Draft Statutory Instrument on UK financial services regulators’ powers to onshore EU financial services legislation
Posted in Financial services
On 18 April 2018, HM Treasury published a draft of the Financial Regulators’ Powers (Technical Standards) (Amendment etc) (EU Exit) Regulations 2018 together with a covering note.
Key points in the covering note include:
- the draft statutory instrument (draft SI) is to help inform Parliamentary scrutiny of the European Union (Withdrawal) (Bill (EUWB), and to provide Parliament with as much detail as possible on HM Treasury’s proposal to allocate responsibility for ‘onshored’ EU financial services regulation to UK authorities;
- the draft SI should be taken as an illustrative example of how the powers in the EUWB may be used, and not as the final draft for consultation;
- HM Treasury proposes to follow the model used by the Financial Services and Markets Act 2000 (FSMA). Following this model means that EU Level 1 legislation and Level 2 legislation (apart from binding technical standards (BTS) and certain other technical elements of Level 2) will become the responsibility of the UK Parliament. Parts 1 to 6 of the schedule to the draft SI set out which UK regulator is responsible for particular BTS. The allocation is still under consideration;
- the vast majority of BTS will become the responsibility of the Bank of England, the PRA and the FCA. A limited number of BTS will be relevant to financial services firms or activities that are the responsibility of more than one UK regulator. These BTS, which will have more than one appropriate UK regulator, are identified in the schedule to the draft SI. There is one BTS relating to the EU Interchange Fee Regulation which will need to be transferred to the UK’s Payment Systems Regulator;
- HM Treasury proposes to delegate to the relevant UK regulator the power to correct deficiencies in the BTS arising from EU withdrawal. In addition, HM Treasury proposes to delegate the EUWB deficiency-fixing power to the UK regulators so to allow them to correct deficiencies in existing regulator rules (or FSMA rules) that raise as a result of the UK’s withdrawal from the EU;
- the instruments that the UK regulators will use to correct deficiencies in BTS and FSMA rules will be called ‘EU Exit Instruments’. Part 2 of the draft SI sets out the procedure with which the UK regulators must comply when making an EU Exit Instrument. This includes: (i) HM Treasury must approve every EU Exit Instrument and may only approve an instrument if it considers that the instrument makes appropriate provision to fix deficiencies arising from the UK’s withdrawal from the EU, in accordance with the provisions of the EUWB; (ii) HM Treasury must be provided with a copy of an EU Exit Instrument once it has been made; and (iii) the EU Exit Instrument must be published by the appropriate regulator in the way best calculated to bring the instrument to the attention of the public; and
- HM Treasury proposes to transfer various supervisory functions, currently performed by the European Supervisory Authorities to the UK regulators. For example, the Bank of England would take on the function currently performed by the European Securities and Markets Authority of ‘recognising’ non-UK central counterparties so that they can provide services in the UK.