The sequel to the Treasury’s 2020 consultation on the future regulatory framework picks up the themes from the original: more rule-making powers for the FCA and PRA to be balanced by more scrutiny from the Government and Parliament. Three outcomes from the latest paper are:

  • The FCA and PRA will be more powerful. Literally, they will take on more powers for making rules and more freedom in directing regulatory policy than they had before Brexit. This is mitigated to some extent by the latest consultation which suggests formalising how Parliament and the Government can rein them in from time to time. Setting up a new panel dedicated to examining the regulators’ cost-benefit analysis work may also prove to be an effective soundboard for regulatory decision-making.
  • Regulation will be easier to find… eventually. Thanks largely to the way EU law was retained post-Brexit, the regulatory obligations which apply to firms are scattered between various bits of legislation and regulators’ rules. The Treasury has confirmed that it wants to shift regulation from statute books to rulebooks. To do so, for each area of retained EU law, the Treasury will need to progress secondary legislation to repeal the relevant law at the same time as the regulators draft, consult on and finalise equivalent rules. It will be several years before the rulebooks become the “one-stop shop” for firms’ regulatory requirements.
  • A new way to regulate is emerging. The paper includes ideas which move away from entity-based and towards more activity-based regulation. The logic is that various areas of retained EU law apply more widely than authorised firms and requiring non-financial businesses to seek FSMA authorisation would be disproportionate. Instead, the consultation suggests in some cases regulating “designated activities”, rather than entities. This activity-based approach might also come up when the UK regulators put forward their plans to oversee technology firms providing critical services to the financial sector.