The UK government announced in the Queen’s Speech its intention to bring a financial services and markets bill to parliament during this new session.
Such a bill was not a surprise, with the Treasury, Financial Conduct Authority and Prudential Regulation Authority carrying out a number of consultations in recent years about the future of financial services regulation in the UK, including the Wholesale Markets Review in July 2021 and the Future Regulatory Framework Review in November 2021.
These reviews indicated that the government was beginning to consider not only potential reforms of the EU legislation on-shored in the lead up to Brexit, but also look at how the UK could use Brexit as an opportunity to further develop the financial services industry.
The government has said that the aim of this bill is to enhance the UK’s position as a global leader in financial services following its departure from the EU by establishing a “coherent, agile and internationally respected approach to financial services regulation that best suits the interests of the UK”.
Until the bill is formally laid before parliament it will not be clear how this is to be achieved. However, the briefing document that accompanies the Queen’s Speech indicates that the government will be “cutting red tape” in the financial services industry with the purpose of making the UK a more attractive place to invest.
The government’s rhetoric as to how this would be achieved indicates a potentially ambitious agenda. They have explained that the purpose of the bill would be to revoke the “retained EU law on financial services and replacing it with an approach to regulation that is designed for the UK”.
This mechanical process of revoking EU law would, however, be of little significance unless the replacement law departs from what is contained in the retained EU law.
This reform will mean repealing the legislation that implemented EU financial services law in the UK and asking the FCA and PRA to replace it with their own rules.
As a result, regulators will take on responsibility for setting the regulatory requirements currently contained within the retained EU law.
In the FRF review the government stated that this process would require a substantial amount of work and would likely take a number of years.
This reform may be seen as sensible given that the regulators are at the coal face of the financial services industry and should be able to react more quickly to emerging risks than parliament.
The government, in discussing how the financial services industry can be enhanced and remain internationally competitive, has talked frequently about tailoring the regulatory regime towards the specific needs of the UK.
This would appear to indicate a willingness for the UK’s financial services regulatory regime to diverge from the EU’s. However, the government in the FRF review suggests that they expect, at first, the majority of rules to be similar to those contained within the repealed EU laws.