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24 May 2023

The Financial Services and Markets Bill – a "bonfire" of retained EU financial services law, or something less?

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The Government has recently announced that it had dropped plans to get rid of European laws by the end of 2023. The Retained EU Law (Revocation and Reform) Bill will be amended to remove a clause that would have scrapped any EU-derived laws that had not already been replaced, repealed, or integrated into UK domestic law by December.  

However, the position in relation to EU- derived "retained EU law" ("REU law") relating to financial services and markets will separately be dealt with in the Financial Services and Markets Bill which is currently making its way through Parliament.

It provides that the following legislation will be revoked:-

(a) specified retained direct EU legislation;

(b) specified subordinate UK legislation;

(c)  specified EU tertiary legislation and subordinate legislation made under an instrument referred to in (b);

(d) specified primary UK legislation;

The legislation under (a) includes for example Regulation (EU) No 600/2014 and Regulation (EU) 2016/1033 on markets in financial instruments (MiFIR),  Regulation (EU) No 596/2014  on market abuse (the Market Abuse Regulation), Regulation (EU) 2017/1129 on Prospectuses (the Prospectus Regulation) and Regulation (EU) No 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPS/KID). In addition, many statutory instruments implementing EU Directives and specifies under (b) are also to be revoked. Provisions made under specified EU Directives under (c) are also to be revoked such as Delegated Regulations, Commission Decisions, and Implementing Acts.

However, this is not quite the "bonfire" of EU laws as it might first appear.

First, only some limited parts of UK primary legislation enacting REU law are to be revoked under the Bill. The revocation of REU law will not extend to Acts of Parliament, except as to those limited provisions listed in Part 4, Schedule 1 to the Bill.

Second, the REU law which is to be revoked will also not be revoked immediately upon passing the Bill.  There is no set time limit unlike the Retained EU law Bill; It will continue to apply for a transitional period/until commencement of the revocation provisions. The HMT will in that period determine whether that REU law should simply be revoked without replacement, or whether to save or restate legislation that is currently REU law and/or modify any such legislation that is saved/restated. This will take time – it could be a long time. In the meantime, for example, Part 1 of Schedule 2 of the Bill makes proposed amendments to Regulation (EU) No 600/2014 on markets in financial instruments (MiFIR) during the transitional period before its final revocation. HMT would also have further powers to amend other REU law during the transitional period prior to revocation.

Furthermore, the Bill will not revoke REU law which currently forms part of the FCA/PRA’s handbook. There are many such rules.  Those rules can be updated by the FCA/PRA themselves under their rule-making powers under the Financial Services and Markets Act 2000. Revocation/amendment of any such rules as is deemed appropriate will involve the FCA or PRA drafting and consulting on any rules to replace those REU law provisions. This will again take time.

This all goes to show that the process of disentangling UK financial services regulation from the EU is very far from straightforward.  Matters may be simplified in the long term, but the transition from EU-promulgated laws to UK-derived financial regulation will be both complex and time-consuming.

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