HM Treasury has published a consultation paper relating to Phase II of its Financial Services Future Regulatory Framework Review.
The consultation marks the launch of the second phase of the Future Regulatory Framework (FRF) Review, which considers how the regulatory framework for financial services needs to adapt to be fit for the future, in particular to reflect new position outside of the EU. In doing so, the key aim is to achieve an agile and coherent approach to financial services regulation in the UK, with appropriate democratic policy input to support a stable, innovative and world leading FS sector.
The consultation will therefore propose 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:
- 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 which 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.
- The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (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. This approach will maximise the use of expertise in the design of regulatory standards and ensure those standards can be flexed and efficiently updated to address changing conditions and emerging risks. As much as possible, this should result in one coherent source of regulatory requirements for firms – the regulators’ rulebooks. This will involve the transfer of regulatory requirements in on shored legislation to the regulators. It will also offer an opportunity to review and rationalise some areas of non-EU derived financial services legislation.
- The 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. This will provide Parliament with a clearer basis on which to scrutinise the work of the regulators and will support effective engagement with regulator proposals by firms and members of the public.
- 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. In particular, this will allow Treasury Ministers, who have overall responsibility for financial services policy in the UK, to consider regulator rule proposals and feed in views to the regulators’ policy development process before proposals are finalised for consultation.