Building a smarter financial services framework for the UK
This statement sets out the government’s approach to repealing and replacing retained EU law on financial services to deliver a comprehensive FSMA model of regulation tailored to the UK.
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The current UK domestic model of regulation was established by the Financial Services and Markets Act 2000 (FSMA), and later adapted to address the regulatory failings that contributed to the 2007-08 global financial crisis. Under this FSMA model of regulation, the financial services regulators the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) generally set the direct regulatory requirements which apply to firms in their rulebooks, operating within a framework established by government and Parliament.
When the UK left the EU, the body of EU legislation that applied directly in the UK at the point of exit was transferred onto the UK statute book. This legislation, together with domestic UK legislation made to implement EU Directives, is known as “retained EU law” (REUL). This approach has left the UK with detailed regulatory requirements in primary and secondary legislation, which under a FSMA approach should primarily be in the regulators’ rules. As a result, the government launched the Future Regulatory Framework (FRF) Review: Consultation in 2020 followed by Financial Services Future Regulatory Framework Review: Proposals for Reform in November 2021. To give effect to these reforms, the government has introduced the Financial Services and Markets Bill (FSM Bill) to Parliament, which will repeal REUL so that it can be replaced with a comprehensive FSMA model, designed for the UK financial markets.
Giving effect to the repeal of REUL and putting in place the appropriate rules and regulation to replace it is a significant programme which will require careful coordination across government, the regulators and industry. The government recognises the importance of careful sequencing to minimise unnecessary disruption across the sector while taking the opportunity to maximise the potential for the greatest economic impact and so will introduce a phased approach to implementation.
Understanding the views of industry is vital to the successful completion of this programme of work and this statement sets out how government intends to engage with all stakeholders. There is also further detail on which areas of REUL will be prioritised for repeal and replacement, and why.
The government has published illustrative draft Statutory Instruments (SIs) to give an indication of how the powers relating to REUL in the FSM Bill will be used, and how the relevant SIs may be structured. They should not, however, be considered as final policy. Please also refer to the accompanying explanatory policy notes.
The three illustrative SIs cover:
- The reform of the Prospectus Regulation, where the government will entirely replace the existing EU-derived framework and instead establish a simpler, more agile, and more effective regime designed specifically for the UK. The new ‘Public Offer and Admissions to Trading’ Regime uses the DAR to bring these activities within the scope of regulation.
- The repeal of the Securitisation Regulation with a view to the replacement of most firm-facing requirements by rules made by the FCA and PRA, as well as restatement of certain other elements in legislation. This demonstrates how regulatory responsibility could look in regimes which involve more than one regulator under the comprehensive FSMA model.
- Giving the FCA rulemaking powers in relation to Payments regulation, which provides a demonstration of how the powers established in the FSM Bill might be used to ensure that the FCA has the necessary powers to make rules to replace REUL, where it doesn’t already have powers to do so.
The statement also describes how the FSM Bill will interact with The Retained EU Law (Revocation and Reform) Bill, which relates to retained EU law more widely, beyond financial services.