Treasury has published a Policy Paper setting out how it intends to deal with retained EU law in the financial regulatory sector.
The Policy Paper says that the FSMA model, with the operationally dependent regulators has been in place for some years, and that subsequent EU legislation has constrained the regulators’ ability to determine what’s best for the UK financial markets. It explains that the general approach to Brexit means that a lot of retained EU measures are in laws which are time-consuming to amend, but should really be in regulatory requirements. The Retained EU Law (Revocation and Reform) Bill, when enacted, will strip retained EU law of any special legal status by the end of 2023 and will repeal all retained laws by that date. However, this does not apply to the financial services sector, because the repeal of these laws will be governed by the FSM Bill and processes under it. Previous Government consultation on financial regulatory reform concluded that the FSMA model is still fit for purpose, and the FSM Bill continues this, by splitting responsibilities across Parliament, Treasury and the regulators. As part of the expansion, the Government thought it critical to add competitiveness objectives to FCA and PRA’s regulatory objectives.
In principle, the Government does not propose to use its powers to restate retained law which is better dealt with by regulatory rules, and the regulators will need to “have regard” to the elements specified in the FSM Bill when making their rules to replace retained laws.
The task will be huge, and will need some of the new tools under the FSM Bill in order to accomplish it. The changes will need to bear in mind:
- the need to update rules to reflect the specific features of the UK market and the UK’s position outside the EU;
- the need for logical sequencing and to support an accessible and streamlined framework; and
- that the pace of change has to be manageable.
The first tranche of reviews, already underway, will focus on the outcomes from the Listing Review, the Wholesale Markets Review, the Securitisation Review and the Solvency II Review. The second tranche will look at areas that have the biggest potential benefits for UK economic growth, and it is these 2 tranches on which the Government hopes to have made significant progress by the end of 2023. Tranche 2 will include materials relating (among other things) to PRIIPs, insurance distribution, payment services and emoney, the CRR and the consumer information rules in the Payment Accounts Directive.
Treasury has identified 43 “core” files, which in turn sometimes include a number of instruments. In each case, an exercise will determine whether the retained provisions can just be removed, whether it needs replacing with provisions consistent with the FSMA model or whether it needs replacing but with targeted policy change.
Alongside the policy paper, it has published three “illustrative” draft statutory instruments to show how the powers in the FSM Bill will be used and how relevant secondary legislation might be structured. The illustrative instruments address:
- the reform of the Prospectus Regulation: the Government will use the new Designated Activities Regime to create a new “Public Offer and Admissions to Trading” Regime;
- the repeal of the Securitisation Regulation: the Government plans that most of the firm-facing requirements will be in PRA/FCA rules, with relevant other parts in legislation; and
- giving FCA rulemaking powers in relation to payments regulation: the Government says this shows how the FSM Bill can give FCA powers to make rules to replace retained EU law where it does not already have powers to do so.