The UK government is consulting on proposals which would give the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) sweeping new powers to set rules replacing EU law.
The Future Regulatory Framework (FRF) Review: Proposals for Reform consultation from HM Treasury (HMT) sets out government plans for adapting the UK regulatory framework for financial services post-Brexit.
The government said the changes would ensure regulation remains fit for the future and would reflect the country’s position outside the EU. The consultation closes on 9 February.
According to the consultation document, while government makes clear that the current Financial Services and Markets Act 2000 (FSMA) model delegating the setting of regulatory standards to the PRA and the FCA remains the most appropriate way to regulate financial services in the UK, it intends to introduce new statutory secondary objectives for these regulators.
This will include a move to a more comprehensive FSMA model of financial services regulation – meaning financial services regulators will take responsibility for setting many of the rules firms are expected to follow currently set out in EU law.
Treasury added that transferring these powers to regulators will require it to gradually repeal significant amounts of EU law so regulators can replace it with appropriate regulatory requirements in their own rulebooks.
HMT also plans to broaden regulators’ powers to cover all areas of financial services regulation currently in EU law where necessary.
It is expected that regulators will initially replace the repealed provisions with rules that are similar to those currently in place.
However the government says the new approach will allow regulators to ensure the rules are properly tailored for the UK markets, and appropriately reflect their objectives and mean they can be more efficiently updated in the future, for example to take account of new global standards or new business models.
Treasury conceded the changes will be a “significant undertaking” and is likely to take several years.
The rules also propose stronger engagement mechanisms between HM Treasury and the regulators through a new requirement for the PRA and the FCA to respond to recommendation letters issued by the Treasury, and for the Treasury to require regulators to review their existing rules where the government considers that it is in the public interest.