HM Treasury launched a consultation on Phase II of the Future Regulatory Framework Review, with the comment period ending on January 19, 2021. The second phase of the Review considers how the regulatory framework for financial services needs to adapt to be fit for the future, particularly to reflect the new position of UK outside the EU. The consultation proposes an overall approach to the regulation of financial services, built on the existing Financial Services and Markets Act 2000 (FSMA) model, which the government believes should form the foundation of the future regulatory framework. However, at this stage, it does not present a full package of proposals, which will be part of the second stage of Phase II.
The Future Regulatory Framework Review was established to determine how the overall approach to regulation of financial services needs to adapt to the new position of UK outside the EU and to ensure the regulatory framework is fit for the future. After focusing on the specific issue of coordination between the UK regulatory authorities in Phase I of the review, the government is now moving to Phase II, which will examine the broader regulatory framework for regulation of financial services in the UK. The government is conducting this phase of the review in two stages. This first consultation sets out an overall blueprint for financial services regulation, focusing on the split of responsibilities between Parliament, the government, and the financial services regulators. In doing so, it highlights the importance of ensuring appropriate and effective arrangements for accountability, scrutiny, and public engagement with the policy-making process, particularly in relation to the financial services regulators of UK. The government will carefully consider the responses received and use these to inform a second consultation in 2021, which will set out a final package of proposals and how they will be delivered.
The consultation seeks views on proposals and options for adapting the financial services regulatory framework following Brexit. This consultation focuses on how the FSMA model of regulation can be built on to provide a regulatory framework that makes the most of opportunities provided by Brexit and which will underpin a stable, innovative, and internationally competitive UK financial services sector far into the future. The consultation proposes a blueprint for the future regulatory framework which builds on the strengths of the FSMA model. This blueprint, which is referred to in this consultation as the post-EU framework proposal, has the following key features:
- It provides for a clear allocation of responsibilities between Parliament, HM Treasury, and the financial services regulators.
- Government and Parliament will be responsible for setting the policy framework for financial services regulation. This will include new policy framework legislation for specific areas of regulated activity that will give the government and Parliament the opportunity to set out the key public policy issues that must be considered when designing and implementing regulatory standards.
- PRA and FCA will be responsible for designing and implementing the regulatory standards that apply to financial services firms and markets using their existing rule-making powers in FSMA.
- PRA and FCA will be subject to enhanced transparency requirements obliging them to explain how they have had regard to the public policy issues set out by Parliament in activity-specific policy framework legislation.
- The cooperation and coordination arrangements that exist between HM Treasury and the financial services regulators will include more systematic consultation between these institutions at an early stage in the policymaking process.
Comment Due Date: January 19, 2021
Keywords: Europe, UK, Banking, Insurance, Securities, Brexit, Future Regulatory Framework, FSMA, PRA, FCA, HM Treasury
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