Chancellor reaffirms UK move towards a 'smarter regulatory framework'

A week after the Financial Services and Markets Bill achieved Royal Assent, the UK chancellor of the exchequer, Jeremy Hunt, delivered his first Mansion House speech on 10 July setting out a package of regulatory reforms aimed at improving the competitiveness of the UK financial sector.

Alongside a focus on pensions and listing regime reform, the speech also namechecked the Financial Services and Markets Act 2023 and the government's plans for a "smarter regulatory framework", building on the changes introduced by the Edinburgh Reforms in December 2022.

Smarter regulation

HM Treasury is undertaking a programme of secondary legislation to replace retained EU financial services law in order to deliver a "smarter regulatory framework" for financial services that is tailored to the UK in the post-Brexit era. A delivery plan, published by HM Treasury a day after the chancellor's speech, set out progress so far, together with a forward look at expected timelines.

Legislation for reform includes the Securitisation Regulation, the Insurance Distribution Directive, the Short Selling Regulation, the Capital Requirements Regulation and Capital Requirements Directive, as well as the regimes governing payment services and e-money. The project is being undertaken in phases to allow industry time to plan ahead and is expected to take a number of years. As of yet, there is no firm end date to when the full regulatory framework is set to be implemented.

Post-Brexit initiatives

The Mansion Houses speech also highlighted specific initiatives supporting the transition to the UK's post-Brexit regulatory framework, including:

• Repealing almost one hundred "unnecessary" pieces of retained EU financial services law, including the European Long-Term Investment Fund Regulation (replaced by the UK's homegrown Long-Term Asset Fund) and parts of the Payments Accounts Regulations relating to consumer information requirements.
• The publishing of draft secondary legislation which will tailor the regulation of securitisation to the UK.
• The publishing of the government’s response to the call for evidence on reform of the Short Selling Regulation and plans for a follow-up consultation on aspects of the Short Selling Regulation related to sovereign debt and credit default swaps.
• The publishing of the government’s response to the consultation on replacing the Packaged Retail and Insurance-based Investment Products Regulation with a new tailored UK retail disclosure regime.

Payment services reforms

The chancellor highlighted the government's intent to enhance the UK's position in the global payments industry. With a view to remaining at the forefront of payments technology, the government has launched an independent review into the future of payments, chaired by Joe Garner, the former chief executive of the Nationwide Building Society, with an express goal to help deliver "the next generation of world class retail payments". Industry players are encouraged to participate in the review by responding to the call for input that closes on 1 September 2023.

The government will also extend the powers of the Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR) to allow them to fill gaps left by repealed EU law. An FCA consultation is expected on the payments and e-money regime – the FCA has confirmed that it is working on aspects of the regime such as new safeguarding and prudential rules, changes to oversight of agents, and possible extensions of the Financial Services Compensation Scheme and the Senior Managers and Certification Regime.

Reform of the Consumer Credit Act

Under the banner of the Mansion House reforms, the government has published its consultation response on the reform of the Consumer Credit Act 1974. Following widespread support, the government will move forward with overhauling the Consumer Credit Act 1974, primarily by repealing much of the legislation and recasting it as rules in the FCA Handbook, although there may be specific aspects of consumer credit regulation that warrant legislative-based provisions.

The government welcomes further participation from industry stakeholders and aims to publish a second stage consultation in 2024 on its more detailed proposals. Due to its scale and complexity, this project is expected to take a number of years to deliver.

Investment Research Review response

As part of an independent review into financial services investment research, a series of recommendations have been made to the government and the FCA, with the goal of increasing the competitiveness of UK capital markets. The recommendations, which include allowing greater access to investment research for retail investors and creating a bespoke regulatory regime for investment research, have been accepted by the government. The direction of travel would loosen the EU-derived MiFID II restrictions on bundling investment research with paid-for services, mirroring the EU's own approach.

In its response, the FCA indicates that it will engage with the market and, following an accelerated consultation process, aims to make rules to facilitate the recommendations by H1 2024.

Osborne Clarke comment

The Mansion House speech covered a lot of ground and offers a helpful status update on the scale of the project to establish a post-Brexit regulatory regime. Much of the detail remains to be worked out, including the extent to which any policy decisions will diverge from EU-level legislation.

The industry will want the opportunity to offer its input into the reforms to ensure that changes that are made are worthwhile and work for businesses and customers. The other key element will be to future proof the changes as much as possible, to ensure that the use of newer technologies, such as artificial intelligence, can be accommodated.

Against a backdrop of economic and political uncertainty, this year's Mansion House speech held few surprises, but demonstrated the government's continuation of the 2022 Edinburgh Reforms, with the more significant reform projects still expected to take years to complete.

Adam Rutledge, a Trainee Solicitor with Osborne Clarke, contributed to this Insight.