Brexit forces review of UK regulatory structures
Source: Middle East Insurance Review | Jan 2018
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:
- 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;
- 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;
- The scrutiny and oversight of regulators, how they interact with Parliament, key stakeholders and the public; and
- 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 report said.
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 suggests 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.
The report came 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. M