As the UK and EU diverge, the FCA is taking the opportunity to adopt a more assertive role in shaping a more liberal regulatory environment.

Throughout the Brexit process, FCA steered a resolutely bureaucratic line. Nevertheless, it has been left picking up the pieces as it prepared to adapt financial regulation to an uncertain post-Brexit future. Even now, according to its latest business plan, it is still shouldering a £10million a year bill making these preparations.

All this comes on top of an already hefty workload including dealing with digital technologies, cybercrime, anti-money laundering and data protection. Even so, the regulator is taking advantage of Brexit to take greater control over financial regulation and address some of the issues it had with EU rules, and also to reshape its role. Most of these changes reflect tinkering around the edges, but as the UK and the EU continue to diverge, the FCA has released a number of consultation documents signalling the approach it hopes to use in the future.

Consultation on PRIIPs

In July, the FCA published a consultation paper on amending the UK’s PRIIPs regulation – it had long been concerned about the framework and had attempted to persuade EU regulators to amend the regulation.

Uncertainty surrounding the status of corporate bonds had led many providers to exclude retail investors in order to avoid having to produce a PRIIPs KID. The European Supervisory Authority had tried to resolve these problems with guidance on what characteristics would exclude a bond from PRIIPs, but because these were not legally binding, many issuers did not implement them in practice.

The FCA is now working along similar lines to the ESA guidance offering further clarification to reduce uncertainty among issuers. 

MiFID II

In April, the FCA introduced its first post-Brexit consultation to amend the conduct and organisational requirements under MiFID II.

These included:

·        Exemptions from inducement roles for research on listed or unlisted SMEs with market capitalisations below £200 million, as long as it is offered free of charge.

·        Third party research received relating to investment strategies primarily involving fixed income currencies and commodities instruments.

·        Research from independent research partners that does not relate to execution.

·        Any openly available written material.

·        Removing obligations on execution venues to prepare RTS 27 reports, and for investment firms to prepare RTS 28 reports.

Into the future

The approach is evolution rather than revolution – a regulatory environment tailored to the needs of the UK. However, the regulator has reiterated that this does not mean a race to the bottom in order to impose low standards in return for a competitive advantage.

A speech by Edwin Schooling Latter, Head of Markets Policy at the FCA, sums up the approach: “This is not a case of ‘change for the sake of change’ or ‘seeking low standards in pursuit of competitive advantage.’ However, where regulation has imposed costs without beneficial outcomes to justify that cost, then we will want to use our new ability to change direction.”

From MiFID to PRIIPs and other regimes, this is the approach the FCA appears to be using its newfound independence to address problems it had with EU financial regulations, and to create a slightly more tolerant environment for domestic and global players.