UK regulatory reform FAQs

In 2021, the UK government set out its vision for an open, sustainable and technologically advanced financial services sector that is globally competitive and drives growth across the UK. Since then, several steps have been taken in pursuit of this goal including the publication of the Wholesale Markets Review, the Smarter Regulatory Framework and the Financial Services and Markets Act 2023 (“FSMA”).

On 9 December 2022, the government made a further announcement at an industry round table in Scotland, setting out its plans for far-reaching reforms. The plans are made up of a package of thirty measures which look at the entire breadth of the UK financial services industry. The package of measures, known as the Edinburgh Reforms, are intended to implement the findings of the Future Regulatory Framework Review and complement the existing work the government has undertaken to amend financial services legislation.

Once complete, these reforms will have reset the landscape of UK financial services regulation with the intention of encouraging growth and international competitiveness in a post-Brexit world.

A key moment in the post-Brexit evolution of the UK financial services industry came on 9 December 2022 when the Chancellor announced a package of reforms designed to reshape the landscape of financial services legislation for the UK. The intention is for the announcements to “take forward the government’s ambition for the UK to be the world’s most innovative and competitive global financial centre”.

The areas of most relevance to the LME include:
 

• Issuing new remit letters for the PRA and FCA with clear, targeted recommendations on growth and international competitiveness.
• Publishing the plan for repealing and reforming EU law using powers within the FSMB, building a smarter regulatory framework for the UK.
• Repealing the Packaged Retail and Insurance-based Investment Products Regulation, and consulting on a new direction for retail disclosure.
• Publishing a draft Statutory Instrument to demonstrate how the new powers being taken forward in the FSMB will be used to ensure that the FCA has sufficient rule making powers over its retained EU payments legislation.
• Bringing forward secondary legislation to implement Wholesale Markets Review reforms.
• Commencing a review into reforming the Senior Managers & Certification Regime (“SMCR”) in Q1 2023.

A letter from the Chancellor to the Treasury Committee in October 2023 listed 31 areas of legislation and regulatory regimes on which progress had been made. This included a consultation on the SM&CR regime, publishing an updated Green Finance Strategy and working with the FCA on the development of the Intermittent Trading Venue (which it has committed to having established by the end of 2024).

The announcements were made during an industry round table event in Edinburgh and were named after the city for this reason.

The review of the regulatory framework in the UK was triggered by the UK’s withdrawal from the EU. The government is keen to seize upon any opportunities to increase the competitiveness of the UK.

It seeks to ensure that the regulatory framework that applies in the UK is the most appropriate and best-suited for the UK as an independent country, rather than as a member of a much larger single market.

Legislation such as the UK MiFID framework will be included as part of the review process and therefore some of the LME’s existing requirements that apply to firms trading on the LME may, ultimately, be changed.

The LME will continue to monitor the proposals and developments and ensure that any potential changes are clearly communicated to the market.

For UK regulated firms, it is unlikely that any changes to your existing authorisation will be required in order to continue trading on the LME.

The Designated Activities Regime (“DAR”) has been designed to support the transition away from EU law and to ensure that regulated activities previously caught by EU Law will remain within the UK regulatory perimeter.

DAR will form a new part of the Financial Services and Markets Act 2000 (in the same way the Regulated Activities Order is used to specify those types of activities and instruments that fall within the regulatory perimeter) and will ensure that the UK’s financial services markets continue to be subject to proportionate regulation which reflects the level of risk that these designated activities pose, and the types of firms and persons who carry them out, once EU law is repealed.

In simple terms, DAR will provide for the regulation of certain financial activities without regulating the entity performing them. This differs from the current model under FSMA, whereby any firm which performs regulated activities is required to be authorised.

As yet, the list of activities designated under DAR has not been released. However, it is expected to cover both those activities that were included under EU law as well as allowing other activities to be brought into the scope of the regulatory perimeter (for example critical third party providers).

“REUL” stands for retained EU law and refers to the body of legislation that was transposed onto the UK statute book after the UK left the European Union. HM Treasury (“HMT”) has published its policy statement setting out how it plans to manage the significant portion of REUL that continues to govern the UK financial services sector. This includes repeal, revision and retention depending on the piece of legislation in question.

There is the potential for there to be significant impact on any legislation that has derived from EU law in addition to domestic legislation which forms part of the regulatory framework. The full list of legislation expected to be subject to review and revisions can be found in annex 1 to these FAQs.

No. Whilst the majority of the laws that are subject to review are derived from EU legislation there are also a number of domestic provisions that are also included in the proposed package of changes. This include Bank Ring Fencing and SMCR.

There is no set timeframe for the proposals under the Edinburgh Reforms or any of the wider changes to be made. Consultations for some areas have already been published, we know others are due in 2024 and others have no clear date.

The “Revocation of EU Law Act” sought to revoke and replace all REUL by the end of 2023 however it has since been revised given the practical limitations on achieving this goal. EU law relating to financial services is not caught by this specific Act. HMT has said that it will look at financial services legislation in three tranches noting that had expected to make “significant progress” on tranches 1 and 2 by the end of 2023 with tranche 3 being completed thereafter (no timeframe offered).

The work on financial services is ongoing with a significant number of major EU files currently subject to consultation and review.

The regulatory framework that applied to the UK when it was part of the European Union may no longer be the most effective way of governing the UK’s financial markets. Therefore, the government is keen to review existing legislation to ensure that the UK regulatory framework allows the UK to remain a safe, robust and well-managed centre of excellence for financial markets.

The new regulatory framework is also intended to drive competition and innovation and allow the UK to increase its competitiveness within a global context, whilst retaining robust regulatory oversight.

Whilst there cannot be certainty as to the proposals any new government would take forward, the importance of the Edinburgh Reforms to the UK’s post-Brexit regulatory framework and the volume of work that has already been completed suggests that the proposals will be implemented regardless of the result of the next general election.

Relevant individuals within the Labour Party, such as the Shadow Economic Secretary to the Treasury Tulip Siddiq MP, have publicly stated that, if elected, the Labour Party would not look to materially alter the direction of travel of financial services reform in the UK.

The UK is committed to developing its reputation as a global financial centre and to encouraging international business. However, the mechanics of current equivalence regimes in place under legislation such as the UK MiFID framework and UK EMIR may change as part of the broader review process. Any such proposed changes will be detailed in the relevant consultation papers together with an explanation around how the government will honour existing equivalence determinations.

For UK entities that benefit from an equivalence decision granted by the EU, the UK’s proposals will not directly change this. However, changes to the UK regulatory framework have the potential to increase regulatory divergence.

The UK government has previously published a Call for Evidence on potential changes to the manner in which third country firms can access the UK. This included a review of the overseas persons regime. Whilst the conclusions to this review are still pending, the UK values its position as an international financial centre and wishes to increase its competitiveness globally.

Therefore the UK regulatory framework is expected to continue providing clear and accessible routes into the UK for unregulated third country firms wishing to access the UK market.

The LME and LME Clear continue to engage closely with regulators, legislators and policymakers in the UK in order to ensure that the needs of those accessing and relying on the LME and LME Clear, and its reference prices, are understood.

As the shape of the proposed policy developments and regulatory changes become apparent, the LME and LME Clear will continue to communicate with its members and the wider market.

For more information on the UK’s programme of regulatory reform and its potential impact on your LME business please contact your usual LME contact.

AIFMD - Alternative Investment Funds Managers Directive
BMR - Benchmarks Regulation
BRRD - Bank Recovery and Resolution
CbPEu - Cross-border Payments in Euros Regulation
CCD - Consumer Credit Directive
CID - Credit Institutions (Reorganisation and Winding Up) Directive Resolution
CRAR - Credit Rating Agencies Regulation CRR/D (CRR) Capital Requirements Directive and Regulation
CSDR - Central Securities Depositories Regulation Directive
DGSD - Deposit Guarantee Schemes Directive
DMCFS - Distance Marketing of Consumer Financial Services Directive
ELTIF - European Long-Term Investment Funds Regulation
EMD - E-Money Directive
EMIR - European Market Infrastructure Regulation EuVeCa European Venture Capital Funds Regulation
EuSEF - European Social Entrepreneurship Funds Regulation
FCaD - Financial collateral arrangements Directive
FCoD - Financial Conglomerates Directive
IDD - Insurance Distribution Directive
IFR - Interchange Fee Regulation
IRR - Insurers (Reorganisation and Winding-up) Directive
IMD - Insurance Mediation Directive
LACD - Life Assurance Consolidation Directive MID Motor Insurance Directive
LD - Listings Directive
MAR - Market Abuse Regulation
MCD - Mortgage Credit Directive MMFR Money Market Funds Regulation
MiFiD/R - Markets in Financial Instruments Directive and Regulation
PAD - Payments Accounts Directive
PRIIPS - Packaged Retailed Investment and Insurance-based Products Regulation
Prospectus Regulation
PSD - Payment Services Directive
RD - Reinsurance Directive
Securitisation Regulation
SFD - Settlement Finality Directive Funds
SFDR and Taxonomy - Sustainable Finance Disclosure Regulation and Taxonomy Regulation
SFTR - Securities Financing Transactions Regulation
SRD - Shareholder Rights Directive
SSR Short Selling Regulation
Solvency II Directive
TD - Transparency Directive
UCITS - Undertakings for the Collective Investment in Transferable Securities Directive