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05 Oct 2023

The new Financial Services and Markets Act 2023 provides for the revocation of swathes of EU-retained law relating to financial services and markets

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In this article, we highlight the proposed approach of the FCA in relation to this monumental task of replacing those EU rules with new, UK-focussed domestic requirements.

A recent FCA publication entitled "The post-Brexit Handbook: a collective opportunity" sets out how the FCA proposes to replace a mountain of retained EU regulation in relation to financial services.

Greg Sachrajda, FCA Co-Director on Cross-Cutting Policy and Strategy, Supervision, Policy and Competition, highlights that the regulator is working on what a UK financial services rulebook outside of the EU will look like – "and we want you to get involved."

He identifies the passage of the Financial Services and Markets Act 2023 ("the 2023 Act") as a great opportunity for the FCA, together with other regulators, "to get down to the details of what a UK financial services rulebook outside of the EU is going to look like."

It is a useful reminder that Section 1 of the 2023 Act provides for the revocation of swathes of EU law relating to financial services and markets previously retained under of section 4 of the European Union (Withdrawal) Act 2018 ("the EUWA"). This will only take effect under HM Treasury Statutory Instruments and those EU-derived rules will largely need to be replaced in original or modified form by way of new, domestic FCA rules.

The FCA say that how they regulate – "the very building blocks of how we do what we do" - is being refined and expanded as a result of the 2023 Act.

The 2023 Act also includes a new secondary objective on international competitiveness and growth, namely "facilitating, subject to aligning with relevant international standards –

(a) the international competitiveness of the economy of the United Kingdom (including in particular the financial services sector), and

(b) its growth in the medium to long term.”

The FCA say the 2023 Act means that they can now write new rules "more suitable for UK markets and consumers" but add that "we're not simply going to rip everything up and start again." The FCA say there will be some areas that will require changes because they are not working well for the UK, and in order to make those parts of their markets work better.

However, the FCA say other aspects of the regime inherited from the EU continue to work well and FCA are they are also mindful of the amount and pace of change that regulated firms and market participants can absorb. Accordingly, they will not " try to change everything all at once."

The FCA talk of balancing the opportunity to tailor the UK’s regulatory regime to its unique markets and the potential burden of change and disruption to industry.

There are "several thousand pages" of Retained EU legislation to get through, but the FCA say they are committed to excellent engagement with stakeholders, not least financial services firms and consumers, to ensure meaningful involvement and consultation on the changes. This will involve engaging earlier, through both formal and informal channels, asking that stakeholders take every opportunity to share their views to help shape the future of financial services regulation in the UK.

They add that they want their Handbook to be clear and accessible, reducing regulatory burdens where appropriate.

To achieve this, they will be applying the following principles:

  • bringing together regulatory provisions so that the Handbook becomes a "one-stop shop"
  • using the existing structures in the Handbook where possible, and only creating new sourcebooks where necessary
  • relying on existing requirements as much as possible
  • considering outcomes-based regulation, where appropriate
  • seeking to reduce complexity by drafting in our Handbook format and style where we can, and aiming to align standards addressing similar issues where possible

Set out below are some of the more familiar pieces of direct and indirect EU law that will be revoked, restated, replaced etc.

EU Regulations:-

  • Short selling regulation (236/2012)
  • European market infrastructure regulation (648/2012)
  • Market abuse regulation (596/2014)
  • MiFIR (600/2014)
  • Benchmarks regulation (2016/1011)
  • Prospectus regulation (2017/1129)
  • Sustainability-related disclosures regulation (2019/2088)
  • Capital requirements for credit institutions and investment firms regulations (575/2013, 2017/2401, 2019/630 and 2019/876)
  • Interchange fees regulation (2015/751)
  • PRIIPS KID products regulation (1286/2014)

Provisions under EU Directives:-

  • MiFID II directive (2014/65)
  • Capital requirements for credit institutions and investment firms directives (2013/36 etc.)
  • Prudential supervision of investment firms directive (2019/2034)
  • Electronic money directive (2009/110)
  • Payment services directive (2015/2366)

Over 200 UK statutory instruments implementing EU legislation are also in scope.

Commentary

This is likely to be a monumental task, even if much of the revoked legislation is largely repeated in domestic rules. Firms will also have to take account of this new rule-making, having previously spent years adapting to EU rules.

At the same time, this potential for divergence does present an opportunity to dispense with or refine EU provisions that are deemed imperfect or unsuitable for UK markets. The greater the divergence though, the less likely that there will be "equivalence" under the EU’s equivalence decision framework.

These materials are for general information purposes only and are not intended to provide specific legal advice nor to be a comprehensive review of all developments in the law and practice, nor to cover all aspects of those referred to. Please take legal advice before applying anything contained in these materials to specific issues and transactions.

Author: David Capps

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