On 26 February 2024, a draft statutory instrument (SI) – the Financial Services and Markets Act 2023 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024 – was published on legislation.gov.uk, along with a draft explanatory memorandum.

One of the tools introduced by Financial Services Markets Act 2023 (FSMA 2023) is new section 138BA of the Financial Services and Markets Act 2000 (FSMA), which provides a power for HM Treasury to make regulations to grant the financial services regulators the ability to disapply or modify rules made by the regulators under FSMA.

The draft SI, which would be made using HM Treasury’s new power under section 138BA of FSMA:

  • Grants the Prudential Regulation Authority (PRA) the ability to disapply or modify the application of any of its rules made under FSMA, where appropriate, to account for the circumstances and business models of individual firms. The ability to flex rules in this way is intended to contribute to one of the Government’s key objectives for the Smarter Regulatory Framework, to deliver an agile regulatory regime which can respond quickly to take account of changing market conditions, address emerging risks and facilitate innovation.
  • Introduces certain procedural requirements that must be followed in relation to PRA decisions on disapplying or modifying PRA rules. The PRA must issue decision notices to applicant firms, which either grant a permission to disapply or modify specified rules or which explain any decision to refuse such a permission or to impose conditions on the permission. The draft SI also requires the PRA to issue a decision notice to applicant firms explaining any decision to vary or revoke an existing permission. Where the PRA gives permission for a rule to be disapplied or modified, it must publish a decision notice so that there is transparency about which firms are subject to disapplied or modified rules. Affected firms may also challenge a PRA decision by referring the decision to the Upper Tribunal (Tax and Chancery Chamber).

Once finalised, the draft SI is intended to come into force on 30 June 2024.