Building a Smarter Financial Services Regulatory Framework: Delivery Plan

The HM Treasury has published a new Policy Paper entitled „Building a Smarter Financial Services Regulatory Framework: Delivery Plan“ which relates to the government’s intention to replace all UK retained EU Legislation (REUL) and replace it with „smart“ regulatory UK frameworks to deliver competitive, proportionate, consumer-oriented regulations in UK in accordance with the announced Edinburgh Reforms. One key aspects of these reforms is the making of regulation by those that best know the market and are close enough to regulate and supervise it, such as the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA).
#### In this newly published Policy Paper, the Treasury outlines
(1) its approach to balanced rulemaking between those that supervise the market and the Treasury: In brief, the government’s legislation will focus on establishing a regulator framework within which supervisory authorities such as the FCA, PRA, or The Pensions Regulator (TPR) exercise their responsibilities. The regulatory framework builds upon existing Acts of Parliament such as the Financial Services and Markets Act 2000 (FSMA). The government will also ensure that appropriate supervision, investigatory, and enforcement powers are provided to supervisory authorities to ensure that they can actively fulfill their statutory mandates. Typically, supervisory authorities will be engaged in all rulemaking in connection with firm-facing requirements, such as disclosure, authorization, or reporting requirements.
(2) its approach to switch from REUL to own legislation: In this context, the Treasury notes that delivering a smart regulatory framework implicates that structural changes need to be made in UK. Even if one or the other REUL seems adequate and fit for purpose, there will be changes as to the regulators supervising in-scope firms or responsible for rulemaking in particular areas. Therefore, the government will take a „lift and shift“ approach to not overly burden supervised firms, which means that at first, it will create the new regulatory framework (e.g. empowerment of supervisory authorities, replacement of REUL with own statutory instruments) without any key changes to the content of the previous REUL (unless the changes result in ease of burdens). Once this structural change has taken place, supervisory authorities such as the PRA or the FCA can make regulatory adjustments as needed.
(3) its approach to legislation: In the view of the Treasury, REULs are overly complex and fragmented, making it difficult for firms to navigate the regulatory environment. To address this issue, the government aims to reduce legal complexity and make it easier for financial firms to understand the legislative rules that govern their operations. When replacing REUL, the government will actively consider how to create a more coherent and user-friendly legal framework overall with any new legislation logically constructed and following a clear approach to enhance clarity and ease of compliance for financial services firms.
(4) its approach to stakeholder engagement: Generally speaking, where legislation is required, the government or supervisory authorities will engage with stakeholders to seek their feedback and considerations. Typically, such engagements will be in form of a „call for evidence“ or „public consultation“. As far as the making of Statutory Instruments (SIs) is concerned, the government expects to always publish „near-final draft versions“ of SIs which will be accompanied by a policy note to describe the government’s policy intent. Such „near-final draft versions“ will be open for public comment for up to six weeks.
(5) its key deliverables for the remainder of the year: The government has included a table beginning on page 10 which outlines key Statutory Instruments that will replace significant REUL and that are scheduled to be delivered in the near future. The table also includes the benefits anticipated for each area of legislation and when it is estimated that the legislation and any consultation responses will be available. Some of the SIs concern the replacement of the
– Retained Prospectus Regulation (PR)
– Retained Solvency II Directive
– Retained Securitisation Regulation (SR)
– Retained European Long-Term Investment Funds Regulation (ELTIF)
– Retained Short Selling Regulation (SSR)
– Retained Money Market Funds Regulation (MMFR)