The UK’s Future Regulatory Framework

During 2021, we expect to see the UK’s approach to financial services emerge as the Government and Parliament shape the UK’s future regulatory framework. This work will have consequences for all financial institutions doing business in the UK, including those operating on a cross-border basis into the UK.

Future Regulatory Framework Review

The Treasury will conclude its Future Regulatory Framework Review in 2021. Its current consultation proposes a model where regulators take on more responsibility for making regulation. This will be within the confines of policy frameworks to be laid down by legislation.

The Review also proposes making the regulators’ rulebooks the “single source” for firms’ regulatory obligations. This would involve transferring much of the retained EU law which relates to financial services off the statute books and into rulebooks. This will be welcomed by firms but is a process that is unlikely to start before next year and could take several years to complete.

Looking further ahead, the standstill relief under the regulators’ temporary transitional powers will generally expire in March 2022. In 2021 firms will, therefore, need to look ahead and work through the impact of changes to the regulatory framework brought about by Brexit but currently benefiting from relief under the temporary transitional powers (for example, eligible collateral under the margin rules in the absence of equivalence decisions).

The consultation on the Future Regulatory Framework concludes in February and a second consultation will then set out specific proposals.

Financial Services Bill

The Financial Services Bill is the first step in shaping a post-Brexit regulatory framework for the UK and will become law in 2021. The Bill illustrates the new model for making regulation, as described in the Future Regulatory Framework Review. It proposes handing extensive rule-making powers to the Treasury, PRA and FCA to implement prudential reforms. New powers will be granted to the FCA to oversee an orderly transition from LIBOR, in particular to deal with tough legacy contracts. For more information read Interest rate reform: the final countdown for LIBOR. Changes will also be made to UK MiFID, PRIIPs, EMIR and MAR regimes.

EU/UK future relationship

The EU-UK Trade and Cooperation Agreement provides a basis for an evolving relationship which may vary between different sectors. For financial services, there is little in the deal itself although both sides have agreed to agree a Memorandum of Understanding “by March 2021” which is intended to be a platform for further EU-UK cooperation on regulatory standards. Attention now (re)turns to the ways in which EU and UK regulations will start to diverge and whether further equivalence decisions will be forthcoming. Some divergence has already been seen in the context of SFTR, with the UK choosing not to implement the reporting obligation for NFCs and, in the case of CSDR, with the UK’s decision not to implement the settlement discipline regime.

UK equivalence framework

The Treasury will assess whether overseas jurisdictions have comparable rules in other areas under the UK’s equivalence framework. The UK has already onshored nearly all the Commission’s decisions on equivalence in place at the end of the Brexit transition period. It has also granted positive determinations on equivalence in favour of the EEA in certain areas, including the EMIR intra-group exemption from clearing and margining, but not including some other important areas. In a guidance document, the Treasury sets out its intentions for how it will apply equivalence. The approach intends for equivalence to be a stable framework upon which firms can rely and which is only withdrawn as a “last resort”. Read our briefing on the UK’s approach to equivalence. 

This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or contact the editors.