The Future Framework for Regulation of Financial Services Contents

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Introduction and Scope

1.The UK left the EU on 31 January 2020 and entered into a transition period until 31 December 2020, during which the financial services industry remained subject to the same rules as those which had applied during the UK’s membership of the EU.

2.The UK’s financial services regulatory regime is set out in the Financial Services and Markets Act 2000. However, prior to leaving the EU, competence for much of the financial services regulatory regime sat with the EU. Now that the UK has left, the competence for the regulation and standards of financial services once again sits with the UK Government in Westminster.

3.In October 2020, the Treasury published a consultation on Phase II of its Financial Services Future Regulatory Framework Review, setting out proposals for redesigning the regulatory framework within which the financial services regulators operate.

4.We announced a wide-ranging inquiry into the Future of Financial Services in November 2020. The scope of that inquiry is split into two parts. The first part—covered by this report—primarily addresses the issues raised by the consultation that are relevant to the work of our Committee. These include:

• The Treasury’s proposals for moving on-shored EU rules out of statute and into the financial services regulator’s rulebooks;
• The role that the Treasury should play in influencing the policies of the regulators;
• The Treasury’s proposal for activity-specific regulatory principles; and
• How Parliament should scrutinise the financial services sector and the regulatory framework within which it will operate.

5.This report also considers in passing whether the scope of the Treasury’s own consultation was sufficiently broad, and whether other regulators not included in the consultation need to be considered as part of the proposed re-design of the UK’s financial services regulatory landscape.

6.For this report, we took oral evidence from two former members of the Economic and Monetary Affairs Committee of the European Parliament, Baroness Sharon Bowles of Berkhamsted, and Dr Kay Swinburne; former EU Commissioner for Financial Services, Lord Hill of Oareford; representatives of the financial regulators: Vicky Saporta, Executive Director of Prudential Policy Directorate at the Bank of England, and Edwin Schooling Latter, Director of Markets and Wholesale Policy at the FCA; and John Glen MP, Economic Secretary to the Treasury, together with Gwyneth Nurse, Director of Financial Services at HM Treasury. We are grateful to them for their time and input.

7.The second part of our inquiry will focus on a wide range of issues affecting the financial services industry, including what the Government’s financial services priorities should be when it negotiates trade agreements with third countries and how consumer interests should be taken into account when considering potential regulatory changes, and how Government policy and the UK regulators can facilitate the emergence of FinTech and new competition, among others.