Codes and Guidelines (Markets and Trading) (Amendment) (EU Exit) Regulations 2019 Electricity Network Codes and Guidelines (System Operation and Connection) (Amendment etc.) (EU Exit) Regulations 2019 Gas (Security of Supply and Network Codes) (Amendment) (EU Exit) Regulations 2019 Date laid: 17 December 2018 Sifting period ends: 16 January These five draft Regulations address deficiencies in retained EU law on electricity and gas markets to ensure that the UK energy market can continue to operate effectively in a potential no deal withdrawal from the EU. The Department for Business, Energy and Industrial Strategy says that the instruments aim to minimise disruption to the UK s energy markets and ensure legislative continuity for industry following EU exit, with a particular focus on Northern Ireland and the Single Electricity Market (SEM) in Ireland. 2. The proposed changes are complex and technical and do not appear to present significant policy or regulatory changes. It is also clear, however, that the instruments have been laid before Parliament as a package and that as such they are important: the draft Regulations are necessary to enable UK energy markets to operate effectively if there is no agreement with the EU, and they touch on issues of strategic significance, such as security of gas supplies, the trading and balancing of electricity across borders and continuity of the SEM in Ireland. 3. The Committee is of the view that while none of the instruments stand out individually, they are important as a package, and that the House may wish an opportunity to debate the instruments in the round, including in the context of the particular sensitivities in relation to the SEM in Ireland. The Committee therefore recommends an upgrade of all five draft Regulations to the affirmative procedure, on the ground that they give rise to policy issues that are likely to be of interest to the House.

4 2 SECONDARY LEGISLATION SCRUTINY COMMITTEE (SUB-COMMITTEE A) Merchant Shipping (Standards of Training, Certification and Watchkeeping) (Amendment) (EU Exit) Regulations 2019 Date laid: 18 December 2018 Sifting period ends: 17 January Two European Directives 1 ( the Directives ) harmonise the way in which Member States implement the requirements of the International Maritime Organization Convention on Standards of Training and Watchkeeping for Seafarers ( the STCW Convention ). The Directives provide for the automatic mutual recognition of seafarer certificates issued by EEA States and establish a process for EU-wide recognition of certificates from third countries. This Proposed Negative instrument will enable the UK to continue to recognise EEA seafarer certificates that it currently recognises. The UK will also recognise the certificates from those non-eea countries that are approved by the EU and recognised by the UK immediately before exit day. These Regulations also introduce a mechanism whereby the Secretary of State may recognise additional parties, or remove recognition, by assessing compliance with the STCW Convention. However, the Department for Transport acknowledges that, in the event of no deal, EU recognition of UK certificates will be at the discretion of each Member State. Given the potential impact on UK seafarers, the House may wish to have the opportunity to debate this instrument and we therefore recommend that this Proposed Negative instrument be upgraded to the affirmative resolution procedure. Proposed Negative Statutory Instruments about which no recommendation to upgrade is made Driving Licences (Amendment) (Northern Ireland) (EU Exit) Regulations 2018 Electronic Commerce (Amendment etc.) (EU Exit) Regulations 2019 Genetically Modified Organisms (Amendment) (Northern Ireland) (EU Exit) Regulations 2018 Waste (Miscellaneous Amendments) (EU Exit) (No. 2) Regulations Directive 2008/106/EC (amended by Directive 2012/35/EU) and Directive 2005/45/EC.

5 SECONDARY LEGISLATION SCRUTINY COMMITTEE (SUB-COMMITTEE A) 3 INSTRUMENTS DRAWN TO THE SPECIAL ATTENTION OF THE HOUSE Feed-in Tariffs (Closure, etc.) Order 2018 (SI 2018/1380) Date laid: 18 December 2018 Parliamentary procedure: negative The purpose of this Order, laid by the Department for Business, Energy and Industrial Strategy, is to close the Feed-In Tariffs (FIT) scheme to new applicants from 1 April Since its introduction in 2010, the FIT scheme has provided support for small-scale low-carbon generation and a route to market for such electricity. This instrument implements a decision by the Government announced in 2015 to close the scheme for new entrants as part of a move towards market-based solutions, cost-reflective pricing and efforts to reduce energy costs for consumers. A public consultation showed strong opposition to closure of the FIT scheme and concerns about the impact on small-scale generators, jobs in the renewables sector and the Government s ability to meet climate change and other environmental and health targets. We draw this Order to the special attention of the House on the ground that it gives rise to issues of public policy likely to be of interest to the House. 5. The Department for Business, Energy and Industrial Strategy (BEIS) has laid this Order with an Explanatory Memorandum and Impact Assessment (IA). Background 6. BEIS explains that electricity generation accounts for over 20% of UK greenhouse gas emissions, and that the Feed-In Tariffs (FIT) scheme was introduced in 2010 as, without government intervention, market incentives would not have been sufficient to meet the UK s climate change commitments. The FIT scheme has been the Government s main policy measure to encourage the deployment of small-scale low-carbon electricity generation in Great Britain. 7. According to BEIS, the FIT scheme provides support for small-scale lowcarbon electricity generation (through the so-called generation tariff) and a route to market for such electricity (through the so-called export tariff). The scheme encourages deployment of small-scale renewables up to 5 megawatts and currently supports over 800,000 installations. It is funded through levies placed on the electricity bills of households and businesses. 8. The Department says that, as technology develops, costs of low-carbon electricity generation decline and public attitudes change, and there is less of a need for government support. Following a review of the FIT scheme in 2015, 2 the Government decided to cap spending on new electricity generation after the introduction of revised generation tariffs and to close the generation tariff to new entrants in March The aim was to ensure 2 Department for Business, Energy and Industrial Strategy (BEIS), Government Response to the Review of the Feed-in Tariffs Scheme, Department of Energy and Climate Change (December 2015): gov.uk/government/consultations/consultation-on-a-review-of-the-feed-in-tariff-scheme [accessed 15 January 2019].

6 4 SECONDARY LEGISLATION SCRUTINY COMMITTEE (SUB-COMMITTEE A) that generation tariffs would have no further impact on energy bills beyond forecasts at that time. What is changing 9. This instrument ends the current export tariff at the same time as the generation tariff, in effect closing the FIT scheme to new entrants from 1 April The Department says that future growth in the small-scale lowcarbon energy generation should be sustainable and driven by competition and innovation rather than direct subsidies, and that the closure of the FIT scheme reflects wider Government objectives of moving towards marketbased solutions, cost-reflective pricing and reducing energy costs for consumers. 10. BEIS emphasises that the closure of the FIT scheme for new entrants will not impact on those installations which are already accredited, and that they will continue to receive payments for the generation and export of electricity for the full 20-year duration of support under the current rules. The instrument also provides for several time-limited extensions and a grace period for applications that will have been made, but not completed, by 31 March The instrument also introduces an administrative change in relation to a so-called levelisation mechanism, through which support costs of the scheme are shared across electricity suppliers according to their share of Great Britain s electricity market. This is to ensure that the distribution of these wider costs between suppliers better reflects the actual costs to suppliers. Consultation 11. The Department carried out an eight-week public consultation on the closure of the FIT scheme between 19 July and 13 September There were 345 responses from a range of stakeholders including trade associations, manufacturers, energy suppliers, community groups, local authorities and individuals. 3 The consultation showed high levels of opposition to the proposed closure of the scheme, with 315 of the 345 responses (91%) opposing the plans. According to BEIS, respondents expressed concerns about the unfairness of small-scale generators having to provide surplus electricity to the grid for free, an incompatibility with the Government s climate change and other environmental and health targets, and a destabilising effect on the renewable electricity sector and jobs. There was also concern about the lack of routes to market for small-scale electricity generators leading to reduced deployment and knock-on impacts on the development of smart energy infrastructure, and about a possible gap in a route to market between the closure of the FIT scheme at the end of March 2019 and the introduction of any potential successor arrangements. Impact 12. In the IA, the Department acknowledges that the closure of the FIT scheme is expected to lead to a reduction in the deployment of new lowcarbon electricity generators, and that this is likely to result in a reduction in employment in this sector. The IA references a study which puts total employment in the sector at around 126,000 and two solar industry surveys 3 BEIS, The Feed-In Tariffs scheme: closure of the scheme to new applications after 31 March 2019, and administrative measures: government response (December 2018): consultations/feed-in-tariffs-scheme [accessed 15 January 2019].

7 SECONDARY LEGISLATION SCRUTINY COMMITTEE (SUB-COMMITTEE A) 5 which suggested that over 70% of respondents believed the closure of the FIT would have a negative impact on employment. BEIS also points, however, to the inherent uncertainty in relation to the number of jobs supported in smallscale low-carbon sector, and the extent to which a reduction in deployment would impact on employment in related sectors. 13. We asked the Department for further clarification. BEIS told us that: [T]he Impact Assessment does not attempt to estimate the job impacts of closing the generation and export tariffs. This is because deployment following the scheme closure is highly uncertain, particularly across different technologies, capacity sizes and regions. This means it is not possible to robustly quantify impacts on employment at this time. 14. The Department also states in the IA that following the closure of the FIT scheme to new applicants, small-scale low-carbon electricity generation would be replaced by power from the national grid, which includes generation from thermal plants (such as gas) that can affect air quality. BEIS also says, however that a reduction in some FIT-supported generation of electricity, such as anaerobic digestion, could lead to a small improvement in air quality. We asked the Department for further information. BEIS told us that: [T]he argument put forward in the IA is that [as] closing FIT is expected to lead to reduced deployment of low-carbon generation, there will be a lower reduction in demand for grid electricity relative to a higher deployment scenario, and hence a lower reduction in generation from gas stations. The air quality impact of this isn t so much an absolute worsening of current air quality, as a reduced improvement relative to the baseline in which the FIT scheme remains open. This potential impact on air quality is very difficult to assess, especially at local level (it depends on which gas stations are not reducing their production). It has therefore only been described at a high qualitative level in the IA, and the geographical impacts of this have not been assessed. Conclusion 15. While acknowledging the concerns expressed during consultation, the Department has concluded that the current FIT scheme does not align with the wider government objectives to move towards market-based solutions, cost-reflective pricing and the aim to minimise support costs for consumers. The Committee is clear that it is for Government to decide on policy development after having considered the views expressed during consultation. The House may nevertheless wish to explore further the approach the Government have taken with this instrument and the potential impact of the closure of the FIT scheme on the renewables sector, jobs and the Government s climate change targets. We therefore draw the Order to the special attention of the House on the ground that it gives rise to issues of public policy likely to be of interest to the House.

8 6 SECONDARY LEGISLATION SCRUTINY COMMITTEE (SUB-COMMITTEE A) CORRESPONDENCE HM Treasury EU Exit Secondary Legislation Criminal Offences 16. On 18 December 2018, we wrote to Mr John Glen MP, Economic Secretary to the Treasury, about the inclusion of criminal offences in EU Exit instruments laid by HM Treasury. Mr Glen replied on 7 January We are publishing the correspondence at Appendix 1.

9 SECONDARY LEGISLATION SCRUTINY COMMITTEE (SUB-COMMITTEE A) 7 INSTRUMENTS OF INTEREST Draft Agency Workers (Amendment) Regulations Under the Temporary Agency Work Directive, 4 after 12 weeks in the same role with the same hirer, an agency worker is entitled to the same pay and same basic terms and conditions as a permanent employee of that hirer. However, regulations 10 and 11 of the Agency Workers Regulations 2010 ( the 2010 Regulations ) allow agency workers to waive this right if they sign a pay between assignments contract, also known as a Swedish derogation contract. Matthew Taylor s Review of Modern Working Practices 5 identified evidence that many such workers do not understand the effect of adopting such contracts and that employers were misusing them: the Review found evidence of workers being kept on artificial, minimum hours contracts, or of their between assignments pay being deducted from their on assignment pay. These Regulations propose to revoke regulations 10 and 11 of the 2010 Regulations so that agency workers can no longer waive their right to equal pay after twelve weeks. The change will take effect from 6 April 2020 and the impact on business from paying such workers their proper entitlement is estimated to be 265 million a year. Draft Broadcasting (Amendment) (EU Exit) Regulations The Audiovisual Media Services Directive (AVMSD) governs EU-wide coordination of national legislation on broadcasting. AVMSD provides for the country of origin principle, which means that services which are licensed in the country they originate from can be broadcast into any other Member State without needing any further authorisation, and only need to observe the rules of that country. In the event of no deal with the EU, AVMSD will no longer apply in the UK and these reciprocal arrangements will no longer exist. Therefore, television services originating in the other 27 Member States would still be allowed to be broadcast in the UK without a licence, but services originating and licensed in the UK would not be allowed to be broadcast in other countries. 19. These Regulations move to a country of destination system of regulation, requiring television services available in the UK to be licensed and regulated by Ofcom. However, these Regulations also implement the Council of Europe s European Convention on Transfrontier Television (ECTT) which is a multilateral international agreement making provision very similar to AVMSD. All but seven of the 27 Member States are parties to the ECTT. 6 Therefore, only broadcasters from one of these seven countries will need a licence issued by Ofcom if the service is to be receivable in the UK. Any television service originating in an EEA State which is not a party to the ECTT is treated as an exempt foreign service for six months after exit day to allow providers a transitional period in which to obtain the necessary broadcasting licence from Ofcom. The country of destination principle will 4 EU Directive 2008/104/EC implemented in UK law by the Agency Workers Regulations BEIS, Good Work: the Taylor Review of Modern Working Practices (July 2017): uk/government/publications/good-work-the-taylor-review-of-modern-working-practices [accessed 15 January 2019]. 6 Seven of the EU27 Member States have not ratified the Convention. These are: Belgium, Denmark, Greece, Ireland, Luxembourg, the Netherlands and Sweden.

10 8 SECONDARY LEGISLATION SCRUTINY COMMITTEE (SUB-COMMITTEE A) also not apply to certain Irish language television services originating in the Republic of Ireland (which is not a party to the ECTT) The ECTT is not applicable to video on demand services (it only relates to satellite). At present, UK video on demand services are regulated by the UK and EU services are regulated under AVMSD. However, services from the rest of the world (which will include the EU after exit day) are unregulated by the UK. The Department for Digital Culture, Media and Sport acknowledges that video on demand from the rest of the world being unregulated is an existing problem which the Withdrawal Act does not allow us to use the powers to address existing policy problems or issues. In the event of no deal, all UK-based media service providers transmitting their content to the EU will be affected. According to data published by the European Audiovisual Observatory, there are around 500 services currently licensed by Ofcom which primarily target the EU market. Draft Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations In the Explanatory Memorandum (EM) to these Regulations, HM Treasury (HMT) says that they will continue the standards set out by EU legislation on Undertakings for Collective Investment in Transferable Securities (UCITS) 8 to maintain common standards for investor protection for UCITS. In particular, the Regulations propose to establish a temporary permissions regime for eligible EEA UCITS to market into the UK. 22. As noted in the EM, the Regulations also amend the commencement provisions in the draft Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018 ( the AIFM Regulations ), 9 to allow the Financial Conduct Authority (FCA) to open its notification window for alternative investment funds from the day after the AIFM Regulations come into force. This is intended to provide sufficient time before exit day for those funds to notify their intent to enter the temporary permissions regime and for the FCA to process the notifications. Given that the draft AIFM Regulations had not been considered before the date on which these Regulations were laid, we asked HMT why it had not withdrawn the draft AIFM Regulations and re-laid them with the amended timing provisions. HMT has replied as follows: 23. At the time of considering the necessary amendment, the draft AIFM Regulations had been given 18 December as the likely date for the debate in the Lords. Conscious of the importance of ensuring these Regulations are in force before exit day, and aware of the significant number of instruments that need to be made across government ahead of exit day, the decision was taken to make the amendment through the related draft Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 rather 7 The UK made commitments in the Good Friday Agreement, and later by ratifying the European Charter on Regional and Minority languages, to make such services available in Northern Ireland. This instrument therefore provides that the services provided by RTÉ and TG4 that include Irish language content do not require a licence in the UK and the existing bilateral arrangements between the UK and Ireland will ensure that content standards are met. 8 Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS). 9 Sub-Committee A published information about the draft Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2018 in its 9th Report of this Session (HL Paper 251).

11 SECONDARY LEGISLATION SCRUTINY COMMITTEE (SUB-COMMITTEE A) 9 than withdrawing and re-laying it, which it was felt would cause unnecessary delays and duplication. Draft Employment Rights (Miscellaneous Amendments) Regulations 2019 Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 (SI 2018/1378) 24. These Regulations also form part of the Government s response to the Matthew Taylor review 10 and focus on the gig economy, with the aim of ensuring more equal treatment of all in the workforce. The draft affirmative Regulations require that all categories of worker, not just employees, are given a written statement of employment particulars. The negative instrument sets out additional information that should be included in such a statement and requires it to be given to the worker on the day that they start their job. The negative instrument also adjusts the formula for calculating paid leave to use a 52-week reference period to take better account of seasonal variations. The estimated cost of this extension of rights is assessed as being 20.4 million a year. The legislation will take effect from 6 April Radio Spectrum (EU Exit) Regulations 2018 (SI 2018/1385) 25. The uses for various spectrum frequency bands are set out in a number of EU decisions which have been implemented in domestic law. This instrument seeks to retain the status quo in relation to the management of radio spectrum and maintain consistency with the existing regulatory regime. The Department for Digital Culture, Media and Sport (DCMS) explains in the Explanatory Memorandum accompanying the Regulations that this is a policy area where continued alignment with the EU is beneficial to UK consumers and businesses alike. This is due to the increased scale of the European market and the geographical proximity of neighbouring countries where spectrum harmonisation is beneficial. As such, this instrument maintains UK harmonisation with the EU, even in the event of no deal. DCMS explains that Currently, spectrum use is coordinated throughout Europe through the CEPT (European Conference of Postal and Telecommunications Administrations - this extends to countries outside of the EU). The UK will remain a member of the CEPT after it leaves the EU. DCMS has clarified that Under the rules of the International Telecommunication Union, a UN agency, neighbouring states have to cooperate to prevent interference with each other. This was agreed through the ITU Radio Regulations, an international treaty which binds all signatories - including the UK. This will not change under the Radio Spectrum (EU Exit) Regulations CEPT is the co-ordinating body where ITU Radio Regulations are co-ordinated across the whole of European landmass. CEPT is made up of 48 countries from Ireland in the West to Russia in the East. It includes, but is not limited to, EU countries. 10 See footnote 5.

12 10 SECONDARY LEGISLATION SCRUTINY COMMITTEE (SUB-COMMITTEE A) INSTRUMENTS NOT DRAWN TO THE SPECIAL ATTENTION OF THE HOUSE Draft instruments subject to affirmative approval Agency Workers (Amendment) Regulations 2019 Broadcasting (Amendment) (EU Exit) Regulations 2019 Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 Employment Rights (Miscellaneous Amendments) Regulations 2019 Mortgage Credit (Amendment) (EU Exit) Regulations 2019 Waste (Miscellaneous Amendments) (EU Exit) Regulations 2019 Draft instruments subject to annulment Carlisle (Electoral Changes) Order 2019 Instruments subject to annulment SI 2018/1350 Single Source Contract (Amendment) (No. 2) Regulations 2018 SI 2018/1354 Air Navigation (Single European Sky) (Penalties) (Amendment) Order 2018 SI 2018/1370 Health and Safety (Amendment) (EU Exit) Regulations 2018 SI 2018/1377 SI 2018/1378 Health and Safety (Amendment) (Northern Ireland) (EU Exit) Regulations 2018 Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 SI 2018/1385 Radio Spectrum (EU Exit) Regulations 2018 SI 2018/1387 Weighing and Measuring Equipment and Meters (Amendment of Secondary Legislation) (EU Exit) Regulations 2018

13 SECONDARY LEGISLATION SCRUTINY COMMITTEE (SUB-COMMITTEE A) 11 Appendix 1: CORRESPONDENCE ON HM TREASURY EU EXIT SECONDARY LEGISLATION CRIMINAL OFFENCES Letter from Lord Trefgarne, Chairman of the Secondary Legislation Scrutiny Committee, to John Glen MP, Economic Secretary to the Treasury EU Exit Secondary Legislation Criminal Offences The Committee has seen a number of instruments laid by HM Treasury intended to ensure that the UK has a functioning regulatory regime for financial services in all scenarios, including a no deal exit from the EU. At its meeting yesterday, the Committee considered the draft Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations As is stated in the Explanatory Memorandum (EM), Part 4 of the instrument expands the criminal offence of misleading the Financial Conduct Authority (FCA) to UK and non-uk Trade Repositories that apply for registration and recognition from the FCA after exit. A justification for this is given in the EM, not least in your own statement included in Part 2 of the Annex. However, the Committee noted that this was only the latest example of the inclusion or expansion of criminal offences by means of provision in EU Exit instruments being laid by your Department. Earlier examples include the draft Central Securities Depositories (Amendment) (EU Exit) Regulations 2018 and indeed the draft Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations While the logic behind providing for an offence is set out in the case of each of these instruments, the Committee questioned whether HM Treasury had regard to the cumulative effect of all these provisions, and their overall impact both on those subject to the offence provisions and on the regulators that would have to enforce them. I would be grateful if you could respond to this concern. It would be helpful to receive your reply to this letter before Thursday 3 January. 18 December 2018 Letter from John Glen MP to Lord Trefgarne I am writing in response to your letter of 18th December In your letter you noted that the Secondary Legislation Scrutiny Committee questioned whether HM Treasury had regard to the cumulative effect of criminal offence provisions in the Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018, the draft Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 and the Central Securities Depositories (Amendment) (EU Exit) Regulations This letter expands on the changes being made in respect of Trade Repositories (TRs) and Central Securities Depositories (CSDs) relating to the transfer of powers to UK regulators in a no deal scenario.

14 12 SECONDARY LEGISLATION SCRUTINY COMMITTEE (SUB-COMMITTEE A) The scope of section 398 of FSMA 2000 (misleading the FCA or PRA) is extended to UK TRs which apply for registration to the FCA pre-exit day, as part of the Temporary Registration Regime or the conversion regime under the Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018, and for non-uk TRs applying for recognition under the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations TRs are currently supervised by the European Securities and Markets Authority. Without extending the scope of section 398, there would be no criminal penalties for any TR that misleads the FCA. Under the regime currently applicable to applications from UK CSDs for authorisation by the Bank of England ( the Bank ), it is a criminal offence under Regulation 5K of the Central Securities Depositories Regulations 2014 for a person to mislead the Bank. Since non-uk CSDs will be applying to the Bank for recognition under the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018 after exit, it is appropriate for them to be subject to Regulation 5K. Hence if they mislead the Bank they will be guilty of an offence in the UK in the same way as UK CSDs currently. Without extending the scope in this way, there would be no criminal penalties for any such firm which misleads the Bank, which would undermine the effectiveness of the regulatory regime. In all cases HM Treasury expect the impact of extending the scope of section 398 of FSMA to be minimal on the TRs and CSDs and the regulators. This is because based on current cases, prosecutions under section 398 are rare and we do not expect this to change with the extension of the offence to UK and non-uk TRs and non-uk CSDs. Therefore, we anticipate a negligible cumulative impact of extending the scope of section 398 on TRs and CSDs subject to the offence provisions, on the regulators, and on the criminal justice system. These instruments ensure that the UK will continue to have a functioning financial services regulatory regime in a no deal scenario. HM Treasury has engaged extensively with the regulators in preparing these instruments and I am confident that they are making the adequate preparations ahead of March I hope this addresses the Committee s concern and I am happy to answer further questions. I will deposit the letter in the house libraries. 7 January 2019

15 SECONDARY LEGISLATION SCRUTINY COMMITTEE (SUB-COMMITTEE A) 13 Appendix 2: INTERESTS AND ATTENDANCE Committee Members registered interests may be examined in the online Register of Lords Interests at The Register may also be inspected in the Parliamentary Archives. For the business taken at the meeting on 14 January 2019, Members declared the following interests: Feed-in Tariffs (Closure, etc.) Order 2018 (SI 2018/1380) Lord Hogan-Howe Permission to install solar panel at home Attendance: The meeting was attended by Lord Chartres, Baroness Finn, Lord Hogan-Howe, Lord Sharkey, Lord Trefgarne and Lord Walker of Gestingthorpe.