Call for evidence on regulatory cooperation marks the first phase of the planned review.
The Chancellor announced in the Spring Statement that HM Treasury would undertake the Financial Services Future Regulatory Framework Review — examining the long-term effectiveness of the UK regulatory regime and considering where change might be necessary, particularly in light of Brexit.
The Review will take stock of the overall approach to regulating the UK financial services sector, including how the regulatory framework may need to adapt in the future. The Review will seek to address the following four key challenges:
- Operating outside the EU: The UK must decide how its regulatory arrangements should adapt to reflect the UK’s new position outside the EU. This will raise important questions about how financial services policy is made in the UK, how policy is translated into regulatory rules, and how these functions are made accountable. It is not clear at this stage which approach will be favoured, although recent speeches by the FCA and PRA chiefs have advocated a move towards a more principles-based and outcomes focused system of regulation.
- New relationships: The UK regulatory framework will need to be open to emerging markets outside the EU, and support the development of new trading relationships as well as facilitating cooperation on international standards and supervision. While it is envisaged that the UK-EU trading relationship will remain of key importance, the balance inevitably will shift towards emerging markets beyond the EU. The UK has already been working to put in place new arrangements with regulators in key non-EU jurisdictions such as the US and a number of Asian countries.
- Technological change: The UK approach to regulation must support the financial services sector in integrating and exploiting the technologies of the future, whilst managing risks and protecting consumers. The framework must also support industry innovation, by integrating flexibility to ensure policy can evolve in step with those developments. The UK has already taken a leading approach to FinTech, and is one of the first global jurisdictions to seek to establish clear regulatory guidance on cryptoassets. No doubt the government will want to continue to present the UK as a global leader.
- Wider global challenges: The framework must be agile and must facilitate a creative and far-sighted approach to the development of policy that will support the financial services sector in helping to solve society’s biggest policy challenges. In particular, the government believes that the financial services sector will play a critical role in addressing the challenges of an ageing population and in supporting the government’s commitment to deliver a net zero-carbon emissions economy by 2050. The recently launched Green Finance Strategy emphasises how the financial services sector has a crucial role to play in “greening” the UK economy.
In his Mansion House speech, Mr. Hammond explained that the first phase of this review would aim to improve coordination between regulatory authorities. He recognised the need for “greater ‘air traffic control’ to manage the cumulative impact of regulatory change emanating from different sources”. This part of the review was launched on 19 July 2019, with a call for evidence on regulatory coordination. Much of the review will only be able to take place once the UK’s future relationship with the EU has become clear, but the government believes that it can start acting now to help improve the way in which the regulators interact and work together.
This call for evidence will look at the processes for managing the combined impact of regulatory change on financial services firms and their customers, including whether more can be done to coordinate the work of each regulator better. This will include how the regulators balance the impact on firms against the benefits to consumers, how the regulators understand and assess the overall impact of simultaneous regulatory interventions on firms, and whether the regulators request the right amount of information from firms as part of the policy-making process. The call for evidence also requests views as to how firms and the regulators can work together to make authorisation, supervision, and enforcement more efficient. This will include how technology might be employed to make supervisory reporting more efficient, how firms might facilitate data sharing between regulators, and how firms invest in their systems and controls to ensure they are fit for the future. HM Treasury would like to understand what works well and identify areas where there may be room for improvement.
The call for evidence will remain open until 18 October 2019. Although later phases of the Review are likely to deal with more fundamental issues, this call for evidence does raise some important questions, and firms should seek to contribute their views on where enhancements could be beneficial. HM Treasury plans to set out more details of the further phases of the Review once arrangements for the UK’s withdrawal from the EU become clear.