UK Prime Minister Boris Johnson has appointed former Tory leader Sir Iain Duncan Smith MP to chair a short commission to study the nature of regulation post-departure from the European Union. Duncan Smith will advocate an approach for financial services regulation conceived by Barney Reynolds, a financial services partner at Shearman & Sterling, the U.S. law firm.
Reynolds' new paper "Restoring UK Law Freeing the UK's Global Financial Market" argues for re-establishing common law as the basis for UK financial services regulation and moving away from French and German code-based law. It makes five recommendations including empowering UK regulators to replace and improve most inherited EU regulation under the oversight of a parliamentary committee.
The paper will form the bulk of Duncan Smith's submission on financial services regulation in his report to be delivered to the prime minister in May, he told the Politeia-hosted webinar Good for Financial Services, Good for the UK Economy - Restoring UK Law on Monday.
"I've decided on reading [Reynolds' paper] very much that I'm going to go a little wider than the Prime Minister originally asked me. I think it's necessary because I don't think I'm very keen on just coming forward and single things that we can do, I really want to set this in the context of what we should do going forward, and then how we can both deregulate and regulate [will be] an important feature of this," Duncan Smith said.
Attorney general support
Suella Braverman, the Attorney General for England and Wales as well as the Advocate General for Northern Ireland, spoke at the same webinar and is said to support Reynolds' proposals.
"I hope the publication provides a compass for how the government should change our law and regulation—and I think the government will do this-- to be more common law rather than civil law based. There have been an immense number of people popping up with proposals for specific changes to rules. But before you get into that discussion you have to decide what you want to do, which is a point of principle. That's where I hope to have helped, in picking apart the different approaches for the various activities, eg wholesale and retail, caveat emptor and disclosure. It’s also where Sir Iain comes in. Once the direction has been determined, you can then have discussions about specific rule changes within that context," Reynolds told Regulatory Intelligence.
Duncan Smith's submission on financial services regulation will sit above HM Treasury's Future Regulatory Framework (FRF) Review consultation which has been extended by a month to conclude on February 19. Reynolds' paper and approach are already being discussed in Whitehall and should complement and inform other consultation work.
Reynolds's paper envisions a far broader reconsideration of how UK financial services regulation is created, refined and changed over time, than the prime minister or HM Treasury may have had in mind. It seeks to do away with "prescriptive, inflexible, opaque and voluminous" EU-style rules in favour of regulation based in common law which arises from precedent, is iterative and allows for thinking to be reformulated over time.
Reynolds makes five recommendations:
- Transfer as much as possible of the EU rulebook to the UK regulators, empowering UK regulators to replace and improve most inherited EU regulation under the oversight of a parliamentary committee.
- Move to ensure more judicial decision making.
- Place reliance on the common law operational method, allowing for a less controlling approach.
- Secure that the purposive approach to interpretation as operating under EU (and civil) law is rejected.
- Apply lessons from common law in providing certainty and constraining the regulators in the exercise of their delegated functions.
"None of what I'm proposing is incompatible with [EU] equivalence. We should do what's right for the UK financial sector and for the global market that we host in the UK. That means moving back to the common law methods, which are superior for economic growth, for market activity and for innovation. This will still mean hitting high standards, because the UK traditionally has always applied higher standards with fewer rules. Nothing changes. The EU can grant equivalence if its minded to do so, but we shouldn't hang around and wait for that," Reynolds said.
Duncan Smith will assess regulations across a broad range of sectors such as advanced manufacturing, biosciences and artificial intelligence as well as financial services as part of his work for the prime minister.