Beyond Brexit

Issue 1135 / 11 November 2021

HM Treasury

Future Regulatory Framework Review - HM Treasury publishes consultation paper - 9 November 2021

HM Treasury has published a further consultation paper on the Future Regulatory Framework (FRF) Review, which proposes changes to the UK’s financial services regulatory framework under the Financial Services and Markets Act 2000 (FSMA). The FRF Review was first announced by the then Chancellor in his June 2019 Mansion House speech, and was established to determine both how the financial services regulatory framework should adapt to the UK’s new position outside of the EU and how to ensure the framework is fit for the future.

The consultation provides feedback to and builds on HM Treasury’s Phase II consultation on the FRF, published in October 2020. It centres around three themes: regulatory responsibility for rule-making, regulatory accountability, and an update to the regulators’ objectives and principles.

(i) Regulatory responsibility for rule-making

Signalling the government’s intention “to move to a comprehensive FSMA model of financial services regulation”, the paper sets out proposals for the financial services regulators to take responsibility for setting many of the direct regulatory requirements which are currently set out in retained EU law. Direct regulatory requirements are the obligations that firms must follow; the regulators themselves must operate within the framework set by Parliament and the government.

This process will involve revoking retained EU law over a number of years in a manner that maintains continuity, and replacing this repealed law with regulatory rules. The creation of a new ‘Designated Activities Regime’ (DAR), which will enable the regulation of certain activities outside the FSMA authorisation process (such as those under the Short Selling Regulation (236/2012/EU)), is also proposed. The DAR will mirror the existing approach for the Regulated Activities Order, although the regime will be more limited. The government also proposes to have an ability to set specific “have regards” for considerations which the regulators must take into account when exercising their rulemaking powers in specific areas of regulation, and is considering granting the Bank of England (the Bank) a general rulemaking power in relation to central counterparties and central securities depositories.

(ii) Regulatory accountability

Meeting this enhanced responsibility for UK regulators, the consultation paper also includes a number of proposals for enhanced mechanisms for accountability, scrutiny and oversight of the regulators by HM Treasury, Parliament, and stakeholders. These include, among other things:

  • proposals to formalise through statute the mechanisms through which regulators provide information to Parliament;
  • a new requirement for the PRA and the FCA to respond to the recommendation letters issued by HM Treasury; and
  • a new power for HM Treasury to require the regulators to review their existing rules where the government considers that this is in the public interest.

(iii) Regulators’ objectives and principles

Finally, the consultation paper outlines the government’s approach to updating the regulators’ objectives and principles. In particular, it proposes:

  • the addition of new growth and international competitiveness as secondary objectives for the PRA and the FCA in order to ensure that the regulators’ objectives reflect the need to support the long-term growth and international competitiveness of the UK economy; and
  • that the regulatory principle that currently requires the PRA and the FCA to take into account the desirability of sustainable growth in the economy in the UK in the medium or long-term should be updated to reference climate change and a net zero economy.

The consultation closes on 9 February 2022.

Consultation: Financial Services Future Regulatory Framework Review: Proposals for Reform


The Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2021 (2021 No. 1252) - 11 November 2021

HM Treasury has amended the Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019 (SI 2019/589) (the Regulations). The amendment to the Regulations extends the provisions of The Financial Services and Markets Act 2000 (Gibraltar) Order 2001 (SI 2001/3084) (the Gibraltar Order), which enables Gibraltar-based firms to provide financial services in the UK, by one year to 31 December 2022. This will prevent a sudden loss of market access for these firms while a long-term proposal is developed.

The amendment will come into force on 15 December 2021.

The Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2021

Explanatory Memorandum

Bank of England

EMIR - The Bank of England consults on approach to ‘tiering’ non-UK CCPs - 8 November 2021

The Bank of England (the Bank) has published a consultation paper and draft statement of policy on the Bank’s approach to ‘tiering’ non-UK central counterparties (CCPs) based on the level of systemic risk they could pose to UK financial stability under Article 25 of the UK European Market Infrastructure Regulation (648/2012/EU) (EMIR).

The proposals follow the Bank acquiring new powers following the UK’s withdrawal from the European Union. Currently, non-UK CCPs can provide services in the UK under a temporary recognition regime. To continue providing services in the UK after the regime expires, non-UK or ‘incoming’ CCPs will need to be recognised by the Bank under the onshored UK EMIR.

Under the Bank’s tiering proposals, incoming CCPs will be assessed to establish if they might pose systemic risks to the UK, following which they will be classified as either Tier 1 or Tier 2. Tier 1 CCPs will remain under home authority supervision, while Tier 2 CCPs are required to meet specific UK standards under onshored EMIR and can be subject to direct supervision by the Bank. There may, however, be specific regulatory provisions for which Tier 2 CCPs can be granted ‘comparable compliance’, and the UK can defer its supervision to the home authorities.

As such, the Bank has published a complementary consultation paper and draft statement of policy regarding its proposed approach to granting comparable compliance to Tier 2 CCPs. Under EMIR Article 25a(1), a Tier 2 incoming CCP may submit a reasoned request that the Bank assesses whether its compliance with the applicable home regime means the CCP may be deemed to satisfy compliance with certain EMIR requirements (Article 16, Title IV and Title V). The purpose of the consultation paper is to set out the Bank’s approach to how it would assess such a request.

Both consultations will close on 25 February 2022, and it is proposed that the implementation date for the final policies will be 1 July 2022.

Consultation Paper: Bank of England’s approach to tiering incoming central counterparties

Press release: Bank of England’s approach to tiering incoming central counterparties

Consultation Paper: Bank of England’s approach to comparable compliance under EMIR Article 25(a)

Press release: Bank of England’s approach to comparable compliance under EMIR Article 25(a)

European Commission

CCP equivalence - European Commission publishes statement on extension of UK-based CCP equivalence - 10 November 2021

The European Commission has published a statement from Mairead McGuiness, Commissioner for Financial Services, Financial Stability and Capital Markets Union, relating to proposed next steps for central clearing following Brexit.

The Commission will propose an extension of equivalence for UK-based central counterparties (CCPs) in early 2022. This follows its conclusion that the current timeframe of ending equivalence in June 2022 is too short, as it would not allow the EU enough time to develop its own clearing capacity.

The statement also includes the Commission’s plan to develop measures which build EU capacity, for example by enhancing liquidity of EU-based CCPs and expanding the range of clearing solutions, and to strengthen the supervisory framework for EU-based CCPs. These measures aim to make EU-based CCPs more attractive, thus facilitating a shift away from the current over-reliance on UK-based CCPs.

The Commission concludes that this proposal “strikes a balance between safeguarding financial stability in the short term, which requires taking an equivalence decision to avoid a cliff-edge for EU market participants - and safeguarding financial stability in the medium term, which requires us to reduce this risky over-reliance on a third country.

Press release