Opinion

Future Regulatory Framework: our contribution

Gavin Stewart Gavin Stewart

Today marks the end of HM Treasury’s consultation on its proposals for the UK’s Future Regulatory Framework (FRF) after Brexit. Gavin Stewart explains how we worked with UK Finance to develop their response to the proposals.

This forces a reconsideration of some fundamental elements of UK regulation: the respective roles of government, parliament and the regulators; the regulators’ objectives; and how regulators should be scrutinised and held accountable. It consequently represents the most important reform of UK financial services' regulation since the post-crisis revamp of the Financial Services & Markets Act (FSMA), and we are pleased to have been able to contribute, along with other associate-members, to UK Finance’s response to the consultation.

Future Regulatory Framework: HM Treasury's proposals

In its proposals, HM Treasury comes out as a strong supporter of the FSMA model; delegating rule-making to independent regulators within a policy framework set by government and parliament. Consequently, the proposals seek to strengthen rather than substantially change the model, by giving more authority to the PRA and FCA, while at the same time seeking to make them more clearly accountable.

Taken as a whole, particularly by delegating so much authority to the regulators, the proposals represent a substantial commitment to the UK maintaining, and contributing to the development of, global regulatory standards. The alternative, of reserving detailed rule-making to parliament, would significantly reduce the UK’s capacity to enact new regulation, and so would be much more conducive to the UK becoming a low regulation financial centre.

Our work with UK Finance

There is a broad industry consensus behind this conclusion, which is reflected in UK Finance’s response. Nevertheless, it does place greater emphasis on getting the right rule-making framework and the right arrangements for ensuring the process is transparent and that regulators are held properly accountable. These are the areas where UK Finance has focused most of its attention.

Within this, our own contribution concentrated on two areas: on regulators’ locus in the unregulated activities of regulated firms; and on what the respective roles of government, regulators and firms should be, in defining and delivering fair outcomes. The first issue is highlighted in the recent Gloster Review of the FCA’s supervision of London Capital & Finance, while the second goes to the heart of regulation’s impact on consumers, firms and markets.

HM Treasury is due to come forward with a detailed package of recommendations by the end of the year.