Evolution or Revolution? HMT fires the starting gun on its review of the UK’s future regulatory framework

Whatever the UK’s relationship with the EU ends up looking like, it’s clear that the UK’s regulatory framework needs to adapt to the new reality. This is driven not just by the fact that the UK will no longer be subject to the EU’s regulatory framework (assuming the UK leaves the single market), but also because of the scale of change and disruption in financial services from technology, new players and changing demographics.

These challenges require a flexible and adaptive response from regulators to ensure a reasonable balance is reached in both protecting consumers and not constraining innovation.

Now is the right time to begin retooling the UK regulatory framework so the industry is ready and able to respond to challenges and opportunities from Brexit and beyond. So, what is happening now and what should firms look out for?

Wherever you stand on the great Brexit divide, it’s fair to say that the normal running of things has been disrupted since the referendum. The Government and regulators have had to devote so much time to Brexit preparations they may not have been able to focus as much as they may have liked on wider issues impacting the sector.

So the launch of the Government’s review into the future of the UK’s financial services regulatory framework is both welcome and needed. The first phase of the review, which was launched on 19 July and is due to run until 18 October, is a call for evidence focusing on “...the impact of regulatory change on financial services firms and their customers, including coordination between regulatory authorities”.

There are many big and important questions that need to be addressed in the review, but this is a good place to start. Regulatory change can be extremely costly for firms, both in terms of preparing for new rules, but also in managing the burden of complying with greater numbers of more complex rules over time. Uncoordinated regulatory change creates operational risks for firms and can dominate the agendas of senior decision makers in firms. While this is an obvious drain on resources firms could otherwise use to refine or innovate products and services, it also impacts consumers through increased costs and complexity.

The call for evidence sets out the need to respond to four key challenges:

  • Operating outside the EU - The need to adapt the UK regulatory framework given new roles UK institutions take on from the EU and the changing trading relationship between UK and EU markets.
  • New trading relationships - The challenge of adapting the UK regime to support closer relations with trading partners outside of the EU and fostering cooperation with new partners on international standards and supervision.
  • Technological change - Ensuring the UK framework is flexible enough to support technological innovation in financial services and the changing behaviours of consumers.
  • Wider global challenges - Having a framework that supports (or at least doesn’t impede) the industry to play a role in finding solutions to issues like demographic change and the climate crisis.

For the first stage of the review, the focus is on understanding the impact of regulatory change and other interventions made by UK bodies. The Government is keen to understand how authorities can work better with firms and markets, including the timing of regulatory actions, the impact of multiple requests for information at the same time, and whether authorities are asking for the right type and volume of information. A further question asks how new technology might make these processes quicker and easier - with a particular focus on regulatory reporting - as well as testing how firms ensure they are investing enough in their systems and controls to be fit for the future.

It is particularly welcome to see the Government asking for views on the use of RegTech solutions. This is a key focus for us at PwC. We see huge opportunities for the sector and regulators to reduce the cost of compliance while improving customer outcomes if the potential for technology is fully embraced.

The call for evidence was published just days before the appointment of a new Prime Minister and Chancellor. Sajid Javid in particular -with his financial services background- is likely to have strong views on the future trajectory of financial services regulation in the UK. Getting the right approach in the face of technological change and global challenges, such as climate change, will be key to ensuring the UK retains its place at the heart of global financial services.

The outcome of HMT’s review into the UK financial services regulatory framework will be central to this. This is just the start of the conversation on the future of regulation in the UK. Firms and consumers alike should get involved and have their views heard on an issue that will shape financial services - and the wider economy - for years to come.


Sarah Isted

Sarah Isted | Partner, UK Financial Services Risk and Regulation leader
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Conor MacManus

Conor MacManus | Director
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Daniel de Búrca

Daniel de Búrca | Manager, FSRI
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