The Edinburgh Reforms aim to establish a smarter regulatory framework for the UK, one that is agile, less costly, and responsive to emerging trends. This will be achieved by a programme of repeal of retained EU law ("REUL") for financial services and replacing it with a new framework tailored to the UK post-Brexit. In this blog we look at why, how and when that repeal will take place.

Why repeal REUL?

The current regulatory framework for financial services is complicated – it is made up of regulatory requirements scattered across different sources of law, including REUL, UK primary and secondary legislation, regulators' rules and retained EU technical standards.

With the UK having left the EU, the Future Regulatory Framework ("FRF") Review was launched in November 2021 to determine how the regulatory framework for financial services should adapt post-Brexit.

The outcomes of the FRF included handing powers to the Treasury and the financial services regulators to create a framework – based on what is referred to as the FSMA model of regulation - where the expert and independent regulators have greater responsibility for setting regulatory requirements that apply to financial services firms.

The outcomes of the FRF are now being delivered through the Financial Services and Markets ("FSM") Bill.

What are the Edinburgh Reforms?

The Edinburgh Reforms are the package of over 30 regulatory reforms to drive growth and competitiveness in the UK financial services sector post-Brexit announced on 9 December 2022 by the Chancellor of the Exchequer, Jeremy Hunt.

What are the aims of the Edinburgh Reforms?

The reform measures being taken by the UK government have been categorised to meet the following key strategic aims for the UK:

  • A competitive marketplace promoting effective use of capital
  • A world leader in sustainable finance
  • A sector at the forefront of technology and innovation
  • Delivering for consumers and businesses

The repeal of retained EU financial services law and its replacement with a new framework bespoke to the UK post-Brexit is one step towards achieving the first of these strategic aims.

What is the framework for the repeal of REUL?

The FSM Bill will repeal REUL in financial services (non-financial services REUL will be repealed via the Retained EU Law (Revocation and Reform) Bill). Each piece of financial services REUL will effectively be repealed once a statutory instrument ("SI") is brought into force, commencing the repeal. At that point the Treasury and the financial services regulators will move financial services firm-facing requirements from legislation into their rulebooks, establishing a comprehensive FSMA model of regulation.

As part of the Edinburgh Reforms package the UK government published the "Building a smarter financial services framework for the UK" policy statement ("Policy Statement"). The Policy Statement sets out the UK government's implementation plan for repealing / replacing and amending REUL and builds on the FRF Review. Fundamental changes to the legislative framework will be required alongside the repeal of REUL.

How will the UK Government approach the task of repealing financial services-related REUL?

The repeal will take place in tranches. The Policy Statement identifies 43 "core" files, or areas of REUL (set out in Annex 1 to the Policy Statement). Priority will be given to areas of legislation where there is the greatest opportunity for beneficial policy reform. Work is already underway in some areas.

REUL will either be removed (without replacement), or replaced with provisions consistent with the FSMA model, or, where policy change is considered to be beneficial, replaced with provisions consistent with FSMA model and also delivering targeted policy change.

What are the REUL repeal tranches?

Tranche 1 is underway and relates to:

  • the Wholesale Markets Review (which amends the MiFID framework)
  • Lord Hill's UK Listing Review (and consequential repeal of the Prospectus Regulation and implementation of a new regime for admission to trading and public offers)
  • the Securitisation Review (which identified opportunities to improve the Securitisation Regulation)
  • the review into the Solvency II Directive

Tranche 2 files include:

  • the remaining elements of the Wholesale Markets Review
  • the Payment Services Directive and the E-Money Directive
  • the Capital Requirements Regulation and Directive
  • the consumer information rules in the Payment Accounts Regulations 2015.

Remaining files fall within tranche 3.

Comment

The repeal of REUL for financial services is a mammoth and complex task. As well as requiring careful coordination across government and the regulators (and industry) the programme will take up important bandwidth in these organisations.

Stakeholders will have opportunities to input views as part of the programme. Three illustrative SIs (two of which relate to the reform of the Prospectus Regulation) and accompanying policy notes are published alongside the Policy Statement to give stakeholders a more detailed understanding of the approach the government is taking.

While the UK government intends "to make significant progress on tranches 1 and 2 by the end of 2023", the programme, involving a sequenced and prioritised process, will take several years to complete.

Contributors

Bruce Stephen

Head of Banking and Financial Services & Partner

Lindsay Lee

Senior Associate

Alexandra Munro

Solicitor