By Sascha O'Sullivan
THE Financial Services and Markets Bill 2022, introduced last week, failed to usher in the “Big Bang 2.0” of financial services regulation we were promised. It is true that many of the initiatives contained within the bill are sensible, welcome, and necessary – but they are nowhere near as radical as what is required to address the changes needed to achieve the appropriate regulation of modern financial services institutions in 2022.
On a positive note: the bill includes welcome provisions which grant Treasury the power to make onshored EU legislation clearer and more accessible, although it remains to be seen how far the Treasury will go with this exercise. The new laws also recognise that critical third parties, such as cloud computing providers and other tech firms, may need to be separately regulated (through a designation regime) by the UK regulators. Authorised firms that approve financial promotions for others will be required to have a special permission and, following on from the wholesale markets review, some share trading obligations under the EU’s MiFID 2 have also been removed.
Achieving net zero emissions has also been added to the PRA’s and FCA’s regulatory permissions and the Treasury have been given the ability to introduce rules relating to the regulation of stable coins.
All good and sensible stuff.
But the bill fails to address the fundamental challenge: our regulatory architecture was designed not around the Millennium’s Financial Services and Markets Act 2000, but almost entirely around the original Big Bang 1.0 legislation – in 1986. The nature of the UK’s regulatory perimeter – who needs to be regulated and why – has hardly changed since then, despite Brexit driving this question up the political agenda. City fashions have changed faster than the regulatory regime.
The current framework, created in a time of physical meetings and telexes, takes precious little account of electronic communications. The existence of communications by email and internet is barely acknowledged. Would it not make sense to specify more clearly which types of electronic platforms need to be regulated and why, including a clear regime for regulating non-UK platforms made available to UK investors?
Equally, the products and services that are regulated relate to 1980s concepts and are in need of a fundamental rethink. For example, contracts for differences are now bought and sold on a speculative basis, though they are still regulated as financial services products, as they were in 1986, rather than the gambling products they more closely resemble in 2022. On investment, is our collective investment scheme regulatory regime really up to date given the emergence of so many different types of pooled vehicles since 1986? More to the point, what protections are we trying to give investors in pooled schemes that investors in ordinary companies do not enjoy? Well, don’t search the bill for answers.
And crypto: while the legislation contains some tentative decisions around stablecoins, some actual decisions are required imminently.
Much of the 1986 regime is useful: it is well understood and works. But a proper strategic review of what we want to regulate and why is overdue. This needs to be coupled with a real discussion about the resources that the FCA, PRA and the Bank of England require and what it is that we expect of our regulators.
Last week’s announcement does not deliver on the Big Bang 2.0 promise. Questions over whether the UK’s regulatory perimeter is appropriate for today – or even works – have simply not been addressed. This is something which needs to be considered properly in the coming years to ensure that the UK has a modern, proportionate and flexible regulatory regime.
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