Financial Services Future Regulatory Framework Review

1 Financial Services Future Regulatory Framework Review : Proposals for Reform November 2021 CP 548 Financial Services Future Regulatory Framework Review : Proposals for Reform November 2021 CP 548 Presented to Parliament by the Economic Secretary to the Treasury by Command of Her Majesty Crown copyright 2021 This publication is licensed under the terms of the Open Government Licence except where otherwise stated. To view th is licence, visit Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.

2 This publication is available at Any enquiries regarding this publication should be sent to us at ISBN 978-1-5286-2990-4 E02690955 11/21 Printed on paper containing 75% recycled fibre content minimum Printed in the UK by HH Associates Ltd. on behalf of the Controller of Her Majesty s Stationery OfficeStationery Office 1 Contents Foreword 2 Executive summary 4 Chapter 1 Introduction 10 Chapter 2 Consultation response overview 23 Chapter 3 Objectives and principles 30 Chapter 4 Relationship with HM Treasury 37 Chapter 5 Accountability to Parliament 44 Chapter 6 Stakeholder engagement and the policymaking process 48 Chapter 7 A comprehensive FSMA model 57 Chapter 8 Responding to this consultation and next steps 68 2

3 Foreword Financial Services is one of the UK s most vibrant, innovative and important industries. As Economic Secretary, my role is to deliver on the government s vision for an open, green, and technologically advanced Financial Services sector. A sector that is globally competitive and acts in the interests of communities and citizens, creating jobs, supporting businesses and powering growth across the UK. The UK s leadership and innovation in Financial Services goes back over 400 years: the first paper banknotes, the first regulated stock exchange, and even the first ATM.

4 And following the global Financial crisis in 2008, the UK was instrumental in driving the reforms to improve the global Financial system and has demonstrated an ongoing commitment to high Regulatory standards. Taking advantage of the UK s new freedoms now we have left the EU, the government wants to build upon our historic strengths to renew the UK s position as the world s pre-eminent Financial centre. The Future Regulatory Framework (FRF) Review will therefore play a critical role in delivering the vision for the sector set out by the Chancellor in his speech at Mansion House in July 2021.

5 The FRF Review provides a once-in-a-generation opportunity to ensure that, having left the EU, the government maintains a coherent, agile, and internationally-respected approach to Financial Services regulation that is right for the UK. The previous consultation on the FRF Review , issued in October 2020, received over 120 responses and has been the subject of significant engagement with stakeholders over the last 12 months. I am extremely grateful to everyone who engaged with the previous consultation, and would like to thank Parliamentary colleagues, market participants, consumer groups and other interested stakeholders for their enthusiastic response.

6 This consultation builds on the previous one, sets out the government s proposals for important changes to the UK s Financial Services Regulatory Framework , and seeks to build on the strengths of the UK s existing model of regulation established by the Financial Services and Markets Act 2000 (FSMA). The proposals include changes to the regulators statutory objectives and enhanced mechanisms for accountability, scrutiny and oversight of the regulators by Parliament, HM Treasury and stakeholders. It also sets out how we intend to return responsibility for designing and implementing Regulatory requirements to the UK regulators, a break from the approach under EU law.

7 3 This is an important moment for Financial Services regulation in the UK. I believe that these proposals will support our ambition to ensure that, at home and abroad, the UK s Financial Services sector is recognised as the most trusted and competitive in the world. I would urge all interested stakeholders to continue to share your views, and I look forward to further engagement on these important issues. John Glen MP Economic Secretary to the Treasury 4 Executive summary Overall approach 1.

8 The Future Regulatory Framework (FRF) Review was established to determine how the Financial Services Regulatory Framework should adapt to the UK s new position outside of the European Union (EU), and how to ensure the Framework is fit for the Future . In particular, the FRF Review provides an important opportunity to ensure that the UK maintains a coherent, agile, and internationally-respected approach to Financial Services regulation that delivers appropriate protections and promotes Financial stability.

9 2. The current model of regulation was introduced by the Financial Services and Markets Act 2000 (FSMA). The FSMA model delegates the setting of Regulatory standards to expert, operationally-independent regulators, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), that work within an overall policy Framework set by government and Parliament. 3. The FSMA model was adapted to address the Regulatory failings that contributed to the 2007-08 global Financial crisis. The Financial Services Authority was split into the PRA and the FCA.

10 The FCA was given the strategic objective to ensure that the relevant markets functions well. The PRA was given the general objective to promote the safety and soundness of PRA-authorised persons. In addition, there were reforms to the Bank of England, most notably the creation of the Financial Policy 4. The government believes that this model remains the most appropriate way to regulate Financial Services in the UK. It ensures that the regulators real-world, day-to-day experience of supervising Financial Services firms is central to the Regulatory policymaking process.