Your Regulatory In Tray
At the very end of 2022 a package of reforms to UK financial services was announced by the Chancellor. Called the “Edinburgh reforms” they aim to shake up financial services regulation, removing barriers to innovation and performance within the sector.
There are over 30 proposals within the reforms, with the following being the main takeaways:
Alongside the Edinburgh reforms the Government published a consultation on building a smarter financial services framework aimed at deciding how the FCA and PRA should operate post-Brexit, including replacing numerous pieces of EU legislation. This is an enormous task which has been split into tranches, the first already underway covering wholesale markets, listing and securitisation reviews and Solvency II. The second includes reforms to MiFID II, CRD IV and IDD as well as some elements of Solvency II.
Additionally, the Government has issued the FCA and PRA with new objectives in order to focus their attention on economic growth. The Regulators will now have the objective of supporting the government’s objective of medium to long-term economic growth in the interests of consumers and businesses, in particular having regard to the government’s:
desire to facilitate investment in productive assets, particularly venture and growth capital to support UK scale-up companies that face a particular finance gap
ambitions for the provision of sustainable finance and the supply of long-term investment to support UK economic growth, including the supply of finance for infrastructure projects
commitment to securing better outcomes for all consumers, including through improved competition in the interests of consumers and having regard to the needs of different consumers who use or may use financial services
ambition to foster a well-functioning housing market that contributes to wider economic growth including helping first-time buyers access the mortgage market
aim to deliver smart regulatory reform
The Regulators will also have a further secondary objective of supporting the government’s objective to promote the international competitiveness of the UK – including having regard to the government’s:
desire to swiftly implement the outcomes of the Future Regulatory Framework Review, in a planned and sequenced way, through enacting the repeal of retained EU law with rules designed for the UK
agenda to encourage trade, including through the development and maintenance of deference arrangements, and to promote inward investment into the UK
commitment to ensuring that the UK is attractive to internationally active financial services firms and activity
support of innovation and new developments in financial markets and active embracing of the use of new technology in financial services, such as crypto technologies, artificial intelligence and machine learning
Reform to Consumer Credit law
It feels like forever since the Woolard Review and the FCA’s Retained Provisions Report were released, but finally we have some movement on the recommendations. The Woolard Review’s recommendations are fairly well known, with the standout being to regulate the ever-growing buy-now-pay-later market. The Retained Provisions Report has received less attention, despite the topic being an area of contention with almost all clients I speak to.
Whenever I speak to clients about their communication, for example in conversations about the Consumer Duty and the requirement to tailor wording to the needs of the target market, clients will query how they do this with notices required by statute.
Notices such as pre-contract information, default notices, default sums notices and of course NOSIA’s are required under the surviving Consumer Credit Act 1974 provisions. Their wording is technical, confusing and, in places, fly in the face of what the FCA is aiming to achieve. For example, warnings which need to be stated in capitals. For this reason, the FCA are looking at their options.
A consultation was released at the same time as the report which discusses the opportunities the FCA has in relation to retaining provisions with the Consumer Credit Act 1974; in other words should they be retained, reformed or brought into FCA rules where the regulator would be able to make changes such as additional flexibility which could be provided to the form and content of the post-contract information notices.
The Edinburgh reforms also discuss whether business lending above £25,000 should be a regulated agreement, and sanctions that could be applied for breaching various provisions.
The Chancellor has announced a review of the SMCR with a ‘Call for Evidence’ expected to be launched by HMT in Q1 2023. The Call for Evidence will look for views on the regime’s “effectiveness, scope and proportionality…” and to see how the regime could be reformed and improved. The FCA and PRA will also review the regulatory framework contained in their rulebooks. It is unlikely that there will be substantial changes to the regime as a result of this review and in any event any changes will be subject to rounds of consultation and policy statements, so any changes will take time.
The most immediate impact from this announcement is likely to be that further extension of the SMCR to Financial Market Infrastructures, payments and e-money firms is delayed. It may also mean that initiatives relating to SMCR, such as the FCA’s guidance on non-financial misconduct, are deferred.
Additionally, there are changes to the rules in respect of the ring-fencing regime by de-scoping certain firms which could not have a negative systemic impact and tweaking the rules to increase the threshold from £25 billion to £35 billion opening up funds for the sector.
With over 30 potential reforms we couldn’t possibly cover them all in this article, instead we picked those most applicable to our clients. We encourage you to read the reforms and identify if there are other aspects which could impact you.
Whatever changes the reforms will usher in, it's important to keep staff up to date with the immediate changes to regulatory requirements. The incoming Consumer Duty adds a new Individual Conduct Rule that almost all staff will need to understand and apply in 2023.
Our updated 2023 online Conduct Rules courses allow Senior Managers and Certification and all other staff to access and complete the training at their own convenience, ideal for those who want to complete the training in their own time, and to come back to it to refresh later on. They provide clear and comprehensive training in the Rules - including Conduct Rule 6 - through a mix of videos, small amounts of text and plenty of scenarios to demonstrate how the rules apply practically.