Chancellor sets out new reforms for financial services

13 Dec 2022 12:40 PM

On 9 December, the Chancellor of the Exchequer, Jeremey Hunt MP, set out the ‘Edinburgh Reforms’ – proposals which HM Treasury believe will drive growth and competitiveness in the financial services sector. In 2021, the sector contributed £173.6bn to the UK economy and supports more than 1,000,000 jobs – mostly based outside of London. Therefore, any gains are likely to be felt across the whole country in both a regional and economic sense

• Aims to make maintain and build the UK’s attractive and respected ecosystem for financial services regulation;
• ‘Lift and Shift’ of EU regulation to allow UK regulators to set rules
• Proposals also look to promote innovation

Named after the location the City the Chancellor gave his speech in, the reforms are billed as the UK exercising it’s post-Brexit freedoms; diverging from EU regulations and equivalence in several areas.

In terms of repealing EU legislation, replacing these with UK regulator-derived rules, HM Treasury has published a policy statement outlining their approach, something colloquially called ‘lift and shift’. It will split EU retained law in to ‘tranches’, with the first review being upon wholesale markets, listing rules, securitisation rules and Solvency II. HM Treasury expect the review of trances 1&2 to be complete by the end of 2023. In terms of implementing these changes, they have also published draft Statutory Instruments to indicate what these might look like, to illustrate how secondary legislation may be created.

Technology-focused proposals

The Government states that it wants to ensure the regulator framework supports innovation and leadership in emerging areas of finance. One of the key legislative vehicles to do this is the Financial Services and Markets Bill (FSMB).

As well as proposing the regulation of stablecoins (crypto currency backed by an asset or a fiat currency), they also want to ensure that the regulators have the powers they need to oversee and take action on a broader range of investment-related cryptoasset activities. In addition to this, HM Treasury will be:

• Consulting on a UK retail central bank digital currency alongside the Bank of England in the coming weeks;
• Publishing a response to the consultation on expanding the Investment Manager Exemption to include cryptoassets;
• Implementing a Financial Market Infrastructure Sandbox in 2023. This is likely to focus on Distributed Ledger Technologies and will underpin much of the work to deliver Open Finance;
• Working with the regulators and market participants to trial a new class of wholesale market venue which would operate on an intermittent trading basis.

Sustainable Finance

As well as wider reforms being proposed, Government has confirmed that they will be publishing an updated Green Finance Strategy in early 2023 and will consult in Q1 2023 on bringing ESG ratings providers into regulation – giving more oversight and control to rule-makers.