The International Regulatory Strategy Group (IRSG) has published its latest Brexit related paper, The architecture for regulating finance after Brexit (the report).

The report proposes principles for assessing the effectiveness of the regulatory framework:

  • regulatory independence: regulators should be impartial and free from political influence. They should pursue clear, rational objectives that balance relevant conflicting interests, and they should be widely seen and understood to be doing so;
  • regulatory accountability: accountability is needed to balance the privileges of independence. Regulators should be accountable both to the public, primarily through elected representatives, and to those whom they regulate;
  • coherence: where there are multiple regulators, the division of responsibilities should be clear and transparent and regulatory powers should be allocated appropriately so that those responsibilities can be met. Cooperation between the regulators is essential. Coherence between domestic and international regulatory frameworks is also necessary;
  • flexibility: a regulatory system needs sufficient flexibility to anticipate and respond to market developments and innovations. It also needs to recognise that a one-size-fits-all approach does not always result in proportionate regulation; and
  • clear and appropriate regulatory objectives: given their significant powers and their independence, regulators need to be guided by a small number of clear and appropriate objectives.

The recommendations in the report divide themselves into four categories:

  • those intended to ensure the powers and resources of the regulators will remain appropriate. The IRSG conclude that, in the interests of flexibility, the regulators should assume general responsibility for financial regulation derived from EU law after withdrawal. However, the IRSG propose a mechanism to prevent this from inadvertently jeopardising mutual market access arrangements set out in an earlier IRSG report;
  • those that would contribute towards accountability by ensuring that the regulators’ expanded powers are appropriately framed. The IRSG recommend introducing an additional regulatory objective and increased engagement by HM Treasury, where appropriate, over what the regulators must take into account when exercising their powers;
  • those that would enhance accountability by increasing general scrutiny of the regulators, both by the public (through their elected representatives) and stakeholders. The IRSG makes recommendations about how this might be achieved without compromising regulatory independence, suggesting refinements of existing structures; and
  • those that concern how financial regulation is made. The IRSG recommend reforms that could improve the quality of regulation, including through specialist scrutiny mechanisms that fill a gap in current mechanisms for regulatory accountability and by providing more systematic opportunities to assess regulatory coherence and flexibility.

View The architecture for regulating finance after Brexit, 8 December 2017