Not long before Christmas chancellor Jeremy Hunt launched the Edinburgh reforms, highlighting the “golden opportunity” that Brexit has provided to reshape the rules governing the UK financial sector.
With 30-odd initiatives, the list of areas targeted is extensive and there are a number of measures that we are particularly pleased to see, including the government’s move to revoke the Priips regime – something we have long asked for, and we look forward to engaging positively with the Treasury on an alternative framework for retail disclosures.
It is imperative that any disclosure framework is, in future, able to ensure that the end customer is provided with the right information, and in the right way, in order to better understand the sometimes complex decisions they are making.
The framework as it currently exists does not do this, and in places seems directly in conflict with the Financial Conduct Authority’s broader aims of delivering higher standards of communication under the consumer duty. This is a welcome move both for retail consumers and the providers of services to them.
While it is tempting to ditch much of the existing EU regulation, there are at least some aspects that do work well.For other proposals, it is not yet possible to say what they might mean in practice, nor what the overall effect might be but, in some cases at least, the first step is for the government and/or the regulators to conduct a review.
The senior managers and certification regime is a case in point, so we will be working closely with our members to understand what elements of this regulation they would like to see improved.
The policy statement focuses on bringing forward the future regulatory framework review and setting out the plan as to how to repeal EU law and substitute it with more appropriate UK regulations, fit for a post-Brexit Britain.
This works alongside the financial services and markets bill, which is the legislative process by which these reforms will be achieved. This is set out in a set of different tranches, according to priority, the first of which will take place this year.
The messages for us are two-fold. One of the key drivers to leaving the EU was that we, from a financial services perspective, would be able to look at aspects of the regulatory landscape that do not work especially well for UK firms and bespoke them in order to ensure that, as one of the driving forces behind the UK economy, our sector can be as efficient and streamlined as possible.
This will ensure that our firms are able to deliver and innovate in the way that they need to, and that consumers are able to benefit from that. As a result, we support these reforms for those reasons.
The use of a scalpel rather than a sledgehammer is to be recommended, and future consultations will need to be evidence led.We must, however, take a proportionate view as to how the rulebook is reformed because, while it is tempting to ditch much of the existing EU regulation, there are at least some aspects that do work well. We need to look at regulatory change as an opportunity, but we also need to accept there are elements of the handbook that are there for a reason.
Mifid II, for example, was adopted relatively recently at great financial cost to our members. There will probably be aspects of Mifid that should remain, so we need to beware of throwing the baby out with the bathwater.
While we would encourage an element of streamlining and want to see further efficiencies, we also need to have a clear understanding of what works well already.
An in-depth cost/benefit analysis also needs to take place as regulatory change, even if it is beneficial, always costs money. Our firms have recently adapted to the SMCR and latterly are in the process of adopting the FCA’s new consumer duty, so the benefits of more change in the midst of a challenging economic environment need to be established.
Finally, while we accept that it is not the government’s intention, there remains a risk that prudential and conduct standards are relaxed too far in the pursuit of growth.
So the use of a scalpel rather than a sledgehammer is to be recommended, and future consultations will need to be evidence led with robust cost/benefit analyses to ensure that this risk is minimised
Liz Field is chief executive at Pimfa
