Future Regulatory Framework

What should the UK’s regulatory landscape look like?

Shaping a new regulatory framework for the UK

A broad programme of work is underway to shape the future of financial services regulation in the UK. This will impact all financial entities that operate in the UK’s financial system. 

Our financial regulation team has extensive experience of guiding financial institutions of all types through regulatory change. We have brought together the important initiatives to be aware of below. Get in touch if you would like to discuss what this means for your business.

Status of key initiatives

 

Future Regulatory Framework Review: Phase 2

What is it?
A consultation on how financial services policy and regulation are made in the UK.

What does it say?
It proposes a model in which UK financial services regulators lead on developing regulatory requirements for firms, subject to arrangements allowing for accountability to and scrutiny by HM Treasury and Parliament.

What happens next?
The consultation closed on 19 February 2021. A second more detailed consultation in 2021 will set out specific proposals for how the future regulatory framework will be delivered.

Read a summary of the paper on our knowledge portal.

Read our report on the architecture for regulating finance after Brexit.

Financial Services Act 2021

What is it?
Wide-ranging legislation intended to maintain the competitiveness of the UK financial services sector.

What does it say?
The Act gives HM Treasury and the regulators powers to set new rules in a wide range of areas. These include setting prudential standards to implement Basel III and the IFPR, creating a new Overseas Fund Regime, and overseeing the transition away from LIBOR. There are also changes to the regimes for PRIIPs, market abuse, EMIR and payments. 

What happens next?
The Bill was enacted on 29 April 2021.

Read our briefing for a summary of the Financial Services Act.

Read our paper on the UK Overseas Fund Regime. 

UK equivalence decisions

What is it?
A guidance document setting out more detail on the process and the principles that underpin the UK’s equivalence framework.

What does it say? 
The UK retained the EU’s equivalence framework at the end of the Brexit transition period. The guidance document reiterates the UK’s commitment to an outcomes-based approach to equivalence.

What happens next?
Nearly all equivalence decisions made by the EU were retained in UK law at the end of the Brexit transition period. The UK Government has also made equivalence determinations in favour of the EEA in some areas.

Read our briefing on the guidance document and the Chancellor’s statement on the future of UK financial services.

Review of the overseas framework

What is it?
HM Treasury is assessing the ways in which overseas firms can access UK financial markets to see if there is scope to make the overall framework for cross-border financial services more transparent, consistent and easier to navigate.

What does it say?
A call for evidence asks for industry input on how the different components of the UK overseas regime, including the overseas persons exclusion or OPE, are currently being used.

What happens next?
The consultation closed on 11 March 2021.

Read our summary of the call for evidence.

Wholesale Financial Markets Review

What is it?
HM Treasury is reviewing the rules which apply to wholesale financial markets.

What does it say?
HM Treasury has suggested wide-ranging changes such as removing the share trading obligation and double volume cap from the UK MiFID regime, revising the UK systematic internaliser and tick size regimes, and removing commodity position limits.

What happens next?
The consultation closes on 24 September 2021. The FCA will start consulting in the second half of 2021 on changes to its rules and guidance which are affected by the proposals.

Read our note on the key points from HM Treasury’s proposals.

Catch up on our webinar on the UK Wholesale Markets Review.

UK MiFID II Quick Fix

What is it?
The UK’s response to the EU’s “quick fix” changes to its MiFID II regime. 

What does it say?
FCA CP21/9 proposed changes to its rules on inducements relating to research and on best execution reporting. Other changes, e.g. to costs and charges disclosures and reporting obligations, have been made via legislation. 

What happens next?
The FCA consultation closed on 23 June 2021. Most of the legislative changes took effect on 26 July 2021. 

Read our briefing on the FCA’s consultation.

Read our note on the legislative changes.

Payments Landscape Review

What is it?
A review led by HM Treasury which is intended to ensure that regulation and infrastructure keeps pace with new payments models.

What does it say?
A call for evidence sets out the Government’s aims for payments networks in the UK, assesses how well the present system is operating and raises questions about the opportunities and risks that need to be addressed.

What happens next?
The call for evidence closed on 20 October 2020. HM Treasury is due to provide a summary of responses and set out next steps for the review.

Listen to our payments podcasts.

Fintech Strategic Review

What is it?
An independent review established by HM Treasury and led by Ron Kalifa OBE to identify ways for industry, policymakers and regulators to support the UK fintech sector.

What does it say?
The report sets out a five-point plan to ensure the UK can retain its position as a global leader in fintech. Recommendations include creating a “scalebox” to support firms beyond the initial start-up stage, changing listing requirements to make the UK a more attractive environment for fintech IPOs and establishing a new Digital Economy Taskforce.

What happens next?
The Government has said that it will back several Kalifa recommendations, including supporting the FCA in establishing a regulatory nursery to help firms beyond the initial start-up stage.

Read our 10 key takeaways from the Kalifa Review

Read our FintechLinks blog: UK to take forward Kalifa recommendations to boost fintech sector

Regulation of stablecoins and cryptoassets

What is it?
A consultation on regulating certain stablecoins and a call for evidence on the use of cryptoassets for investment purposes and the use of distributed ledger technology (DLT) in financial services.

What does it say?
HM Treasury has proposed expanding the regulatory perimeter to cover stable tokens used as a means for payment. Rules would then be applied in relation to specified activities relating to those tokens.

What happens next?
The consultation and call for evidence closed on 21 March 2021.

Read our FintechLinks blogpost for more on the UK’s plans to regulate stablecoins.

 

New regulatory regime for challenger banks

What is it?
A potential post-Brexit regulatory regime for smaller banks.

What does it say?
The PRA has published a discussion paper exploring the options for developing a simpler prudential framework for non-systemic banks and building societies. Its intention is to develop a “strong and simple” framework that is fully consistent with the Basel Core Principles for Effective Banking Supervision but simpler than the Basel standards that apply to large and internationally active banks.

What happens next?
The PRA plans to summarise the responses in autumn 2021 before consulting on proposed rules.

Read our note on how the PRA expects UK banks to move beyond base camp.

Approach to international firms

What is it?
The UK regulators have set out in more detail their approach for assessing overseas firms which seek authorisation in the UK.

What does it say?
According to the FCA’s approach paper an international firm seeking UK authorisation will need to demonstrate that it is “ready, willing and organised” and meets the FCA’s general expectations against certain “minimum standards”. The PRA’s paper provides guidance on what international banks need to do to meet the PRA threshold conditions for both branches and subsidiaries.

What happens next?

The FCA finalised its approach in February 2021 and the PRA finalised its approach in July 2021.

Read our briefing on the FCA’s finalised approach.

Review of the UK funds regime

What is it?
A review to identify ways to enhance the UK’s attractiveness as a place to set up, manage and administer funds.

What does it say?
A Call for Input focused on the UK’s approach to funds taxation and the regulatory framework for funds, as well as opportunities for wider reform such as the creation of a new Long-Term Asset Fund (LTAF) structure. The FCA has launched a consultation a new LTAF which would be an open-ended vehicle able to invest in assets such as venture capital, private equity, private debt, real estate and infrastructure.

What happens next?
The Call for Input closed on 20 April 2021. The FCA’s LTAF consultation closed on 25 June 2021.

Read our note on the future UK funds regime.

Read our overview of the FCA’s proposals for a new UK LTAF.

Solvency II review

What is it?
HM Treasury is reviewing certain aspects of UK Solvency II to ensure that it is properly tailored to take account the structural features of the UK insurance sector.

What does it say?
Following a Call for Evidence, HM Treasury agrees that changes may need to be made in areas such as risk margin, the matching adjustment, and calculation of the solvency capital requirement.

What happens next?
HM Treasury plans to consult on a package of reforms in early 2022. Before then the PRA will conduct a quantitative impact study to model different options.

UK Listings Review

What is it?
A review, published on 3 March 2021, which seeks to identify ways to make London a more attractive listing venue and appeal to new growth sectors, such as fintech and life sciences.

What does it say?
As well as longer term suggestions, the more immediate recommendations include permitting companies with dual class share structures to the premium list; reducing the free-float requirements; enhancing the current standard listing; removing barriers which currently exist for special purpose acquisition companies (SPACs); and other changes to reduce the amount of information which companies are required to disclose in their prospectuses in certain circumstances.

What happens next?
The FCA’s Primary Markets Effectiveness Review proposes changes to the Listing Rules. The consultation closes on 14 September 2021 and the FCA aims to adopt new rules before the end of 2021. HM Treasury is also consulting on proposals to streamline prospectus requirements.

Read our briefing on the FCA’s consultation on the effectiveness of primary markets.

Prospectus review: FCA to be front and centre of new regime.

AML review

What is it?
HM Treasury consultation and call for evidence on the UK’s anti-money laundering regime.

What does it say?
The consultation suggests targeted changes e.g. excluding some payment service providers from AML rules and introducing the travel rule for crypto-assets. The call for evidence asks for views on the overall effectiveness of the UK AML regime.

What happens next?
Both papers invite feedback by 14 October 2021.

Read our summary of the Treasury’s plans. 

Related client services

x Covid-19 Resource Hub