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We are now seeing how regulators will start to transition out of the pandemic and move into new territory. The future regulatory framework (FRF) review outlines key considerations for firms in this next phase and how they will need to adapt to upcoming regulatory changes. We highlight these changes and outline what businesses can do to prepare.
It has now been a year since the transition from Brexit officially ended, and the government is developing its thinking on the framework for financial services. This seeks to ensure the sector is up to global standards and continues to grow. The FRF review plays a key role by acknowledging the goals of the government ,and details the intended outcomes while building on the existing model.
The review outlines HM Treasury's proposals and highlights the need to provide a greater focus on growth and competitiveness in the market through the secondary objectives of the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA). The government has stated that both regulators will be required to report annually on their performance based on their growth and competitiveness objective, alongside their other objectives to confirm they are meeting long-term goals.
Additionally, there is a clearer focus on embedding climate change and net zero as a regulatory principle and maintain consistent methods of growth that algins with the commitment to achieve a net-zero economy by 2050.
For firms, this means looking at what might change and what will need to be done in order to meet best practice. Although the review has been completed, there is not yet a designated roadmap in place to guide firms on what to expect. Consequently, firms should ensure they stay up to date with regulatory changes and deal with implementation.
The aim of the FRF being developed is the transition to the Financial Services and Markets Act (FSMA) model, which will require swapping out large areas of EU law that were part of the Brexit framework. The government has proposed a new Designated Activities Regime in its review, that would reel in ?activities outside the core financial services perimeter? which can have material effects on financial markets. Individuals carrying out these activities would be required to follow the regulators? rules and receive penalties for failing to meet these requirements. The aim is to improve the accountability of regulators in considering the impacts of their rules and assessing compliance.
Although there are still questions remaining around how the framework will be actioned and how regulators will be held to account, it is important that firms remain up to date with the proposed changes. We have now entered the post-Brexit era, and with legislation being passed this year, we are expecting changes to be passed in 2023. Financial services firms would do well to consider reviewing their current infrastructure in order to meet the updated demands of regulators as changes develop.
To stay up to date with developments in the regulatory landscape and more information on what to expect this year, download the Grant Thornton Regulatory Handbook 2022. To discuss this topic further or find out more about how we can support you through the next wave of regulatory change, contact Gavin Stewart.
Gavin Stewart, Director (Financial Services Group), Grant Thornton LLP