HM Treasury Consults on Phase II of UK's Financial Services Future Regulation Framework Review
10/19/2020HM Treasury has launched a consultation on Phase II of the U.K.'s Financial Services Future Regulatory Framework Review. Phase II focuses on how the U.K.'s financial services regulatory framework must be adapted to be fit for the future given the U.K.'s exit from the EU. The first part of Phase II, to which this consultation relates, seeks to establish a blueprint for financial services regulation. Responses to the consultation should be submitted by February 19, 2021. The second part of Phase II will constitute a final package of proposals and will be consulted on later in 2021.
The FRF Review was announced in 2019 and is designed to assess whether the U.K. financial services regulatory framework is fit for purpose and able to support future growth, particularly in light of challenges such as Brexit and climate change. Phase I of the Review began in July 2019 and involved a call for evidence on how the U.K. government and regulators work together to ensure the best outcomes for the financial services sector. The Government published its response to Phase I in March 2020, which led to the establishment of the Financial Services Regulatory Initiatives Forum and the Regulatory Initiatives Grid.
The latest consultation is concerned with the best approach to regulation in the U.K., ensuring a clear division of responsibilities between Government, Parliament and regulators, providing for appropriate policy input by democratic institutions and allowing regulation to adapt to changing conditions. Post-Brexit, the U.K. has onshored most EU financial services legislation directly onto the U.K. statute book to minimize disruption to the existing regulatory regime. However, the EU regulatory approach deviated from the U.K.'s preferred approach of delegating much standard-setting to financial services regulators. The government therefore proposes a series of adaptations to the existing model under the U.K. Financial Services and Markets Act 2000:
- The framework should provide for a clear division of responsibilities as originally envisaged by the FSMA model. Government and Parliament would set the legislative regulatory framework but financial regulators would set requirements for financial services firms and markets, meaning most EU provisions would be transferred to regulator rulebooks. The scope of regulated activities and equivalence arrangements would, however, continue to be set by the Government and Parliament through legislation.
- FSMA should include policy framework legislation for key areas of regulated activity. Government and Parliament would set out the purpose and approach to the regulation of various financial services activities in legislation via a series of policy priorities that financial regulators would take into account when designing regulatory requirements.
- Existing FSMA transparency requirements should be updated to reflect new activity-specific policy framework legislation. Financial regulators would be expected to explain how their proposals meet the statutory purpose for a given regulatory regime, taking into account the activity-specific regulatory principles.
View HM Treasury's Phase II consultation.
View details of HM Treasury's Phase I consultation.
View details of the Government's response to HM Treasury's Phase I consultation.
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