The Treasury Select Committee is planning an inquiry into the future of financial regulation following the UK’s departure from the European Union (EU) in March 2019, with the sector set to have its say on the framework.
It coincides with plans at the Financial Conduct Authority (FCA) – which is set to be handed a raft of new powers post Brexit – to rework its rules handbook to fit the UK’s regulatory priorities when the country leaves the EU.
Speaking at the Personal Investment Management & Financial Advice Association (PIMFA) summit last week, Nicky Morgan MP, who chairs the committee, said following the UK’s exit from the EU her team will be launching an “inquiry into post-Brexit financial services”.
Morgan (pictured) said: “The story of the next 40 years of this country, with regard to its future relationship with the EU, is going to be whether we converge, seek equivalence, or choose to diverge and go our own way.”
Her comments came shortly before reports emerged of a financial services trade deal being agreed between the UK and EU, which could see UK firms retain access to EU markets on the basis of regulatory ‘equivalence’. However, at press time no details of the deal had been revealed and the government was yet to confirm the reports.
Jake Green, a financial regulatory partner at law firm Ashurst, explained any deal of this kind “is presumably a negotiated version of the Chequers agreement” and therefore “must be subject to resolving the other remaining issues”.
He added: “It is doubtful whether the EU will give the UK ‘equivalence plus’ outside a broader trade deal. As ever, the devil will be in the detail. So will this, for example, include services or just market access and will it include new business and retail?”
Morgan had explained the new inquiry will lean heavily on input from financial services firms, from which the Treasury Committee will ask for opinions or evidence on “what should be and should not be equivalent” to EU standards post Brexit.
She added: “More power is going to come back to the regulators from the EU and there will be a period where [the industry] can have a view on how the regulator is proposing to use that power and its impact.”
Close regulatory alignment
For its part, the FCA has been clear it wants to maintain close regulatory alignment and equivalence with the EU post Brexit, in order to preserve open financial markets and consumer protection standards.
Reiterating this position, acting director of strategy at the FCA Richard Monks, who was also speaking at the PIMFA summit said: “We want a permanent arrangement post Brexit to seek close alignment with the EU without the UK being a rule taker. We will avoid any race to the bottom or a bonfire of rules.”
However, Monks added Brexit offers the FCA an opportunity to alter regulatory standards that have not worked for the UK market, such as PRIIPs, where the impact is currently being reviewed by the regulator.
He said: “We want to tailor our system to the particular features of our markets. We want the ability to change and adapt our system as markets change and amend the rules when they don’t quite work as intended.”
Monks also confirmed the regulator will be using Brexit as an opportunity to reassess its handbook, which outlines its regulatory expectations for firms.
He said: “The world has changed very significantly since the handbook was designed over 20 years ago.
“Regulatory coverage now covers many more sectors, many crises have come and gone, we have implemented many directives.
“Even though individual initiatives may have been well-intentioned, the constant change has impacted the overall quality and efficiency of regulation.
“Changes are often patched onto an existing framework, which becomes more and more complex and incoherent. Handbooks left unchecked simply grow and grow.”
Monks added that while he could not be specific about the timing or scale of the review, it will take place post Brexit and will depend on “a very open discussion with industry in terms of what the handbook should look like and what the priorities should be”.
Specifically, Monks explained, the review will deal with “practical and strategic questions”, as the regulator seeks to “reduce compliance costs… while retaining the same central requirements”, and ensures the handbook fully reflects its mission statement.
He added: “As we leave the EU we may have choices to make about how we achieve optimum regulatory outcomes.”
Commenting on the regulator’s plans for its rulebook, chief executive of PIMFA Liz Field said: “There will not be a diluted regulatory framework, especially as our status as the second largest wealth management sector in the world depends on it post Brexit.
“But we will be lobbying for a proportionate and appropriate rulebook that works for all of our members and their clients.”