A Bill for the ages?

Last Wednesday, while most eyes in Westminster were trained on the announcement of the final two Conservative Party leadership candidates, the financial services policy geeks among us were busy refreshing parliament’s website, awaiting the publication of the much-anticipated Financial Services and Markets Bill.

At 335 pages, the FSM Bill is a significant piece of legislation that will create the conditions for a more competitive financial services sector, while preserving high regulatory standards tailored to the UK’s needs. Broad in scope, the Bill contains reforms on important issues as varied as the reimbursement of fraud victims, the UK’s prospectus regime, access to cash and the regulation of stablecoins.

UK Finance has helped shape these reforms, and we largely support them. But on most of these issues, the Bill will not directly set requirements on firms. Instead, that responsibility will be delegated to the principal financial services regulators – the Bank of England (BoE) including the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR).

This approach follows the model of regulation initially created by the Financial Services and Markets Act 2000 (FSMA) in which independent, expert regulators set rules to advance public policy objectives set for them by parliament.

One of the main aims of the Bill is to implement the outcomes of the government’s post-Brexit review of the financial services future regulatory framework (FRF). A key concern of the FRF review was to address ‘retained EU law’ – the significant body of financial services legislation and regulation inherited from the UK’s membership of the EU that currently sits on the statute book, having been “onshored” at the point of Brexit.

In what amounts to a return of these areas of regulation to the FSMA model, the government proposes to repeal retained EU law from the statute book and replace it with appropriate rules made by the relevant regulator. Quite dramatically, the very first clause of the Bill seems to revoke practically all retained EU law at a stroke! In practice, this will only take place gradually, as part of a multi-year process.

The regulation of wholesale markets is the first major piece of retained EU law to be “domesticated” through this process. The recently-completed Wholesale Markets and Prospectus Regime reviews have already identified improvements that will make it easier for small businesses and retail investors to access the crucial funding that UK capital markets provide as well as make secondary markets more efficient for end-investors and customers.

The government rightly recognises that the expansion of the regulators’ powers and responsibilities necessitates changes to the framework within which they exercise them. We strongly welcome the Bill’s reforms in this regard. Assigning the PRA and FCA a secondary growth and competitiveness objective will give businesses the confidence to expand their UK presences and invest in the future. Meanwhile, new requirements for greater rigour in regulators’ cost/benefit analyses and post-implementation reviews will improve their decision-making, thereby improving the quality of regulation for consumers and firms alike.

Although generally very pleased with the Bill, we are disappointed it does not address the lack of a suitable mechanism for those affected by regulation to hold regulators to account for rules that are not working as intend. The Bill as drafted would give the Treasury alone this power. But we believe the ability to trigger a review of a regulatory rule should be expanded to include firms industry and consumer groups, based on the existing super-complaint model.

The Bill is a complex piece of legislation, and the devil will be in the detail. Over the summer our subject matter experts, in consultation with our members, will analyse it carefully to help inform Parliament’s scrutiny later this year and early next. We look forward to working with the government, parliamentarians, civil society and the regulators themselves to get these important reforms right.

All being well, the Bill will become an Act of Parliament next spring. But the work won’t end there. The baton will pass to the regulators to work out the detail to the benefit of consumers, firms and the UK’s position as a global leader in financial services.