On 9 December 2022, the Chancellor of the Exchequer Jeremy Hunt MP unveiled at an industry roundtable in Edinburgh over 30 regulatory reforms. These “Edinburgh Reforms” follow on from the Chancellor’s Autumn Statement in which he highlighted financial services as one of the UK’s five key growth sectors.
The reforms build on the government’s vision for financial services, as set out in the Chancellor’s speech at Mansion House in 2021. The government is already taking forward work to deliver this vision through the Financial Services and Markets Bill which is currently making its way through Parliament. These latest reforms are the next step in the government’s work.
The Edinburgh Reforms include:
- HM Treasury Policy Statement, Building a smarter financial services framework for the UK. This Policy Statement sets out the government’s approach to repealing and replacing retained EU law on financial services in order to deliver a regulatory model based on the Financial Services and Markets Act 2000 (FSMA). The government has also published three illustrative draft statutory instruments (SIs) alongside the Policy Statement in order to give stakeholders a more detailed understanding of the approach it is taking. There are two illustrative draft SIs in relation to the reform of the Prospectus Regulation and the Securitisation Regulation. There is also a draft SI that would give the FCA wider rulemaking powers in relation to payments regulation to ensure that the FCA has the necessary powers to make rules to replace retained EU law. Each draft SI is accompanied by a policy note.
- HM Treasury policy paper, Government response to the independent review on ring-fencing and proprietary trading. The reforms in the policy paper are in response to the independent review on ring-fencing and proprietary trading. The government intends to consult on a number of reforms in mid-2023 with a view to bringing forward secondary legislation later that year. The reforms will include:
- Taking banking groups without major investment banking operations out of the ring-fencing regime;
- Updating the definition of ‘Relevant Financial Institution’;
- Removing blanket geographical restrictions on ring-fenced banks operating subsidiaries or servicing clients outside the EEA;
- Taking forward technical amendments outlined in the independent review to improve the functioning of the ring-fencing regime;
- Reviewing and updating the list of activities which ring-fenced banks are restricted from carrying out, to assess whether certain activities could in future be undertaken safely by ring-fenced banks in order to improve the supply of financial services to consumers and businesses; and
- Changing the threshold for the regime from £25 billion retail deposits to £35 billion.
The government will also be issuing a public call for evidence in Q1 2023 asking for views on the long-term benefits of the ring-fencing regime in light of developments in the resolution regime and relevant advances in the wider regulatory framework.
- HM Treasury response to Consultation: Amendments to the Building Societies Act 1986. The government will legislate, when parliamentary time allows, to amend the Building Societies Act 1986 to give building societies in the UK greater flexibility to raise wholesale funds while retaining their mutual model. As part of this, the government will also modernise relevant corporate governance requirements in line with the Companies Act 2006.
- HM Treasury Consultation Paper, Reforming the Consumer Credit Act 1974. The Consultation Paper follows on from the government’s announcement in June this year concerning its intention to reform the Consumer Credit Act 1974. The Consultation Paper is the first stage and asks for input on the strategic direction of reform. It also asks questions about how the consumer credit regulatory environment could be changed to ensure optimal performance of regulation surrounding customer communications, consumer protections and sanctions for firms that do not adhere to regulatory standards. Further questions cover how this reform should approach the accessibility of credit and financial inclusion. The deadline for responding to the Consultation Paper is 17 March 2023.
- HM Treasury Call for Evidence, Short Selling Regulation Review. The Call for Evidence is the first step in the government’s review of short selling as part of its programme to repeal retained EU law in financial services and replace it with a regulatory framework tailored to the UK. The deadline for responding to the Call for Evidence is 4 March 2023.
- HM Treasury Consultation Paper, PRIIPs and UK Retail Disclosure. In the Consultation Paper the government sets out plans to revoke the PRIIPs Regulation and seeks views on a proposed alternative framework for retail disclosure. The FCA will be responsible for setting detailed disclosure rules. The deadline for responding to the Consultation Paper is 3 March 2023.
- HM Treasury Consultation Paper, Information requirements in the Payment Accounts Regulations 2015. The Payment Accounts Regulations 2015 (PARs) transposed the EU Payments Accounts Directive in 2015. Part 2 and Schedules 1 and 2 of the PARs set out requirements intended to improve the comparability of fees connected with payment accounts. The government expects many of these requirements to be too prescriptive or less necessary in a UK context. The deadline for responding to the Consultation Paper is 17 February 2023.
- Letter from the Chancellor to the Governor of the Bank of England providing recommendations for the Prudential Regulation Committee (PRC). The Bank of England Act 1998 requires HM Treasury, at least once in each Parliament, to make recommendations to the PRC about aspects of the government’s economic policy to which the PRC should have regard when advancing the objectives and discharging the duties of the PRA. The letter provides such recommendations.
- Letter from the Chancellor to the Chief Executive of the FCA providing recommendations for the FCA. FSMA requires HM Treasury, at least once in each Parliament, to make recommendations to the FCA about aspects of the government’s economic policy to which the FCA should have regard when advancing its objectives and discharging its duties. The letter provides such recommendations.
- Terms of Reference for the Accelerated Settlement Taskforce. This industry taskforce will examine the case for trades to be settled more quickly in the UK, such as moving to a ‘T+1’ standard settlement period. It will publish its initial findings by December 2023, with a full report and recommendations made by December 2024.
In his Ministerial statement the Chancellor also states that:
- The government plans to repeal the regulations for the European Long Term Investment Fund (ELTIF), without replacement. This reflects the fact that no ELTIFs have been established in the UK.
- The PRA intends to consult on removing rules for the capital deduction of certain non-performing exposures held by banks.
- The government and regulators will separately commence a review of the Senior Managers & Certification Regime in Q1 2023.
- The government will bring forward secondary legislation in Q1 2023 to remove burdens for firms trading commodities derivatives as an ancillary activity.
- The government is committing, alongside the FCA, to having a regulatory regime in place by 2024 to support a consolidated tape for market data.
- The government will launch an Investment Research Review, an independent review of investment research and its contribution to UK capital markets competitiveness.
- The government will publish an updated Green Finance Strategy in early 2023. It will also consult in Q1 2023 on bringing Environmental, Social, and Governance ratings providers into the regulatory perimeter.
- The government will be bringing forward a consultation to explore the case for a central bank digital currency.
The government has also laid before Parliament, The Markets in Financial Instruments (Investor Reporting) (Amendment) Regulations 2022. These Regulations amend on the onshored version of Commission Delegated Regulation 2017/565 which supplements MiFID II as regards organisational requirements and operating conditions for investment firms. It implements changes to the investor reporting regime that the government consulted on as part of the Wholesale Markets Review.