Will Brexit bring a bonfire of the regulations? That’s what compliance strapped firms are asking in the wake of Thursday’s referendum result.
The FCA’s statement on 24th June 2016 makes clear that existing requirements apply until and unless there is Government change of applicable regulation.
But what prospect is there of the UK significantly streamlining the regulatory regime when we detach from the EU?
TCF’s view would be, not much.
The UK has been the prime mover of a lot of financial services regulation and legislation in the last 30 years. Or as some Brussels old hands will say, many of the EU’s financial services requirements have been inspired, designed and pushed by the UK. And it’s only relatively recently that the UK stopped taking directives and writing in more detail into the UK’s legislation (in other words gold plating the EU requirements with additional ones of their own).
On the banking prudential and capital side, much of the regulation stems from the Basel Committee on Banking Supervision which sets global banking standards which the EU has followed. Outside the EU, the UK would still need to follow Basel requirements. Once again, the UK in the shape of the Bank of England has been a key player in the existing framework so seeing them depart from that seems unlikely.
Where it gets interesting is where recently, EU requirements have taken the form of directly applicable Regulations. They apply direct to financial services firms. This is rather than the usual process of a directive which has to be implemented into national legislation and it is that local law which complies with EU requirements which applies to you or me. Examples of these Regulations include Capital Requirements Regulation for banks and investment firms, the Market Abuse Regulation and the Markets in Financial Instruments Regulation.
The UK will come out of the EU. Politicians will have to determine whether it also comes out of the single market – because staying in the single market will inevitably mean having to continue to comply with the EU’s financial services rules. If that happens then the Regulations would remain, and presumably future Regulations would apply that the UK would have had no say in shaping.
But, if the UK comes out of the single market, while UK legislation compliant with EU requirements would continue to apply until changed, these EU Regulations could no longer apply – there would literally be a vacuum. A vacuum which would need to be filled in some way by new UK legislation and rule making by the FCA and PRA. In both instances, the UK will have to decide what its financial services and regulatory compliance approach should be.
In our view, nobody should count on the UK authorities being less focused on consumer protection and financial stability than they are now. Indeed given the likely challenges of the next few years, they will probably be even more focused on these areas than they are now.
So no bonfires of the regulations in prospect.