The UK General Election
Following the UK General Election, the Conservative Party has won a majority of at least 76 seats in the House of Commons, its biggest election victory since 1987. With one constituency left to declare at the time of writing, the Conservatives have 364 seats, Labour 203, the SNP 48, the Liberal Democrats 11, the DUP 8, Sinn Fein 7, Plaid Cymru 4, the SDLP 2, the Green Party 1, the Alliance Party 1, and the Brexit Party 0.
With a significant majority, the new Conservative Government appears to be on course to get the draft Withdrawal Agreement and Political Declaration on the future EU / UK relationship, as amended in October, approved in the House of Commons.
MPs pass the European Union (Withdrawal Agreement) Bill 2019-20
On December 20, 2019, MPs approved the Government’s EU (Withdrawal Agreement) Bill by 358 votes to 234 (the December Bill).
The Government announced its intention to introduce the Bill in the Queen’s Speech on December 19, 2019. The Bill is needed to enable the UK to leave the European Union with a deal on January 31, 2020.
In October 2019, the Government introduced the EU (Withdrawal Agreement) Bill (the October Bill). The October Bill would have ratified and implemented the UK’s EU Withdrawal Agreement. Although the October Bill received a Second Reading, its programme motion was defeated. In part this was because of concerns about the speed at which the Government proposed to progress the October Bill through the House of Commons. The October Bill fell when Parliament dissolved for the December 12, 2019 General Election.
Three clauses and one Schedule have been removed outright from the October Bill. These were the clauses:
- Giving MPs a veto over any Minister agreeing to an extension of the transition or implementation period in the Joint Committee (what was clause 30)
- Giving MPs a veto over the start of future relationship negotiations with the EU, an approval role in relation to the Government’s negotiating mandate, and an enhanced Parliamentary approval process for any future relationship treaty subsequently negotiated with the EU (what was clause 31)
- Providing additional procedural protections for workers’ rights that currently form part of EU law, but which would not be protected against modification, repeal or revocation in domestic law once the transition or implementation period has ended (what was clause 34 and Schedule 4)
There are five clauses that have been added to the December Bill that were not present in the October Bill. These relate to:
- Reporting requirements to Parliament where the Joint Committee’s dispute procedures are used (new clause 30)
- Prohibiting any UK Minister from agreeing to an extension of the transition or implementation period in the Joint Committee (new clause 33)
- Prohibiting UK Ministers from using the written procedure to take decisions in the Joint Committee (new clause 35)
- The repeal of statutory provisions the Government maintains are now unnecessary or spent (new clause 36)
- Removing (via clause 37) the Government’s existing obligations (under section 17 of the European Union (Withdrawal) Act 2018) with regard to unaccompanied children seeking asylum in the EU who have family members in the UK. This would be replaced with a duty to make a policy statement to Parliament within two months of the Act passing.
MPs have also backed the timetable for further debate on the December Bill over three days when they return after the Christmas recess –January 7-9. The Government says it will get the December Bill into law in time for the January 31, 2020 Brexit deadline.
EU approval of the divorce deal
Once the UK has approved the divorce deal, the EU needs to sign off on it.
The European Parliament, including the MEPs from the UK, must consent by simple majority to the draft Withdrawal Agreement – but does not have the power to amend it. In this case, the Council of the EU (Council) needs to adopt it by super-qualified majority. This means it needs to get support of 72 per cent of the 27 participating Member States (or 20 Member States), and the support must also represent 65 per cent of the population of the 27 Member States. Although the UK is still a full member of the EU with full rights in the Council, it is not participating or taking part in the Council’s decisions concerning Brexit.
There is no role for national parliaments of the 27 Member States in the context of the draft Withdrawal Agreement, meaning, for example, that the French, Spanish or German parliaments do not have to agree to it.
At present we expect the process for ratifying the draft Withdrawal Agreement to be completed by both sides before January 31, 2020 meaning that there will be no further extension to the Article 50 process.
A core part of the draft Withdrawal Agreement is that there shall be a “transition or implementation period.” This period begins when the UK leaves the EU and ends, by default on December 31, 2020. However, the UK and EU can jointly agree, on a one-off basis, to extend that period by a further period of up to two years. A decision extending the period must be agreed before July 1, 2020.
During the transition period, the UK has to follow most of EU law in (mostly) the same way as it does now as a Member State. However, it will no longer have representation and voting rights in the EU institutions when the EU makes decisions about how EU law should change. There are some exceptions to this continuation of EU law, which are set out in the draft Withdrawal Agreement itself.
Once the draft Withdrawal Agreement is approved, the UK and EU negotiations will move onto the future relationship. At present we don’t have much sight of what the future relationship will look like apart from what is contained in the Political Declaration on the future EU/UK relationship.
Political Declaration on the future EU/UK relationship
From the financial services perspective the Political Declaration does not give too much away.
The relevant provisions are set out in paragraphs 35 to 37 and are reproduced below:
35. The Parties are committed to preserving financial stability, market integrity, investor and consumer protection and fair competition, while respecting the Parties’ regulatory and decision-making autonomy, and their ability to take equivalence decisions in their own interest. This is without prejudice to the Parties’ ability to adopt or maintain any measure where necessary for prudential reasons. The Parties agree to engage in close cooperation on regulatory and supervisory matters in international bodies.
36. Noting that both Parties will have equivalence frameworks in place that allow them to declare a third country’s regulatory and supervisory regimes equivalent for relevant purposes, the Parties should start assessing equivalence with respect to each other under these frameworks as soon as possible after the United Kingdom’s withdrawal from the Union, endeavouring to conclude these assessments before the end of June 2020. The Parties will keep their respective equivalence frameworks under review.
37. The Parties agree that close and structured cooperation on regulatory and supervisory matters is in their mutual interest. This cooperation should be grounded in the economic partnership and based on the principles of regulatory autonomy, transparency and stability. It should include transparency and appropriate consultation in the process of adoption, suspension and withdrawal of equivalence decisions, information exchange and consultation on regulatory initiatives and other issues of mutual interest, at both political and technical levels.
The future EU-UK financial services relationship will be governed by equivalence rather than passporting under the EU Single Market. In the Political Declaration both the UK and the EU are endeavouring to conclude equivalence assessments by the end of June 2020 which appears to be fairly ambitious. In July this year, the Commission set out a communication setting out its overall approach to equivalence and how the regime will cope with Brexit will be one of the key themes of 2020.