Building the UK’s post-Brexit financial services regime – an update

On 22 March 2024, HM Treasury published a report, "Building a Smarter Financial Services Regulatory Framework: Next Phase" (the Report). Among other things, this signals the start of the next phase of its work, which will include developing the UK regimes for AIFMD, UCITS and, in part, EMIR and MiFID. It's notable, though, that the Report is silent on when this work will get underway, let alone when the results of it will be known.

What's the background?

As we reported at the time, HMT's Delivery Plan, published in July 2023, set out the Government's approach to repealing financial services-related EU law (known as REUL), which had been retained by the UK in the aftermath of Brexit.

HM Government (HMG) identified 777 such pieces of law which needed to be reviewed - these were split into tranches, each to be dealt with in turn.

What's been done so far?

The Report notes that, as of February 2024, 344 instruments (i.e., 44% of the laws) have now been repealed, either

• because they were no longer needed post-Brexit (for example, the EU's ELTIF Regulation, where the fund structure it regulates is now obsolete with the UK's Long Term Asset Fund (LTAF) in place) or
• they had been preserved through the Financial Services and Markets Act 2023.

At the same time, several key regulations - including Solvency II, the Prospectus Regulation, Data Reporting Services Regulations, and the Securitisation Regulation - have been replaced or are in the process of being so.

HMG expects the FCA and PRA to make rules to replace some of the EU Regulations and pieces of UK legislation that implemented EU Directives, with stakeholders having the opportunity to engage through the usual consultation process. Once the regulators' rules are ready, HMG will then repeal the relevant pieces of assimilated law.

Draft secondary legislation has also been published for feedback, which will replace (a) the Short Selling Regulation, (b) the PRIIPs Regulation and (c) the MMF Regulation. This allows the UK to replace such regimes with a new UK-tailored framework.

Final legislation will be put before Parliament "in due course", when parliamentary time allows.

What happens next?

HMG is now reviewing assimilated law in order to prioritise policy reform, focusing on "complex policy files and those with significant economic benefits".

Tranche 3 of its work will include reviews of

• the AIFMD
• the UCITS Directive
• EMIR (beginning with Titles III, IV and V relating to Central Counterparties) and
• MiFID (considering the MiFID Org Regs (Organisational requirements and operating conditions for investment firms) and provisions in the Markets in Financial Instruments Regulations that relate to Transaction Reporting.

However, due to the significance and size of some of these files, the government intends to adopt a multi-staged approach to reviewing and replacing them.

What does this mean in practice?

For each area, HMG will undertake a policy review (where necessary) to determine

• what aspects should be retained in legislation and
• the respective future roles of HMT and the UK regulators.

HMT will also review the 2019 and the 2020 Equivalence Determinations Regulations to ensure that on-shored equivalence decisions are in scope of the new Deference Accountability Mechanism in FSMA 2023.

This means that, when notified by HMT, the UK regulators must consider the effect of any proposed rules and general supervisory policies and practices on UK deference arrangements. The Report notes that HMG will take "all necessary steps to ensure that this process won't reopen or change the practical effects of existing equivalence decisions".

To help stakeholders keep track of developments, HMG will use existing communication platforms, such as the Regulatory Initiatives Grid,  and the HMG Smarter Regulatory Framework webpage, which contains links to the latest policy papers and SIs which have been published in draft for technical feedback.