On 15 December 2020, HM Treasury issued a Call for Evidence on the UK’s Overseas Framework. The Call for Evidence was previously announced by the Chancellor on 9 November 2020 and is designed to gather information to help the Government understand how the UK’s current overseas framework supports its position as a global financial centre.
The areas where the Government is particularly interested in gathering information are:
- The overseas persons exclusion (OPE).
- The Financial Promotion Order (FPO) in general, and specifically in relation to the distribution of certain overseas long-term insurance products in the UK.
- Recognised overseas investment exchanges (ROIE).
- Investment services equivalence under Title VIII of the Markets in Financial Instruments Regulation (MiFIR).
These areas are further discussed in chapter 2 of the Call for Evidence and HM Treasury is particularly interested in them because there are some overlaps between the activities covered by these areas, and there may be scope to make the overall framework more transparent, consistent and easier to navigate. However, views are sought on all aspects of the UK regulatory perimeter as it applies to overseas firms and their subsidiaries, including the intragroup exemption or other RAO exclusions or exemptions which are relevant to overseas firms’ business models.
In relation to the OPE and equivalence under Title VIII of MiFIR, the Call for Evidence notes that there is “considerable overlap” between the activities that are covered by them although different conditions mean that they are “not fully substitutable”. It adds that if the “UK were to make a positive equivalence determination under MiFIR Title VIII provisions, after a three-year period the OPE would not be available for firms undertaking those overlapping activities into the UK from the relevant jurisdiction.” The Call for Evidence also notes in passing that unlike the other regimes discussed in the paper the ability to use the OPE is not linked to the standards of regulation applied in the home state, or any requirement for firms to be registered or report on the business they undertake.
HM Treasury also notes that steps are currently being taken to update certain aspects of the overseas framework via the Financial Services Bill which is currently being considered by Parliament. The Bill seeks to introduce a new regime for overseas funds, access from Gibraltar and updating the equivalence regime for cross-border investment services in MiFIR. The FCA has also recently consulted on its approach for international firms seeking to operate through a branch in the UK.
In the Call for Evidence, HM Treasury states that any changes to the UK’s framework for overseas firms and activities should be considered by reference to certain high level principles that guide the UK’s approach to cross-border financial services. The overseas access framework should:
- Facilitate the benefits of maintaining an open and globally integrated financial system, enabling international financial services business by reducing barriers and frictions where practicable.
- Consist of robust, high-quality and proportionate regulation, guided by and consistent with international standards.
- Ensure resilient and safe financial markets and firms in a way that supports financial stability, market integrity and consumer protection.
- Support the transition to sustainable finance.
- Be transparent and predictable.
- Provide a stable and reliable arrangement for cross-border market access.
- Enable effective cooperation with international partners.
HM Treasury states that it will use the information gathered from the Call for Evidence to assess how the regimes measure up against the principles and how they fit within the UK’s evolving regulatory framework.
The deadline for responding to the Call for Evidence is 11 March 2021.