The Financial Conduct Authority is working on what a financial services rulebook outside of the EU will look like.
In an update on its site, Greg Sachrajda, co-director, cross-cutting policy and strategy, supervision, policy and competition at the FCA said the passage of the Financial Services and Markets Act 2023 brings “a great opportunity”.
He said the FCA and other regulators have been given the ability to refine and expand what the rulebook will look like as a result of this act.
The 2023 act puts in place an enhanced framework, including a new secondary objective on international competitiveness and growth, and new accountability and scrutiny arrangements such as an enhanced duty to keep rules under review.
The FCA is also already consulting on this and a new duty to consult a panel on its preparation of cost benefit analyses.
Sachrajda said: “The 2023 Act also allows the repeal of the 'retained EU legislation' (REUL) in financial services that the UK inherited.
Many advisers can only obtain professional indemnity cover from their existing provider, which is not a well-functioning market Matthew Connell, PFS“This means that we can now write new rules more suitable for UK markets and consumers.
“But we're not simply going to rip everything up and start again. There will be some areas that will require changes because we know they're not working well for the UK, and we're excited about bringing forward changes to make those parts of our markets work better.”
A joint approach
Sachrajda said multiple teams have been thinking about what is working, and what isn’t, and where the regulator may be able to adapt.
It has been working closely with the Treasury and the Prudential Regulation Authority to plan for a smooth transfer, and collectively it needs to deliver a government statute book, a PRA Rulebook and a FCA Handbook that all support and interface well with each other.
“Now more than ever, we're committed to excellent engagement with our stakeholders, not least financial services firms and the consumers they serve, to ensure meaningful involvement and consultation on the changes we propose,” he said.
“You’ll see us engaging earlier, through a whole range of channels, both formal and informal, to seek to get your views, to ensure we make the right decisions for the UK."
But evolution should not come at the cost of watering down standards Robert Dedman, CMS In addition, to help ensure consistency and drive good outcomes, he said the FCA wants to ensure that our handbook is clear and accessible.
The overall aims for the handbook are to: have clear rules, reduce regulatory burdens where appropriate, and enhance accessibility.
To achieve this, it will be applying the following principles:
- bringing together regulatory provisions so that the handbook becomes a 'one-stop shop'
- using the existing structures in the handbook where possible, and only creating new sourcebooks where necessary
- relying on existing requirements as much as possible
- considering outcomes-based regulation, where appropriate
- seeking to reduce complexity by drafting in our Handbook format and style where we can, and aiming to align standards addressing similar issues across files where possible
Welcome news
Priti Verma, chief risk officer at Quilter, said: “While some detail of the financial services act has been communicated via the Edinburgh reforms, much remains on the table and it is not completely clear how comprehensive this ‘rewiring’ of UK financial services will be post-Brexit, but it does feel genuinely consultative.
“This approach is welcome as it not only allows time for close liaison between government and regulators, but also gives firms time to plan for any material changes away from the existing EU regimes.”
As with the recent consultation on the new regime for the asset management industry, Verma said there is an opportunity for the sector to present its agenda to the regulator.
The FCA has already abolished Priips in terms of product disclosure, and the question now is one of greater convergence or divergence from the EU on a multitude of issues and the answer will differ for each, she explained.
“Some, like the 10 per cent portfolio drop rule, were clearly not fit for purpose, while other rules are multifaceted, with little benefit in divergence.
“Even within tranches, particular areas of EU regulation will likely need its own timetable so a consultative approach with regular updates is welcome as it will help with implementation activities.”
Verma argued that any future changes to UK financial regulation should uphold the UK's position as “a competitive global investment centre”, as well as protecting consumers.
“It’s therefore welcome that the financial services act includes a secondary objective on competitiveness and growth,” she added.
“The current regulatory environment can be complex for both firms and the consumer to navigate and therefore the need for any more rules must be balanced against a need for simplicity and remaining competitive in the global marketplace.”
Additionally, Matthew Connell, director of policy and public affairs for the Personal Financial Society, said the main opportunity in the personal finance space post-Brexit is to “rethink compulsory professional liability insurance”, which was imposed on all advisers recommending pension or insurance-based investment products through the Insurance Distribution Directive, whose provisions are still in the FCA rulebook.
“Professional liability insurance is a valuable form of cover, but if it is compulsory, it means containing cover against mis-selling that providers often do not want to cover, so they may withdraw from the market, impose exclusions or only offer cover to existing customers,” he said.
“Many advisers can only obtain professional indemnity cover from their existing provider, which is not a well-functioning market.
“There are alternatives to compulsory professional indemnity insurance, such as the Financial Services Compensation Scheme or a levy on funds under management. Brexit offers the UK to implement these alternatives.”
Meanwhile, Robert Dedman, a partner at CMS and former head of enforcement at the PRA, said the FCA recognises that the new act gives it an opportunity to tailor the regulatory regime more towards the UK market.
“But evolution should not come at the cost of watering down standards,” he said.
“A workable, risk-attuned rule book overseen by pragmatic, efficient and well-resourced regulators, would make a major contribution to the UK’s future prosperity.”
sonia.rach@ft.com
What's your view?
Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com
