On March 21, 2024, HM Treasury published a paper on the next phase of its Smarter Financial Services Regulatory Framework, the U.K.'s program of post-Brexit regulatory reforms for financial services. The original policy statement on the smarter regulatory framework was published in December 2022 as part of the so-called Edinburgh Reforms (discussed in our client note, “UK Government Publishes Edinburgh Reforms for Financial Services”). This described the U.K.'s new model for regulation and set out how the U.K. would prioritize the repeal and reform of retained EU law for financial services. In July 2023, HM Treasury published a further policy statement, dividing the review of REUL into tranches, and detailing anticipated dates for reform. Further details of the U.K.'s future financial regulatory framework can be found on our website, Future of Financial Services Regulation in the UK.
The latest paper describes progress so far with Tranches 1 and 2—including the Public Offers and Admissions to Trading Regulations 2024 (SI 2024/105) (which replaces the U.K. Prospectus Regulation) and the Securitisation Regulations 2024 (SI 2024/102) (which bring certain securitization activities under the new U.K. designated activities regime), as well as the draft Short Selling Regulations 2024 (which will replace the U.K. Short Selling Regulation). HM Treasury publishes an updated list of the latest developments on its website.
HM Treasury will now begin work on Tranche 3, which includes review of: the Alternative Investment Fund Managers Directive; the Undertakings for Collective Investment in Transferable Securities Directive; the European Market Infrastructure Regulation; and continuing work on the Markets in Financial Instruments Directive and Regulation (in particular organizational requirements and operating conditions for investment firms under MiFID and transaction reporting under MiFIR) and the Payment Services and E-Money Directives.
HM Treasury also plans to review the U.K.'s equivalence determination regime under the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 (S.I. 2019/541) and Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020 (S.I. 2020/1055). The U.K. inherited the EU's equivalence framework following Brexit and has granted equivalence in nearly all of the areas for which EU equivalence decisions were granted at the time the U.K. left the EU. The Financial Services and Markets Act 2023 introduced a deference accountability mechanism, which requires the U.K. Financial Conduct Authority, Prudential Regulation Authority and Bank of England (the latter, in respect of central counterparty and central security depository regulation) to consider the effect of their proposed rules or policies on HM Treasury's deference decisions (including equivalence decisions). HM Treasury's review of the regime will restate necessary provisions and ensure onshored equivalence decisions fall within the new deference accountability mechanism. This is not intended to reopen or change the effect of existing equivalence decisions, although onshored equivalence decisions may be repealed or replaced as part of the smarter regulatory framework review if necessary.
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