Since the United Kingdom officially left the European Union, it has been reshaping its regulatory future in order to make London more globally competitive. In the Queen’s Speech last year, in a section entitled “Benefitting from Brexit”, the U.K. government cited departure from the bloc as providing, “new opportunities for growth”, and giving the chance to “reduce burdens on businesses”.

In response, HM Treasury published the Financial Services Future Regulatory Framework (FRF) Review, a series of consultations outlining how UK regulators could operate outside the EU’s institutional framework. Its proposals have a strong emphasis on growth; urging regulators to work collaboratively with the industry, understand new business models, and to help foster innovation that can facilitate long-term growth and competitiveness.

With the most recent consultation period having closed just recently, the proposals are in the stages of being finalized. With this in mind, counterparts in other financial markets should watch with interest in terms of what these ongoing developments mean for them moving forward.

Sovereignty-First Brexit

The U.K’s withdrawal from the EU was rooted in the concept of ‘sovereignty’, including the freedom and autonomy to set its own rules and protect its own interests. This became problematic however when the UK sought access to the EU’s equivalence regime as a way to ‘passport into’ the EU and continue to access markets for certain services if its domestic regulations were deemed equivalent to the EU’s. But with the UK cutting ties and reworking EU-written regulations, the latter had little incentive to facilitate a perceived ‘best of both’ approach for UK access. The resulting stalemate after lengthy negotiations has now given an opportunity for both sides to diverge and differentiate.

Adapting to Grow

The measures outlined in the FRF Review include changes to regulators’ statutory objectives, including granting the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) new growth and international competitiveness objectives. Following the latest consultation, regulators like the FCA have already been proactive in demonstrating how they are responding to the innovation challenge, for instance announcing that its trial Regulatory Sandbox program, set up to test innovative products, services, and business models, will be made permanent.

A package of some 19 measures is also set to be included within this year’s Queens’s Speech as the government accelerates its plans to make the City of London more competitive post-Brexit.

As London apparently seeks to claim the title of the world’s busiest financial center, participants across the UK market seem committed to pushing for change to help make that happen. This includes TheCityUK, a body that promotes the UK financial services, lobbying the government on the change mandate that now tasks regulators with helping boost competitiveness in addition to their watchdog function.

Speed of Implementation Key

Previous uncertainty around what a standalone UK financial center would look like, and what would happen when it came to regulation, compliance, and trading is becoming more defined as reviews like the FRF seek to re-write UK law to enable more dynamism and compete with rival financial centers. Recent steps by the FCA to change its Listing Rules on free float, SPAC, and dual class share structures are just some such measures that will help London be viewed more attractively and competitively in the future.

However, the UK’s departure from the EU does not meant that all EU-derived law can automatically be abandoned, and there are aspects that must remain under the new category of “retained EU law” (REUL) via the EU (Withdrawal) Act 2018 (EUWA 2018). Retained EU law is also relevant to issues such as data protection compliance, marketing, and anti-money laundering.

As such, caution in these areas will be necessary, especially with the government pushing for the speedy implementation of growth-led initiatives. However, it has never truer to say that those responsible for keeping their firms on top of governance and compliance obligations in this evolving landscape have never been better supported in doing so, with technology solutions available that will not only help them adapt to the demands of an increasingly global outlook, but do so in total compliance, freeing up financial services businesses, and those that regulate them, to invest more time on innovation and growth.

How the UK will continue to adapt and transform amid its newfound independence, will be an interesting watch for all.