Sunday, December 10, 2017 02.18PM / IRSG
A
new report by the International Regulatory Strategy Group (IRSG) in
collaboration with Linklaters, urges a review of the UK’s rule making system
for financial services post-Brexit
The
report, ‘The architecture for
regulating finance after Brexit’, argues that Brexit will require the UK to
update its regulatory structure for financial services, creating new checks and
balances to ensure the system remains proportionate, coherent and fit for
purpose.
Its
four main areas of recommendations for review following the return of EU
regulatory powers to the UK include:
1. The powers and resources of UK regulators, including how any significant
policy decisions are reached, and how regulators can be better resourced to
achieve their objectives.
2. Framing the responsibilities of regulators to make sure regulation continues
to be at the forefront of global standards while also remaining flexible and
adaptive to market needs.
3. The scrutiny and oversight of regulators, how they interact with Parliament,
key stakeholders and the public.
4. The legislative and regulatory process, including consultation and review
mechanisms, as well as an assessment of areas for consolidation and
simplification.
When
the UK leaves the EU, rulemaking powers currently jointly exercised by the
European Parliament and Member States through the Council of Ministers and
responsibilities from the European Supervisory Authorities (ESAs) and other EU
institutions will be transferred to the FCA and the Bank of England. This will
create a new balance of power which poses important questions around political
scrutiny and engagement with industry and customer groups.
The
IRSG urges the UK to prioritise these questions as the EU Withdrawal Bill moves
its way through Parliament. Processes need to be put in place for making and
implementing financial regulation remain robust, trusted and effective.
While
these will not be decisions for day one of Brexit, the IRSG suggest they will
be vital for long-term financial stability – balancing public policy objectives
and the continued success of the UK-based financial and related professional
services industry.
The
IRSG is very clear that it does not want to see significant changes to
regulation itself, nor a lowering of the UK’s globally renowned high standards
of regulation. Its priority is to ensure that the UK regulatory system is fully
equipped for the task ahead, taking a flexible and innovative approach to rule
making and striking the right balance between different public policy
considerations.
Mark
Hoban, Chair of the IRSG, and former Treasury Minister, said:
Whatever
the outcome of the Brexit negotiations, the UK will continue to need an
effective and internationally respected structure for financial regulation. We
believe the system we have is already very good, but it will need to be updated
to meet the challenges of Brexit. It must continue to be independent, but also
subject to appropriate checks and balances to keep it accountable and
responsive. In order to maintain the UK’s well-respected and globally leading
regulatory regime, it must have sufficient flexibility to anticipate and
respond to market developments and innovations.
Lucy
Fergusson, Partner, Linklaters, said:
Leaving
the EU means that the UK’s financial regulators will be operating in a
different context and it is essential that the UK’s regulatory architecture
remains robust and fit for purpose after Brexit. When the UK withdraws from the
EU, it will be able to choose whether to amend, retain or remove EU-derived
regulation. Such policy choices will of course be affected by the terms of any
future relationship with the EU. In any case, the UK institutions will inherit
new powers and responsibilities.
Julian
Adams, Group Regulatory & Government Relations Director, Prudential plc and
project chair, said:
Brexit
is both a challenge and an opportunity, in financial services regulation as in
other areas. The challenge is to ensure that the process of leaving the EU does
not weaken or upset the balance of our regulatory architecture. The UK will
continue to have a strong regulatory framework after Brexit, and the report is
clear that the industry does not want to see a 'race to the bottom'. But given
the disruption involved in Brexit, it would be a missed opportunity not to take
a hard look at the framework and ask whether it is right for the UK. Whatever
options are taken, the regulators are almost certain to end up with increased
powers, and these should be matched by stronger scrutiny and accountability, to
parliament and public.
The
report comes as Parliament continues to debate the EU Withdrawal Bill, which is
critical to providing continuity and certainty as the UK leaves the EU. While
legislation under the Bill is unlikely to fully address the issues discussed in
the report, the IRSG sets out the main challenges and provides a menu of
available solutions once there is more clarity on the future UK/EU
relationship.

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