UK Post-Brexit reform: Financial Services Bill introduced

 Background

On 21 October, the Financial Services Bill (FS Bill) was introduced to Parliament.  Forming part of the Government’s wider Future Regulatory Framework (FRF) initiative, the FS Bill is the first step towards HM Government’s objective of maintaining the competitive position of the UK financial services industry and capitalising on new opportunities following the end of the Brexit transitional period.

As an initial step, the FS Bill proposes a limited number of measures, a number of which are aimed at avoiding functional issues with rules introduced during the UK’s membership of the EU.  More significant reforms are expected in due course as part of the FRF.

Objectives and key measures

The main objectives of the FS Bill, and key measures proposed to achieve those objectives, are:

1. Enhancing the UK’s prudential standards and promoting financial stability

• Implementing the remaining Basel 3 standards and Investment Firms Prudential Regime (IFPR).
• Clarifying and extending the FCA’s powers to ensure the wind-down of the LIBOR benchmark.
• Extending the transitional period for the use of third country benchmarks to 2025, avoiding the risks associated with the sudden loss of access by UK users .

2. Promoting openness between the UK and overseas markets

• Introducing an Overseas Funds Regime, which will provide equivalence for retail investment and money market funds, enabling easier access to overseas funds for UK consumers.
• Updating the MiFIR regime, which regulates the activities of third country investment firms in the UK, following an equivalence decision. This will ensure the FCA has an appropriate degree of oversight over firms registering under the regime.

3. Maintaining the effectiveness of the financial services regulatory framework and sound capital markets

• Amending the Market Abuse Regulation to enhance the effectiveness of the regime and reduce some of the administrative burden on issuers. Criminal penalties for market abuse will be increased.
• Completing the implementation of the EMIR REFIT, to ensure that clearing members and those offering clearing services do so on a fair, non-discriminatory and transparent basis. The measures also aim to improve the quality of trade repository data and make it easier for firms to switch between trade repositories.
• Amending the Banking Act 2009 in relation to the Financial Collateral Arrangement Regulations to ensure they are on a sound statutory footing.
• Amending the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation, to enable the FCA to make clarificatory rules regarding its scope and remove reference to performance scenarios. HM Treasury will be given the power to extend the current exemption for UCITS funds.

The second reading of the FS Bill in the House of Commons will take place on 9 November 2020.

For a more detailed overview of some of the key provisions in the FS Bill, please see our Introduction to the Financial Services Bill briefing.