The UK Government is proposing widespread changes to its financial services (FS) regulatory system, having set out its “Edinburgh Reforms” in December, aimed at making the UK FS sector “open, sustainable and technologically advanced”. The package represents the most significant and extensive package of regulatory change since the UK left the EU. It builds on the reform agenda that the Government is taking forward via the Financial Services and Markets Bill (FSMB), expected to become law in Spring 2023.
We see the package as a collection of diverse initiatives – some of which may be significant and far-reaching – rather than a cohesive whole. The list of reforms is lengthy, made up of around 30 items of correspondence, draft policy papers and other announcements. However, it does not yet amount to a detailed blueprint for the future of UK FS regulation. In many areas, the Government has deliberately not yet set out concrete proposals but has instead launched a series of consultations and calls for evidence.
The absence of detail in many of the reforms has given commentators a blank canvas – some have painted a picture of widespread deregulation and a significant weakening of the post-crisis regulatory framework. Our view is that, in many cases, it is too early to tell. We will have to wait and see what emerges from the consultations and subsequent legislative and rule-making processes. This will take time, and the impacts are unlikely to filter through to firms’ day-to-day operations in 2023. Some of the potentially most significant changes will only emerge at end-2024, while others will likely stretch beyond the next General Election.
One element of the package takes immediate effect – the new recommendations letters for the Financial Conduct Authority and Prudential Regulation Authority. These reinforce the importance the Government attaches to the regulators facilitating the competitiveness of UK financial markets – anticipating the secondary objectives in the FSMB – and supporting economic growth. As they stand, the reforms address some opportunities for growth, but the UK will have to strike a delicate balance in terms of consistency with international initiatives. For example, the digital assets initiatives are largely as expected and deliberately do not pre-empt the Financial Stability Board’s efforts to establish global standards.
The package coincides with ongoing major regulatory change programmes, including the Consumer Duty, new bank and insurance capital regimes and new sustainable finance regulations. There is more to come this year, including a Green Finance Strategy and consultations on digital assets. We expect the regulators to press ahead with these major initiatives, but we may see some reprioritisation of others.
Read our summary and initial assessment of the FS regulatory reform elements of the Edinburgh Reforms.